Bombshell •China Faces `Unprecedented Difficulties' in Attracting Foreign Investment

I have dealt with these people for more than a decade and have found their observations generally accurate and helpful, they value their credibility.

You on the other hand, within minutes, have set off warning alarm bells. After a lifetime in business I tend to have a good nose for bullshit, and strongly suspect that I've found it with you!

Regards

Johno

 

CHINA'S GREAT DEPRESSION

The cause of the Depression, as Rothbard explains, was a credit expansion that fuelled the boom. According to Rothbard, “[o]ver the entire period of the boom, we find that the money supply increased by $28.0 billion, a 61.8 percent increase over the eight year period [of 1921-1929]. This was an average annual increase of 7.7 percent, a very sizable degree of inflation (p.93)…The entire monetary expansion took place in money substitutes, which are products of credit creation… The prime factor in generating the inflation of the 1920s was the increase in total bank reserves” (p.102). In other words, during the 1920s, the United States experienced an inflationary credit boom. This was most evident in the booming stock and the booming real estate markets. Furthermore, there was a “spectacular boom in foreign bonds… It was a direct reflection of American credit expansion, and particularly of the low interest rates generated by that expansion” (p.130). To stem the boom, the Fed attempted in vain to use moral suasion on the markets and restrain credit expansion only for “legitimate business. Importantly, consumer “prices generally remained stable and even fell slightly over the period” (p. 86). No doubt the stable consumer prices contributed to the overall sense of economic stability, and the majority of professional economists then did not realize that the economy was not fundamentally sound. To them the bust came as a surprise.



Today, in a similar fashion, the seeds of Depression are sown in China. Economists hail the growth of China, many not realizing that China is undergoing an inflationary credit boom that dwarfs that American one during the roaring ‘20s. According to official government statistics, 2002 Chinese GDP growth was 8%, and 2003 growth was 8.5%, and some analysts believe these numbers to be conservative. According to the People’s Bank of China own web site (http://www.pbc.gov.cn/english/baogaoyutongjishuju/), “Money & Quasi Money Supply” for 2001/01 was 11.89 trillion, for 2002/01 was 15.96 trillion, for 2003/01 was 19.05 trillion, and for 2004/01 was 22.51 trillion yuan. In other words, money supply for 2001, 2002, and 2003 grew respectively 34.2%, 19.3%, and 18.1%. Thus, during the last three years, money supply in China grew approximately three times faster than money supply in the U.S. during the 1920s.

How severe this depression will be, will critically depend on two developments. First, how much longer the Chinese government will pursue the inflationary policy, and second how doggedly it will fight the bust. The longer it expands and the more its fights the bust, the more likely it is that the Chinese Depression will turn into a Great Depression.

2004

http://www.financialsense.com/editorials/petrov/2004/0902.html

Let's see if he is right.

 

It's an even more intimate relationship than that.

I see China has totally backtracked on the "we want another global reserve currency than just the USD" talk of just the last month.

I'll post the link when I find it.

China is coming to quick realization that they are far more dependent on U.S. consumers than they wished - they tried to deny this for some time now, but that just isn't working out so well.

Watch for China bending over backwards to kiss America's ass in any way, shape or form demanded.

I don't say this to be incendiary, but because sometimes plain words are the best way to convey plain facts.

 

On another note, most other countries are cutting back as well. But more importantly, to have a solid economic foundation, domestic consumption must account for a large portion of the goods produced. I'm not so sure that they will be able to rely on the increasing number of people going back to subsistance farming/ unemployed to prop up domestic demand.

Regards

Johno

 

The Chineze won't consume untill there is some sort of widespread social security I would think.

Why buy shit when you could need the money to go to the hospital.

 

you seriously believe China is more dependent on the American consumer than America is dependent on financing its continued binge by the rest of the world? Are you really so ignorant?

 

Exactly.

This is China's great dilemna. Even with 4x the number of consumers as the U.S., they can't seem to get their own consumers to pick up the lost consumers on foreign shores,

 

Yes to the first part, no to the second.

American has China under its large toe right now.

China can demand to be paid back and can choose to refuse to keep buying U.S. debt, but it would be at its own peril.

Serious peril.

 

After the collapse, commie gov'ts need a scapegoat, which is usually a foreign country. Get's people worked up and expands military forces, by, say, 200 million? :eek:

 

good night guys, have fun, thanks for the discussion.