A Lesson in Capitalism
Today, the Chinese stock market, so active under the new capitalism, suffered a serious correction: down almost 9 points. 9% of the wealth evaporated in a single day, poof! The evening news and subsequent market news on the radio this evening made no predictions as to whether tomorrow will be a repeat performance, but it has all the earmarks of a classic market crash. Almost all the earmarks of a classic market crash. Prices had ballooned, doubling in the past few years. Much of this increase was fueled by “ordinary folks,” as opposed to professional investors, entering the speculative market. Many have gone so far as to take out bank loans to speculate, and they’re suddenly in deep doo-doo. A few savvy speculators will get fabulously rich for choosing the right moment to buck the trend, but the general populace loses, spending drops, industry feels a pinch, and the country suffers generally.
This is bad news for the U.S., too, and not just because our industries will feel some of that cooling consumption. China holds a lot of U.S. debt, and when their economy cools, the pressure is to call in those debts. But I’m drifting from my point.
The Chinese dip has all the earmarks but one of a bursting bubble. In a western market, a market slide causes the government to make reassuring cooing noises. A really serious drop causes the government to close the market for a day or two, along with aggressively reassuring cooing noises, just to let people stop and catch their breath and think about where they really expect things to go. But that’s as far as it goes. The market is reopened, and prices begin to move once again to equilibrium.
In China, however, the government is a paranoid military oligarchy with a demonstrated history of cracking down without reservation on anything that threatens their power base. Right now, that power base is strongly attached the urban proto-bourgeoisie, to whom the farmers’ interests have been sacrificed for a couple decades. Nobody but the inner circle of China knows what the inner circle of China is going to do—if indeed they know, themselves—when the penny investors start to holler.