Signup for our free newsletter:

Rickards: China is "The Greatest Bubble in History"

Written By Brian Hicks

Posted March 18, 2010



According to an official with the China Council for the Promotion of International Trade yesterday, a rise in the yuan would be a disaster for Chinese exporters.

“If the yuan rises, these companies will face the immediate risk of going bust as their profit margin is already very narrow,” said Zhang Wei, vice-chairman of the association,”So for these companies, the consequences would be disastrous.”

And therein lies the rub, especially as Washington pressures Beijing to let the yuan appreciate threatening tariffs in the absence of action.

Its Chinese jobs vs. American jobs as the advantages of China’s mercantilist policies reveal a tilted playing field.

And while some insist that China is holding all of the cards in this game, I’m not one of them.

Of course, how all of this acrimony ends is anyone’s guess. In the short, though, it sure does seem to have the making of a trade war.

Meanwhile, James Rickards, former general counsel for Long-Term Capital Management, joined James Chanos and Kenneth Rogoff calling China one of histories biggest bubbles.


From Bloomberg by Bei Hu entitled: China in Midst of ‘Greatest Bubble in History,’ Rickards Says

“China is in the midst of “the greatest bubble in history,” said James Rickards, former general counsel of hedge fund Long-Term Capital Management LP.

The Chinese central bank’s balance sheet resembles that of a hedge fund buying dollars and short-selling the yuan, said Rickards, now the senior managing director for market intelligence at McLean, Virginia-based consulting firm Omnis Inc.

“As I see it, it is the greatest bubble in history with the most massive misallocation of wealth,” Rickards said at the Asset Allocation Summit Asia 2010 organized by Terrapinn Pte in Hong Kong yesterday. China “is a bubble waiting to burst.”

China has pegged the yuan to the dollar since July 2008 to help exporters weather the global recession. The central bank buys dollars and sells its own currency to prevent the yuan strengthening, driving foreign-exchange reserves to a world- record $2.4 trillion as of December.

The Shanghai Composite Index of stocks jumped 80 percent last year and property prices rose at the fastest pace in almost two years in February, helped by a record 9.59 trillion yuan ($1.4 trillion) of new loans in 2009.

Rickards said leveraged speculation in the stock market, wasteful allocation of resources by state-owned enterprises, off-balance-sheet debt through regional governments and the country’s human rights record are concerns.

“Take Russia and China together, neither of them is really deserving any investment” except for short-term speculation, Rickards said. India and Brazil are two of the “real economies” among the developing countries, he said”

The pressure is building…..

Related Articles:


China’s Growing Property Bubble

The China Bubble Debate

Chanos on China

China’s 2012 Crisis

To learn more about Wealth Daily click here