The fabled growth of the Chinese economy has come to an end, setting the stage for “an amazing deflation in the world and perhaps the end of this great bubble of debt that has been created since World War II,” investment expert and author James Dale Davidson told Newsmax TV.
“The great boom in China is over,” he told "Newsmax Now."
China rattled global financial markets Tuesday by devaluing its currency — an effort, in part, to revive economic growth. The yuan's value declined 1.9 percent, its biggest one-day drop in a decade. The move could help Chinese companies by making their products less expensive in global markets. U.S. stocks plummeted, partly on fears about a worsening economic slowdown in China.
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China doesn't let its currency trade freely in financial markets as the United States does. Instead, it links the yuan's value to the U.S. dollar. Then it restricts trading to a band 2 percent above or below a daily target set by the People's Bank of China.
On Tuesday, the central bank set the target 1.9 percent below Monday's level — the biggest one-day change in a decade. It also made a technical change to give market forces more influence in determining the yuan's value: Its daily target will now be based on the previous day's closing value.
“The first thing that you have to take away from this as an investor is that it means that this great story that we've heard so much about, China, growing at fantastic rates and continuing to grow forever, is over,” he said.
“The Chinese had very weak numbers. They've spent $1 trillion trying to prop up their stock market and what we know about the Chinese yuan as compared to the dollar is it's one of the only currencies in the world that has not devalued a lot against the dollar in the last while," he said.
"In fact, it is up about 20 percent against a basket of other currencies that the Chinese trade against. They've devalued by 2 percent but they're only catching up to a devaluation which has happened in other countries already. There's a very big problem there that this is not going to be the end of it.”
He said China’s devalution isn’t retaliation against the IMF.
“It's a case of them actually doing what we told them to do. We said to them that we wanted them to have a more market-driven currency instead of having a controlled currency. They moved in that direction. We're going to have a hard time criticizing them because we told them to do what they did.”
(The Associated Press contributed to this report).
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