If your stock market can be crashed “by a foreign cabal,” perhaps it’s time to review the very idea of a stock market… How do you say, “Oh she,” in Mandarin? They’re still about 70% higher than they were a year ago. Seems like they were running on a bubble. It’s small comfort when you realize that most of the loss suffered here is being suffered by China’s middle class.
You thought the dot-com crash of the aughts was bad? Their economy just froze, essentially, as middle-class folks looking to gamble their income on the stock market just lost everything – the poor aren’t significantly affected, and the rich just see the loss as a numbers game, but the middle class? They’re screwed. So….. in a sense they really ARE America 2.0?Let’s see – China was flying high, M&A activity and multiples are at insane levels, the DOW, S&P and NASDAQ are all flirting with all time valuations. Companies are hoarding cash because they are afraid to invest in labor or capital – they are basically seeking inorganic revenue growth and margin expansion through acquisitions and the subsequent “synergies” i.e. cost cutting.
Now the Chinese market is tanking, and it’s becoming clear that the big breakthrough with Greece was just smoke and mirrors. Oh, and also an election year (after a two-term President) in the world’s largest economy coming up.
I heard something on the radio a few weeks ago about how a lot of China’s middle class were buying stocks on margin, and with the bubble bursting, they’re basically ruined, as are those who were lending the money. It’s 1929 in China if they can’t get a hold of it.
That huge personal savings rate of theirs is about to go up again.People keep thinking this is bad for the US, but if the Chinese actually were to “collect” the debt (practically speaking, they would sell their Treasury holdings on the market), that would raise the value of the RMB significantly and drop the value of the US Dollar, which hurts the competitiveness of Chinese exports and helps US exports.
In reality what the Chinese would do what they’ve always done – keep printing RMB and pushing their own exports. Maybe crack down on foreign-owned companies a little bit and blame troubles on them.