China Stock Market Falls Hard: What's Going On?

By: DK_Matai

Chinese stocks have plunged considerably to lead Asian equities lower with concerns that Beijing may be reluctant or perhaps politically unable to ease a liquidity crunch in the Shanghai interbank money markets, slamming banks particularly hard. The Shanghai Composite suffered its worst one-day percentage loss in nearly four years, plunging 5.3% -- its first close below the psychologically-important 2,000-point level since December last year. The performance is its worst since a 6.7% drop in August 2009 during the global financial crisis. The Shenzhen Composite Index also dived 6.1%. In parallel, Japan and Korea have also fallen more than a percent and now Europe and America are turning negative yet again.

Shanghai market plunges 5.3% in one day

A big contributor to the China markets collapse was a clear message from their central bank -- the People's Bank of China (PBoC) -- telling banks that their liquidity issues were their own problem, and that they needed to sort them out. Suddenly, the perception is that central banks around the world are reluctant to keep printing and throwing money at the banks to keep them solvent ad infinitum and the markets are throwing a fit. It is never easy to come off feel-good drugs and tantrums are part of the course.

Global growth is slowing down considerably and beggar-thy-neighbour competitive devaluations are not going to work to lift all major economies out of trouble simultaneously. Something's got to give. Watch: Bond yields are rising and the tide is turning against further QE as ATCA 5000's Socratic dialogue began to point out more than one month ago. Central banks are simply unable to do further QE forever and ever if bond yields rise much further than they already have. High bond yields ultimately cause debt servicing costs to rise to an exorbitant level, which fundamentally undermines the key premise of QE in the first place as a mechanism to lower borrowing costs! Note that US 10 year bond yields are at 2.59% and rising. What does that mean? Interest rates are going to go up sooner rather than later and not stay down.

What are your thoughts, observations and views? We are hosting an Expert roundtable on this issue at ATCA 24/7 on Yammer.

By DK Matai

www.mi2g.net

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ATCA: The Asymmetric Threats Contingency Alliance is a philanthropic expert initiative founded in 2001 to resolve complex global challenges through collective Socratic dialogue and joint executive action to build a wisdom based global economy. Adhering to the doctrine of non-violence, ATCA addresses asymmetric threats and social opportunities arising from climate chaos and the environment; radical poverty and microfinance; geo-politics and energy; organised crime & extremism; advanced technologies -- bio, info, nano, robo & AI; demographic skews and resource shortages; pandemics; financial systems and systemic risk; as well as transhumanism and ethics. Present membership of ATCA is by invitation only and has over 5,000 distinguished members from over 120 countries: including 1,000 Parliamentarians; 1,500 Chairmen and CEOs of corporations; 1,000 Heads of NGOs; 750 Directors at Academic Centres of Excellence; 500 Inventors and Original thinkers; as well as 250 Editors-in-Chief of major media.

The Philanthropia, founded in 2005, brings together over 1,000 leading individual and private philanthropists, family offices, foundations, private banks, non-governmental organisations and specialist advisors to address complex global challenges such as countering climate chaos, reducing radical poverty and developing global leadership for the younger generation through the appliance of science and technology, leveraging acumen and finance, as well as encouraging collaboration with a strong commitment to ethics. Philanthropia emphasises multi-faith spiritual values: introspection, healthy living and ecology. Philanthropia Targets: Countering climate chaos and carbon neutrality; Eliminating radical poverty -- through micro-credit schemes, empowerment of women and more responsible capitalism; Leadership for the Younger Generation; and Corporate and social responsibility.

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