China's Economic Crisis Deepens

This piece is an analysis by Peter St Onge at the Brownstone Institute. He discusses the escalating economic crisis in China and how the government's attempts to mitigate it may lead to global inflation.

China's Economic Woes

China's economy is in a precarious state. Just a few weeks ago, there were indications that the country was on the brink of recession. Now, it appears that the situation has escalated to a full-blown economic crisis.

The Government's Response

In response to this crisis, China's ruling Politburo held an emergency economic meeting last week. They decided to increase money supply significantly, pumping money into consumers, banks, property developers, and essentially anyone who might spend it. Bloomberg referred to this move as an "adrenaline shot," suggesting that it might temporarily boost assets but won't have a long-lasting effect.

Details of the Financial Injection

The Chinese government plans to inject about 3.8 trillion yuan (approximately half a trillion dollars) into the economy. A significant portion of this will go towards consumer subsidies, including a monthly child subsidy to encourage Chinese mothers to have more children. Banks will also receive a substantial amount, along with a further injection into the stock markets. These measures are ostensibly aimed at stimulating spending, but they could also help to address the significant issues in China's unstable financial industry.

Additional Economic Measures

In addition to this financial injection, China is also implementing other measures to stimulate economic growth. These include slashing interest rates, reducing downpayment requirements on houses, and cutting reserve requirements for banks. The overall aim is to get more money circulating in the economy.

The Fear Driving These Measures

The Chinese government's desperate measures are driven by fear. Not only is the country facing a potential recession, but there are also concerns that it could fall into a period of structural stagnation, similar to what Japan experienced. The interest rate on 30-year government bonds, a key indicator of economic health, has fallen below Japan's, suggesting that China could be on the brink of becoming a zombie economy.

What Lies Ahead?

In the short term, these measures are causing a surge in Beijing's stock market. However, there are rumors of a much larger financial injection of 10 trillion yuan. If this happens, and if the US and Europe enter a recession, leading to a decrease in demand for Chinese exports, the result could be global inflation.

China's Potential for Instability

If China's economy collapses, the consequences could be severe. Unlike in Japan, where people generally accept economic downturns, the Chinese population is likely to react angrily. The government is aware of this, and if the situation becomes dire enough, they may resort to war as a means of distracting the population and suppressing dissent.

Bottom Line

China's escalating economic crisis and the government's attempts to mitigate it could have significant global implications. The potential for a severe recession, structural stagnation, and even global inflation are all real possibilities. What do you think about this situation? Share your thoughts with your friends and consider signing up for the Daily Briefing, which is delivered every day at 6pm.