Meltdown in China

Posted by Jeff 26/01/2016 0 Comment(s) The Bearing Market,

There has been a lot of money printing in the world the last few years. That is what people mean when they talk about “Quantitative Easing” in the United States: they mean money printing.

 

The thing is, though the official dollar-peg instituted at Bretton-Woods broke in the early '70's, many countries around the world still try to maintain an unofficial peg to the dollar. China is one such country.

 

The only way to maintain such a peg when the U.S. is printing trillions of dollars in new money is to print your own. And so they have in China, with this money flowing into thousands of projects that probably should never have been capitalized. Which is why there are so many bearing factories in China. Which is why so many of those bearing factories are not profitable. Which is why it is so easy to find inexpensive Chinese bearings.

 

However, the day of reckoning seems to be arriving. The Chinese coal industry has laid off nearly a million people since 2013 (source: bloomberg). The Chinese steel industry has laid off a half a million. This is why commodity prices are crashing. As Chinese steel factories start to close down, the demand for iron ore sinks with them.

 

It is starting at the bottom and working its way up. First coal, then steel—are bearings next? It has been unbelievably easy to find great deals on bearings over the last decade. Those days might be coming to an end—but not until all the money-losing factories around the world have shut their doors and the current stocks of bearings are cleared off the shelves.

 

I hope my friends in China will all be all right.  Because whatever is happening there will inevitably happen everywhere else in the world. 

 

 

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