Monday, May 23, 2011

Seven Days in May and the Coming Crash of the Chinese Economy

The price increases I list below may at first appear minor, until you realize they are increases over just the last week. Yup, Chinese price inflation is strong enough to make an impact over just seven days in May.

The price of pork was up 1.2 per cent last week,  chicken prices gained 0.1 per cent and egg prices were up 0.8 per cent, the Chinese Ministry of Commerce said.

Of course, it is not fair to take one week's increases and annualized them, and beef prices did drop 0.1 percent. But, it is these kinds of overall increases that are causing China's central bank, the People Bank of China, to slow Chinese  money supply printing. The PBOC has to. The Chinese are getting restless. There are more and more reports coming out of China of protests because of rising food and fuel prices.

This why China has stopped buying Treasury securities (They have not bought any on net in five months). The PBOC printed money when it bought Treasury securities, and thus fueled the price inflation.  Now that it has slowed the money printing, you will see many more stock market sessions like the one that just occurred overnight where a  drop of 2.9%  in the Chinese stock market occurred.

China is headed for a severe downturn in the business cycle. A classic Austrian business cycle appears to be shaping up, where the slowed money printing will wipe out the manipulated pseudo-structure that was part of the previous boom period.


  1. I think that it is pretty safe to say that we all knew this one was coming (India isn't too far behind). The dumbest thing that they could have done was to peg to the dollar during out downturn, they had to have know that Bernanke would be on a printing spree. However, considering that they are a net creditor, are highly capitalized, and are the largest world purchaser/producer of gold, I just don't see this being nearing as bad for them as it is going to be for us. Let's just see if they try to stimulate their way out of it like we did...

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