Wednesday, June 26, 2013

Irony in Action: China tries to teach U.S. free-market capitalism

MarketWatch’s Todd Harrison writes: “China, the world’s second-largest economy, is often cited as globalization’s raison d’être. With the Shanghai Composite in bear-market territory, investors would be wise to pay attention.

“Despite the putrid price action of late, the Chinese government is standing firm on its policy agenda. They’re trying to administer the medicine necessary to cure the debt disease rather than provide drugs that mask the symptoms, like so many other central banks around the world have done. Only time will tell how they’ll fare but extending the analogy, we’re seeing signs of withdrawal that can be at quite violent at times…..

“ I read an article last night that brought me back to 2007, which is the period this juncture most reminds me of.  It spoke of how the cash crunch in China has, among other things, put the Chinese gross-domestic-product goal in jeopardy for the first time since 1998. I traded through the Asian Contagion, and let me tell you, it wasn’t fun.   Liu Li-Gang, formerly of the World Bank, offered, “If they (China) fail to achieve 7.5% (GDP target), they will lose credibility with the markets, provincial leadership and financial institutions ... that means that in the future, whenever they say something, the market may interpret it differently, and the credibility issue is something very critical for them to consider.”

Flash back to August 2007 when it was clear to anyone who paid attention that the wheels were falling off the stateside financial wagon. ….

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