Casino Capitalism

My father, a New York financier, used to call dubious stocks or bonds,  “Chinese paper.”   Last week, we saw a blizzard of  Chinese paper, both in China and around the world.

As manager of a sizeable investment portfolio (an unwelcome second job from my main work, journalism),  I watched last week’s near death experience on world markets with a mixture of cynicism and alarm.

First of all, remember when Americans – and particularly Republicans – demonized Mao’s China and endlessly warned about the perils of Communism? China’s orgy of buildings, airports, new cities, harbors, highways, high-speed trains was all financed by “Chinese paper”  and overseas Chinese money. Today, no one knows how much bad debt is choking China.  My sense is that one of these days the whole credit house of cards may come crashing down, igniting another worldwide panic.  I instructed my money mangers to stay out of Chinese investments three years ago.

Asian stocks dependent on exporting to China are in big trouble.  America’s near death experience in 2008 was the result of far too much credit which had become a sort of amphetamine drug for the economy.

The financial witch doctors at the Federal Reserve in Washington artificially inflated the equity market by so-called monetary easing (aka printing money).  Savers were punished, lenders rewarded.

Last week, many stocks inflated by the Federal Reserve came crashing down as all the hot air that had pumped them up rushed out of the market.

The same holds true for China.

China needs another generation to master the difficult juggling act of capitalism.  But Chinese, who are by nature brilliant businessmen, will learn.  Right now, however, they should take a breather and straighten out the big financial mess at home.

China is not about collapse.  As the French say, “take a step backwards to better leap in advance.”

The US seems poised for growth – if its useless Federal Reserve central bank will just get out of the way.  Interest rates must come up to restore market stability.  We can’t blame all our problems on China.   Rather, on our own Great Wall of Chinese Paper.