From another website:


I've been reading your website from within China for almost two years now. Your recent take on the five W's of how the next Great Depression will begin was spot on the money, especially how it will start in China.

Having lived in China for the past four years now, I have been witness to some bizarre stuff. The most bizarre is how average Chinese people don't seem to understand basic economic principles that even an eighth grader in the U.S. or Canada is aware of. And I am talking basic things like knowing how supply and demand affects prices, how inflation can influence buying power, interest rates, balancing personal budgets, asset appreciation and depreciation, global interdependence, and how stock markets function. Their ignorance is what will set off a global chain reaction as they begin to panic and sell-off assets at the first sign of any market downturn.

I could cite hundreds of examples of basic economic ignorance, but will only mention the two I think are the most important.

First, many Chinese people just don't get the idea of bust and boom. I am simplifying the notion of cyclical fluctuations down to the level of an eighth grader, I know. I have tried to explain "bust and boom" to many Chinese friends without success. They are of the mindset that since China's economy has prospered since Deng Xiao Peng implemented his "opening and reform" policies over twenty years ago, that it will always do so. In their experience, house prices always go up, stock values only increase, and even the dumbest businessman will turn a profit.

Average Chinese people are buying bigger places to live with borrowed money, putting money into the stock market, and starting risky business ventures. They are sure that the sky is the limit. They plan what they will do when they flip the house for more money than they paid, or sell that internet company stock before it bottoms out, or rake in the profits by exporting widgets to the U.S. They never foresee the possibility that they might lose money when there is an economic downturn, because they have not lived through one in their adulthood. They believe that their country is somehow immune to the same forces which are at work in every economy in the world. Boy, are they in for a surprise!

Second, Chinese kids don't sell lemonade at roadside stands in the summer, they don't get paper routes, they don't hold bake sales at school, they don't hold fundraisers for a school trip, they don't get part time jobs, they don't do household chores to earn a weekly allowance, and they never collect milk money from classmates. Their parents never did those things either.

As a result, they don't understand ideas related to division of labour and compensation (not that I really do either). A 30 year old who has never held a job a day in his life (not even a part-time job) and continues to live at home with his parents while collecting scholarships so he can study to get his PhD is respected more than a taxi driver or waiter who works 12 hours a day every day of the week (It would surprise you how many 20 to 30 year old students who have never had a job there are in this country!) The higher the level of education a person has in China means higher pay for doing a job inefficiently which they are seriously over-qualified for.

As an example, an MA degree is the preferred degree for a teller working in a bank here to have...regardless of what their major was. In the U.S. a teller would most likely have a high school diploma or some community college education related to business. The division of labour in China is seriously screwed up with the highest rewards actually going to the laziest over-educated people. Meanwhile the hardworking cleaners, farmers, and factory workers earn a pittance and gain little respect. Such a system is breeding resentment. It's there and its growing, and most of the people who are currently benefiting from China's economic growth don't sense it or are ignoring it.

I see the resentment painted on the faces of hardworking folk everyday as they eye the toys of the rich (cell phones, cars, laptops etc) and take more abuse from the spoiled nouveau middle class. But, hey, I am a foreigner in China, I can see things that Chinese people don't because they don't have the same life experiences I do.

Your recent analysis meshes with what I see coming down the pike. The fact that one of my Chinese friends, a financial advisor for a leading Chinese Securities firm, told me he expects a downturn to come soon to the Shanghai market confirmed my feelings. He recently sold all of his stock holdings except for Class B Shares in Chinese Banks. He then told me if I had any Chinese stocks to unload them sooner than later.

I think your prediction of September for things to start may be on the late side. My friend is in the know, and from the what he said he believes things will happen sooner.