29 all over again !
Chinese markets plunged Monday in a free fall manner, despite all the care they received. Some could see that move as a logical conclusion of the mammoth growth which took place there for 35 years. Yes it is that and something much more important.
In 2008 when world trade was in free-fall, China took it on herself to launch a massive stimulus program, giving breath to a dying construction boom. Such a move was already unneeded for internal purposes, it only help a struggling world economy to lurch six years on an impracticable path of QE and stimulus. China helped the world avoid the depression we are facing now, stronger than ever. But it was not for free as the country was asking politely for two important items : a restructuration of the internationals institutions like the FMI and the World Bank as well as a change in the us policies concerning debt and ultimately the status of the dollar. Peking even agree to let the Yuan go higher and higher in an effort to set things straits for the day it would flow freely. Indeed king dollar bought less and less yuan until the devaluation move which came last week, in 2006 it bought 8.2 yuan, in 2014 it bought only 6, almost a 25% reevaluation ! The recent Chinese move which is highlighted now is only a come back to 2011 at 6,5 yuan per dollar.
Alas, despite all Chinese goodwill and sacrifice, the USA were unwilling or unable to proceed in what was could only be described as a downsizing of their global political and economical reach. Even worse QE came after QE, china would not gain interest on her hard earned cash.No surprise, China is now playing her cards in a non collaborative way, tit for tat is the name of the game shall we say. But the West should be aware of a very nasty precedent.
During the roaring twenties the USA launched a manufactured boom using the new tools provided by the brand new Federal reserve, it was supposed to help Europe in dire need of economical relief, the reds were at the door, unrest everywhere. easy money started flowing even as European currency were always going down, time after time. That policy gave birth to a twin boom in real estate and stocks prices. When it became clear that such a policy created more problems than it could solves, the FED unplugged the market giving birth to what we know as the great depression.
US entered a full blown depression which had paradoxical consequences while it was seen as an economic catastrophe in the country and elsewhere when the dust settled, the USA where the only one still standing firm in the economic scene. England and France had lost their economic status, Germany had gone crazy.
We think that what has began Monday is a move which is comparable in scope and range, the world will shake. Chinese state has new allies and can rely on the Russian hinterland which is offering guaranties in the case things go very sour. In others words they are ready to deal with what is unleashed on a reluctant world, are we ?