Tuesday, July 8, 2014

World Wide " Economic Stimulus Package " Madness

World Wide "Stimulus Package " Madness Today's Announcement of a 586 Billion Dollar Stimulus Package in China Lex Loeb Contributor Network . China's gross national product is approximately the same amount of money as the proposed stimulus package depending on how it is it is calculated. The Stimulus package also contains tax cuts which is more of an incentive than it is a stimulus like other items in the plan. The last I heard China was blessed with Harvard educated economists giving the government advice on how to modernize their economy. Harvard only comes to mind because I find it hard to believe the Chinese would have thought of such a program to stimulate their economy without outside advice. Harvard? Nope Looks more like the old 5 year plans of the red communist era? The real reason there is a financial crisis world wide is not because of lack of stimulus. The main reason for the crisis is that banks borrowed a lot of money with what turned out to be imaginary guarantees and then lent that money out without any real collateral to back up the loans should the borrower find himself unable to pay back what he borrowed. The fact that people have become suspicious of banks and fearful to deal with them after some of the revered banking giants failed is more of a problem than the need to get people spending money. The China Plan, probably like a similar plan being devised by congressional democrats for the US at this same moment is an attempt to stop real estate prices from falling. What it may end up doing is giving people 20% discounts to buy property at a higher price level than they could have paid for it had the market been left to allow properties to drop to a level that people could actually find them to be affordable. Understanding that the idea is to stop a perceived deflationary trend, it still reminds me of a massive currency devaluation in disguise. The mania that created the unsustainable prices for everything from homes to commodities like petroleum were precipitated by what is called greater fool theory . Greater fool theory is where market participants buy stocks or contracts and hold them for resale purposes only. It seems sometimes that most stockholders are holding stocks just for resale purposes sooner or later. The same thing happens with real estate. So it seems the US , Europe , China and Japan are trying to encourage higher prices to act as an incentive to get buyers interested in buying. Really low prices , however, happen to be the real incentive. Creating funny money just complicates mater's because estimating an inflation rate is a future moving target. Looking at the stimulus plan in china it looks pretty top heavy like it will be going to state run industries mostly to prey on taking over weak companies desperately in need of capital the way that Warren Buffet did when he offered essentially $10 a share for Goldman Sachs which I calculated as the preferred share deal equivalent to an ordinary shareholder's diluted ownership after Buffet got his deal. I hate to say how low the GE equivalent looks like it is . Buffet pretty much named his price when he made the offer. He apparently made a similar offer for Lehman brothers that must have valued commons share equivalents at $4 so they just folded? The Chinese stimulus 5 year plan looks like 1/Th GDP , a hell of a lot of money for china spent over a number of years going to recapitalize Chinese state industries to play Play Warren Buffet to me. I don't think that sounds like a great longer term solution to get china out of a rut it appears to be joining other countries in at the moment. The real joke is how Banks and investment banks ended up as the greater fools in greater fool theory and that set off the public panic and stock market crashes not a failing economy. I don't know of one world economy that was failing before the wave of crashes started. The American and Chinese stimulus games could just ultimately be a disincentive for investment if they end up propping up unsustainable prices so buyers walk away. Americans are having trouble figuring out what is going on . They get a little testy if they write a check and it accidental bounces and they get charged a $60 check return fee but when banks start failing to be able to repay their obligations they get bailed out and there is no fine. The evidence still suggests Chinese real estate is the world's biggest bubble yet to pop. Chances is are it is as connected to an industrial Chinese bubble as it turned out the US mortgage market was here. China has approximately $541 billion dollars in US debt holdings. A better solution to china's problem might be to cash those into dollars immediately and buy us trade goods because it would be a better Marshall plan than the original one for China and the US mostly because the US consumer is just not going to go out and buy all the Chinese crap they were it they don't have jobs. Sounds pretty crazy china giving the US a Marshall plan but it really is not since they have just deferred purchase with their us dollar trade balance . At the moment with the dollar up , it is an excellent time to spend us dollars, even in Europe to get a better exchange rate than to hold the dollars earning less than the future rate of expected inflation as it compounds year after year. The best idea is for the US government to revalue their dollar holdings at a higher price level to compensate a bit for several years compound inflation to get those debt dollars cashed in and spent on us trade good now. The Chinese plan looks like the backfire will be following Russia down the road of multiple devaluation after real estate becomes a total bust there. The disparity of pay between the top payed 200 million Chinese who could afford brand new condo homes and those earning less than the average $3000 dollars a year is in comparison to the big nonsense about the Slide of the American middle class with their disparity between earning $43,000 on average a year with the upper set we hear the democrats is telling us is approximately $250,000 per year and above. Some reports say that Chinese economic growth reporting of over 10 percent compounding annually maybe fabrication of evidence? China has 2 or 3 separate economies. It would sort of be like including Mexico with the lower wage annual earnings of people there as part of the US economy , which they are in a sense, In China, however, the number of lower level earners $3000 and under per year is approximately 800,000,000 or 900,000,000 people which is twice the us population. The second economy is the elite class of urban professionals of china who number around 200,000,000 people. Mexico if it were added to the total US pie chart of wage earners only adds less than one fifth of the total joint us Mexico population. Chinas working poor are at least eight tenths of the population. Try stimulating people at the subsistence level when productivity is falling fast verses stimulating people in a much more developed country. Soon everyone worldwide will be drunk with too much stimulus and we are going to end up in detox after the party to save the world. If the aim of the Chinese stimulus plan is like the American one to keep people in homes they cannot afford instead of letting the market decide what homes are really worth based on what buyer can actually afford to pay , then it seems china is drawing a protective line for one class against another. . Close

No comments:

Post a Comment