But can they stop the crash they’ve created?
The middle-aged crowd in the packed Guosen Securities office jostle around buzzing printers that spit out receipts for their share buys, hoping to cash in on China’s stimulus-fueled stock market boom.
“The central government has to fulfill their promise of 8 percent economic growth,” said Wu Jun, 62, a retired civil servant who invested part of his life savings of 50,000 yuan ($7,300) and lives on a 2,000 yuan-a-month ($290 a month) pension. “They’ll come up with measures to keep the market in good shape.”
But while investors expect the market — up more than 80 percent this year — to keep rising, Chinese leaders are alarmed. They worry that too much of the $1 trillion lending binge by state banks that paid for China’s nascent revival was diverted into stocks and real estate, raising the danger of a boom and bust cycle and higher inflation less than two years after an earlier stock market bubble burst.
No later than March – that is when the crash will come. China increased its money supply about 26% in order to spur economic growth and the plain fact of the matter is that you can’t do that. Its like putting rouge on a corpse.
Please note Mr. Jun’s statement and the underlying set of assumptions it represents. Mr. Jun may think he’s investing with the certainty that the Chinese government – his government – simply will not let him down. He’s actually gambling – just as his government is gambling. Gambling on the unsubstantiated hope that the global economy will turn around – and turn around with sufficient vigor – to allow China to discharge the mountain of debt and fiat money currently making it appear that China is in good shape. I could be wrong on this and China’s gamble might pay off – but I really don’t think I’m wrong. I shudder to think of the coming catastrophe.
A lot of people date the Great Depression to the crash of the US stock market in 1929 – and for the US, that makes a bit of sense. More instructed people realize that the real knock-it-down, we’re-totally-broke event of the Great Depression was the bankruptcy of Creditanstalt in Austria in 1931. We seem – eerily – to be on track for a repeat…with our 2008 meltdown just being the curtain-raiser for the Chinese collapse which will put the finishing touches on our disaster.
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