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China Moves Toward Recession, as Austrian Theory Predicts

Written by Gary North on November 23, 2011

The Austrian theory of the business cycle is clear: when a central bank inflates, it will produce a boom. When it slows the rate of monetary inflation, the result is economic recession. I have written about this here.

China’s central bank has been the most inflationary of any industrial nation. Now it has slowed, because price inflation was becoming a threat to the nation’s stability, especially in rural areas. There will be a recession in China. I have been predicting this since May of 2010. It has taken longer than I expected.

The signs are beginning. Industrial production is slowing. Real estate prices are beginning to fall in large cities.

When the recession hits, there will be enormous losses for investors in Chinese stocks. Investors will find that the story of “unstoppable China” was just another inflation-driven bubble dream. Central bank inflation turns stock markets into casinos.

When China moves into recession, all of Asia will, too. The recession in Europe will accelerate.

As Chinese factories try to stay open, they will lower their prices. This will place additional competitive pressure on Western manufacturing. This will hold down price inflation.

It will also push down the price of oil and other commodities as demand falls.

This is good news, unless you face competition from Chinese products. Most workers do not.

Continue Reading on www.reuters.com

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One thought on “China Moves Toward Recession, as Austrian Theory Predicts

  1. Limited Government’s job is to protect property and provide a stable currency. Gold could do it in the past but would inflate to millions trying to stabilize the present situation.

    The solution to all problems is the application of LOVE. Law derived from love was the intent of the founding fathers. Individual rights come from God, the purpose of Government is to protect Rights and wealth is the best guarantor.

    The threshold of sufficiency is the best anchor for a stable money supply. As population or the standard of living grows, so will the money supply. The mechanics are simple, when one is conceived an asset account is created in their name. The threshold of sufficiency is the point where tax on their assets goes positive. Below the threshold taxes in products or services the individual uses become credits used to boost interest on their assets.

    The system is designed to empower people, to make it possible for them to lift themselves out of poverty without handouts, make economic forces to prevent monopolies, eliminate recession inflation cycles, and stabilize the currency. Free enterprise is the answer and this system is designed to enable it.

    Income Tax is SLAVERY plain and simple, it needs to be outlawed. It retards people’s ability to acquire wealth, locking them in poverty and dragging the middle class down. FICA is worse, it’s regressive SLAVERY, an enforced contribution to the largest Ponzi Scheme ever run.

    The sum of all taxes in products needs to be known. In the new system transactions are vectors with tax broken out, so people know how much they’re paying for the millions of Government bureaucrats managing their lives.

    The same Proportional tax would apply to Corporations, but rates and thresholds would be set by the political process to prevent monopolies and promote general welfare. No more Government grants, charities and politicians with hands in the pie, their power will be limited to establishing credits to promote things, they will have no power to tax and spend.

    It is a good idea to tax assets not income so the wealthy class can grow and create jobs for the poor. This is the way to eliminate poverty, something LBJ’s war could never do.

    Deflating the value of currency damages contracts, inhibits long term investment and destabilizes the economy. Gold can’t fix it, Limited Government is the only way out.