Posted on 01/11/2010 2:35:11 AM PST by TigerLikesRooster
Andy Xie: An Overwhelming "Get Rich Quick" Mentality Dooms China To Endless Bubbles
Joe Weisenthal | Jan. 11, 2010, 5:10 AM
/snip
The overwhelming desire for getting rich quick dominates every nook, fissure and strata of Chinese society. Such desires cannot be fulfilled; the terrible logic of economics is that money must circulate. Creating bubbles can temporarily blind people to this logic, as overvalued assets substitute for money to fill psychological needs. This is why, whenever conditions permit, China seems to have asset bubbles.
Bubbles exaggerate reality but are not formed out of thin air. Cheap money and strong growth are the usual ingredients for bubble-making. Both existed over the past five years. But now, China depends entirely on cheap money to support overvalued assets. Cheap money came from past exports and was warehoused in banks. Cash also came from hot money inflows due to the yuan's peg to the dollar and weak Fed dollar policy.
Neither money source is sustainable. The dollar has bottomed. The Fed will begin raising interest rates in 2010. The combination of China's strong loan and weak export growth is reducing bank liquidity, but inflation soon may force China to tighten anyway. The cheap money may not last long.
China's exports are recovering from a low base – a trend that may last through 2010. But one should not confuse low base recovery with a revival of past trends.
The high export growth era is over for three reasons. China's market share in global trade is twice as big as its GDP share. The odds are low that China could continue to expand its market share. Second, the tide won't rise as fast as before. The Greenspan era saw a credit bubble supercharge western consumption, but the bubble has burst.
(Excerpt) Read more at businessinsider.com ...
Ping!
Heh. Lot of that going around.
Those crazy Chinese. We never fall for Ponzi schemes and bubbles here in the U.S.
a western employment crisis will lead to protectionism targeting China...
I think the U.S. recently raised a tax in tires from China, and the more or less continual warnings of a trade war with China seem to be kicking up a little more than usual lately (example here http://www.marketwatch.com/story/china-still-offers-opportunities-2010-01-04).
Andy Xie assumes the chinese economy functions independently. I believe that the economy and Gov’ts destiny are intertwined. Cycles go up and down, but the economy will only go into crisis if there are divisions in the Party.
That is usually how economists or financial analysts tend to view economy. Of course not, especially in China.
It’s a start.
AMERICA FIRST.
......The overwhelming desire for getting rich quick dominates every nook, fissure and strata of Chinese society.....
No where does he mention the primary driving force behind this statement. That driving force is economic freedom. It is relative of course but compared to a half century of Maoist communism, it is great. To write of bubbles is merely to be a rider on the current bandwagon.
The real story is about the will to advance and have a better life for self and family. That story is going to be the one to be revisited time after time for a hundred years.
The sad thing is the Chinese slave labor (err proud Chinese workers) will always be there to make things to get china out of any bubble they may find themselves in. Here we are in worse shape as our workers overprice themselves out of the global markets and we are now a consumer market.
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