This morning’s key headlines from GenerationalDynamics.com
- China makes desperate move to prevent stock market crash
- Puerto Rico’s governor says the island’s debts are ‘not payable’
- Greece’s Tsipras appeals for calm after banks are forced to close
- How complex systems fail
China makes desperate move to prevent stock market crash
People’s Bank of China
As we’ve been reporting, China’s stock markets have been in free fall since June 12, falling almost 20 percent in a couple of weeks.
Desperate Chinese officials are scrambling to stop the implosion and restore the bubble, and so the People’s Bank of China (PBOC) made a major move, cutting interest rates sharply, to a record low. This makes more money available to banks, which officials hope will flow into the stock markets and prop up stock prices.
According to a Nomura analyst quoted by ZeroHedge:
“The policy easing should be viewed as a measure to contain the risk of a hard landing or systemic crisis rather than one to achieve faster growth. In this case, the stronger-than-expected monetary easing may help stem the decline in the equity market following a 10.6 percent drop over the past two trading days. The positive wealth effect of the equity market on consumption or aggregate demand is limited in China, but an equity market collapse would hurt millions of mid-class households and pose great danger to the economy and social stability.”
In other words, the purpose of the policy measure is to prop up the stock market, but it will have little effect on growth, which is the “normal” purpose of interest rate easing. Whether it will even succeed in propping up the stock market and preventing “an equity market collapse” remains to be seen in the next few days.
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