The $5 trillion wiped off the value of global equities as the Chinese market collapse spreads hasn’t all vanished – it’s just gone somewhere else in search of a different bubble. What is really spectacular is not the collapse of Chinese markets, but the capacity of people to ignore the obvious indicators that it was on the way.
In the Guardian, Larry Elliot points out that Quantitative Easing – which is the new new name for printing money – has fueled a huge increase in the DOW and other indexes since 2007. In other words, while the rest of us struggled to survive the recession, ‘Wall St’ soaked the money that was supposed to ease that pain. Most of the trickle down growth which got to Main St was in the form of low wage jobs, often on ‘zero hours’ type contracts.
It seems clear that some of the QE money also went into the Chinese economy because on paper it was, apparently, growing quickly while the rest of the world declined. There is a priceless quote in the Independent “Maybe China has been economical with the truth about its growth and future prospects.” Indeed. But anyone who bothered to think – and this appears to exclude investors – the strength of the Chinese economy has been built on, let’s be honest, a pack of lies for years of which one of the biggest was the undervalued currency. Almost everyone knew this – questions were asked about the value of the currency and official growth rates in the financial columns. It wasn’t a secret at all, but yet investors were happy to throw more money on the fire in happy anticipation of being burnt – and this, after 2007?
That quote is in a story that points out that no one knows how bad this will get, as if this is the end of the world. Some doomsayers, even some highly qualified ones, are saying its time to prepare for the total collapse of the banking system. I don’t think it’s that bad – the money that was pulled out of the stock market is looking for someplace to go, and at some point, if its necessary to keep cash in the ATMs, politicians will just print more money.
But the real headline is that a significant proportion of the people who “manage” billion dollar investments on a daily basis have no clue at all about what they are doing.