China warns of a possible crash in Western markets: “We must be very vigilant.”
This is how this article from the Sputnik agency begins, which continues:
” The head of the Chinese Banking and Insurance Regulatory Commission noted the risks entailed by the disconnection between financial markets and the real economy. Especially in Europe and the United States. This warning does not surprise Jean-Paul Tchang, economist and specialist in China. He delivers his analysis to Sputnik.
The Chinese giant has joined the ranks of observers worried about the euphoria in financial markets, especially in the West. Powerful boss of the China Banking and Insurance Regulatory Commission, Guo Shuqing expressed his concerns at a press conference, as CNBC reports: “Financial markets are very high in Europe, the United States and the United States. ‘other developed countries and that goes against the real economy. “
? A tackle from Beijing to the West? Not at all, for economist and China specialist Jean-Paul Tchang, who recalls the context of Guo Shuqing’s intervention: “A press conference organized by the government as the National People’s Assembly prepares to debate the upcoming economic policy for the next five-year plan.”
“It was by no means a specific intervention to attack foreign monetary policies, but a presentation of the economic context for the purposes of preparation”, relativizes our interlocutor.
The fact remains that Guo Shuquing’s observation is nonetheless a reality for Jean-Paul Tchang. He who follows Chinese economic news very closely underlines that this first, during his speech, said he understood that many nations have implemented extremely generous budgetary and monetary policies in order to face the crisis.
“However, he notes that these policies can have dangerous side effects. And Guo Shuqing is issuing this warning based on what the Chinese themselves experienced following the 2008-2009 crisis. Beijing then launched a major fiscal and monetary stimulus plan which generated many financial bubbles, ”continues the specialist.
According to the latter, Guo Shuqing simply affirms “that when the gap is so large, a correction will take place sooner or later”. And ultra-accommodative monetary policies would only reinforce the leverage effects that boost financial markets. “
True, but where could a market crisis come from?
I’m not a blissful optimist, far from it, but objectively, why would the markets go down? Obviously they should correct if only because the economic crisis is not yet visible insofar as the support plans irrigate the economy. When the infusion is withdrawn will the markets go down? Shouldn’t they already be anticipating it?
Will they react at the very last moment?
But for the moment, it’s euphoria.
“Since the March 2020 crash, European and especially American financial markets have been setting records. The latter are particularly driven by the monetary policies of central banks, in particular the European Central Bank (ECB) and the US Federal Reserve (Fed). These two institutions have pledged to inject hundreds of billions of currencies into the economy in order to fight the Covid-19 crisis. The ECB’s balance sheet now exceeds 7,000 billion euros. This represents more than 70% of the euro zone’s GDP…
Jean-Paul Tchang also points out the gap between the historic recessions endured in many countries and “the absolutely incredible growth rates achieved by the markets”. While the CAC40 is performing, France has just suffered the worst recession since World War II, (-8.3%) while the Banque de France forecasts growth of 5% in 2021.
“We assume that, sooner or later, the markets will reflect the state of the real economy,” warns Jean-Paul Tchang“.
Perhaps it is this last assumption that has simply gone wrong.
In a market where all markets are indirectly and discreetly administered by central banks, it would no longer be illogical to assume that markets can no longer reflect the state of the real economy, since we have made room for an imaginary fiction. , to a collective delirium where even the rates have become negative.
The reality is that no one has the answer or the answer anymore because all the traditional economic mechanisms are broken.
Nothing works like before.
This headlong rush may continue for a long time to come.
The recent “shake” in the markets resulting from the risk of a return of inflation and therefore of a rise in rates has fizzled out for the moment, because central banks have spoken very quickly.
The markets are in “even more fear” mode because central banks are in “no limit” mode.
It can take a long time.
But will never prevent a hard return to reality.
In the meantime, it’s pretty funny to see Communist China worried about the risk of a stock market crash in capitalist countries!
It is already too late, but all is not lost. Prepare yourselves !