Zoulin writes:
The causes of this economic crisis are, first of all, a burst of real estate bubble and local government debts crisis.Looks like a solid forecast and warning to me.
The second is external, namely that hot money and capital inflow over the past few years fuelled the bubble within China (then he blames “foreigners who short China”). As capital might flow the other way when the economy slows, it will cause troubles for Chinese government in dealing with it.
The third is political: as this year is pretty much the final year for the current government’s term, its job in the remaining months would be to hope that everything is stable. But let’s say the economy get pass the leadership transition without any troubles, the next leadership will face two choices: either to sustain the bubble for now and create a bigger problem in 2015 /16, or let the bubble got bust. Of which, he endorses the second choice.
Finally, business cycle short-wave and long-wave troughs could meet very soon (whatever that means). He believes that a crisis should have occurred in 2008/09, yet the massive stimulus delayed that, and it is about time that it can no longer be delayed.
In the coming crisis, he believes some local governments, small and medium sized business and some banks will go bankrupt.
"There is no means of avoiding the final collapse of a boom brought about by credit expansion. The alternative is only whether the crisis should come sooner, as a result of a voluntary abandonment of further credit expansion, or later, as a final and total catastrophe of the currency system involved."
ReplyDeleteLudwig von Mises
I cant believe I'm already getting blamed for something that hasn't happened yet.
ReplyDeleteYay foreigners!!!
The Shanghai stock market suggests that many investors agree
ReplyDeleteThe Chinese have huge currency reserves which could be used to blunt any major downturn, and, politically, the transition in China strongly favors a major effort to avoid any sort of recession. Still, the days of double digit growth and celebrations of the Chinese economic miracle are definitely over. And it is very possible that the next Europe is China.
ReplyDeleteWhat good are currency reserves if the currency belongs to insolvent countries. China has over a trillion dollars worth of US Gov't bonds. Good luck collecting on that if our economy goes south.
ReplyDelete