The recent volatility in the global markets is simply due to the fundamentals of China’s economic model, the most prominent of which is the structural imbalance designed into its system. It is in many ways not at all dissimilar to the U.S. who has been smitten with the belief that it can create substantive economic health by debt-funded deficit spending, cheap imported products and salacious monetary policy.
In October of this year China is going to be the Hot Topic at the IMF. The subject will be whether or not the IMF will include the Chinese Yuan in the bundle of Reserve Currencies that compose the IMF’s SDR’s (Special Drawing Rights). IMF would, as a tool for further encapsulating China’s economic/political domain, love to include China however, they tasked China with having to prove the Yuan’s stability in the open market as a mechanism for establishing the currency’s economic durability. Well, we saw what happened when the Yuan was allowed to “float” with the market. It began to plunge and China was forced to step in and suspend trading.
Once one couples the inherent instability of the Chinese economic and financial structure with the already overvalued global equity and commodity markets then the epitaph shouldn’t be over “correction fears”, but more so in the form of two questions which truly need answering:
(1) Why has it not happened sooner?
(2) Who’s flooding the markets with capital or manipulations in order to keep the markets from collapsing further?
The Chinese Communists have come to understand that their ideology will not survive however, they haven’t quite figured out or openly accepted that they are being hung by a rope made by their slave laborers with materials they’ve imported from and facilitated by the western financial machinery that built the Chinese economy.
Curtis C. Greco, Founder