On Wednesday we warned readers of a coming blow-up of the Chinese economy, calling it a “tinderbox waiting to catch a fire.” The problem, of course, is that the US is not the only country hell bent on ‘stimulating’ its economy back to life. Communist China is at it too!

Like Japan did in the 1990s to get itself out of its own economic morass, China is splurging on massive public infrastructure programs. China’s banks are lending like crazy to fund these projects. In the first six months of this year, they loaned Rmb7.4 trillion (just over $1 trillion). That’s over three times the amount loaned out in 2008 and the biggest six-month lending surge on record.

Is China’s spending spree setting the global economy up for another leg down? China’s surging investment accounted for an unprecedented 88% of Chinese GDP growth in the first half of 2009.If that’s not a dangerous

Comes word this morning that the China State Construction Engineering company has gone public. It’s the biggest public offering – at $7.3 billion – in more than a year. It’s also China’s biggest homebuilder. And as soon as the shares hit the market yesterday they soared… closing 56% higher than the IPO price. At that price, it trades at about 40 times forecast 2009 earnings.

Why would you pay 40 times earnings for a homebuilder? It’s a fairly easy business to enter. No barriers to entry that a little money… a few connections… and a circular saw can’t overcome. With no barriers to entry, profit margins are always squeezed by competition. And growth is limited too… other builders are always starting up. If the investor paid 40 times earnings, he can only get 2.5% on his money — if the company pays out 100%

John Legat, the Harare-based CEO of Imara Asset Management, noted this spring in regards to the “dollarization” of Zimbabwe that it had been “extraordinary how quickly consumption has started to increase, and with it volumes and capacity utilization.” Zimbabwe has used the U.S. dollar as one of several multiple foreign currencies (notably South Africa’s rand) since January, in order to temper the hyperinflation which left the Zimbabwe dollar nearly worthless last fall. Inflation since the new currency regime has averaged around 2% through June; the last inflation figure announced before the country’s adoption of foreign currencies was last October, when prices were soaring at record 231 million percent.

A late June conference in the capitol attracted 40 overseas fund managers eager to capitalize on the increased investment that dollarization has realized. “Until recently, international owners

Mr. Gideon Gono, head of the Reserve Bank of Zimbabwe, suddenly shifted from adding zeros to subtracting them leading the world in deflation.More from Daily Reckoning’s Bill Bonner:

Zero is a perfidious number.  Nobody likes it.  Nobody wants to be “a zero.”  Nobody wants to get a zero on a test…or zero returns on his investments.

It is a line that leads nowhere…with no substance in the middle of it.  You can add a zero…or multiply by zeros; it gets you nowhere.  And is a zero?  Is it something?  Or nothing?  No one knows.

Some remarkable news in the history of zeros appeared last week.  Mr. Gideon Gono, head of the Reserve Bank of Zimbabwe, suddenly shifted from adding zeros to subtracting them.  Within the space of 76 hours, Zimbabwe led the world in two opposite directions.  On Monday, with prices rising at 231 million percent per

Alex’s Notes: Think it “cant happen here”?

You sure about that?

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Zimbabwe removes 12 zeros from currency
CNN.com/World
February 2, 2009

HARARE, Zimbabwe (CNN) — Zimbabwe slashed 12 zeros from its currency as hyperinflation continued to erode its value, the country’s central bank announced Monday.

“Even in the face of current economic and political challenges confronting the economy, the Zimbabwe dollar ought to and must remain the nation’s currency, so as to safeguard our national identity and sovereignty. … Our national currency is a fundamental economic pillar of our sovereignty,” said Gideon Gono, governor of the Reserve Bank of Zimbabwe.

“Accordingly, therefore, this monetary policy statement unveils yet another necessary program of revaluing our local currency, through the removal of 12 zeros with immediate effect.”

Full article

…

It came as no surprise to me that both gold got sold off a bit the moment that the gold market opened in the Far East on Monday morning. But it didn’t amount to much, because shortly after 2 p.m. in Hong Kong…1:00 a.m. Monday morning N.Y. time…gold began a slow rise that continued right through the London open. This lasted until the silver fix in London (noon) before selling off about ten bucks. But as soon as floor trading opened on the Comex in New York, the price rose…then spiked to its high of the day…before it was gently capped and then got slowly sold off until the end of Globex trading at 5:15 p.m. Eastern time.

Silver followed a similar route, but it got sold off shortly before the Comex opened…with the selloff continuing until about 8:30 a.m. in New York. From there it rose in fits and starts

A game of Monopoly, anyone?

Alex’s Notes: This is serious stuff.

Hyperinflation is no joke, and it looks like our brothers in England could be staring down both barrels of the hyperinflation shotgun.

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Reform plan raises fears of Bank secrecy

The Bank of England will be able to print extra money without having legally to declare it under new plans which will heighten fears that the Government will secretly pump extra cash into the economy.

By Edmund Conway, Economics Editor Last Updated: 7:01AM GMT 12 Jan 2009

The Government is set to throw out the 165-year old law that obliges the Bank to publish a weekly account of its balance sheet – a move that will allow it theoretically to embark covertly on so-called quantitative easing. The Banking Bill, which is currently passing through Parliament, abolishes a key section of the law laid down by Robert Peel’s Government in 1844 which originally granted the Bank the