The Chinese stock market was down the limit of 7% today. It is the second time this week for such a drop. As a result of these drops, panic is setting in among those invested in Chinese stocks. Indeed, because of the 7% maximum drop, when the market opened, there was a rush to sell and in about a half hour trading was halted. Tomorrow, we may see another wave of selling cause the same sort of drop. And, of course, when the Shanghai market drops like this, the rest of the markets around the world move lower as well. As I write this, the Dow Jones average is looking like it will open down by 380 points.
So is this the start of the next global recession? Will the Chinese economy collapse? Are we about to witness a massive wave of bankruptcies as companies lose their Chinese markets? Those are the sorts of questions that drive the panic. The problem, however, is that those are also the questions to which the answer may turn out to be "YES".
There will be no way for the USA to avoid the economic pain if China falters in a major way. Because our economy has been so mismanaged for the last seven years, it is still in a precarious condition. We never had the robust recovery that has followed every other recession of modern American history. The Federal Reserve cannot meaningfully lower interest rates to boost economic activity. We are already at rates of one quarter of one percent. There will be no additional federal stimulus that will boost the economy. We have just finished seven years with stimulus averaging over one trillion dollars per year, and that did not work. No, the structural and regulatory impediments that Obama and the Obamacrats placed on the economy have held it back so now we do not have the economic strength to withstand a true downturn in China.
Let's hope that the Chinese market drop is a temporary blip on the radar. If it is sustained, America is in for a terrible ride.
So is this the start of the next global recession? Will the Chinese economy collapse? Are we about to witness a massive wave of bankruptcies as companies lose their Chinese markets? Those are the sorts of questions that drive the panic. The problem, however, is that those are also the questions to which the answer may turn out to be "YES".
There will be no way for the USA to avoid the economic pain if China falters in a major way. Because our economy has been so mismanaged for the last seven years, it is still in a precarious condition. We never had the robust recovery that has followed every other recession of modern American history. The Federal Reserve cannot meaningfully lower interest rates to boost economic activity. We are already at rates of one quarter of one percent. There will be no additional federal stimulus that will boost the economy. We have just finished seven years with stimulus averaging over one trillion dollars per year, and that did not work. No, the structural and regulatory impediments that Obama and the Obamacrats placed on the economy have held it back so now we do not have the economic strength to withstand a true downturn in China.
Let's hope that the Chinese market drop is a temporary blip on the radar. If it is sustained, America is in for a terrible ride.
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