Monday, December 22, 2008

"Goldman Sachs, you're clearly out of touch..."

Living under a communist regime comes with its own unique State-Citizen communication logistics. For instance, the Chinese cannot express their discord with administrative fiats by ballot. They take a different route. They riot.

So when Chinese workers get laid off, they take to streets. It takes a constant 8% plus GDP growth to absorb all the graduates churned out by Chinese institutions every year. If growth sputters, China is in trouble.

The urban middle-classes also have reason to be unhappy: there have been severe stock-market and property crashes in China over the past year. The government – like its western counterparts – has already made it clear that it will respond to the new downturn with a massive fiscal stimulus package.

China’s trade surplus hit a new record last week because imports are falling even faster than exports. The Obama administration is certain to want China to allow its currency to appreciate, to close the deficit. But the domestic pressures on China will point in the other direction – to allow the RMB to fall in value in an effort to boost exports and keep more factories open.

When it rains, it pours. Remember it was the same China whose economy was predicated to beat U.S economy by 2027, courtesy Goldman Sachs research. Like many other predictions (Oil to hit $200 per bbl, now quoting $40) by it, this one too is headed to go off target by a mile – all within an year of its prophecy. If you want sure bets, you know whom to ignore!!!

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