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The Inevitable Crash of China’s Stock Market Has Arrived

The massive stimulus disaster

Under no circumstances should you check the state of your 401(k) for the next few days.Credit: Novi Elysa | Dreamstime.comThe Washington Post describes today's massive stock sell-off as "carnage." The Dow Jones industrial average plunged more than 1,000 points upon opening this morning (it has since recovered about half of those losses as of 10:30 a.m.). From the Post:

The stock drop was fueled by what China's state media is already calling "Black Monday," in which markets there recorded their biggest one-day plunge in eight years amid growing fears over an economic slowdown.

On Friday, China reported its worst manufacturing results since the global financial crisis, a new sign of woe for the world's second-largest economy, which surprised investors earlier this month by announcing it would devalue its currency. China's benchmark Shanghai Composite index has fallen by nearly 40 percent since June, after soaring more than 140 percent last year.

China's woes stoked fears over commodities and forced oil prices further down. Brent crude oil, the global benchmark, dropped to about $43.61 a barrel, dropping below the $45 mark for the first time since 2009.

That a "market correction" was coming to China has been pretty well known for years. The country's growth has been pushed by centrally planned economic development that was oftentimes separated from the basic concepts of supply and demand and fed the false narrative of China as our economic future.

As we stumble through the day, some reminders of China's warning signs:

Solyndra on steroids: Remember the solar power trade war and how China was kicking everybody's asses with low prices? That started coming home to roost for China a couple of years back. China's solar companies racked up huge amounts of debt that they could not repay. America's solar embarrassments pale next to the amount of money China has sunk into an energy program that it turns out is far from "sustainable."

Cities nobody needed: China deliberately forced a housing bubble as America was fighting its way out of one in order to boost its economy. (The Reason Foundation's Shikha Dahlmia and Anthony Randazzo explain it all here.) Its stimulus spending rivaled ours to a degree that eventually became absurd. China ended up with massive, mostly empty cities and malls.

China's infrastructure model that wasn't: Once upon a time President Barack Obama praised China's massive investment in infrastructure like roads and high-speed rail, calling it "vastly superior" to what America was doing.

In actuality, China's infrastructure spending has proven to be troubled with corruption and shoddy work that has caused bridges to collapse, and the country's high-speed rail system is both expensive and dangerous.

Vox has a useful little reader of how China attempted to respond to the bubble it had deliberately created to spur growth, and how it didn't work. China's crash should serve as a warning against centrally planned efforts to artificially spur growth. 

Photo Credit: Novi Elysa | Dreamstime.com

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  • waffles||

  • Almanian - Trump's Woodchipper||

    That is fucking inspiring! I need to get one of these together for the US...

    *charges old-fashioned digital camera that still works fine since I don't have a smart phone to take pictures*

    /longest ** thingy evar

  • Illocust||

    My college had one of his books as the freshman summer reading. I won a writing contest with an essay criticizing and went to a dinner with him and the other contest winners. Unfortunately, the dean made sure I was seated too far away to speak with him about it.

    Slightly more on topic. What do you think the odds of him learning anything from this crash are? He's been holding it up as an example for so long you'd think it might make him rethink some things.

  • Galactic Chipper Cdr Lytton||

    Zero. Cognitive dissonance will win out.

  • Galactic Chipper Cdr Lytton||

    "So as I was leaving the Beijing airport, my taxi driver pointed out what is a fundamental point in this situation, the light is red.."

  • gaoxiaen||

    That's a very important point. Many people are too busy with their iPhags to notice that. Or to notice that it's turned green.

  • Slammer||

    Here’s my bet about the future of Sunni, Shiite, Arab, Turkish, Kurdish and Israeli relations: If they don’t end their long-running conflicts, Mother Nature is going to destroy them all long before they destroy one another.

    The only “ism” that will save them is not Shiism or Islamism but “environmentalism” — understanding that there is no Shiite air or Sunni water, there is just “the commons,” their shared ecosystems, and unless they cooperate to manage and preserve them (and we all address climate change), vast eco-devastation awaits them all.

    Actual quotes.

  • Tundra, well-chilled.||

    Actual quotes.

    From some homeless dude on your way to the office? Poor guy has brain damage, huh?

  • MJGreen - Docile Citizen||

    That's what will bring peace to the Middle East: environmentalism. Show them Al Gore's powerpoint and they'll put down their guns en masse.

  • Tybus||

    IMO he knows he's peddling bullshit. He's betting (correctly) that Americans know fuck all about China. It doesn't take a genius to travel to China and realize that something funny is going on with all the new empty buildings that are already starting to deteriorate.

  • commodious spittoon||

    Is Friedman the inspiration behind Krugman's ascension in the leftist pantheon, or have I got it backward? Because partisan economic drivel is Krugman's bread and butter, too.

  • KDN||

    Krugman is an accomplished and influential academic economist that happened to turn into a shill (by his own admission) because of Bush v. Gore. I have no idea why anyone ever thought it was a good idea to give Friedman a soapbox.

  • Episteme||

    What's funny is that Krugman's Nobel Prize was in his work in studying economies of scale and comparative advantage in modern international trade –exactly the sort of topics that are at play in Greece and Europe or China and the US –yet Krugman is too busy playing at a microeconomic mid-life crisis in his "Conscience of a Liberal" column in the NYT, throwing stones (or feces) at Republicans or not-Progressive-enough Democrats like Larry Summers. #YouHadOneJob

  • Bobandy||

    I'm not following this line of comments. Which Friedman are we talking about here?

  • Free Society||

    Thomas, I assume. Milton gets a lot of things wrong, but he's the rightest man who ever lived standing next to Thomas Friedman.

  • Tybus||

    Could be. I didn't think of that but on further reflection I think both of these guys fill a market niche that allow people who know very little about Econ or foreign governments to signal that they are in the know.

  • ||

    Chinese cop cars are made by Chevrolet: special.

  • gaoxiaen||

    Buicks have been popular in China for almost a century. Buick builds them there.

  • gaoxiaen||

    Popular as a status symbol. But then, so is shopping at Wal-Mart and eating at McDonald's.

  • Francisco d'Anconia||

    Milt?

  • sarcasmic||

    China's crash should serve as a warning against centrally planned efforts to artificially spur growth.

    Yeah. This is what happens when they have the wrong people in charge. We've got Top. Men., so we have nothing to fear. Duh.

  • Almanian - Trump's Woodchipper||

    ^^I came here to post THIS

  • Scarecrow & WoodChipper Repair||

    Same here. The only lesson that will be learned is that they need more and better, and then everything will be hunky dory.

  • Jimbo||

    Pwnd!

  • Restoras||

    Sometimes you approach the brilliance of Iowahawk. Well done, sir.

  • Almanian - Trump's Woodchipper||

    Whoa, whoa, whoa! Let's not get all cray up in here!

  • In League with the Dark Ones||

    If there is but one Republican amongst our Top Men, we have something to fear.

  • Lee G||

    2 Observations:

    1. Reason servers are struggling today

    2. My Chinese suppliers are already emailing me with ferocity trying to unload product at rock bottom prices.

  • Almanian - Trump's Woodchipper||

    Lock bottom plice, Mellican! Buy now! Save a big dorrah!

  • Plàya Manhattan.||

    I have no idea why you did that in a Japanese accent.

  • Tundra, well-chilled.||

    Japanese? I thought it was Khmer.

  • KDN||

    Since they all look the same, they must all sound the same.

    It's science.

  • Almanian - Trump's Woodchipper||

    ^^ this

  • bvandyke||

    Rutgers is coming after you!

  • XM||

    You mean "Rocku bottomu prisu, American San. You buy chip now"

    Oh, we're doing Chinese accents.

  • gaoxiaen||

    *squints, wipes Coke-bottle glasses*

  • Fist of Etiquette||

    Once upon a time President Barack Obama praised China's massive investment in infrastructure like roads and high-speed rail, calling it "vastly superior" to what America was doing.

    You just had to stick poor Obama to China's economic tar baby, didn't you? He was just trying to be polite.

  • Loki||

    "Tar baby?" LLLLACIST!!!!!!!1111!!!!!!

  • ||

    I see this site is thick with KKK members /derp

  • C. S. P. Schofield||

    He's displaying his one real talent; every judgement I have ever heard out of his moth concerning foreign policy has been not merely wrong, but 180 degrees out.

    He's almost as good as a compass.

  • Marshall Gill||

    Well of course he doesn't get anything right if he listens to a moth.

  • Almanian - Trump's Woodchipper||

    I heard the Mothman Prophecies would lead us all to salvation. No?

  • Episteme||

    Well of course he doesn't get anything right if he listens to a moth.

    The One-Child Policy and years of sex-selective abortions have left Monster Island with a dearth of miniature girls able to translate the investment wisdom of Mothra to the rest of us!

  • Charles Easterly||

  • MJBinAL||

    Obama was trying to be WHAT?

  • Jordan||

    As we stumble through the day, some reminders of China's warning signs:

    None of which were apparent to Keynesian and Monetarist clowns.

  • Charles Easterly||

    Clearly, Jordan, they didn't invest enough in the proper period of time.

    It simply cannot be the fault of the policies they used....

  • Doctor Whom||

    Of course not. The spirits have withdrawn their favor. It must be the fault of not trying hard enough.

  • Charles Easterly||

    Nice.

  • cavalier973||

    The credit pixies are in a snit.

  • John Galt||

    The Keynesian and Monetarist clowns are the least funny clowns in the entire mentally ill clown asylum.

  • Mario||

    Sure Keynesian works! NOT!!!!!

  • Loki||

    Shyah! And monkeys might fly out of my butt!

    ...This is a "thing", right? Twenty plus year old Wayne's World references?

  • Francisco d'Anconia||

    That movie never gets old.

  • Jimbo||

    Schwing!

  • In League with the Dark Ones||

    Not enough yuan were sacrificed to the animal spirits.

  • Jimbo||

    That's what Krugman said!

  • DarrenM||

    That should be NEO-Keynsian. The economic philosophy where you spend in bad times to kick start the economy, but you also spend in good times because no one will notice and the bill won't come due until you're retired anyway.

  • Hugh Akston||

    China's crash should serve as a warning against centrally planned efforts to artificially spur growth.

    Hahaha oh you.

  • Restoras||

    Warning really should be in scare quotes, Shouldn't it?

    China's crash should serve as a "warning" against centrally planned efforts to artificially spur growth.

    Doesn't that look more accurate?

  • ||

    It's scare quotes all the way down.

  • Juvenile Bluster||

    It's scare "quotes" all the way "down".

  • The Late P Brooks||

    FULL SPEED AHEAD!

  • Citizen X||

    China Market Crashes; shriek, Tom Friedman Hardest Hit

  • John Galt||

    Didn't China just, once again, devalue the yuan even further below market value?

  • Harun||

    They actually allow the market price to change. Normally, they control it by only allowing trading in a tiny narrow band. When they allow the band to go lower, it devalues.

    But they had been allowing the Yuan to strengthen for many years. It used to be above 8 for a dollar and now its 6 something.

    The mere fact that it devalued should tell you things are bad. Its not so much devaluing to spur exports as people cashing out.

  • Irish ♥s ESB||

    Vox has a useful little reader of how China attempted to respond to the bubble it had deliberately created to spur growth, and how it didn't work. China's crash should serve as a warning against centrally planned efforts to artificially spur growth.

    And Vox will continue supporting the exact sort of policies that caused this in China. Our intellectual superiors, ladies (well, lady - this a libertarian website so if we're lucky there's one hanging around somewhere) and gentlemen.

  • commodious spittoon||

    "gentlemen"

  • Citizen X||

    "When you come to a door marked 'Gentlemen,' go on in - you'll not find one marked 'Scoundrels'."

  • DenverJ||

    Yeah, linking to Vox is... strange.

  • Marshall Gill||

    Vox has a useful little reader

    Um, unpossible.

  • ||

    Three words. Bridges in Israel.

  • Ken Shultz||

    Just for the record...

    Malinvestment is driven by something even more fundamental than the Austrians would have us believe--even more fundamental than cheap credit and an increasing money supply. ...or stimulus spending, or whatever...

    It's just about uncertainty.

    No one knew when world markets would become saturated by goods, capital assets, and raw materials--which were made profitable by China's cheap labor being plugged into the world economy. Expectations about the profitable potential of all that previously poorly invested labor suddenly being put to profitable use wasn't a function of any bad central banking policy or any bad government policy. And those excellent assumptions were confirmed by more than a decade of price signals after China joined the WTO.

  • Ken Shultz||

    Malinvestment is ultimately just driven by uncertainty about the future. Prices start coming in below expectations and investors start dialing back their expectations until they hit on new expectations they feel less uncertain about. Yes, central banks have to deal with uncertainty, too, and their mistakes can and often do have big consequences, but the same fundamental problem of uncertainty about the future still plagues everyone--besides central banks and government spenders. And when market prices come in below expectations, companies and investors need to reinvest profits differently and under a new set of expectations companies and investors feel more confident about. This is the mechanism by which malinvestment is corrected.

    It isn't just about low interest rates and a high money supply (or stimulus spending, etc.)—malinvestment is a natural consequence of uncertainty about the future. The spending of governments makes things worse, and low interest rates and a high money supply makes things worse, but even if there were no central banks (or government spending), there would still be such malinvestment based on uncertainty about the future.

  • tarran||

    The spending of governments makes things worse, and low interest rates and a high money supply makes things worse, but even if there were no central banks (or government spending), there would still be such malinvestment based on uncertainty about the futu

    But that background rate of malinvestments being abandoned should be fairly constant. When a whole bunch of malinvestments reveal themselves simultaneously, it is a signal that something or someone was feeding investors/entrepreneurs bad information.

  • Ken Shultz||

    I'm not sure the information was bad.

    I think the assumptions were bad.

    It may take me two years to get a commercial real estate project approved for construction.

    I need to make assumptions about sale prices and lease rates for buildings, and I know every single available property, what it's charging, every single piece of land, where it is in the development process. I know how much construction costs are right now.

    The market information I assemble is torn apart and gone over by investors (some of whom are other commercial real estate developers) and lenders and all the experts in the area on that market.

    My information is really good. At the time I say go, I may have the best possible information out there.

    Still, when I buy that land, I'm making assumptions about that market information and what those market numbers are going to be two years from now--when I can start construction. It may take me another year and a half to construct, lease, and sell 300,000 SF of office and industrial space.

    Now my assumptions are going out four years. My data can be perfect. My assumptions can be good or not--regardless of and independent of that data.

    What we're seeing in the stock market is people making new choices while their assumptions about the future change. Uncertainty about the future and changing assumptions about the future--this is the true center of malinvestment.

  • tarran||

    What you are calling assumptions, I am calling information.

    The ROI on a project has guesses as to what the rate of price increases due to inflation is going to be; it has guesses as to what the interest rate is going to be on lines of credit; etc.

    But those guesses aren't plucked out of the air randomly. They are based on experience and projections etc, ie information.

    When the fed centrally plans interest rates and creates a mismatch between the current economy's market clearing rate on interest and the rate it imposes, it creates shortages or gluts of investment money. And, because the central planners are dictating what the numbers are going to be, one is necessarily using bad information.

    One can say - loose credit, bust ahead just as a Venezuelan shopkeeper can say price ceiling on butter, shortages ahead. But one cannot predict when the bust/shortage will manifest itself.

  • Ken Shultz||

    "When the fed centrally plans interest rates and creates a mismatch between the current economy's market clearing rate on interest and the rate it imposes, it creates shortages or gluts of investment money. And, because the central planners are dictating what the numbers are going to be, one is necessarily using bad information."

    When I make my assumptions?

    I'm looking at the difference between government bonds, between regular and inflation adjusted, for the maturity that matches the length of my investment.

    Those numbers are market driven--and that means they will change as new information becomes available in the future.

    I hope you see that even if my data and assumptions about the present situation were absolutely perfect in every way, I'd still have to contend with making assumptions about the future--and that will always lead to malinvestment with or without government interference.

    We open ourselves to severe criticism needlessly if we blame malinvestment on government without talking about uncertainty. Without government interference, maybe we'd have a few sick people rather than an epidemic, but let's be clear about the difference between the government and a virus. One of them makes people sick. The other one makes things much, much, worse than they would be otherwise.

  • Set Us Up The Chipper||

    That boring old low entropy carrier just got some awesome high entropy INFORMATION.

  • gaoxiaen||

    ...information and raking off a lot.

  • Lee G||

    Uncertainty generally means big bets are the worst bets.

    And governments are in the business of preserving the status quo which makes them naturally averse to correcting malinvestment. Thus making the big bets even bigger as they attempt to prop them up.

  • Ken Shultz||

    I agree that what's going to happen is generally going to happen regardless of government action.

    The banks that were seized by FDIC and forced into mergers--how many of those wouldn't have found partners anyway?

    The banks that were seized by FDIC for writing too many subprime mortgages--how many of those didn't go bust because of government action?

    Most of the people who would have lost their homes without government assistance lost their homes anyway. Most of the people who negotiated lower payments with their creditors would have negotiated lower payments anyway.

    Housing prices dropped and recovered where they would have even without government assistance.

    Government interference simply made it all take longer, and I generally consider that a bad thing--like a heart surgery that lasts for five years, and the outcome of the surgery is the same as it would have been without it.

  • Ken Shultz||

    Like the patients is anesthetized and on the operating table for five years--you know what I'm saying.

  • Lee G||

    It's the aversion to true change. People bitch the most when they lose something they had. Much more so than when they never had it in the first place.

    It's the same reason why deflation is hated by government, when in fact, deflation is necessary.

  • Charles Easterly||

    Ken, would you agree that it is the scale of the deleterious consequences that makes central planning far more damaging?

  • Lee G||

    I would. Instead of a diverse and broken up economy that is more resilient to downturns, we have monster sectors that are artificially supported by central bank and government actions. They grow too quickly and too much for too long because government becomes interested in maintaining them, whether because of corruption, cronyism, or just plain old aversion to change.

  • commodious spittoon||

    Well put, all of you. Libertarians are often slapped with the mostly unfair but sometimes accurate accusation of being market supremacists who can't admit the frequent failures of investment and business decisions. Yours is a much more nuanced perspective.

  • Ken Shultz||

    "Ken, would you agree that it is the scale of the deleterious consequences that makes central planning far more damaging?"

    What they do amplifies the problems. No question.

    But at the end of the day, it's about uncertainty about the future for everybody.

    No one is ever free from uncertainty about the future.

    Even in science and math, you don't know what the results are going to be until you get them, and once you get them, you can't be sure that the results will stay the same in the future.

    Find me a scientist or a mathematician who can tell me what the weather is going to be like three years from now--with certainty. Even science has to reassess everything it thinks it knows if new information contradicting what it knew before if new information becomes available tomorrow that wasn't previously available.

    Even science is unsure about whether anything it knows now will be true in the future! Why not extend the same uncertainty to entrepreneurs, investors, company executives, etc.?

  • Ken Shultz||

    "Even science has to reassess everything it thinks it knows if new information contradicting what it knew before if new information becomes available tomorrow that wasn't previously available."

    Wow, I really butchered that!

    Even science has to reassess everything it thinks it knows if new information contradicting what it knew before becomes available tomorrow.

    If new information becomes available tomorrow showing that the sun actually orbits the earth after all, then heliocentric theory goes out the window.

    If new information becomes available tomorrow suggesting that the world doesn't need as much cheap labor as though, then the assumptions about the profitability of companies that depend on that cheap labor need to be revised.

  • Hugh Akston||

    The problem is that government investment is driven by political agendas often in defiance of evidence that what they are paying for isn't economical or needed or even feasible. And unlike companies that invest badly, governments rarely go out of business when they run out of money.

  • Harun||

    Your point may be valid, but China has far more malinvestment that was done because of market prices were distorted. The price signal is wrong, so you invest incorrectly, and that will definitely come back to bite.

    Example: artificially low Yuan

    So, my underwear factory really should be in Cambodia, but the Yuan is so low, China looks just as good...so I invest. Yuan is allowed to float up...now we have a malinvestment.

    Example: solar panels

    So, German government subsidies create a demand, people rush to fill it. The fact that solar power companies are going bankrupt is actually very normal market reaction. China really gets market prices down to 0% profit fast (the economic ideal of capitalism). Its the fake price signals from Western subsidies that are the man-made signals of mal-investment.

    Biggest Example: chinese sterilizaton of export surpluses

    To keep the Yuan down, they sterilize all their dollars by buying US financial assets like T-bills or $800 billion of MBS/Fannie/Freddie bonds.

    If you think about that, does it make sense that Chinese citizens would want $800 / person in US real estate? I think not.

    This is the u;ltimate in warping price signals: make capital investment in exports higher, lowers imports, pushes Americans to build more houses, and we're not done yet.

    Because someday they have to buy something with those T-bills!

  • Ken Shultz||

    I am not arguing that government interference didn't make things worse than they would have been without government interference.

    I'm simply arguing that even without government interference, uncertainty about the future would cause malinvestment anyway.

    I have no doubt that government interference made China's problems much worse than they would have been otherwise.

    China lifting that interference off of international trade, in so far as it did, lifted hundreds of millions of peasants out of subsistence level poverty, in which they could barely afford to feed themselves. Bringing such people into the world's labor force to participate in the world economy was an historic event, and investing in the infrastructure to facilitate that labor participation was a rational choice for a lot of entrepreneurial companies.

    That the worm would turn eventually was always in the cards. Markets tend to reinforce their directions until they correct. Those corrections are fundamentally a function of uncertainty--and they would happen without any government interference whatsoever. But government interference makes such corrections much worse than they would be otherwise.

  • MJGreen - Docile Citizen||

    The Austrian argument is that artificially low interest rates explain the cluster of malinvestment. There will always be failures, but why might an entire industry be plagued by malinvestment? It could sometimes be pure circumstance, or the animal spirits of Keynes, but I think the Austrian story is right most of the time.

  • OldMexican||

    Re: Ken Shultz,

    Malinvestment is driven by something even more fundamental than the Austrians would have us believe[...]


    You're misinterpreting what the Austrians are arguing, Ken. Malinvestment may be psychologically-driven by uncertainty. What Austrians argue is that cheap credit distorts the price of capital by making it seem there are far more savings in the Market than there actually are, thus pricing longer-term projects better than they would otherwise.

    Besides, the term "uncertainty" is meaningless. It is like throwing the term "greed" around, since there's always uncertainty just like there's always greed. What CHANGES is the market price of capital because of the market distortion created by cheap credit. Prices are conveyors of information. If this information is not accurate, then your decision-making process will be affected in a way that is not the result of real market conditions. That particular effect is what INCREASES uncertainty in the market.

  • Lee G||

    Cheap credit underprices risk.

  • OldMexican||

    Exactly.

  • Libertymike||

    Right on, OM. It is the misleading nature of the price and availability of real capital, not uncertainty. Real capital is not the same thing as that which flows from the FED's spigot.

  • Ken Shultz||

    "Besides, the term "uncertainty" is meaningless. It is like throwing the term "greed" around, since there's always uncertainty just like there's always greed."

    Uncertainty about the future, specifically, isn't meaningless, and its implications certainly aren't meaningless.

    One of the implications of the fact that there is always uncertainty is that the problem can't be corrected for by electing the right leaders or bringing corporate decisions under the control of democratically elected politicians who care about people.

    That the world is in such a way that the future is uncertain and that this is the ultimate cause of malinvestment is so fundamental that even Austrians should admit and do admit that putting Austrians in charge won't make any difference. Isn't that why so many Austrian leaning libertarians trend anarcho-capitalist?

    I don't know. Maybe the idea that the future is uncertain and that idea's implications are obvious to you--but that isn't true of everybody. Most people seem imagine that the future is obvious, certainly in regards to the economy, and if only we elected the right people to run the economy, things would obviously be better in the future than they are now.

  • RG||

    I thought there was some type of magical multiplier that applied to gov't spending, so China had nothing to worry about?

  • Ken Shultz||

    I disagree with Keynes on a number of important points, but he wasn't anywhere near as stupid as the progressives make him seem.

    Given China's growth, I doubt Keynes would have argued that they needed deficit spending or to counter some propensity to save, but, yeah, progressives in power and in the media have consistently argued, over the last eight years, that fiscal multipliers mean that sustainable economic growth comes from sniffing daffodils government spending--regardless of whether or why the economy is or isn't growing.

  • commodious spittoon||

    Which is mind-numbing since progressives seem to understand that investing in wartime manufacturing during peacetime isn't adding to the economy. Yet that's exactly their argument for investing in short-duration "infrastructure" projects. I suppose a generous interpretation would allow them an out in that, somehow, this undifferentiated heap of "infrastructure" spending eventually leads to more innovation and growth, but it's more likely they oppose military infrastructure for the same reason they champion "infrastructure" spending: not for any economic rationale but because they're diehard partisans to the end.

  • Lee G||

    Even Keynes understood that the business cycle must be respected and deflation was natural. Unfortunately he just gave governments and politicians the rationale they desired for pursuing an constantly inflationary economy.

  • MOFO.||

    There is, its just a negative number.

  • gaoxiaen||

    Several times I've read that a dollar in WOD spending takes seven out of the economy.

  • bassjoe||

    China's astounding growth over the past couple decades will be one day exposed as a gigantic fraud. 8%+ growth for 20+ years is absolutely unheard of in the history of civilization. It hasn't even had a contraction since, what?, the 1970s?

  • Irish ♥s ESB||

    China's astounding growth over the past couple decades will be one day exposed as a gigantic fraud. 8%+ growth for 20+ years is absolutely unheard of in the history of civilization. It hasn't even had a contraction since, what?, the 1970s?

    There were probably countries reeling off continuous 8% growth rates at the dawn of the industrial revolution, which is basically the stage of development china was at before their recent growth.

  • CatoTheChipper||

    I've been travelling to China since the mid-1980s. I do not doubt that it had 8% annual growth since then. I know that means it had to double its income every six years to accomplish that. But there was almost nothing there in the mid-1980s, and now its urban areas are quite modern with some first-class infrastructure and its manufacturing sector is robust. Of course it had to slow down.

    That's not to day that a lot of growth was in fact squandered in worthless housing projects, worthless military (PLA) projects, Solyndra-type manufacturing projects, really crappy public works projects, and corruption. The same could be said of the US.

  • Harun||

    I think the problem is that since 2008, China made even larger bets on government spending to mask the weakness of the real economy due to America's downturn.

    Most of that spending is wasted: gleaming steel conference halls in podunk 3rd tier cities.

    There were also massive financial twisting of arms. China likes to make savers lose and borrowers win, so they will get more investment.

    But then savers try to find alternative investments...which they did, in scam companies.

    I'm probably missing other things, too.

  • Episteme||

    I like the way Kevin D. Williamson defined one of the major issues with China's spending on such projects: an agrarian society can change into a modern economy once. China's been trying to both extend that process and effectively repeat that process like a public-works-fractal because of growth potential-on-paper, but it's pretty much what you see in the dictionary under "unsustainable."

  • OldMexican||

    China's infrastructure spending has proven to be troubled with corruption and shoddy work that has caused bridges to collapse, and the country's high-speed rail system is both expensive and dangerous.


    Remember way back when someone here was telling us repeatedly how the Chinese were beating the crap out of the US in the competition for high-speed choo-choos?

    Remember all those times we were letting that person know that, invariably, such projects are waste of money and time since they do not originate from true market demand but are instead the result of political expediency?

  • bassjoe||

    Crucial components of the new span of the SF Bay Bridge were made in China. To the surprise of no one, they were badly made. The bridge authorities are going to spend years and countless dollars replacing them. I barely trust Chinese factories with my microwave oven (not like we have a choice anymore), who thought it a good idea to trust them with components for a brand new, never before tried bridge design?

  • Harun||

    Quality control on the lowest bidder is always a problem. In China its even worse, as many Chinese businesses believe in the car salesmen method of sales: say anything to get you into the showroom, then work the price back up through nefarious means.

    quote super low, then inform the customer 3 weeks after the order is placed that a supplier has raised their costs, sorry.

    this happened on that bride project a lot...the Chinese may have assumed we'd accept bad welds, or they may have thought their quality was better than it was.

    Either way, CalTrans doubled down and sent a lawyer to China to handle this...a lawyer.

    He stayed for months in 5 star hotels. I bet he was being sent girls every night.

    Finally, CalTrans actually changed their safety specifications to be looser!

    And maybe the quality issue was overblown...wait, every time the story gets worse.

    Meanwhile, the Chinese were successful in negotiating higher payments. I bet when all is done, the work could have made in America with American welding for a cheaper price.

  • John C. Randolph||

    You can get any level of quality in China, you just have to be willing to pay for it. Paying for it includes doing your own testing of the product they supply, like Apple does.

    -jcr

  • commodious spittoon||

    You mean at their Foxconn plants where they use slave labor and manufacture SUICIDES??

    /leftmedia

  • Episteme||

    In this global economy, we Americans can't manufacture everything: we need to allow China to manufacture simple suicides so that we can focus our capital efforts on the high-tech manufacture of homicides!

  • The Late P Brooks||

    It's almost as if... now, try to stay with me, here... if financial risk is mispriced over a prolonged period of time, the market becomes distorted. When that distortion is finally wrung out, it can be quite painful.

  • Sevo||

    "Once upon a time President Barack Obama praised China's massive investment in infrastructure like roads and high-speed rail, calling it "vastly superior" to what America was doing."

    Well, with a recommendation like that, who wouldn't short China?
    I mean just look at Obo's record at picking stocks!

  • John Galt||

    Tsingtao beer doesn't taste bad. But, can it be trusted to not be toxic? The Chinese did poison my dog and my toothpaste ...and my sheetrock.

  • Tundra, well-chilled.||

    No, it's bad. Toxic or not, it tastes like shit.

  • sarcasmic||

    I like to have one to wash down the green curry when I eat at a Thai restaurant.

  • John Galt||

    With China devaluing the yuan it could cost less to wash that green curry down in the future. Mmmm..

  • Loki||

    China's crash should serve as a warning against centrally planned efforts to artificially spur growth.

    It should, but it won't. Kruggernuts is probably working on a column right now to explain how this is caused by MARKIT FAILYURE as opposed to central planning.

  • Lee G||

    Krugabe always doubles down.

    From August 21st

    Believe it or not, many economists argue that the economy needs a sufficient amount of public debt out there to function well. And how much is sufficient? Maybe more than we currently have. That is, there’s a reasonable argument to be made that part of what ails the world economy right now is that governments aren’t deep enough in debt.
  • sarcasmic||

    Government is how we borrow our way to prosperity!

  • Chupacabra||

    But only when Democrats are in office! If the president is Republican, then government debt is bad!

  • Loki||

    That right there might be the dumbest thing ever written by an allegedly intelligent person I've ever read. I don't even... WHAT?!?!

  • CatoTheChipper||

    Krugman is just repeating the wisdom of Joe Biden:

    “The president knows, and I know, that the status quo is simply not acceptable. It’s totally unacceptable. And it’s completely unsustainable. Even if we wanted to keep it the way we have it now. It can’t do it financially. We’re going to go bankrupt as a nation.”

    “Now, people when I say that look at me and say, ‘What are you talking about, Joe? You’re telling me we have to go spend money to keep from going bankrupt?' The answer is yes, that's what I’m telling you.”

  • commodious spittoon||

    This is such a weasely paean to his own dubious prognostication I'm struggling to believe NYT published it. Every sentence ending with a period is ludicrously qualified, and the one question he asks is patent question-begging.

  • ||

    "That is, there’s a reasonable argument to be made that part of what ails the world economy right now is that governments aren’t deep enough in debt."

    Reasonable? REASONABLE? Here that people? YOU'RE NOT IN DEBT ENOUGH.

    If someone told you this how would you react? You'd think the person is nuts, right?

    I read this as saying or signalling to someone go max out your credit card (or take cash advances) or LOC or mortgage because debt is what will lead you to prosperity.

    This irresponsible guy is ridiculous to the point of criminal now.

    Really. Enough with his stupidity.

  • sarcasmic||

    You don't understand. The rules of microeconomics don't apply on the macro level. Individual debt is bad. Public debt is good. On the individual level if you get a return for your effort, as in you import more than you export, then you're doing something right (assuming you're not financing it with debt). On the macro level that's a trade deficit which is a terrible thing. (I have a terrible trade deficit with the grocery store. They never buy anything from me.) Everything that makes common sense on the individual level gets flipped when talking about macroeconomics describing governments or countries.

    Keynesian economics is nothing more than a way for politicians to point to intellectuals and say "They're really smart and they say I need to take more of your money and put you in greater debt! For your own good!" And everyone heaves a collective sigh of relief.

  • ||

    Oh I know.

    I know all too well.

  • Charles Easterly||

    What China needs is a good Alien invasion to restart its booming economy....

  • sarcasmic||

    It's working for Europe.

  • Lee G||

    On the surface, we seem to have had a remarkable run of bad luck. First there was the housing bust, and the banking crisis it triggered. Then, just as the worst seemed to be over, Europe went into debt crisis and double-dip recession. Europe eventually achieved a precarious stability and began growing again — but now we’re seeing big problems in China and other emerging markets, which were previously pillars of strength.

    Bad luck

    The thing about morphine addiction is that over time it takes more and more to get the same euphoria.

  • RG||

    Gee, and none of this was caused by the policies or politicians Krugman advocates? It's just all bad luck?

  • ||

    Bad luck because liberals are in power. When a natural catastrophe happened it wasn't bad luck. It was Bush's fault and he hated black people.

    I loathe progressives.

  • The Late P Brooks||

    China's crash should serve as a warning against centrally planned efforts to artificially spur growth.

    Krugabe laughs at your antiquated economic voodooism.

  • Sevo||

    OT
    Looking at CNN market news and this caught my eye:

    "Palmieri: New York Times' Clinton story likely a 'hit job'"
    http://money.cnn.com/video/med.....=obnetwork

    The NYT is now an official member of 'the vast right wing conspiracy', according to Shrill's campaign!

  • Krieger's Waifu||

    Cao Ni Ma De, Do Shi Ni Men Mei Guo Ren Hai De!

  • Jordan||

    Now that's not very nice.

    wo yiwei women shi pengyou.

  • Palin's Buttplug||

    Wow. None of you Peanuts have said the words "plunge protection team" yet.

    I am proud of you!

    No get ye over to Zerohead for some paranoid CT talking points!

  • Jordan||

    liang shuang de gushi, xiong di

  • Krieger's Waifu||

    Ta Ma Ma Bu Ai Ta.

  • Jordan||

    jiushi

  • OldMexican||

    "If you don't feed it, it will go away."

  • Charles Easterly||

    "plunge protection team"

    Is that a line from the article or comment section discussing the topless tip-earners in New York City?

  • Sevo||

    It's some bullshit phrase turd read someplace and now he's throwing it around hoping someone will imagine his IQ as something larger than his shoe size.

  • R C Dean||

    The plunge protection team are the Top. Men. tasked with distorting the market. Central bankers, mostly. Some securities regulators, I'm sure.

    PB, inevitably, in the midst of a colossal failure in broad daylight of central planning, prescribes even more central planning.

  • Palin's Buttplug||

    Super high valuation Netflix only down 1.5% now.

    You don't fuck with the American consumer's toys!

  • Krieger's Waifu||

    Zhe Ge Gou Za Zhong Zai Jiang She Me Pi Hua?

  • Harun||

    jiang hua li mao yi dian. wo de er dwo tong sz le!

  • Harun||

    If Netflix is falling, its probably not due to China.

    Overvalued, or maybe Obama's plan to tax your internet bill to pay for broadband for poor people so is being shut down?

  • Muzzled Woodchipper||

    That's funny. The lady on CNN told me that the crash was because China's government didn't do enough investing in civil projects.

  • Loki||

    You can always count on CNN for razor sharp economic analysis. /sarc

  • DaveSs||

    Tell me when we hit bottom.

    Getting in on the ground floor for buying would be nice for a change.

  • The Late P Brooks||

    No one is ever free from uncertainty about the future.


    All the more reason for central bankers to desist from pretending to be able to steer the economy.

  • Sevo||

    Easy to fix!
    "China still has firepower to boost its economy"
    http://money.cnn.com/2015/08/2.....index.html
    She's proposing that the central government hasn't invested enough in infrastructure. Ya think?

  • Sevo||

    Ooops.
    I see Woodchipper beat me to it.

  • Harun||

    China's sell off is because there have not only been poor growth, but also the financial system was designed to screw savers and reward borrowers in order to spur growth. (Sound familiar?)

    Savers finally get so upset about low returns they look for higher yield and find it in shadow banking companies that are hinky. (We have those, too...they advertise on the radio for growth without stock market exposure and have investment dinners for old people.)

    Its like the secondary reaction to the artificial incentive can be worse than the disease.

  • In League with the Dark Ones||

    How can you have borrowers without savers?

  • Lee G||

    That's what printing presses are for.

  • C. S. P. Schofield||

    The thing is all of the Chinese history I know of is full of central planning that doesn't work, petty political squabbles while the peasants get it in the shorts, grandiose projects that end in failure (Great Wall, anyone). In other words, this isn't the consequence of Communist central planning. This is the result of several thousand years of bootless central planning. The Communists merely put a new mask on the Imperial Bureaucracy.

  • Sevo||

    The only question remaining is whether they still enjoy the mandate from heaven...

  • *GILMORE*||

    " China's benchmark Shanghai Composite index has fallen by nearly 40 percent since June, after soaring more than 140 percent last year."

    Wow.

    That's some real "Carnage" there. only up 100% YoY.

  • R C Dean||

    So far. Let's talk when they hit the bottom.

  • *GILMORE*||

    Let's talk when US index P/E falls below its historical average... or even gets back close to it. I'd be happy w/ 18

    this isn't even a proper 'correction'. Its a summer dip in an overvalued market with no catalysts.

  • Illocust||

    Remember that a lot of people in China were borrowing money from banks to invest in the stock market. When the Chinese market drops the money doesn't just disappear, it disappears and many of the investors are expected to pay it back with interest. If they don't get it prices up soon it's going to be a bloodbath as those bills come due. Freaking housing bubble pop without any physical goods to recoup.

  • Rhywun||

    China's infrastructure model that wasn't

    I can't vouch for the high-speed rail but when I visited in 2001 massive, crowded cities like Beijing and Shanghai would have like 1 or 2 subway lines each and now there's 10 or more in each. They were desperately needed given how crowded the cities are.

  • ||

    Bah. Not that I'm a genius or anything but it's years and years I treated China's economic data with a grain of salt.

    It never struck me as organic because, you know, central planning and commie.

    India on the other hand I would trust more because it's more transparent and democratic.

  • onebornfree||

    Nobody can reliably and consistently predict future economic events/ scenarios/ market moves etc.etc.

    They might occasionally get lucky, but that's about it.

    'Truth is, it is not even necessary to be able to predict future economic events - all that a long term saver really needs is a simple, balanced long term savings protection plan that simultaneously protects the savers savings from inflation, deflation, recession, and at the same time allows the saver to sufficiently profit in times when the economy is booming, whenever that might be.

    So personally, I don't worry about the latest "crisis" as outlined here, simply because the simple savings plan that I have used and recommended since 1986 has always worked to date , and will continue to work, regardless of what happens to the world economy:

    http://onebornfreesfinancialsa.....pdate.html

    Regards, Financial Safety Services
    onebornfreeatyahoodotcom

  • ||

    Google pay 97$ per hour my last pay check was $8500 working 1o hours a week online. My younger brother friend has been averaging 12k for months now and he works about 22 hours a week. I cant believe how easy it was once I tried it out.
    This is wha- I do...... ✹✹✹✹✹✹ www.online-jobs9.com

  • jmg09||

    "China's crash should serve as a warning against centrally planned efforts to artificially spur growth. "

    But it probably won't.

  • mary567||

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  • william567||

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  • XM||

    I mentioned this before, but both Japan and Korea have lightning speed internet (at least compared to the US) and their public transportation is so well integrated that many go without cars well into their 30's. Japan rebuilt some of their Tsunami wrecked roads with speed unimaginable here.

    Needless to say, those nations are unemployment death traps. But Americans eat up this notion that "building infrastructure leads to prosperity" even when urban development and other such projects rarely spread wealth around like progressives would like to.

    I guess China will spend unlimited amount of campaign money on Clinton to defeat Trump. America's freedoms benefit China once again.

  • Lord at War||

    Vox has a useful little reader

    The only time "Vox" and "useful" should be used in the same sentence is "Vox is useful in plumbing the depths of stupid that is Matt Yglesias"

  • Issue Ninja||

    All the economics is crap. China's business model when it decided to enter the world marketplace was to sell immense amounts of very high-quality slave labor for bargain prices. Why wouldn't that work? But nothing lasts forever.

  • Beezard||

    I'm sure this already being sold by most outlets as a failure of the market. Much like environmental costs of China's boom are already considered the result of "unfettered capitalism". I mean, the stock market crashed (again). So obviously, markets are no good. That's going to be the extent of most economic analysis.

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