RIPPLE EFFECTS LOOM …
|| By FITSNEWS || Earlier this month we ran an item about the Chinese stock market crashing.
Well it happened again this week. China’s Shanghai Composite index plunged a whopping 8.5 percent on Monday, while the country’s smaller, more tech-heavy Shenzhen Composite index fell by 7 percent.
That’s the biggest daily percentage decline since 2007 – and comes amid a broader slowdown.
From our earlier post …
… why should you care if China’s economy enters a downturn?
Easy: China has been driving global economic growth of late, meaning a slowdown in its economy would have significant ripple effects on our own.
After growing by more than 10 percent a year during the three decades leading up to 2010, China’s growth stood at 7.4 percent last year and projections for 2015 (6.8 percent) and 2016 (6.3 percent) were slipping even before the country’s crisis hit.
In fact we expanded on that conundrum in this post discussing the exposure of U.S. automakers to the Chinese slowdown …
… the Chinese car market – which GM and other U.S. carmakers are relying on to sustain their growth projections – is tanking.
“China’s import car dealers saw inventory days reach a mind-blowing 143 days in May. For context, the normal average has been 24-36 days,” the website Zero Hedge reported this week.
That follow’s last Friday’s report in The Wall Street Journal indicating June passenger car sales fell 3.4 percent – only the third monthly decline in three years (and the other two were the result of a weeklong holiday and a political crisis).
Translation? Prepare for another round of Detroit bailouts.
Except wait … aren’t we borrowing our money from China?
Oooooo … hmmmm.
As China’s struggles continue, the Greek financial crisis is continuing to place a strain on the European economy. And of course things are far from hunky dory here in America.
Oh, and all this global uncertainty comes as the U.S. Federal Reserve – our government’s secretive central bank – is preparing to raise the cost of borrowing.
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You can have it. I’m on a diet ;D
… why should you care if China’s economy enters a downturn?
It’s not just the economy stupid. This can cause political instability if the market crash spreads to the real economy. It’s not clear that it will since the Chinese stock market isn’t a real market.
The Chinese may have to crack down on decent or whip up nationalism, maybe by an aggressive foreign policy in the South China Sea.
The other possibility is that we will have to stop trading with them. Forcing us to bring all those jobs back to the US. I say that would result in a few rough years but would be good for the country in the long run.
China has had a taste of democracy. They cannot go back. Deny them capital and their country will erupt in rebellion.
“A less likely result would be real democratic reforms.”
So if democracy is so great why don’t we have that here instead of a Republic?
Hey guys, China doesn’t regulate as much as we do, we should definitely emulate them!
It was money printing that sank their ship fool. It had little to do with regulations, although criminalizing short selling isn’t helping them either.
They regulate more. They stop all sales for the day if that stock falls 10%. Those who own 5% or more of a company can’t sell. Short sellers are prosecuted. Some banks and brokerages are being forced to purchase stocks.
It is what you get when you have capitalism without liberal democracy. hype and bust cycles that even the Chinese government can’t dampen anymore. What a wonderful display of Adam Smith’s mythological ‘invisible hand’. Short term thinking, cities without inhabitants and a small oligarchy amassing all the money. Watch and learn.
They have the best of both worlds, an incompetent and oppressive government and a market loaded with exploitation of the poor, toxic rivers of death, and cars that make soda cans look safe to ride in.
Capitalism can be tamed but only by thoughtful state intervention. That’s why the European model worked quite well until the Berlin Wall came down and an artifial European market without political governance and direct consequences for the people ( they don’t get their pension or Medicare from Euroe but their nation states while the market barriers between nation states don’t eist anymore).
China evolved it’s capitalism out of what Marx referred to as an ‘Asian Mode of production’ and despite changing part of the economic basis never rid itself from the despotic oligarchy.
We are discovering that unregulated turbo- capitalism will not be able to provide our Western societies the economic platform for an equitable and just society – and no I dontwant a soviet or Cuban system
More serious than the decline of the “market” based on sometimes market principles other times speculation divorced of value, is the Chinese government’s attempt to override market value by proping up a “market” such that it has no relation to company value. Markets are supposed to allocate resources to where they produce the most valuable return. China is destroying that market fucntion. It happens to a small perhaps unavoidable degree in the US when stock market participants speculate on government policy, but the Chinese government’s direct involvement in buying and restriction transactions is doing tremendous harm. They should let the market go down in an orderly way.
Financial engineering has been de-coupled from value in our economic system. That’s the unfortunate legacy of Keynesian theory. I agree with you on the fact that China is strongly interfering in the market – the ‘free market’ is an illusion and exists only in very small niches.
The run of capitalism (here is that ugly word again but it is what it is) towards a zero margin cost economy is well document. The result is engineering out labor costs where possible. Automation will result in a loss of jobs over the next few decades which will create huge repercussions in our society. Those are very clear trends, where again market intervention can dampen those effects. But left to its own capitalism will not be a viable platform for our future societies. Nor will soviet or chinese style planning economies.
“But left to its own capitalism will not be a viable platform for our future societies.”
Wrong. Central planning fails over and over again. (see China and it’s ghost cities, or a million other examples both here and around the world)
There is no system of control that yields a moral, efficient economy. Socialism long term never works…it always fails fiscally- aside from the immorality of politicians profiting off the work of other and restricting by force how people buy/sell/trade.
In Rome’s case, it took a solid 400 years for it’s welfare state socialism to collapse/exhaust Rome and it’s wealth, but it only took the Soviet Union 80 years….and most of the socialist democracies in Europe are in heavy debt.
Well good to see that the Chinese ghost cities now exist. I have stated that central planning ie a socialistic or oligarchical system is not a solution. Don’t shoot your own straw man! I would argue that capitalism also does not work in the long run. Recent work by Thomas Piketty makes case that only the two world wars in the 20th century led to an ‘anomaly’ where wages and capital grew together, whereas now capital outpaces labor significant since the 80ies. The push towards increases automation will result in labor costs being ‘ engineered out’ of product costs and the consumer economy (70% GDP in the US) will no longer work. New ideas need to be explored, maybe hybrid ones – but believing in Adam Smith’s ‘invisible hand’ won’t do it.
Another remark : the decline of the Roman Empire was a highly complex case as gibbons clearly showed. Rome was an agrarian society and in many period run by an oligarchy. ‘welfare socialism’ is historically and economically not the right term.
Now from a military point of view Rome’s decline is very interesting as it proves that ‘nation building’ is a bitch.
Except it’s not capitalism, nor do you even ask how one builds cities without inhabitants. In short, you’re an economic idiot.
The economic system in China is state monopolistic capitalism as well established.
The fact that the building boom led to the construction of cities without inhabitants is well documented. (ie 60 minutes).
It is capitalism – state-owned entities are a hallmark of monopolistic capitalism – it sure isn’t the “free market”. Neither here nor in China. Of course you have no agenda…
Capitalism and “monopolistic capitalism”, which is a word that Marx used/made up- ARE NOT REMOTELY SIMILAR.
In fact, Marx’s corruption of the word “capitalism” is quite clear.
Here’s the definition of capitalism:
“an economic and political system in which a country’s trade and industry are controlled by private owners for profit, rather than by the state.”
Does the above reference to the Communist Parties ownership of a central bank financing ghost towns match any part of the definition of the word “capitalism”?
No, of course not. That’s why it’s disingenuous of you to call it “capitalism” without the later reference to Marx’s later corruption of the word in his full use.
It’s like trying to claim a “fly” is really a “dragonfly”.
At least you know it’s not “free market”. I never claimed not to have an agenda by the way, I just don’t hide my endorsement of both capitalism and the free market.
Unlike someone who tries to subvert the word “capitalism” and distort the economic happenings in China using Marxist words/definitions and conflating them with their base/root meanings.
In western societies the state often interferes with the market and thereby creates and protects large monopolies (in the past Standard Oil and AT&T now Google, MicroSoft) from competition by smaller firms. A hybrid private-public partnership emerges in which the government often provides a social and legal framework within which giant corporations can operate most effectively. This is in its extreme case what is happening in Putin’s Rusia today and in its more moderate form in the US and even more moderated in European societes, where more push back against oligarchies occurs due to a stronger progressive tradition. That’s monopolistic capitalism in constrained “un-free” markets.
“That’s monopolistic capitalism in constrained “un-free” markets.”
As long as you use the words “monopolistic capitalism” I will leave you alone. If you use the word “capitalism” I will continue to point our you are incorrect.
As far as the rest of your statement, we already have a definition for “societies the state often interferes with the market and thereby creates and protects large monopolies”- it’s called “fascism” or “crony capitalism” in more modern day terms.
Type ‘ Chinese cities without inhabitants’ into google and educate yourself – this is the classic example of how unrestrained capitalism runs amok.
You’re an idiot.
You’re such an incredible fucking idiot, I don’t desire to waste time.
Clearly your communist bullshit is targeted to blame “capitalism” and I have a hard time believing you’re truly that stupid. But, because some here are:
” ghost towns are produced by a unique Chinese financing vehicle known as the local government financing vehicle (LGFV).
LGFV is a company created by the local government, which is in charge
of collecting local farmland, moving the farmers off the land, then
rezoning it for urban use. This land is bundled up into a bond, which is
sold to China’s most powerful bank, China Development Bank (CDB).
CDB is wholly state-owned by the Chinese Communist Party and its chairman is Chen Yuan.”
Does that sound like “capitalism” to you, you dumb fuck?
Get your stupid ass out of here. You’re a fucking hack.
yes it is – state monopolistic capitalism at its best – China’s equivalent of a large monopoly which distorts so-called ‘free’ markets just like health care and internet communication here is the US. The basis is capitalism, the dressing of the salad is slightly different – so angry seeing your furs float down the Yantze?
“yes it is – state monopolistic capitalism at its best”
You win. You’ve pounded me with your stupidity and I can’t fight it anymore.
Don’t call it “capitalism” solely next time moron. Your play with words isn’t fooling those with half a brain.
You’re a hack with an agenda.
The slide continues. It’s 10:15 am tomorrow in Shanghai, 12 hours ahead of us, and the main Shanghai Stock Exchange is down 3.16% after being down 5%.
China are the master trolls of the global economy. Anybody who buys Chinese currency that are not from China owes them more when they ‘crash.’!!!
Oh for the love of God. So here’s what will happen – money will flow from emerging markets of China, Brazil and India and Russia (well what’s left in Russia) to the US and European bond markets. Great news for Greece by the way who can refinance their debt on lower interest rate Euro-bonds. It will also keep US rates lower as the demand for US bonds increases – meaning we’ll see mortgage rates in the 4s through the year. US stocks will also rebound as that money flows into Wall Street. But if you’re inclined to see the end of the world – I suggest you buy gold.