Yes, apparently China is going to drown its economy in stimulus money, says a dubious report from Beijing in the last hour. But while it’s doing that, it’ll have to buy everything that’s falling on the Shanghai, maybe ban all selling of shares (?!) and do something to stop the flight of investment capital. When calmer heads prevail, the Politburo will surely grasp that the Yuan’s credibility must be protected, and it can’t do everything at once.

As predicted here earlier, Western stock markets are taking a severe hammering. The FTSE is already £44bn adrift, the Aussie bourse lost $60bnA, the Dax is below 10,000 for the first time this year, all euromarkets are between 3.5 and 4% down, US markets are reported to be ‘poised for a panic’ and the Rouble has collapsed to an all-time low against the Dollar.

No doubt most of the internet and MSM financial/economic sites and pages will be giving out minute-by-minute drama-horror-shock for the rest of the day, but now, while the avalanche gets itself up to full-speed, is the best time to ignore it, and analyse what’s likely to happen next once the main carnage is over.

As always, the caveat (emptor or otherwise) is “it all depends on what the manipulators do”. The futures were so bad late last night and early this morning, a massive sell-off today was inevitable: data can be its own catalyst at times like these. But the signs were all in place ten days ago and more, so I would have to put a lot of money (though not the farm) on the likelihood that those with a self-image of being ‘in charge’ in the West have a plan ready to go if things get above a certain level of panic. Even allowing for that, however, some things that were either on the table or under it will be, by this evening, in the bin. These include, I suspect:

  1. The idea of using cheap gold to repair bank balance sheets. Ludicrously – given what’s been going down since midday yesterday – the price of both gold and silver plummeted when the FTSE opened this morning; but if the stocks sell-off goes beyond correction and towards Crash, the Sovereigns will run out of money long before the markets do. Connected to that,
  2. many of the highly-leveraged banking firms will by now have clients on their backs looking for a return: the Bourse Bubble was their last easy-money scam. The pressure on the gold price must eventually lead to sentiment overwhelming repression…something which, given its vast reserves, I think we can expect Beijing to encourage. Equally or alternatively,
  3. for those who are impatient to see their pile turning into Everest, market forces (remember them?) will insist that rates on fiat debt must go up. This will be exacerbated by those countries who, while they like a cheap currency for exports, also recognise in extremis that their bits of paper and metal need to have credibility beyond confetti to be thrown at weddings. I know I’m an bit of old and scratched vinyl stuck in the groove here, but I repeat: something in Bricland will break ranks to save face. And for the benefit of those who missed it, I reassert another reality here: we are not entering a currency war, we are already in the early stages of a debt war. This will….
  4. …increase a desperate appetite for ‘shit or bust’ risk on Bric debt (as it did with ClubMed) except that this time there will be no insurance net above which fire-sale vultures can buy junk and demand minimal haircuts. As with turkeys and Christmas, insurers don’t vote for multiple defaults. But dingbats will go for it anyway and thus make the tertiary stage of institutional collapse all the more terrifying.

For the moment, I leave you with this one statistic: the global Bourse share value has lost $5 trillion in the nine working days since three relatively small Yuan devaluations.

Earlier at The Slog: Correction time is here again


  1. Hmm .. Frances Cac40 still up 3.3 pct on the year , Milan up 9.4 pct and DAX virtually unchanged since Jan 1st , so a little perspective needed ; Any sane investot knows China is the Far West as far as investing goes . The correction is not yet a blood-bath unless you piled in near the top , and even then most of those guys have probaly been buying for the past 5 years and so are still very muich in the money . This move is a warning shot so far , nothing else. Remember that the Trillions you speak of a merely monopoly numbers used in valuations , nobody ever says that the bourse created billions when they go up so Im not sure why they talk about wipe-outs on the way down . If and when the Crash comes we’ll be looking at 2008 2009 levels hopefully so a DJIA at 7000 .


  2. Panic for another couple of days and then caution into Friday when the Zambian Stanley Fischer, Vice Chair of the Fed, speaks at Jackson Hole. Have unfolding events rattled the Fed enough to delay action on rates?

    September 8, two weeks time, is Labour Day. The First XI are back at their desks then. There may be an attempt to rally into their return if Fischer is dovish. But any relief will be a dead cat bounce. The Sept-Nov period is likely to be fugly. Any bear market will be at least 3 steps down taking us into late 2016 and the US presidential election in November. Who will win that contest? Will Trump be able to get Biden or Clinton in? How will they counteract a global systemic crisis? WWIII?

    Buy gold, silver and out of favour hihj dividend numbers. But keep cash dry too.


  3. There isnt a hope in hell that China is going to ride to the rescue.
    In fact China will do everything it can to exacerbate this now as it is firmly in its interest to do so.
    Stick market crashing wont hurt Chinese corporations in the slightest. The millions of tiny investors yes, but that is what an all powerful communist party is there for.

    in the other hand it will smash the financial base of the neo con half wits in Washington, the elites bent on global hegemony who have been waging financial war with China for the last decade.
    This meltdown doesn’t hurt the small people in the US, it smashes the corporations who have criminally used financial engineering to boost stock prices and the banks who lent them trillions to do it, and the elites.
    Its the elites wealth that is being smashed in the US.

    It is why QE 4 is coming next month.
    Nothing else will do an a damned thing, and China is not stupid, hey know all too well whats going on and now the tide has turned and they intent to smash the global US hegemony once and for all.
    Oils prices will wipe out fracking, it is under $20 a barrel from North Lakota now after transport costs. same in Canada
    Russia is a Chinese ally now, thanks to the incomparable stupidity of the neo cons and Nazis starting a war in Ukraine and shooting down Malaysian airliners.
    India has switched sides, It knows where its bread is buttered. The perto dollar is toast and with the new China global banks and US manufacturing not seeing a drop of capex in over ten years whilst China built state of the art factories by the tens of thousands and robotized most of them, they are well placed to dump at a profit trillions in the cheapest ever god made.
    US manufacturing is all but finished.
    The idea that China is hell bent on stopping capital outflow is a lie and and a farce too. True they pay lip service, but the reality is they want the RMB to flood the flood the world buying up assets for the Chinese.
    I know because I am opening dozens of new companies in the UK at £15 a pop to stick a notice on a wall of a Box office and open a free account with HSBC, then transferring the shares to Chinese small businesses and invoicing for them for goods to be delivered in over a year with up front payment and an option to cancel after 6 months.
    Want to know how many so called Chinese officials are interested in even looking at those invoices or questioning them. Zero, none nada.
    Truth is China was pissed when they got found out using a PBOC branch in Guangzhou to facilitate exactly that and had to stop after laundering billions out of china.

    This is a global economic war and china is now winning hands down. And the only hing the US has is a moth eaten senile old cretinous old woman (maybe) and a bunch of utterly useless libtards and if i need to say more, they listen to the indescribably idiotic Keynesian clown krugman.. And they put them in charge of the Nations finances
    Is it any wonder China saw its chance and struck when its ducks were all lined up.


  4. That 5tn has gone somewhere – it’s the elites cashing out their QE giveaways.

    Give them a few weeks they’ll be back demanding that gubbermints give them more.


  5. With $28Trillions in created debt since 2010 and who only knows the shadow banking debt,will China throw its currency under the bus for the bourse?


  6. “For the moment, I leave you with this one statistic: the global Bourse share value has lost $5 trillion in the nine working days since three relatively small Yuan devaluations.”

    If one spends 40+ years pretending that assets and companies are worth more than they really are, thus inflating share values, coming back to reality will hurt. A lot. No share value has really been “lost” because it was all fakery in the first place. Crazy logic can be seen everywhere – nothing is based on fundamental data and all is based on “confidence”, and that confidence only exists because humans don’t like inhabiting reality!

    Possibly, the price of gold and silver declined because desperate sellers need to sell at any cost in order to meet their margin calls due to tumbling share prices. And are we talking real precious metals, or fake paper GLD?

    Governments do not set interest rates – they offer debt at the rate they would prefer to pay; but if no one will buy the debt they have no choice other than to increase the rate and re-offer the debt, or get by without the money.

    The Limits to Growth are fast approaching or (in some cases) are in the past already. We have pissed away 30+ years pretending that growth can continue forever, living in a delusion, making no plans for alternative systems. And now the effects of the droughts and the wildfires and the ever-increasing pollution are starting to kick in, adding more and more in mitigation and cleanup costs every single day, costs we would not have if we had paid the slightest bit of attention back in the 70s, before Regan and Thatcher rose to power by promising a fantasy future for all based on ever increasing resource exploitation and ever increasing growth, ignoring the basic rules of thermodynamics.

    There is no such thing as a free lunch. The bill is now due, and we will be paying it, like it or not.

    Money printing devalues the currency, each unit becomes worth less.
    Credit expansion, on the other hand, creates multiple claims to the same underlying assets – and only when the pyramid collapses do people find out they actually have nothing.
    Everyone in the world is destitute, right now. It will just take longer for some to realise it…


  7. Doubt it. Dodgy money with a migrant problem needing somewhere to live ; chuck in a property shortage and lack of building. Realignment perhaps but …


  8. @ gil. A lot of yr analysis clear + reasonable re ukraine etc.
    What however is your problem with Krugmann. A F A I K he has never taken a Us Govt post and is primarily a commentator now. If your problem is that he is a Keynesian, well he claims to be but some claim he is a Post K’sian due to some of his enthusiasms (Hicks, IS/LM etc). There have been less deserving “Nobel” economics laureates, notably the drooling buffoon James M Buchanan. I assume the old lady you referred to was Janet Yellen rather than Deirdre Mccloskey ? Btw admitting to your lucrative day job seems a tad brave even if it’s all above board. Mightn’t a shadowy elite or their ilk be p’d off wit ya ? Who’s your fave economist btw?


  9. Also the meltdown (as they always have so far) will crucify the little guy disproportionately). I assume you’re going to be ok ?


  10. Not an option I’d considered ! Vote for bernie sanders the usa’s corbyn lite + for the “other” look up Monica L for whom 1 swallow did not a summer make.


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