Is China a ticking timebomb?steemCreated with Sketch.

in #china6 years ago

The battle between Beijing and President Trump is well chronicled. Tariffs are on everyone's mind as China and the US play a tit-for-tat game. The President started the battle by levying tariffs on certain Chinese products only to be met with with tariffs out of Beijing. Back and forth, each round adding more to the pile.

While this is capturing the headlines, what is overlooked is China's devaluation of the currency. This is a move in response to offset the impact of the tariffs on the economy.

The issue with this move is that tariffs only affect a portion of the economy while currency devaluation impacts everyone. This is something that could really harm and already wavering economy. We are already seeing diminishing purchasing power and loan repayment capacity is falling.

One major problem is that margins fall but expenses do not match up. The devalution of the Yuan will cut into the profits yet expenses like energy, working capital, imports, and other fixed costs account for 70% of expenditures. Instead of falling, many of these are rising.

The average household is further burdened by the fact that inflation appears to be rising at a pace higher than the government acknowledges. Inflation eats into spending ability if wages are not keeping pace. At present, it is estimated that the Chinese are underestimating their inflation rate by about 2%.

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Control of credit can stiffle economic expansion but turning a blind eye can be destructive also.

There are numerous reasons why we should worry about China’s decision to end its control of credit growth. The government has been encouraging riskier lending by cutting deposit reserve rates and pumping liquidity into the system.

The silent bailout, which has led to the PBOC injecting hundreds of billions of dollars into the financial system, is not reducing the excess risk-taking, it is encouraging it.

This is creating a housing bubble that is larger than what the United States experienced a decade ago. The "easy credit" path which encourages excessive risk taking is pretty clear. These things tend not to end well.

China's decision to devalue the Yuan is not making it more competitive. Instead, it is only eating into household's spending ability while also creating a credit fueled bubble. Many like to point to the fact that a great deal of the money supply is gold backed. This is not quite accurate since gold accounts for only .25% of all the money supply.

While everyone has their eyes on the tariff fight between Trump and the Chinese government, many are missing the currency issue. This is one that could blow up in Beijing's face.

To read more about this, click on link:

https://www.dlacalle.com/en/china-why-we-should-be-even-more-worried-after-the-devaluation/

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Trump did shake up part of China's economy in the short term but in the long run, China will bounce back, since they are dealing with the whole world not only the U.S. But I can't say the same for the States, even their own economist are worried what this means for them in the long term. Nothing good for the USD currency and I'm sure they know they can't go to war with them. So the U.S. experts (Peter Schiff and others) expect the Dollar to go down significantly even before Trump leaves the office... So If I had my savings in the USD I would throw it into gold or crypto asap...

Time will tell...

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everything is planned way before we can imagine. All big states are involved and take turns. us public are sheep we go merry go around

You got a 38.76% upvote from @bid4joy courtesy of @steemium!

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China will eventually learn a good lesson similar to usa in 2008 but might be larger economic impact on its innocent hard working Chinese people.

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We have a lot of Boombs The China Economic, The Social Media, and in lot of more in Germany.

Gold is actually slightly larger than all the physical notes and coins of all major currencies combined.

Scroll down this page a bit, it will give you an idea how big the various markets are:
http://money.visualcapitalist.com/worlds-money-markets-one-visualization-2017/

#Trump did not start the battle. He just refuses to roll over and sellout his own people like the #Clintons. #Freetrade is not #fairtrade #infowars #informationwar #silvershield #dashy

Hashtags mean virtually nothing on Steemit. Especially in comments.

They might mean nothing to you or many others. They might not link to things but they are still keywords to say many things about me with the fewest characters. Thanks for the tip.

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