The End of the Communist Dynasty

[cobben]

Re: The End of the Communist Dynasty

bump.

Is Tindale's capital flight a major factor? no idea.

The Chinese faux-capitalist system of financial resource allocation by decree, overlaid on the largely discredited soviet style system of resource allocation by decree, seems to be creaking and groaning under the fake(?) strains.

(Tindale has by the way not surfaced anywhere that I have looked since his series of articles last year.)

Reuters reports China’s central bank seeks to allay fears of credit crunch, but will it work? UPDATED

This probably will not help either the domestic crunch in China, nor the wave of liquidation that has swept world markets in recent days. The Chinese authorities said nothing about propping the shadow financial system where the problems are worst. If it does not print money to prop up overleveraged funds overburdened with worthless, non income producing assets, then these funds will continue to try to raise cash by selling whatever liquid foreign assets they hold, such as US Treasuries and equities, on the world markets.


UPDATE – The flip side of this is China’s massive state sovereign wealth funds. How much pain is the government willing to bear as it sees these funds lose value? At some point it seems likely that it would want to print money just to provide some stability in that regard. That would take the selling pressure from the private wealth funds down a notch, if not alleviate it altogether.


Until the PBoC relents and decides to print, the risk of contagion and a growing feedback loop seems as large as ever. Stay tuned.

"If the foreign exchange reserve is depleted by capital flight, the central bank will need to resume large scale money creation"


Tindale sees the possibility of hyperinflation in China:

" . . .
China can be seen through the Minsky credit stages. Faced with 2008 the Chinese central banks moved from speculative phase to ponzi phase'. As Minsky model predicted the Chinese have flushed their internal market with credit, which in order to get traction to offset the 2008 GFC was invested in building. Asset appreciation that is induced by monetary stimulus through the real estate transmission mechanism of the credit channel provides only short-lived prosperity (it doesnt take long to build stuff but the stuff that gets built rarely attracts rents and therefore is not a real increase in wealth ). The RE credit channel only works for extended periods if the percentage of existing equity is relatively high (like 2000 in the west) when you begin with strong equity , if its applied to a relatively much smaller market (China ) there is no home equity ATM withdrawal because RE is being used as a store of wealth not like in the west where consumers withdraw equity through debt then consume.

If the world then chokes the Chinese export revenue through austerity, then the classic conditions exist where the Chinese central bank either destroys the yuan or creates a Chinese depression. Then the commodity countries like Canada and Australia will get sucked under. The communist party is in deep trouble, again centrally planned economies never succeed, its ironic that one of Marx's greatest warnings was about the ursurping of industrial capitalist by financial capitalists, the communists should have read Marx more thoroughly.



Remember nearly all hyperinflations occurred when a country currency was printed to procure either Stirling, USD or gold."



corporate China is short US dollar