Wednesday, July 8, 2015

CHINA | Is It 1929?

China Stock Prices Down, Volume Up.
July 8, 2018–China's stock market is the second-largest in the world after that of the United States.

It is now in a free fall that extensive government intervention does not appear to be slowing.

The major Chinese market has fallen by one-third from its seven-year high last month and continued to drop today. Expectations are for a further drop despite suspension of trading in one-fourth of listed stocks.

Is it 1929 in China? The political impact of 1929 in the United States was enormous, ushering in two Democratic decades in the White House, FDR and Truman.

The end of the free fall in the U.S. economy after 1929 did not come until 1933. What turned the economy around was:
  • FDR and his Treasury Secretary (William H. Woodin) declared a bank holiday, printed money for the banks and opened only the solvent banks.
  • They required the sale to the government of privately held gold. Later, FDR devalued the dollar against gold (i.e., raised the price of gold).
  • FDR instituted projects to create new jobs.
The program worked until budget-balancing came back in 1936, causing a brief dip again in the economy.

The political impact of the stock market collapse is likely to be great in China because 80 percent of investors in the Chinese market are reportedly individuals, many of whom borrowed money to increase their stake in the market.