Wednesday 26 August 2015

Cutting bank reserves to stop a bubble burst is dangerous


Because it fuels investment by making money easily available. Now, that is exactly what the Chinese government wants, as it tries to smooth the current stock market bubble burst. And I would say that is ok - but it can also be dangerous if this stimulus is not temporary (and we have seen how addicted to growth China is). Because with more money at hand, banks will do good and bad investment, with lower returns (like the big "ghost towns and malls" in China). And that can mean the Chinese banks will then bubble on their own and generate a burst like we have seen in the west from 2008 to very recently.

http://money.cnn.com/2015/08/25/investing/china-stock-market/index.html

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