iLook China

Over at CNN World, Stephen S. Roach wrote a post about America’s renminbi fixation.  Many of the comments that responded to the post were obviously from Internet Trolls that lack the skills for an intellectually reasoned response. Instead, the trolls resort to logical fallacies to divert attention away from Roach’s message (I left a comment and a few replies too).

While many in the West have predicted for about three decades that China is going to have a hard landing after an economic bubble of some sort bursts, it hasn’t happened yet.

I Reblogged Roach’s piece and you may reach it by scrolling down or clicking on this iLook China link.

To research this post I Googled “financial crisis in China since 1980” and found no results that answered what I was looking for.

However, I found this at Princeton.edu, which said, “It is now just over twenty years after China initiated its economic reform in 1978. Since then the average rate of growth of GDP has been a phenomenal 9.5 percent per year. This essay reviews the reform process, discusses the impact of the current Asian financial crisis and attempts to assess the prospects of China’s economy in the future…

“In summary China’s reform process has been an experimental and gradual process. It was to be continued before the Asian financial crisis (1997). State-enterprise reform, financial reform and the opening of the Chinese economy have all been affected by the crisis, but there is no question that as soon as conditions allow the reform process will continue, incorporating the lessons learned from the crisis…

“In conclusion, economic reforms in China are likely to continue in the manner and directions as described above. Because of the strong fundamentals of China’s economy as demonstrated by its good performance during the financial crisis substantial growth will continue perhaps for another decade after the current crisis.”

In addition, in an April 2008 economic study from Harvard, we discover, This Time is Different: A Panoramic View of Eight Centuries of Financial Crises.

The Harvard study said, “As the first paper employing this data, our aim is to illustrate some of the broad insights that can be gleaned from such a sweeping historical database.  We find that serial default is a nearly universal phenomenon as countries struggle to transform themselves from emerging markets to advanced economies.  Major default episodes are typically spaced some years (or decades) apart, creating an illusion that “this time is different” among policymakers and investors.  A recent example of the “this time is different” syndrome is the false belief that domestic debt is a novel feature of the modern financial landscape.  We also confirm that crises frequently emanate from the financial centers with transmission through interest rate shocks and commodity price collapses…

“The ability of governments and investors to delude themselves, giving rise to periodic bouts of euphoria that usually end in tears, seems to have remained a constant.”

Since not much time has passed since China’s economic reforms in 1978, we will look at the United States for examples.

The current total US deficit (national debt) as of today is more than $15.5 trillion and the average credit card debt per household based on 609.8 million credit cards held by US consumers is almost $16,000.

However, “Chinese households save a large share of their disposable incomes and their average saving rate has increased over the last decade and a half. This pattern is particularly pronounced for urban households, which account for about two-thirds of national income. After remaining relatively flat during the early 1990s, the average saving rate of urban households relative to their disposable incomes rose from 18% in 1995 to nearly 29% in 2009.”

In addition, if we study “Panics, Depressions and Economic Crisis Prior to 1930 in the United States”, we discover that “Those most disastrous have usually followed general injudicious speculation in lands or inflated securities. The crisis of 1816-1819 in the United States, it is claimed was due to the speculation and disorder following the War of 1812. The next occurred in 1825. A very memorable panic was that of 1837.” Source: The History Box.com

Akorra.com lists the Top 10 Worst Financial Crisis in U.S. History starting with the Crash of 1929/Great Depression; our current and continuing Mortgage Crisis of 2007; the Panic of 1893; The Banker’s Panic of 1907; the Panic of 1873; the Panic of 1819; the 2001-2002 Recession (known as the dotcom bubble that wiped out $5 trillion in market value of technology companies);  the Kennedy Slide in 1962 which caused a 22.5% drop in the S&P 500; the Panic of 1837, and The Oil Crises of 1973.

In addition, there have also been recessions in 1937, which followed the Great Depression (1929 – 1933); 1945, 1949, 1953, 1958, 1960-61, 1969-70, and 1973-75.

As for China, the predictions of an economic crises/crash keep coming as if they were being manufactured on an assembly line — but one hasn’t arrived yet and it has been 34 years since China’s 1978 economic reforms, while for the same period in the US there have been several economic recessions running from January – July 1980; July 1981 – November 1982; July 1990 – 1991; March -November 2001, and December 2007 – June 2009.

When an economic crises does appear in China (the odds favor that it will), it may be part of a global universal phenomenon as the Princeton and Harvard studies reveal, so it is a good bet that sooner or later China’s economic critics will be able to step up on their soap boxes and crow, “I told you so (a hundred times over the last several decades that it would happen one day)!”

I suggest watching the two videos with this post to learn about manufactured financial panics in the United States, which leads to a question: Is the American fixation on China’s currency manufactured too?

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Lloyd Lofthouse is the award-winning author of The Concubine Saga. When you love a Chinese woman, you marry her family and culture too. This is the love story Sir Robert Hart did not want the world to discover.

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