BBC This World – The Great Chinese Crash

  • Margin Lending specially from Underground Unregulated Lenders caused the Shenzen Stock Mkt to inflate much above it’s real value
  • In June 2015, it came crashing down
  • Trillions were spent in Construction to keep the Growth up, but it’s led to Ghost Towns
  • Because the demand for goods is down year over year Companies that once thrived are now either closed or have become Zombie Companies that continue to produce even at a loss
  • These zombie companies are mostly State Enterprises that are not profitable anymore and have accumulated huge amounts of debt and actually have to borrow money now, just to pay interest on the loans they currently have
  • Getting rid of these Colossal State Enterprises is impossible as they have vast capital and employ millions of workers
  • China’s spending spree is financed by borrowed money and it’s debt is increasing by 3 trillion every year
  • China’s plan now is called “Rebalancing” whereby the Govt is encouraging businesses to move from cheap low quality mass-market manufacturing to Higher quality produces and international brands.
  • In response to the slowdown, chinese companies are doing what all good businesses do, which is to invest in more sophisticated products and high tech manufacturing and RnD
  • China also has to shift away from it’s reliance on investment led growth to consumer driven growth like US
  • Chinese slowdown will slowdown the International Trade and hence Trade heavy countries like Germany and Britain. It will also hurt commodities producers like Australia and Africa

Using Economics to explain Physics

  • Consider speculators to be electrons and the exchange rates to be th EM field that the electron traverses, to make money
  • To prevent this, banks balance the exchange rates. This balancing model can be equated with Maxwell’s EM equations.
  • Gold acts as Higgs Boson here
  • Without Gold, it wouldn’t cost the Banks to change exhange rate, but with Gold (or any physical metal) it does cost them, as the metal can be transported across countries