01/14/10 Stockholm, Sweden – As The Daily Reckoning has discussed before, there is great division on whether or not China’s in a bubble. In a guest post on Zero Hedge, Gary Jeffery argues not only that China is in a bubble, but that upon its bursting a fairly outlandish series of events will take place and lead to the price of gold skyrocketing.
It’s definitely not mainstream analysis, which makes it all the more worthy of a look. This is how Jeffery sets the scene:
“…it makes perfect sense for the Chinese monetary authorities to want to engineer a bubble, given the other potential alternatives. Ultimately when any bubble pops, as we have seen in any number of emerging market blow ups, private citizens (domestic/ foreign) attempt to flee the imploding (inflation ravaged) currency – thereby ultimately by fiat or market forces a currency is devalued. However China is really big and different – and this is ultimately why the whole global monetary system is not behaving as “most” mainstream punters are predicting.
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“We all know that China would prefer a devalued currency (export competitiveness) so surely a massive domestic bubble popping should be a slam dunk for Chinese policy makers…”
He goes on to explain how, in the event of such a massive China failure, a solution involving gold could be a reasonable course of action…
“It [gold] is so useless that it is really the only asset that can act as a store of value and wealth transferal mechanism from global lender (China) to global borrower (the West) without significant first round imported commodity price inflation.”
Again it’s a wild theory, but it’s interesting to consider. To follow his logic through from China’s failure to a gold price explosion visit Zero Hedge and read the post on thinking through why gold is the only answer in light of the Chinese bubble economy.
Rocky Vega
Rocky Vega is publisher of The Daily Reckoning. Previously, he was founding publisher of UrbanTurf and RFID Update, which he operated from Brazil, Chile, and Puerto Rico, and associate publisher of FierceFinance. He specialized in direct marketing at MBI, facilitated MIT Sloan School of Management programs, and has been featured on CBS. Vega graduated with honors from Harvard University, where he was on the board of Let’s Go Publications and directed business programs involving McKinsey, Goldman Sachs, and Harvard Business School faculty. He is also enrolled at the Stockholm School of Economics.
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That was an interesting read. He makes a good case in my opinion.
Thanks.