Chinese RMB sends Global Markets Crashing

It doesn't take a finance guru to tell me about the volatility of the Chinese RMB and its possible affect on the global economy. In a previous post last September, I mentioned that the bad loans in China are estimated to be between 500-650 billion dollars. That's over half a trillion dollar. That's a huge chunk a' change we're talkin' hea'.

Let's pretend for a sec. Say you came to me asking for advice about investing. I told you to invest in the stocks of a certain bank. However, you already know that over 7.5% of this bank's loans are bad- bad meaning they are in default and probably won't be repaid. Would you still listen to me? So why are people still knocking down doors in China?

From experience, every emerging market needs to crash and burn a bit before it prospers into its Golden Age. 1987 US Crash, 1989 Asian Crisis, the Dotcom Bust. They all resulted from some fat elephant in the corner, who probably sold bad loans to fellow fat elephant friends. Today, we experienced a taste of what it would be like if the Chinese market really decides to take a dump. Is China on an inevitable path towards mayhem? Was today's financial tremor enough to shock people back to their senses? Should we all start running to our mattresses, with the anticipation of a nauseating global crash? Perhaps. As the world stage gets smaller and smaller, our interconnectivity renders us more and more dependent on the others' well-being. Look what happened when a tiny earthquake hit Taiwan last December. But so far investors have been optimistically undeterred. JVs and foreign entities are setting up shop faster than you and I can say "ni hao." In cities such as Shanghai, the expatriate community has more than doubled since 2003. China's GDP went up 10.7% in 2006 to 20.7 trillion dollars, and with the prospect of the 2008 Olympics in Beijing along with a strengthening position in global politics, potential capitalists have been flocking to China's door. But is all this a surefire formula for success? Will China be able to smooth out this bubble with the grace and ease that will affirm its role as an emerging world power? Maybe. Then again, the positive economic drive China has had such good luck with so far could just be the inauspicious calm before the storm.