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China seems to be hell bent on exiting the global speculative markets. Can the stock markets absorb this shock?

by la6471 5y ago

ethbr0 5y ago
Afaik, there is effectively "the Chinese domestic stock market" and "the rest of the world's stock market." Chinese citizens can invest in the former, but (via government currency exchange controls) can't participate meaningfully in the latter. So if China exits global stock markets... there isn't that much Chinese money being pulled out of them, because there wasn't that much in them. What money China is investing internationally appears to mostly go to bonds, construction financing, and asset leases / purchases. PS: What this appears to really be about is severing links for extraordinarily wealthy Chinese citizens to move money outside the reach of the PRC. Which, if you were running an expansionist monetary policy intended to facilitate domestic economic growth, while simultaneously cracking down on the wealthy in pursuit of equality, is presumably something you'd take very seriously (as a command economy). Lest all that new & old money just fly offshores.
yomly 5y ago
To be fair, it is well accepted that high inflation is bad as everyone stops spending. This holds true for asset inflation as well - you can be damned sure that in the current environment tonnes of people will be taking money out of the system to dump into markets
- rmah 5y ago
  High inflation encourages spending. It is deflation that discourages spending. High inflation means that the money you have today will purchase less in the future, thus it pushes people to buy now rather than later when things will be more expensive in nominal terms. High inflation combined with low interest rates, will also increase financial speculation pretty much across the board. The problem with high inflation is that it usually (but not recently) goes hand in hand with higher interest rates (i.e. money costs more). Which tends to discourage business borrowing, which acts as a damper on non-financial investment (i.e. spending on factories, marketing, R&D, etc.). This has the effect of slowing down economic growth. On the other hand, high inflation/high interest rate environments tend to arise when growth is high. Because high growth tends to go hand in hand with a rise in wages, increases in demand (which shifts the demand curve, and thus raises prices), increases in financial speculation, etc. There are a ton more "on the other hands". Economic analysis is complex and difficult because it's a tangled mess of interdependent feedback loops that constantly change. A single policy action has an avalanche of cascading effects, some of which will be counter to the policy objective. I'm not suggesting humanity should just roll over in the face of this challenge. We should just be aware that it's a "hard problem" and there are never any simple solutions.

China seems to be hell bent on exiting the global speculative markets. Can the stock markets absorb this shock?

by la6471 5y ago

China seems to be hell bent on exiting the global speculative markets. Can the stock markets absorb this shock?

Afaik, there is effectively "the Chinese domestic stock market" and "the rest of the world's stock market." Chinese citizens can invest in the former, but (via government currency exchange controls) can't participate meaningfully in the latter. So if China exits global stock markets... there isn't that much Chinese money being pulled out of them, because there wasn't that much in them. What money China is investing internationally appears to mostly go to bonds, construction financing, and asset leases / purchases. PS: What this appears to really be about is severing links for extraordinarily wealthy Chinese citizens to move money outside the reach of the PRC. Which, if you were running an expansionist monetary policy intended to facilitate domestic economic growth, while simultaneously cracking down on the wealthy in pursuit of equality, is presumably something you'd take very seriously (as a command economy). Lest all that new & old money just fly offshores.

yomly 5y ago

To be fair, it is well accepted that high inflation is bad as everyone stops spending. This holds true for asset inflation as well - you can be damned sure that in the current environment tonnes of people will be taking money out of the system to dump into markets

rmah 5y ago
High inflation encourages spending. It is deflation that discourages spending. High inflation means that the money you have today will purchase less in the future, thus it pushes people to buy now rather than later when things will be more expensive in nominal terms. High inflation combined with low interest rates, will also increase financial speculation pretty much across the board. The problem with high inflation is that it usually (but not recently) goes hand in hand with higher interest rates (i.e. money costs more). Which tends to discourage business borrowing, which acts as a damper on non-financial investment (i.e. spending on factories, marketing, R&D, etc.). This has the effect of slowing down economic growth. On the other hand, high inflation/high interest rate environments tend to arise when growth is high. Because high growth tends to go hand in hand with a rise in wages, increases in demand (which shifts the demand curve, and thus raises prices), increases in financial speculation, etc. There are a ton more "on the other hands". Economic analysis is complex and difficult because it's a tangled mess of interdependent feedback loops that constantly change. A single policy action has an avalanche of cascading effects, some of which will be counter to the policy objective. I'm not suggesting humanity should just roll over in the face of this challenge. We should just be aware that it's a "hard problem" and there are never any simple solutions.