China (again!)

Now for something completely different! This is about China's bubble in stocks, similar to the U.S. 1929 bust, and even the 2001 one. Did the bursting of the China bubble have an effect on the rest of the world's stocks? Maybe yes, and maybe no, but I think it did precipitate it. Chinese stocks went up 180% in one year, and were very ready to take a dump.

You just can't imagine the wild stuff that is going on in China with stocks. See, they are new rich, or think they are anyway, and the idea of buying stocks and investing, is a totally new item in their grungy lives. They have been trying to simply stay alive for thousands of years, and now there are factories by the hundreds, and jobs by the millions. They are making teensy wages, but they aren't paying through the nose, eyes, and knees in taxes and regulations, as are American workers. Think about how many taxes Americans pay. Maybe you don't know? Then go to the end of this piece and go to other columns I have written, and go back to February 22, 2001, and read the column on taxes. This was the third column I wrote for Gold Eagle, and is still extremely pertinent. Hundreds of taxes are paid by us. Taxes on everything we eat, use, buy, or can possibly think of, not counting income, Social Security, gasoline, or you name it.

Americans have to make a lot of dough, just to keep everything afloat. Except everything is sinking, or more accurately prices keep rising, which is inflation. As if the hundreds of hidden and blatant taxes aren't enough, the unavoidable tax of depreciation of the currency continues every hour of the day. Like everything else, the government lies about the inflation rate, so the Social Security recipients are getting screwed, among others. Those are taxes no one can avoid, even if you don't pay income taxes. Without taxes up to our eyeballs, a dollar's worth of something might cost a nickel. Yes, that's true, and not an exaggeration. The Chinese are living under a communist government, and the government owns all the land. There are no title insurance policies or deeds to land in China. The government owns it all.

When the Wal Mart brothers and sisters decided to betray America and their father's philosophy, which made them billionaires, China grumbled like a hibernating bear, and slowly came to life. They have no pollution controls, land taxes, regulations of any great degree, don't obey our patents, or any other's patents or copyrights. The air in China, according to a member of my Kiwanis Club who recently did an extensive tour of it, says it is difficult to breathe, so foul is the air. So what? Keep on burning thousands of tons of low grade coal a day, and to hell with the air. Chinese banks loan money to favorite customers without ever even thinking the loan will be repaid. Wouldn't you like to start a business with virtually free money? Must be nice. The average Chinese worker makes so little, that it is easy for us to be shocked. No union dues to be paid, no withholdings, and living standards which may be glorious to the average Chinese worker, they are such an improvement, but hardly anything we would consider anything but slum living. If you get 50 cents an hour, and it only costs a quarter an hour to live, you have a surplus. Surplus money? The average Chinese has never had any money, much less a surplus! What have they done?

Invested in the stock market! The Chinese stock market is in its infancy. It has really not much to do with Chinese factories and business, but it is growing. Oops! I made a mistake. I should have said it is growing again. Six years ago, the Chinese stock market took a 70% plunge. That was the first bubble which burst. The current one was the second. In 2001, thousands of Chinese lost their shirts in the Chinese stock market, when its bubble burst. It has just happened again, on a much smaller scale. The Chinese are so enamored with the stock market, that they are mortgaging their homes to the limit, and investing the money in stocks. Pawn shops are bulging with stuff pawned, and the money used to invest in the Chinese stock market.

Many Chinese have stopped working, and spend their time fooling with stocks…buying and selling. Stocks are the talk of everyone, night and day. The stock market has taken over the Chinese mind and thoughts…literally. It is similar, literally, to America in 1929. I don't know whether anyone jumped out of a window last Monday, but there were lots of suicides when the market fell out of bed. Thousands of Chinese lost everything they had! It was horrible, and may not be over yet.

It is estimated that over $600 billion was lost in America during the crash, which also may not be over yet. All around the world, stocks went down, but not nearly as much as did the Chinese stocks, which plunged 9% in one day. The world is jittery. Does China hold the magic ace which can ruin everyone, and especially the United States? Some say they do, and it is not difficult to imagine why. They hold a trillion U.S. dollars in their portfolio, plus $600 billion in stocks and securities. With that kind of power, they could do just about anything they wanted to do. Since America is their largest customer, they'd think awfully hard before they wrecked America, but they could. They are increasing g their military spending by 17% in their next budget, but that's still a fraction of ours, so I wouldn't worry about that. It's Chinese economic power, not Chinese military power, which makes the D.C. Gang worry. While China hoards U.S. dollars, we send $2.5 billion offshore every single day, probably never to return, except in merchandise. America spends 7% more every year than it takes in, but this doesn't include "off budget" items, such as the trillion bucks for Iraq and Afghanistan. Are we insolvent? You bet. We may be cleaning our air and worrying about earth warming, but the Chinese are proceeding full steam ahead. It is rumored that they have stopped buying US debt. True? I don't know, but if it is, darker clouds have just overtaken us.

We owe everyone! We are the largest debtor nation in history. It boggles the mind how much America owes to everyone, and the debts continue to rise. Continue to rise, at least till 'investors' such as maybe the Chinese get wise and shut off the spigots, because we are such a poor risk. Does this sound glum? I should, because it is. America is like a termite infested floor. It all looks so sound and reliable till someone falls through it, and the total rot and disintegration is discovered. At home, sub-prime mortgage loaners are going bankrupt by the dozens every day, and major banks have taken huge hits. Why did gold and silver go down with the stock market when they usually go the other way? I think it is because people had to unload their physical to meet their margin calls. I can think of no other reason, and it is a good time for us buyers. Good time to protect yourself!

March 8, 2007

Don Stott has been a precious metals dealer since 1977, has written five books, hundreds of columns, and his web site is www.coloradogold.com