Western pundits are clueless about this and think that China has gone off the deep end, but China has it figured out.
Many investors say China’s unprecedented attempts to arrest the slide have undermined its commitment to give markets a “decisive” role in pricing assets.
“They can probably stabilize the market, but it will be a political decision, as they will have to compel government, state agencies, banks, pension funds, insurance companies to buy,” said Ashok Shah, investment director at London & Capital.
“Essentially the political decision is: to transfer the potential losses from private investors … to the state in some manner.”Moreover, the doomsday crowd sees this correction after a huge advance as the end of the CCP. Wishful thinking.
But it is teaching the Chinese about the vagaries of the market and how fickle she can be. It's probably not so much a setback for socialism as it is for capitalism.
One America News Network
China Stocks Jump Again After Beijing Put Floor Under Market
Reporting by Samuel Shen, Pete Sweeney, Brenda Goh and Kazunori Takada; Additional reporting by Pratima Desai in London; Writing by Alex Richardson; Editing by Will Waterman
See also
CHINA US Focus
Stock Market Slump Will Have Only a Limited Impact on Economy
Xu Hongcai | Director-General, China Center for Int'l Economic Exchanges
5 comments:
Well, so it seems a Government via it's Central Bank might buy any manner of asset and keep the lampshade and high heels crowd from influencing it's price beyond a certain point. This sort of thing causes the Creative Destruction Unicorn to shed bitter, bitter tears.
Nice post, Tom.
John D. Rockefeller, whom I'm sure the "free market" and libertarian crowd adore, said that it is folly to allow his enterprise to be subject to the whims and vagaries of the free market. He dominated the market and didn't let it control him.
This off course begs questioning why we need financial markets as they exist at all.
This off course begs questioning why we need financial markets as they exist at all.
Markets area very convenient way of distribution and until the digital age advances somewhat are the most efficient and effective means available for most tradable goods and services.
The issue is rules and rules usually involve controls. Then the question arises, who sets the rules and enforces them, which implies who is in control.
It's always the government since the rule of law was established institutionally instead of by custom.
Law and enforcement are about governance, and governance is about order.
Market need to be orderly, which includes fair (no cheating) and relatively stable (predictable).
Governments used buffer stocks to regulate commodity markets to keep them fair (no corners) and stable (to prevent gluts and shortages that would affect the economy and therefore populace).
China was just taking the same sort of steps that the US did almost immediately after "following the rules" of capitalism and allowing Lehman to fail.
Under a market system, government has the responsibility to protect the market, not as an end, but as a means of maintaining social order.
China is doing the right thing is limiting volatility and creating some space to let retail investors breath at bit by supplying oxygen tot the market. Corrections are to be expected but sudden volatile correction are explosive not only for markets but also society.
So far the government seems to be mostly on top of it after letting margin expand too much for safety. But they have probably learned a lesson about that.
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