Mon, 9 November 2015
Globalization has shrunk the world In the past, economic turmoil in far off lands would take months or even years to reach the US. Our financial interdependence is absolutely amazing. You may think what goes on in Greece or China doesn’t have, or shouldn’t have much impact on the U.S. or U.S. markets. But it has the potential to cause a lot of mischief.
Today, the ripple effect of poor economic news comes to us via the internet and 24 hour news. The 800 pound economic gorilla in the mix is China. Main Street China is directly connected to Main USA.
China is much more significant and far more dangerous in terms of the warning signs.
China’s debt has quadrupled in eight years. And we have two bubbles that exist as a result of that tremendous increasing amount of debt. One is actually in the Chinese stock market. And of course, that’s been in the news, that the Chinese stock markets have taken a real tumble. Stocks have fallen over 30% and have done that in less than a month. There’s been a little bit of rebound. China has actually intervened in the stock markets to try and prop them up.
This is a serious mistake by the way, in terms of policy, for a couple of reasons. One is they have no real history of knowing how to manage this kind of situation. Two, historically the Chinese market has always been wild and woolly. Until China opened up, the only “China” stock market was the Hong Kong Stock Exchange. By our standards was wild and woolly, essentially unregulated. Today the Hong Kong Stock Market Exchange is very tame and conservative, for the most part; now, it’s the Mainland China stock markets that look wild and woolly.
For the first time we have something that modern China has never confronted before and [China] is trying to solve it with government intervention of a type that it has never attempted before. That’s not a good formula.