So all the headlines today say China is slowing lending which will slow growth and hurt our exports to them in turn slowing our recovery as well. Let's think about this rationally for a moment. What they did was increase the mandatory reserves required by lenders by a half percent. This they hope will curtail some of the wreckless lending on the part of Banks and other financial institutions similar to what happened here in the US.
The people of China don't use much if any personal credit lines as they like to pay for everything cash. Just ask the big credit card companies who have a hard time selling their wares to the Chinese people. So this move won't affect the spending habits of consumers in China in any big way.
So the question I ask is who is borrowing this "affected" credit and what sectors are the borrowers in?
Many borrowers are for real estate, won't affect our exports much, but should help to cool the inferno of a housing market they have.
Others are large companies borrowing to secure raw materials for production of products, this affects thier exports to us which are already in decline due to our depression and should help us get raw materials cheaper to make products to export to them, seems a win win for the U.S.
So I ask you, how is this small required reserve increase bad for anyones economy? If we had done anything remotely similar a few years ago we would have not had the huge bubble in housing which has bust and left us in this depression.
Hopefully these headlines will help me get some of the Chinese stocks on sale!
I agree requiring high reserves a good thing. The question I have is at what point will it cool down the carry trade in their stock market. Much of their stock bubble, from what I understand, has been propped up by people and companies buying on margin.
ReplyDeleteFrom what I understand, banks were forced to lend to companies. Companies took the money but had nothing to do with it, so they put it in the stock market.
This was what was going on leading up to the great crash in 1929. We have put strict limits on margin buying since then. But in China, the amount of stock and property bought with debt is unknown. But based on the bubble their having, it seems that at some point the debt will have to be deleveraged, just like it did here in 1929.
Since China's economy is so fragile (that's why they can't survive without pegging their currency to the dollar), I'm a bit worried what will happen when the inevitable deleveraging begins.