Do you ever have time to sit down and think about the things about which you know little to nothing but which may have a major impact on your life? I do that a few times a week and usually it ends up taking me on a journey of discovery which is enjoyable, if difficult.
For whatever reason, I’ve had an uncomfortable concern about the Chinese economy for six or seven months now. China stood out despite the difficulties in Greece, Brazil and even Puerto Rico where the leadership was trying to play hardball with little real power. Their economies were tumbling down and crowds of citizens stormed ATMs to free up what little they could before any financial collapse.
My concern was probably initiated by a glance at a business article on the internet or one of the news media I read and/or watch. No, Mr. Cramer and his TV antics did not have anything to do with this. Initially, I wouldn’t have paid much notice, but something here stuck a responsive chord.
China was a powerhouse in world production of everything from pharmaceuticals to all the items in your home. They had lured corporate America to their low-wages economy and American corporations leapt at the chance to manufacture and ship back to America.
One woman wisely took advantage of this by perceptively seeing an advantage in all those empty shipping containers returning to China. She got into the recycling
business and the containers returned to China’s mainland loaded with our sluffed off computers and electronics, aluminum and other detritus. In the process, she became a billionaire.
Economics in college wasn’t my major, but I had a wonderful prof who kicked it up several notches and sparked an interest that lay there for a few decades. Today, my
concerns about China got another boot as the government there devalued its money. Why should I, much less you, care about what they do with the value of their money? Oh, kiddo, it will affect you.
A quick grasp of the situation isn’t available, but there is a very informative documentary entitled “Princes of the Yen: Central Bank Truth Documentary” which, albeit about Japan, can fill in a lot of holes for you. Governments often rise or fall on how they shape the economy and that shaping takes place through money manipulation, policy and, of course, printing money.
Wouldn’t it be terrific if you could just print all the money you wanted? No need to make bank withdrawals or get loans — just print what you need? Governments do just that. A sad reminder of money printing gone wild was shown in Germany toward the end of WWII where people had, almost literally, wheelbarrows of Reichsmarks. The number required for a purchase was astronomical.
A veritable plethora of videos on economics and monetary policy, in addition to the one I’ve just posted, is available at Khanacademy.org/economics-finance-domain. Takes a bit of getting into, so take it in small bites over the next week or two. I think you will find you have a new interest in whatever the Fed is doing in the US and the IMF at its meetings.
The markets have responded as I thought they would by falling precipitously as China once again, devalued their currency further. The result may or may not aid the Chinese government in stabilizing itself, but it will surely have an enormous ripple effect across all economies dependent or not on China. Manufacturing will be sucked off even further from faltering plants into a China which, beneath it all, fears revolution because that’s really what’s at stake here.
Millions abandoned their ancestral homes in rural areas of China leaving aging parents and families behind as they headed to the megafactories. Anyone reading the business sections regularly will quickly see that it wasn’t what these workers had envisioned. They were forced to live in company dormitories with little time off and nothing but hard work each day.
Suicide became a corporate problem which China preferred to keep hidden. Apple had their iPhones and iPads manufactured in one particular factory where conditions did not help the company image.
China, in its continuing quest to dominate the world of manufacturing and commerce, loosened its money supply. This action quickly increased the flow of
loans to anyone who wanted one and the result was the mushrooming of whole cities without people. The thought, of course, was that newly affluent workers would snap up these apartments and the sellers would become rich. Just the opposite happened as no one came and the mortgage holders saw their investments dwindle and the dream of wealth evaporate. China now had something new; ghost cities.
It happened in the Chinese stock market, too, where retirement savings were funneled into stocks that were rising to dizzying heights and wealth was within everyone’s reach. Again, a dream unrealized as stocks slid and the government began to see a need to step in with more control. But this didn’t happen before many found themselves ruined financially.
How does it affect the rest of the world? Consider how attractive things become when you have money (the United States) that is valued higher than another country’s (China). You can buy more of whatever they have and they, in turn, get your consumers ramped up to buy those goods cheaper and not your country’s. A trade war is inevitable and the result is not pretty.
So, I watch the overnight Nikkei, Hang Seng and the Shanghai and just two days ago a strange thing happened; two of the markets had “0” as their stock market price changes for the day. Unheard of, I thought. Someone made a mistake. No, it was the warning bell that China had devalued its currency and the next day the US stock market got hit hard. Perhaps not as hard as in some prior months, but hard nevertheless.
Another example of a money stampede to safety is in our not-too-distant past. Money had been flowing out of Japan into US real estate at a rate not seen before and cattle ranches and NYC skyscrapers were snatched up. The Nikkei was trading at three times the current rate and the bloom was on the rose. Things have since changed quite a bit.
China has now followed Japan’s lead. The hope is to secure real assets before funds are frozen in their original places of security — the banks in China. The buying binge has widened as suburban mansions have come onto the market and portfolios have, once again, found a new hope for safety. The character of whole towns or parts of anyplace can be changed. Land values can force change as
alluring offers for property come in. Are you aware that Southern textile mills have been bought by the Chinese who see a golden opportunity here as wages rise in China? Lots of available cheap labor, land, raw materials and buildings and it all spells opportunity.
Anyone who had bought a home in the past decade knows about the real estate bubble just prior to the stock market collapse in mid-2000s. Homes selling for hundreds of thousands are now asking less than 50% of that in the resale market. Will the same thing happen here? Chinese investors now own the iconic Waldorf-Astoria as safe havens for money are frantically sought. You could say it’s “buy while your money is still worth something” time.
Watch the stock market and the business pages? I think you should if you have any hope of shepherding your nest egg for those golden years.