Posted on 07/05/2016 7:54:53 PM PDT by TigerLikesRooster
This economist thinks China is headed for a 1929-style depression
in World Economy News 04/07/2016
Andy Xie isn’t known for tepid opinions.
The provocative Xie, who was a top economist at the World Bank and Morgan Stanley, found notoriety a decade ago when he left the Wall Street bank after a controversial internal report went public. Today, he is among the loudest voices warning of an inevitable implosion in China, the world’s second-largest economy.
Xie, now working independently and based in Shanghai, says the coming collapse won’t be like the Asian currency crisis of 1997 or the U.S. financial meltdown of 2008.
In a recent interview with MarketWatch, Xie said China’s trajectory instead resembles the one that led to the Great Depression, when the expansion of credit, loose monetary policy and a widespread belief that asset prices would never fall contributed to rampant speculation that ended with a crippling market crash.
China in 2016 looks much the same, according to Xie, with half of the country’s debt propping up real-estate prices and heavy leverage in the stock market — indicating that conditions are ripe for a correction.
“The government is allowing speculation by providing cheap financing,” Xie told MarketWatch. China “is riding a tiger and is terrified of a crash. So it keeps pumping cash into the economy. It is difficult to see how China can avoid a crisis.”
/snip
There’s no equivalent metric in the U.S., but household debt stood at $14.3 trillion while nonfinancial debt totaled $13 trillion at the end of the first quarter, according to the Federal Reserve. The combined tally of $27.3 trillion is roughly 1.5 times the U.S. GDP.
/snip
(Excerpt) Read more at hellenicshippingnews.com ...
P!
Given China’s huge military and the obviously bellicose and confrontational nature of its leaders, I’m not really sure a vast national depression would be a good thing....
And then there’s the fact that they hold zillions of dollars in T-bills...
The communist party in China has been privately very worried for years that this boom will end in a crash that will sweep them out of power. They cannot be exited about the Brexit and other decentralization movements.
Too bad Saudi Arabia won’t experience this first.
Then there is a question about holding their empire together. This kind of adversity may make some regions break off from the empire.
I work for a company that the Chinese bought in March 2016.
We are already not paying our suppliers.
They just need to make more pig iron in backyard smelters.
China has become the world’s engine of the the global economy. If China has a depression, we will follow.
Then China will revert back to Maoism.
A house of cards...in any language.
stock up....sugar,salt,flour,oil,paper goods, canned goods,seeds, etc..
That really can’t be true because as everyone knows, Chinks are the smartest people in the world. If there is an economic depression in China, it must be due to the same root cause that keeps all these high-SAT scorers out of Harvard: racist white man.
LOL!
I worked for and with many Chinese companies. That is a common theme among all of them.
“Economists” have predicted 327 of the last 7 recessions and 53 of the last 2 depressions.
My question for the Economist - exactly who is going to cause this Bank Run, Depression, or panic in China?
Speculators? Short-sellers? George Soros? Wall Street? Currency traders?
Sorry - the Chinese Gov’t, run by the Communist Party, will allow none of them to crash the system. The Communist Party has its members and control in every single financial organization of any consequence in China. They have complete control, and no one is going to behave badly.
If China goes depression then the rest of the world will also. The economies of the nations are far too intertwined now. It will be like dominoes falling.
their economy is as solid as Cuba’s or Venezuela’s.
China's possible net capital flight is in excess of $800 billion in 2015, liquid reserves could be depleted sometime in 2017, which could spell market uncertainty ahead.
http://seekingalpha.com/article/3985866-shocking-breakdown-chinas-foreign-reserves-bullish-gold
China used nearly 10% of its reserves between November 2015 and February 2016 through direct intervention. This reversed in March and April 2016 with small back-to-back gains, but returned to the December 2011 level in May 2016.
In efforts to boost short-term dollar liquidity China has been selling US assets. Since the peak in 2014 US Treasury data show that China has sold around $250bn of US treasuries — that has likely used to fund direct intervention efforts. Beginning in the same period and ending in March 2016, China reduced its US equity holdings by 38% to $201bn.
http://seekingalpha.com/article/3984019-safe-keeping-tab-chinas-reserves
A surge in China's official figures for imports from Hong Kong has spurred familiar suspicions of illicit currency trading, but it has also raised an intriguing question.
Why have China's regulators allowed it to go on?
After China's General Administration of Customs (GAC) reported trade data for May this month, foreign news organizations were quick to question a 161.7-percent jump in imports from Hong Kong in yuan terms.
The London-based Financial Times said the increase in U.S. dollar terms from a year earlier hit a record 242.6 percent, “suggesting no let-up in the ploy of over-invoicing to move cash out of China.”
But the Chinese government is aware of the problem, but it is difficult to change from a exporter to a consumer driven country; it requires changes in the behavior of the people, but they do not trust the government. This what Wu Xiaoling, vice chairman of China's National People's Congress Financial and Economic Affairs Committee said yesterday:
“helicopter drop,” a tool that broadly refers to a direct transfer of newly printed money to the public while bypassing the usual banking channels, is gaining currency. But she expressed skepticism at the practice.
“Helicopter money does not come across as a good solution,” Wu told the Boao Forum for Asia in Hong Kong on Tuesday. “It seems supportive to lifting consumption,” she said, but “unfair to those who are hard-working and dare to innovate.”
Wu was interpreting “helicopter drop” as a two-pronged apparatus to sub-par economic growth, which involves creating liquidity in the system and even allocation of such liquidity among the public. The concept was first coined by economist Milton Friedman, and later construed by the former U.S. Federal Reserve Chairman Ben Bernanke as a broad-based tax cut.
Wu highlighted that “technology revolution,” especially in the realm of internet and information technology, is needed for rejuvenating the global economy. She also called for structural reforms and deeper marketization of the financial system in the Chinese context.
“There are two things that help a society grow,” said Wu. First, the government should encourage and reward those who innovate and contribute to corporate, or social, developments through tax and fiscal policies. Second, social security should be enhanced for laborers who have lost their jobs.
Wu acknowledged that China's deficient retirement scheme is currently a stumbling block to the country's economic development. “A lot of inefficient companies cannot exit the market because our retirement protection, unemployment benefits system, and social safety net are simply not well-developed,” said Wu, alluding to the overwhelming social costs that are likely to arise from massive layoffs.
She said the Chinese government is considering committing some stakes of state-owned enterprises to social security funds. “That would be conducive to stimulating household consumption, and more so, to getting rid of unproductive firms.”
But Wu emphasized that an efficient economy had to be meritocratic. “Society will lose its vigor if money is evenly distributed among everyone,” she said.
There is a very high probability for big problems. Cash is King!
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