Well what can I say – I mentioned this on a blog post that China has to undergo a depression as the U.S. did in 1929 through to the Second World War.
In so doing China has to re-jig it’s economy -,from an economy based on exports to a consumer based economy.
The landing would be hard – or soft.
Well – seems that they have not learned anything from the Black Tuesday stock market collapse – back then – JP Morgan was recruited to engage bankers and buy back stocks and support the stock market – it did not work.
This time around the Chinese Government employed the stockbrokers on a put option – put up or shut up – support the major players in the stock market and do not sell until the market reaches a certain point – problem is that – that point is a higher point than 3 weeks ago.
This was a nuclear tactic – alas JP Morgan’s and the bankers attempt in 1929 was considered a nuclear tactic as well.
Chinese government intervention will not work.
The problem is human emotions- fear – no one can control a trend – they can lose money trying as the markets are anything but stable.
Irrational is more to the point.
This together with the Chinese government attempting to support the Yuan at the higher end of the trading band. This is insane and costing the PBoC dearly.
Yes it costs a government a lot of money to stand in the international arena and support a currency at a particular figure.
Anyone with any common sense would just dump Yuan – and convert to USD.
Problem is though – all central banks are holding Yuan and USD around 50:50 in their portfolios – to sell or not to sell – compromise a trading position and good relations with China – or just sell and save your own country.
Well – idiots are in control – so expect all countries to support China – at their peril.
Instead of allowing the market to be the adjudicator – the government is attempting to prove that the currency is ‘strong’ and maintain this impression.
At what cost?
China has just lost its parachute – the landing will be a hard landing – impact of which will be an export of deflation throughout Asia.
Those major trading partners with China – who want to preserve their status will hold Yuan – and f@ck the consequences- thereby taking the wrong option and debasing their own country’s assets.
Welcome to deflation land.
All for the sake of maintaining a good relationship with their major trading partner.
I think it is stupid idea – but that is me.
No one learns from history- everybody in global governments are repeating the same mistakes – yes the players are different but the outcome will be the same.
Crash and burn.
China has one thing in it’s favor – different to the U.S. in 1929 – their currency – if the powers that run the Government de-pegged from the USD and allow the Yuan to float – it will drop like a lead sinker.
Brilliant in its simplicity – as it will deflate every asset in China – it will allow the depression to end quickly and the Government can implement the necessary strategies to get the country on the correct course.
Yes brilliant in the extreme because this would export deflation throughout the world – overnight – and force all countries to admit that this is a global recession and this will be a global depression.
Then again my opinion – why prolong the suffering?
The USD is going to continue its upward trend for the next two years through the mere fact that those with money need security- where better to park it than in USD – US Bonds – US Stock market.
Yes – regret for all the doomsayers on USD – that this one currency has dark matter attached to it – a global reserve currency status – globally accepted – guaranteed payment – insurance backed by the whole of the USA.
No other currency can do that – only the global reserve currency.
Commodities have set the trend – oil is rooted – look at all those countries who export commodities and realize that their income is no more – their individual cost of government and internal commitments are far greater than the income being generated.
These countries are now borrowing funds to survive – economists and politicians are that stupid they cannot understand reality – they are eternal optimists – blinded by domestic economy – ignorant of the global economy – unable to comprehend history.
This time there is no difference….
Sent from my iPad