Macabre Tweet of the Day: Victim of China’s Stock Market Crisis

I had second thoughts about posting this macabre tweet from SCMP’s George Chen.

But it dawned on me that this image should underscore the wretched effects of bubbles.

The outrageous part has been that modern day governments (not limited to China) deliberately has fueled domestic bubbles in exploiting its gullible citizenry.

Bubbles have been part of the financial repression (zero bound, negative real rates and QE) policies or the invisible redistribution of wealth from the citizenry to the government and their private sector allies.

And eventually the hapless victims, pay the price for government’s predation.

Victims are not entirely blameless though. Had they developed self discipline through more financial education then this wouldn’t be a likely outcome.

Of course, I am not referring to the mainstream education which further exploits people’s vulnerability by focusing on silly historical numbers, from bogus math models and imagery patterns.

I allude to education that focuses on the identification of bubbles, its nature: formation, stages and aftereffects.

Mises-Hayek’s The Austrian Business Cycle Theory (ABCT) principally captures the essence of this. Charles Kindleberger’s "Manias, Panics and Crashes", Peter Bernstein's "Against the Gods" and Harvard’s Carmen Reinhart and Kenneth Rogoff’s “This time is Different” should be wonderful starting points.

Back to China’s developing crisis.

It’s not just interest rate cuts, the yuan was devalued again today

Additionally, the Chinese government has become so desperate to curtail the stock market crash that  they will “launch a three-month crackdown on unerground banking to curb money-laundering and illegal funds transfers as unstable markets stoke fears of capital flight.” according to  Reuters. 

In other words, capital flight has been accelerating to the point that the Chinese government can hardly contain her soft peg. So they had been forced to devalue almost daily.

As I have written two weeks back,

Also last week’s depreciation or devaluation could now be seen as a nasty side effect of China’s stock market rescue. Said differently, the Chinese government focused on saving the stock market either without knowledge of the malevolent consequences of credit expansion on the yuan, or that the government just took on the gambit to save face in the hope to reverse the underlying sentiment that has driven BOTH the stock market crash and capital flight.

This also means that for as long China’s bubbles deflates, the yuan will fundamentally weaken as capital will look for safehaven elsewhere, away from an imploding bubble economy.

Current events only has been validating my projection that “as each day passes China’s woes continues to deepen, where every step undertaken by the government to delay the day of reckoning only hastens its arrival.”

Oh by the way after a seesaw start, the Shanghai index fell by almost 4% according to Mr. Chen. But the SSE has now rebounded to offset the losses. The midday close shows the SSE up .8%

Like in the past, the rate cuts PLUS massive infusion of taxpayer money, capital controls and political repression have done little to shore up the imploding Chinese stock market and the economy.

Yet all the cumulative actions by the Chinese government have signified only signs of panic that things seem as getting out of hand.