The last article of year 2011

Dear All, This is my last article for 2011. Hope you have enjoyed my articles during the year. 2011 is a very difficult one for everyone. The first half of 2012 may be worse. There is just so many baggage from the past yet to be cleared out. The past cannot be covered up anymore.I'm in Zhejiang now, talking to bankers about unique credit risks here associated with businessmen gambling in Macau. Bankers literally try to take away their borrowers' pass for entering Macau. But, somehow, they manage to get into without the pass. This is such a big deal that threatens the health of China's economy. Macau threatens China's stability.High interest loans are a bigger destabilizing force yet. Its fall impact is yet to be felt. So many still count on land price coming back to save them. The land bubble...

Read more »

Posted in: BRIC

Shattered illusions

Andy Xie forecasts escalating volatility in the global economy next year as the West begins to pay for its past excesses and the emerging economies, led by the BRICS, try to pick up the pieces after the credit bubble bursts Andy Xie December 14, 2011 Next year may be the most volatile year in two decades. A political crisis may engulf major countries in transition. The financial crisis that began in the United States and is now raging in Europe could take down some major emerging economies that have been relatively stable. The BRIC economies may experience serious difficulties next year. Some may suffer an old-fashioned currency crisis. The major central banks in the developed economies loosened monetary and fiscal policies to cope with the financial crisis in 2008. A significant...

Read more »

Posted in: BRIC

Usury and monetary policy

2011-10-17  / Andy Xie Summary ------------- The bankruptcies of many private enterprises, especially in Wenzhou, are mostly due to speculation with borrowed money gone bad. It is totally wrong to characterize this phenomenon as monetary tightening squeezing SMEs. Normal businesses don't go bankrupt because they cannot borrow. Only money burning speculation needs to borrow constantly to stay afloat. Loosening monetary policy now to ease the liquidity crunch for speculators would do enormous harms to the economy. Indeed, the excessive monetary expansion between 2008-10 squeezed real businesses through cost push and rewarded speculation through asset inflation. Another wave of excessive monetary expansion will magnify manifolds the speculation in China's economy by proving again that...

Read more »

Posted in: monetary policy

Start the international board now

A country becomes a financial center because it has succeeded in becoming the trade center. Germany's plight today should remind everyone that, when the financial center and the source of money are disconnected, bad things happen to whoever has the money. Even though Germany amassed the biggest trade surplus in the past decade, its financial system was woefully underdeveloped and relied on London bankers to recycle its money into other countries. With the benefit of hindsight, it would be natural that the London bankers wanted to screw Germany, because they were paid to do so. In a decade or two, Germany may become a poor country. When people look back then, they would conclude that its decline was due to the combination of a hyper competitive manufacturing sector and a woefully inadequate...

Read more »

Posted in: China,finance,stock market

The global crisis lingers

If you hear actions to increase the capital base for French and German banks, expect Greek default soon. When multinationals call East Asia home, they will invest enough to treat East Asian consumers like their western counterparts. The investment process will lift the salaries of the Asian workers to the western level. They then have the consumption power to make the investment pay off. This would be a gigantic project to build a new global economy. 2011-09-26 / Andy Xie summary ------------ The global crisis has turned into a chronicle one. The eurozone's response to its recurring debt crisis is another bandaid that would ease the pain for the time being. So are the expected Fed's QE 3 and the Obama Administration's $447 billion fiscal stimulus proposal. The structural headwinds and...

Read more »

Posted in: global crisis

2012: Beyond leadership crisis

Steve Jobs is dead. Tim Geithner is still the US treasury secretary. That pretty much summarizes the affairs of the world. 2011-10-10  / Andy Xie Steve Jobs represents the best of capitalism. He created, contributed, and was rewarded. For one generation, Apple Macintosh was the first IT device that was not only functional but also beautiful, a pleasure to use. His genius was to aggregate all the existing technologies to invent products that people didn't know they needed but couldn't live without after seeing them. Steve Jobs is an exception in capitalism rather than the norm. Most corporate leaders have climbed to the top through politicking and showmanship. I had my first encounters with America's corporate titans while doing summer jobs. They looked impressive, like Hollywood...

Read more »

Posted in: capitalism

Money shortage ?

2011-07-04  / Andy Xie Summary ------------- The so-called money shortage today reflects excessive money demand in the past, which was a result of very loose monetary policy. If the tightening policy is changed due to the pressure, the monetary condition would go back to the excessively loose state. As inflation is still unstable, i.e., product or service price could jump by 20-30% in one go, loosening monetary policy could trigger hyperinflation and social turmoils. There is a need to switch the tightening policy towards raising interest rate from just increasing bank deposit reserve ratio. The later only shifts interest rate increase into the gray market, which disproportionately burdens the SME sector. The current tightening approach protects local governments and SoEs that were...

Read more »

Posted in: monetary policy

Japan's earthquake changes the world

Who are Japan's ruling class? Japan's bureaucracy rules the country. The bureaucrats are a remarkably stable class. At certain age they retire into senior positions in companies like Tokyo Electric that owns the nuclear plant in crisis, a practice called amakudari. In theory, Japan's bureaucrats are the best and the brightest in the country. The senior people in the bureaucracy are almost all graduates of Tokyo University. Their superiority over the population was unquestioned for a long time and remains extremely high. However the record is not there to back up their prestige. Japan's post-WW II recovery was often attributed to this ruling class, personified in the MITI's planning. The evidences are quite mixed on the MITI's record. The buildup of infrastructure was important to the country's...

Read more »

Posted in: Japan