Blog on the Run: Reloaded

Friday, August 21, 2009 8:45 pm

I, for one, think it may be premature to welcome our new Chinese financial overlords

Filed under: We're so screwed — Lex @ 8:45 pm
Tags: ,

… because they’ve been blowing bubbles over there, too:

To make up for the estimated 20% decline in Chinese exports, and in order to “maintain” the artifical minimum 8% growth of the economy, the Chinese bank has to redirect consumption to internal sources of demand, which can only be achieved by providing virtually free credit. The problem with that is that practically all of mainland China has taken the free cash and invested it in the stock market. The eventual collapse of this fake liquidity transfer will be one for the ages.

Is it just me, or does having the phrases “collapse” and “one for the ages” in the same sentence make you want to hug your gold bars a little more tightly, too?

Relatedly — and you’ll have to bear with me for a minute to see how — both U.S. and Eurozone trade balances appear to be improving only because imports are collapsing, not because exports are rising. Why? The Chinese bubble:

Yet the real wild card is China, where estimates for export decline approach the 20% mark, after a prior year increase of 20%. This is a huge hit to the Chinese economy and is the primary reason for the $1.1 trillion in increased lending, whose primary purpose is to spur replacement demand with traditional export partners reeling.

In essence what is going on, is that the brief pick up in German and US GDPs on the trade balance side, are being facilitated exclusively by the credit bubble in China. By dint of China being able to recognize GDP at production instead of expenditures (like normal Western countries), China is now trying to back fill into the trade void left from the collapse of Western economies by promoting the same kind of irresponsible lending (and borrowing) that led the US economy to its current sorry state. This will eventually end very, very badly.

Indeed, I shall be shocked should anything different happen.

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1 Comment

  1. […] they all pop. Which hasn’t prevented China from going ahead and blowing one up anyway. I noted before that that appears to be the case. But now? They’re flat-out admitting it and daring anyone […]

    Pingback by Q: What’s the matter with bubbles? « Blog on the Run: Reloaded — Monday, August 31, 2009 8:22 pm @ 8:22 pm


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