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This post was edited by abramicus at 2015-7-6 01:45|
Revolutionar Post time: 2015-7-5 14:24
true to form, .the government has blamed foreign selling.
There is nothing in the news saying China is blaming foreigners for the stock market rout. It would be interesting if there is. So far, news reports suggest they were looking into market manipulation. But the real cause is more like that of a tsunami, long in coming, where the rising middle and upper class find no investment showing any price movement, except the stock market, and have piled into it, hoping for a quick return. Even that was too slow, so they bought on margin, thus magnifying the capital inflow into the stock market by several multiples.
Good if that were creating real wealth. Bad if that were only to create the impression of creating a lot of wealth but does not create any net wealth for the country. Allowing the public to invest in a giant Ponzi Scheme is not the fault of the stock regulatory commission, because the companies themselves are sound companies. The cause of the wave of liquidity hitting the stock market is the PBOC and its higher up backers way to the top, who insist on following the IMF demand to overvalue the Yuan to the point that the manufacturing sector is in full retreat, and the circulation of money inside China has hit a bottleneck, and is causing a traffic jam of sorts, pouring out into the stock market instead of into imports of raw materials that would otherwise have been used to earn more export dollars and euros, but which are now swelling up the stock market. But the poor market cannot perform if the companies it underwrites cannot make a profit manufacturing what they have always manufactured, due to the overpricing of their products in dollars abroad and in yuans at home.
Therefore, the stock market bubble is the result of the OVERVALUATION OF THE YUAN, and those responsible for this must step down.
By stepping down, the government reassures the public that it is accountable, and will regain their trust, which is more important than any amount of money it could pump into the already overstretched and now ruptured stock bubble. The hole in the stock bubble is the hole of distrust . . . that the earnings of these otherwise fine companies could merit the prices they are selling for . . . and this is not due to panic, but a ripening realization by the intelligent public that the stock market cannot give them all, what it cannot produce and sell in the real market.
The next step is to do QUANTITATIVE EASING, and throws not only 19 billion dollars worth of money into the stock market, but whatever it takes to keep the prices from falling further, rather than to achieve any higher value of 4,000 that is widely promoted in the press. There should be no limit as to how much is poured into the market, but only to hold the line, not to help anyone recoup his losses, which will come in due time when the market stabilizes as buyers will later on come in. In this, China should not further "liberalize" the capital accounts to allow foreigners to buy up these Chinese stocks on the cheap and claim having "made money" with a capital account "surplus" because that would be simply selling the country to foreigners, and would make this wound on the Chinese economy twice as bad and last for decades until the foreign capital can be bought out by Chinese capital, which means, at much higher prices than today's. The PBOC has the money that it can print instantly to immediately buy up all the sell orders at current prices, it needs no one else, and has no obligation to buy at any higher prices than the closing price of Friday, July 3, 2015.
The next step is to revive the companies that are near death due to the overvaluation of the Yuan by devaluing the Yuan to 6.50 Yuan/Dollar later in the week, after the market has stabilized due to China's QE. Forget about the IMF carrot of being able to become a 6% part of its 4% share of the reserve currencies of the world, totaling a maximum of 0.24% of the worldwide currency reserves, which is a joke. Even without the IMF, China's Renminbi already has 2.7% share of the reserve currencies of the world, ten times larger than the 0.24% maximum achievable under the IMF SDR program.
Accountability by resignation, responsibility by guaranteeing the prices of the stock market will not fall further because of unlimited QE by the PBOC, and rectification of the cause by letting the Yuan drift down to 6.50 Yuan/Dollar by simply not letting the PBOC keep buying Yuans with its dollar reserves, money that it could have poured into the stock market instead, and calling the bluff of the IMF-SDR reserve currency promise, is the path out of this mess. None other.