This is a political post.
For the past week, because I listen to public radio, I've been kept abreast of the goings on in the Euro-zone and the efforts to keep Greece from forgetting to put the check in the mail. Actually, Greece has already said the check ain't in the mail and it wasn't planning on putting one there anytime soon, but that's really a horrible metaphor. And while all this sideshow has been going on, the concern for the Euro and surrounding circus of debtors, the real issue is happening on the other side of the globe and promises to change the game.
Let me put it to you in these terms: It is probable that Greece failing it's loans and subsequently leaving the Euro-zone would actually make the Euro-zone stronger, as it would no longer have the drag of a country stuck in the economic doldrums holding it back. Greece going bust could be a good thing. Conversely, no one in their right mind thinks China's economy crashing could be a good thing.
The Chinese stock market, one of the largest in the world, has lost between 25 and 30% of it's value in the last month, so much that a almost 700 firms have suspended trading of their own stocks to preserve their value. Further contributing to the problems, earlier in the month a number of positions in the Chinese market were taken with the assumption that Greece and the Euro-zone would find common ground. And we know how that's turning out. The term market correction is increasingly starting to sound silly.
Now, supposedly the Chinese market is cumulatively still up for the year, and it supposedly makes up less than 20% of the GDP of the country. Ours economy by comparison is about 100% Wall Street invested, which is strange but oh thank god for removal of Glass-Steagall, which on an interesting side note should be back in another 15 years or so. Theoretically a bursting bubble shouldn't have the same effect it had here in 2007. But, in this case, the Chinese markets are really an extension of the Chinese government and its fiscal policy, essentially a working model of the Federal Reserve conspiracy theory people who hate the government swear by, so this does not bode well short term. The efforts so far to stem the tide such as tying the hands of major stockholders and giving everyone free lines of credit have been either woefully inadequate or an attempt to fight fire with gasoline. We won't even speak on the long term.
So what does that mean to us, and by us I mean the people of the United States?
Well, now here's where it get's tricky. China is a huge trading partner with America, you know, iPhones and stuff, and if there economy were to collapse, well, let's just say the you might want to dust off your old Nokia just in case. A collapse would also drive down demand for oil, which might mean cheap gas again for us here. I can't even imagine the political fallout. Or maybe the Chinese government will prop the whole thing back up, because who wouldn't want a replica of Moscow and the Kremlin just a short drive from the re-creation of Paris that is relatively empty. But that blatant a shoring up of their market might have an inverse effect as as well. Nobody really knows.
But I do know this, and I'm going to put it gently, the market HATES guessing about the future. Which market? ALL of them.
I potential problems lie in China. So why are we so focused on Europe?
For the past week, because I listen to public radio, I've been kept abreast of the goings on in the Euro-zone and the efforts to keep Greece from forgetting to put the check in the mail. Actually, Greece has already said the check ain't in the mail and it wasn't planning on putting one there anytime soon, but that's really a horrible metaphor. And while all this sideshow has been going on, the concern for the Euro and surrounding circus of debtors, the real issue is happening on the other side of the globe and promises to change the game.
Let me put it to you in these terms: It is probable that Greece failing it's loans and subsequently leaving the Euro-zone would actually make the Euro-zone stronger, as it would no longer have the drag of a country stuck in the economic doldrums holding it back. Greece going bust could be a good thing. Conversely, no one in their right mind thinks China's economy crashing could be a good thing.
The Chinese stock market, one of the largest in the world, has lost between 25 and 30% of it's value in the last month, so much that a almost 700 firms have suspended trading of their own stocks to preserve their value. Further contributing to the problems, earlier in the month a number of positions in the Chinese market were taken with the assumption that Greece and the Euro-zone would find common ground. And we know how that's turning out. The term market correction is increasingly starting to sound silly.
Now, supposedly the Chinese market is cumulatively still up for the year, and it supposedly makes up less than 20% of the GDP of the country. Ours economy by comparison is about 100% Wall Street invested, which is strange but oh thank god for removal of Glass-Steagall, which on an interesting side note should be back in another 15 years or so. Theoretically a bursting bubble shouldn't have the same effect it had here in 2007. But, in this case, the Chinese markets are really an extension of the Chinese government and its fiscal policy, essentially a working model of the Federal Reserve conspiracy theory people who hate the government swear by, so this does not bode well short term. The efforts so far to stem the tide such as tying the hands of major stockholders and giving everyone free lines of credit have been either woefully inadequate or an attempt to fight fire with gasoline. We won't even speak on the long term.
So what does that mean to us, and by us I mean the people of the United States?
Well, now here's where it get's tricky. China is a huge trading partner with America, you know, iPhones and stuff, and if there economy were to collapse, well, let's just say the you might want to dust off your old Nokia just in case. A collapse would also drive down demand for oil, which might mean cheap gas again for us here. I can't even imagine the political fallout. Or maybe the Chinese government will prop the whole thing back up, because who wouldn't want a replica of Moscow and the Kremlin just a short drive from the re-creation of Paris that is relatively empty. But that blatant a shoring up of their market might have an inverse effect as as well. Nobody really knows.
But I do know this, and I'm going to put it gently, the market HATES guessing about the future. Which market? ALL of them.
I potential problems lie in China. So why are we so focused on Europe?
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