An aggressive and arrogant China is entering 2010 with a bit of uncertainty. Although there was no let-up in its exports in 2009, its internal financial position looks uncertain. China watchers are expecting a bubble that will eventually burst.
In 2009 banks in China lent internally about US$1.4 trillion to businesses, including the real estate industry, with dubious performance records. James Chanos, a successful U.S. stock market dealer, has predicted that China’s financial collapse could be far worse than Dubai’s.
China soothsayers wish to prove Chanos wrong – and they may be right. With US$2.2 trillion in foreign reserves, it would seem China could weather any storm. But the problem is that its cash reserves are uncashable. The United States and Europe are not just waiting to repatriate the money to China. So China could be left to its own devices if it faces a financial storm where markets tumble and poor people with money tied to investments see their savings vanish.
Easy credit, too much money in the economy, excessive foreign direct investment, a completely undervalued currency and rising real estate prices have definitely created a bubble. This bubble could burst with any minor international event. That is the price China would have to pay for designing policies that serve Western consumer markets. (more…)
Today afternoon once again read small book from the late 1800s written by Dickson G. Watts and reprinted by Traders Press. Entitled “Speculation as a Fine Art and Thoughts on Life”, the book begins with a description of the “qualities essential to the equipment of a speculator” (p. 8). Here is the author’s perspective, written well over a century ago:
The ECB has talked more hawkish than the Federal Reserve but basically they are all money printers. Some are better at it, and faster and have more efficient machines the others are slower but basically central banks, they run a print and print.