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:
- 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,
- 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,
- 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….
- …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.