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futsanglung Post time: 2015-7-6 13:39
Nothing to do with an overpriced RMB, the share market is boom and bust because of inexperianced and ...
THE CURE FOR THIS ECONOMIC EPIDEMIC REQUIRES DIAGNOSING ITS CAUSE AND ORIGIN WITH LOGICAL PRECISION.
Thank you for your simplistic analysis, which amply describes the current dogma of the Economic Hit Men, behind the scenes, watching China cannibalize itself under the pressure of an unforgiving overvalued Yuan.
With Chinese products for the first time in decades overpriced in dollars abroad and in yuans at home, due to the overvalued Yuan exchange rate supported by the PBOC through its purchases of Yuans using China's dollar reserves, Chinese manufacturing has been in full retreat for more than six months now.
Businesses and factories are eager to sell their equity to the public through IPO's and in the process reap a windfall profit before they retire their ownership of the entities they can see will have difficult times ahead making a profit. The contraction of manufacturing also resulted in fewer workers getting raises, and in new workers getting jobs, who are the main buyers of new homes, resulting in a contraction of the housing market. For those who have savings, the banks are paying a mere 2% maximum in interest that the stock market looks to be the only place where they can earn a decent return, and if they are lucky, a fortune instead. All these factors are channeling private firms to offer stocks, and the saving public to buy them, added to which are the shadow banks which buy the margined loans of the private stock buyers from trust companies or stock-matching-endowment companies that act as their agents in buying such loans from the public at high interest rates of 15% or more, that amplify the earning capability of ordinary investors by a factor of 10, even while also magnifying their risk and amount of loss by 1,000%. It is this latter feature that has caused a small hiccup in the stock market to become a double pneumonia for the economy, because it freezes up the stock market for one, and it depletes the liquidity of the banking and bond markets for another, threatening the same scenario as the Home Mortgage Default Crisis of the USA of 2008, except that this time, the mortgage is on the stocks bought on margin, and there is no AIG-like insurer of the loans to save the banks and brokerages from insolvency.
Governmental intervention is necessary to save both the private stock investor and the banks that bought their margin loans, attracted by the high interest rates of 15% of more attached to them. If the banks and brokerages become insolvent, then the real economy that runs on credit more that it runs on raising equity in the stock market may unravel, resulting in layoffs and rising unemployment, which is the outcome nobody wants to see.