The China rate cut was particularly interesting because it comes less than a month since China cut bank reserve requirements (RRR) which is another form of credit easing. So now, the concern is that there will be bad economic news released this coming weekend, and the government is front-running via interest rate cuts to cushion the blow. This article explains the situation.
What is most amazing about this entire situation, is that economists fret that China's growth rate, while still positive, is slowing to a mere 8.2% ! In other words a rate of growth four times faster than the U.S. growth rate and meanwhile all financed with real money i.e. no debt. So how could it possibly be that an 8% or 6% or even 3% growth rate is considered bad ? After all, those figures would not imply recession, only a slowing of growth i.e. the country will still be wealthier a year from now under all of those scenarios.
China is the epicenter of the World Ponzi Scheme
The reason for the concern goes to the entire point of this blog. China is a microcosm of the entire global economy. It's a highly leveraged Ponzi Scheme that is predicated upon an ever expanding base of cheap labour and ever expanding growth. This overridding need for growth is the key signature of a Ponzi Scheme. Any balanced economy can still function normally at above 0% levels of growth. Granted it's not exciting, but it's still not a recession. This need for continuing rapid expansion is a strong indication of major imbalances that are intrinsic to the Chinese economic model i.e. it's driven off of cheap labour, exports (hence the Europe exposure) and massive infrastructure (over) investment to generate jobs.
As an example, Zerohedge recently reported that Beijing alone has 50% more vacant real estate than the entire U.S. Meanwhile according to the Reuters article cited above, fixed investment is at a decade low of 20% (yes, you read that right). And Industrial production rose by a mere 9.3% to which the quoted analyst says "flat is better than getting worse" i.e. in his lexicon, flat means 9% growth - no acceleration in the growth rate.
When the second derivative (aka. acceleration) becomes a critical factor to your economy's ongoing success, then you have to know that the eventual unwind is going to be brutal and highly "disruptive".
