The Great Chinese Depression?
posted on: October 30, 2007
| about stocks:
It won't be long now. The signs have all come together. So many people have written about them and warned us that it seems punishment to reiterate them here.
For those of us who have seen the Chinese bubble form, we know that the truth cannot be avoided. Multiples of 70 times earnings for regional corporations without world class infrastructure or accounting are simply unsustainable at this point. For those caught up in the mania; the pain will be swift and overwhelming as the Shanghai and Shenzhen exchanges plummet at record pace due to heavy, unregulated leverage and naive first time investor hope.
Indeed, the pain won't be just for the common man. Chinese corporations too will feel the pinch as so many of them have invested so heavily to boost their own profits with equity market gains. Beyond the crash, a deeper question lingers: will this lead to a deep Chinese economic depression? History says 'yes'.
Every super bubble (1929, Tech Wreck, Japan 1988) has led to prolonged periods of economic malaise in which respective governments have gone to exceptional lengths to pull the country back from ruin. Like an unwritten law, it seems newly developing countries must go through this excited frenzy, depress and then slowly, steadily come back.
China's luckier than the West; we'll be here to help them when they fall. The U.S., Great Britain, Germany, France, etc had to suffer through depression and failed policies to reinvigorate their economies and eventually a world war.
In the long run China's prospects are fantastic, but the spiked bubbly they are currently consuming is nearing its end.