Best of the Week
Most Popular
1.US Paving the Way for Massive First Strike on North Korea Nuclear and Missile Infrastructure - Nadeem_Walayat
2.Trump Reset: US War With China, North Korea Nuclear Flashpoint - Video - Nadeem_Walayat
3.Silver Junior Mining Stocks 2017 Q2 Fundamentals - Zeal_LLC
4.Soaring Inflation Plunges UK Economy Into Stagflation, Triggers Government Pay Cap Panic! - Nadeem_Walayat
5.The Bitcoin Blueprint To Your Financial Freedom - Sean Keyes
6.North Korea 'Begging for War', 'Enough is Enough', is a US Nuclear Strike Imminent? - Nadeem_Walayat
7.Bitcoin Hits All-Time High and Smashes Through $5,000 As Gold Shows Continued Strength - Jeff_Berwick
8.2017 is NOT "Just Another Year" for the Stock Market: Here's Why - EWI
9.Gold : The Anatomy of the Bottoming Process - Rambus_Chartology
10.Bitcoin Falls 20% as Mobius and Chinese Regulators Warn - GoldCore
Last 7 days
Boomers Are Not Saving Enough for Retirement, Neither Is the Government - 16th Oct 17
Stock Market Trading Dow Theory - 16th Oct 17
Stocks Slightly Higher as They Set New Record Highs - 16th Oct 17
Why is Big Data is so Important for Casino Player Acquisition and Retention - 16th Oct 17
How Investors Can Play The Bitcoin Boom - 16th Oct 17
Who Will Be the Next Fed Chief - And Why It Matters  - 16th Oct 17
Stock Market Only Minor Top Ahead - 16th Oct 17
Precious Metals Sector is on Major Buy Signal - 16th Oct 17
Really Bad Ideas - The Fed Should Have And Defend An Inflation Target - 16th Oct 17
The Bullish Chartology for Gold - 15th Oct 17
Wikileaks Mocking US Government Over Bitcoin Shows Why There Is No Stopping Bitcoin - 15th Oct 17
How to Wipe Out Puerto Rico's Debt Without Hurting Bondholders - 15th Oct 17
Gold And Silver – Think Prices Are Manipulated? Look In The Mirror! - 15th Oct 17
Q4 Pivot View for Stocks and Gold - 14th Oct 17
Gold Mining Stocks Q3’17 Preview - 14th Oct 17
U.S. Mint Gold Coin Sales and VIX Point To Increased Market Volatility and Higher Gold - 14th Oct 17
Yuan and Gold - 14th Oct 17
Tips for Avoiding a Debt Meltdown - 14th Oct 17
Bitcoin Hits New All-Time High Above $5,000 As Lagarde Concedes Defeat and Jamie Demon Shuts Up - 13th Oct 17
Golden Age for GOLD, Dark Age for the Stock Market - 13th Oct 17
The Struggle for Bolivia Is About to Begin - 13th Oct 17
3 Reasons to Take Your Invoicing Process Mobile - 13th Oct 17
What Happens When Amey Fells All of a Streets Trees (Sheffield Tree Fellings) - Video - 13th Oct 17
Stock Market Charts Show Smart Money And Dumb Money Are Moving In Opposite Directions—Here’s Why - 12th Oct 17
Your Pension Is a Lie: There’s $210 Trillion of Liabilities Our Government Can’t Fulfill - 12th Oct 17
Two Highly Recommended Books from Bob Prechter - 12th Oct 17
Turning Point Nations On The Stage - 11th Oct 17
The Profoundly Personal Impact Of The National Debt On Our Retirements - 11th Oct 17
Gold and Silver Report – Several Interesting Charts - 10th Oct 17
London House Prices Are Falling – Time to Buckle Up - 10th Oct 17
The S&P Is A Bloated Corpse - 10th Oct 17
Are Gold and the US Dollar Rallying Together? - 10th Oct 17
Is Silver Turning? - 9th Oct 17
Bitcoin Needs Electricity, Gold CONDUCTS Electricity - 9th Oct 17
S&P 500 At Record High But Will Stocks Continue Even Higher? - 9th Oct 17
Gold and Silver on Major Buy Signal, The Cycle is Up - 9th Oct 17
How To Fight Corruption in the Philippines - 9th Oct 17
Stock Market Bulls Still in Charge - 9th Oct 17
DiEM25: Europe Without Nations or Religion - 9th Oct 17
Gold Price Readying to Rally - 8th Oct 17
Gold Price in Q3 2017 - 8th Oct 17
PassMark Bench Mark of OVERCLOCKERS UK Custom Built Gaming PC (5) - 8th Oct 17

Market Oracle FREE Newsletter

3 Videos + 8 Charts = Opportunities You Need to See - Free

Credit Crisis Bailouts Continue; China Takes Aggressive Action on Economy

Economics / China Economy Oct 28, 2008 - 03:26 PM GMT

By: Money_and_Markets

Economics Best Financial Markets Analysis ArticleTony Sagami writes: Alan Greenspan and Ben Bernanke will go down in history as two of the most incompetent Federal Reserve chairmen our country has ever had. Like Mr. Magoo, they blindly drove the stock market and then the real estate market into some of the biggest bubbles our world has ever seen.


Now, however, they are dead right about just how bad the situation has gotten. So you should believe every word of warning that is coming out of their mouths. And let me tell you, these are some of the most dire warnings you will ever hear from a central banker.

Last week, Greenspan told Congress:

“Given the financial damage to date, I cannot see how we can avoid a significant rise in layoffs and unemployment.”

He also called the credit crisis a “once in a century credit tsunami” and said “[it is] much broader than anything I could have imagined.”

Meanwhile, Federal Reserve Chairman Ben Bernanke told the House Budget Committee that he expects the economy to stay weak for a long time and urged Congress to consider a new stimulus package. His words:

“With the economy likely to be weak for several quarters, and with some risk of a protracted slowdown, consideration of a fiscal package by the Congress at this juncture seems appropriate.”

House Speaker Nancy Pelosi loved the idea and pledged her support to spend up to another $150 billion saying:

“I call on President Bush and congressional Republicans to once again heed Chairman Bernanke's advice and as they did in January, work with Democrats in Congress to enact a targeted, timely and fiscally responsible economic recovery and job creation package.”

That is on top of the previous $170 billion plan, which gave out approximately $600 per person in a household.

Nancy Pelosi is in favor of yet another stimulus package.
Nancy Pelosi is in favor of yet another stimulus package.

And don't forget about the $700 billion bailout … $85 billion rescue of AIG … and $25 billion Chrysler corporate care package, either.

Our politicians aren't the only ones throwing billions at the problem:

  • South Korea has given out $100 billion.
  • Russia has spent $120 billion.
  • Germany has earmarked $65 billion.
  • And the United Kingdom has pledged $50 billion so far.

Those are just some of the governments throwing massive amounts of money at failing institutions.

China, however, hasn't spent a dime bailing out its banks. Instead, it is ensuring future economic growth!

Chinese banks own a very minor amount of our toxic mortgage bonds.

It's not because the Chinese are more brilliant than the rest of the world. It's because the government severely limited how much money Chinese banks and corporations could invest in non-Chinese securities.

Because of those policies, China doesn't have to worry as much about its banks. Instead, it can focus on keeping its economy chugging along.

Heck, the country is taking very aggressive actions to keep its economy from being affected by what is happening in the U.S. Take a look:

China will lower down payments and cut interest rates on mortgages starting next month. Effective November 1, the down payment requirement for those buying their first home will be lowered from 30% to 20%. Potential home buyers will also be able to get mortgage rates that are 70% of the country's key benchmark rate rather than the current 85%.

It also eliminated the transaction tax and value-added tax on home sales. That's another step to keep real estate markets moving. And sure enough, Chinese real estate stocks jumped on the news. China Vanke, China's largest real estate developer, gained 4.4%, China Overseas Land jumped 8.1%, and Poly Real Estate Group rose 6.4%.

China will refund value-added tax paid by exporters of labor-intensive industries like textiles, clothing, furniture, electronics, plastics, and toys from 13% to 14%. In all, 3,486 types of products — about one-quarter of exports — will be covered.

It pledged to increase spending of big bucks infrastructure projects like roads, airports, nuclear power plants and hydro power stations.

And remember, unlike our economy, which is quickly sinking into a recession, China is still growing at a pace that makes the rest of the world jealous.

Much of Chinas growth is coming from domestic demand.
Much of China's growth is coming from domestic demand.

The National Bureau of Statistics reported that China's gross domestic product expanded 9.9% in the first nine months of 2008!

Much of that economic strength was from strong domestic demand and from Asian neighbors, too.

Retail sales in China rose 23.2% in September, and by 22% in the first three quarters of the year. Trade with India has increased by 54.9% so far this year.

Yet despite those extremely strong fundamentals, the Chinese stock market has been punished for the credit problems in our country!

Fair or not, Chinese stocks are down.

While I didn't think that China (and the rest of Asia) could go completely unscathed while the U.S. market tanked, I did believe that its strong economy would limit the damage.

Investors all over the globe, however, are simply selling their Asian holdings regardless of the underlying fundamentals.

In short, Chinese stocks are being treated like U.S. stocks. So what should you do?

If you're a long-term investor and can stomach the volatility, I suggest holding on because Chinese stocks will recover and ultimately move much higher.

As I just explained, the Chinese economy remains strong and the Chinese government is taking the right steps to keep things rolling.

It may, however, be a very rough ride so be prepared.

And if you're more of an active short-term trader, you'll have plenty of opportunity to sell on rallies and buy on dips. For the immediate future, I think that will be the best way to make money in this challenging market.

Best wishes,

Tony

This investment news is brought to you by Money and Markets . Money and Markets is a free daily investment newsletter from Martin D. Weiss and Weiss Research analysts offering the latest investing news and financial insights for the stock market, including tips and advice on investing in gold, energy and oil. Dr. Weiss is a leader in the fields of investing, interest rates, financial safety and economic forecasting. To view archives or subscribe, visit http://www.moneyandmarkets.com .

Money and Markets Archive

© 2005-2017 http://www.MarketOracle.co.uk - The Market Oracle is a FREE Daily Financial Markets Analysis & Forecasting online publication.


Post Comment

Only logged in users are allowed to post comments. Register/ Log in

Catching a Falling Financial Knife