STEVE PIECZENIK TALKS

The Middle Kingdom, China, is Teetering on a Dangerous Precipice of Self-Destruction by Stock Manipulators!

Most of you have heard about China’s problem with its stock exchange. A group of manipulators are shorting a highly leveraged stock market. What they are doing is basically allowing China to fall into an economic downturn which was never intended. How this happened has more to do with Chinese National Character than any other factor.

The Chinese are very serious gamblers. So much so, that the political elite of China made the right decision to locate most of the gambling establishments in Macau [a former Portuguese colony] rather than on the mainland. If they had placed the casinos in easy access to every Chinese citizen, the political elite realized that their citizens would be gambling all day long.

How they became such inveterate gamblers is not really known. However, they have historically engaged in highly leveraged activities including real estate speculations which ended in massive foreclosures mounting into the trillions of dollars. Rather than mark the mortgages down to the market, the Chinese officials kept the non-performing loans on the books as if they represented the true value of the real estate in question.

So fiction substituted for reality.

Then along came the real serious gamblers –the stock market manipulators who numbered in the hundreds of thousands, if not the millions, who placed a margin call [payment] on a stock and when the stock failed they had to pay the full amount of the stock price plus the broker’s commission and other fees. It is not working too well. For unknown reasons, the leaders of China cannot stop the market speculators from shorting their calls and basically creating a chaotic market which has fallen almost 30% in the past few days. This type of run in a lightly controlled market like China can lead to the eventual collapse of the economy where everyone pulls their money out of the banks and remain in cash; spending or earning nothing.This type of economic self-implosion is quite rare; but it does it occur when a market is highly leveraged and there is no actual cash to back the speculations; other than wishful thinking.

This means while China tries to expand along a new Silk Road it will have to contend with internal financial turbulence that can delay its growth for months, if not years.

China cannot afford that kind of delay. The economic forecasts and central controls are based on a ‘controlled economy’ that must grow about 6-7% per year.

That is not happening now.

President Xi knows that. So he is arresting many of the senior Communist Officials whom he considers corrupt [an easy determination] and places them in prison as both a distraction from the main problem of slow/no growth and extreme high margin speculations. I wish that the great Middle Kingdom will resolve its problems as quickly as possible; otherwise the world at large will feel the ripple effects of China imploding financially.

While Greece falls, let us make certain that China will be able to endure its own miscreant behavior long enough to be able to create the New Silk Road. Otherwise, the weight of the Middle Kingdom will be too heavy for the world financial systems to bear.