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Category: Economics

Why China hasn’t crashed and won’t crash.

Why China hasn’t crashed and won’t crash.

Many have predicted a crash in China that will occur at any moment.  This has been going on regularly since the early 1990s when the Economist started the tradition.  China hasn’t crashed though.  Why?  It’s because they have found a way to end the business cycle. In a western economy, the business cycle starts off with lowering interest rates spurring lending increases and further lending increases via the money multiplier effect.  The money supply grows, capital is built and eventually…

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What’s driving the current economic cycle.

What’s driving the current economic cycle.

Every bubble has money coming in from somewhere.  There’s usually some kind of market distortion that leads to unnaturally dumb money.  For example, a lowering of interest rates means that economic activity that was previously not profitable becomes profitable.  It also means that risk tolerance increases as there is surplus from profitable areas of investment to make bigger bets.  The main areas that the money has come in from for the current bubble since 2009 are quantitative easing and ZIRP and NIRP.  Quantitative easing ended…

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