Peter St Onge
Peter is an economist, a Fellow at the Mises Institute, and a former MBA professor.
China is going pear-shaped as Beijing panics and wheels out the “monetary bazooka.”
Cue the worldwide inflation.
Just a few weeks ago I did a video about how China is on the edge of recession. Weeks later, the edge of recession has now progressed to a full-blown Chinese fire drill.
So What Happened?
Last week, China’s ruling Politburo held an emergency economic meeting and decided to crank up the money printers to 11, pumping money to consumers, to banks, to property developers [and] basically to anybody who might spend it.
Bloomberg called it an “adrenaline shot,” as in it’ll pump assets but won’t last long.
Specifically, Beijing’s going to dump about 3.8 trillion yuan – roughly half a trillion dollars – to keep the economy running.
A trillion yuan goes to consumer subsidies, including a 120 US per month child subsidy – a hundred twenty’s big in China – to bribe Chinese mothers into having more kids, which they’ve stopped doing.
Next up are the banks – as always – who get a cool 140 billion US along with another 100 billion dumped into stock markets.
Allegedly this is all to spur spending – as in the banks lend the money out and the stockholders feel rich – but it would do wonders for the gaping holes in China’s teetering financial industry.
Beyond the Money Dump
Beyond the money dump, China’s slashing interest rates across the board – which governments do to try and gin up some tissue-fire growth.
They’re slashing downpayment requirements on houses, opening a special credit facility so banks and hedge funds can gamble on stocks, and cutting the reserve requirements for banks – meaning banks can raid their vaults and go on a lending spree.
Put it together, and Beijing’s doing everything it can to get money out in the wild, down to bankrolling gamblers and pouring yet more trillions down the black hole of China’s comically over-built housing market.
You may have seen the ghost towns China’s built; here comes round two.
What Scares China
Why so desperate, you might ask?
Easy: China is panicked not only about a looming recession but that it might be falling into the Japan-style doom-loop of structural stagnation thanks to President Xi’s anti-business jihad.
The key number here is the interest rate on 30-year government bonds, which is a classic indicator of a zombie economy in the spawning.
Ominously, China’s 30-year just fell below Japan’s. Flirting with zombie territory.
What’s Next
Near-term, they’re popping the bubble in Beijing with stocks soaring.
And while four trillion yuan is a lot of money, this isn’t yet the Big Bang – that would be a long-rumored 10 trillion money dump by Beijing.
They’re not there yet, probably because the US and Europe haven’t hit the meat of their recessions. Debt-fueled Americans are still buying Chinese exports.
If and when that breaks down, either because Americans are out of money or Trump rolls out tariffs on China, Beijing’s up against the wall, and it will blow out into worldwide inflation.
China’s Turn for Chaos
I’ve mentioned in previous articles how if China goes down, the Chinese people won’t have a sense of humor about it. This ain’t Japan where people shake their heads and obey.
Beijing knows this, they know the kinetic history of the Chinese masses when they’re angry, and if they panic hard enough they may reach for a war to both distract the population and to clamp down on dissent.
Just this week they launched a massive military exercise in a disputed area of the South China Sea, there could be more to come.
Republished by the Brownstone Institute from the author’s Substack.
