Liquidity, inflation, stock market gambling…China is ready to crash

Former Morgan Stanley (NYSE: MS) star Andy Xie says he thinks China is ready to crash.

“I think it’s going to be bust very soon,” Reuters reports Xie saying, laying the blame on the usual suspects: excess liquidity, rising inflation and rich valuations.

“People will be surprised. When the end comes, it’s going to be pretty bad,”
Xie said.

Well, we won’t be surprised. What surprises us is that the crash is taking so long to get here.

How DO you say ‘bubble’ in Mandarin?

Last night, we dreamt that the Dow was crashing. We woke up and wondered if it had been a dream…or a prophecy. We’ll have to wait and see, but for now we keep our Crash Alert flag flying here at the Markets and Money headquarters, just in case. Dreams foretold Caesar’s death on the Ides of March…maybe they’ll foretell the Dow’s demise.

Meanwhile, more evidence that China is readying as a crash cometh – in a letter from a Chinese reader, sent to colleague Porter Stansberry:

“All the people I know in China now gamble in stock. On one of China’s TV stations yesterday, was the report that out of the 16 million people in Shanghai, close to 11 million now put money into the stock market. Almost everyone – you name it: taxi driver, security guard, mini fruit-shop owner, high school student, retiree. But in the long run, a lot of this will end in tears, no matter how quickly China’s GDP grows. There is simply no decent research to educate Chinese people on how investing is different from speculating out there.”

What do we care what happens in China?

Well, the Chinese central bank has a cash hoard of U.S. dollars mounting up towards $1 trillion. What will happen to all this money when the country goes into an economic crisis? If the Chinese chose to, they could send the U.S. dollar into free-fall, force American interest rates up sharply…and drive the U.S. economy into a slump. More than 80% of the U.S. budget deficit is financed by foreigners…and much of it by the Chinese.

Or maybe China will use its money to buy weapons. That would be interesting, wouldn’t it?

Or, they could try to corner the market on the key strategic supplies of modern economies – such as oil, uranium and granite countertops.

Yes, dear reader, it is free cash flow that makes the world go ’round…and China’s got it – because China makes things that people want to buy.

Bill Bonner
Markets and Money

Bill Bonner

Bill Bonner

Since founding Agora Inc. in 1979, Bill Bonner has found success and garnered camaraderie in numerous communities and industries. A man of many talents, his entrepreneurial savvy, unique writings, philanthropic undertakings, and preservationist activities have all been recognized and awarded by some of America’s most respected authorities. Along with Addison Wiggin, his friend and colleague, Bill has written two New York Times best-selling books, Financial Reckoning Day and Empire of Debt. Both works have been critically acclaimed internationally. With political journalist Lila Rajiva, he wrote his third New York Times best-selling book, Mobs, Messiahs and Markets, which offers concrete advice on how to avoid the public spectacle of modern finance. Since 1999, Bill has been a daily contributor and the driving force behind Markets and Money.

Bill Bonner

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stan mazor

Reader might enjoy my
“Stock Market Gambling”,

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