Tuesday, May 11, 2010

China's Growling Bear and the Gold Standard

The Chinese stock market has led the U. S. market up and down the last few years. It is now in a bear market, with the main Shanghai index at 2647, down over 20% from last year's peak. Click HERE for a 5-year chart.
The index bottomed half a year before the U. S. index bottomed and topped out late last summer, and since then has put in a series of lower highs and lower lows.

A couple of weeks ago, a news item crossed that the largest property company in China reported sharply lower earnings. It just may be that China's real estate market has in fact entered its downturn. In that scenario, those who are waiting for the bubble to burst may be like the geniuses at our Fed, Congress and administration in 2007-8 who saw no end to housing-led prosperity.

In fact the new trend is more more expatriation from the U. S.

In this country, the mood amongst much of the cognoscenti and in the public is sour. Last year I reported that pro-Obama sentiment amongst anti-Bush, left-of-center financial bloggers I followed had sharply waned, when they saw that there was a Bush-Obama continuity re favoritism toward Big Finance. Now we read that Goldman Sachs went 63 for 63 in profitable trading days in Q1. Great quarter, guys!

New faces in the White House, similar Big Finance-friendly policies.

Money drives and is driven by policy. The trend toward truly unsound money accelerated in this country with the guns and butter policies of LBJ, who was merely implementing JFK's policies, the two most disastrous of which may have been: first, ignoring de Gaulle's warning not to get entangled militarily in Viet Nam, and second, letting government employees engage in collective bargaining.

In any case, the French called our bluff, Nixon took the U. S. fully off the gold standard, and now we see that the fiat emperor has no clothes. One current example is the comment by some commentator in Britain about the bank bailout (no, it's not a bailout of Greece) plan that the IMF "money" is more "solid" than the European commitment.

It's all funny "money". It's not "solid" at all. In theory it is possible for a wise, prudent country to run a system of fiat money. After all, the gold standard had its problems. But it's looking better than the alternatives day by day.

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