Chinese Meltdown, Latin America Next?

The long anticipated meltdown in Chinese stocks has accelerated this week, although it took a break today. Whether or not it has implications for the broader economy in China and around the world is unclear, given how little China relies on its stock market for financing and growth.

It’s all about the “carry trade”, or ability to borrow money in a foreign currency (usually US Dollars) at low interest rates and invest it at home in the hope that the local currency (Renminbi, or “people’s currency”) will become more valuable relative to the foreign currency later. It’s a two-fer if you can invest it in something that appears to be gaining in value, such as local stocks, and Chinese investors went for it bigtime.

Yes, it was all another bubble waiting to pop, which it appears to be doing now. But can this hurt us? Speculation has centered on trade with Latin America, which has its own uneven growth and a growing reliance on China. But this is silly for a lot of reasons. It’s worth looking at Latin America as a unit and seeing what effects we can really expect.

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Hugo Chávez

The United States’ biggest bogeyman dictator remaining, Hugo Chávez, has died of cancer at age 58.  His status as our most feared repressive ruler says something about the state of the world today because by any reasonable accounts he was neither all that repressive nor that big of a challenge to the US.  Even the amount he was feared was greatly exaggerated as a badge of honor by this man of the people.  Yet his passing is extremely important in that it probably marks a new phase in the continuing progress of Latin America.

Why did we fear Chávez, if we did at all?  What will come next?  Most of it has been show so far, but in typical South American fashion it was a pretty good show.  This one may have some lasting and even positive effects.

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