Maybe I was too eager to sneer at the Chinese government’s adjustment of the stamp tax. From Fleck’s rap today: “Historically, adjusting the stamp tax in China has been quite effective: When they raised it in 1992, the market dropped 70% before making a low; and, after they raised the duty in 1997, shares fell 30% from the highs.”

Here’s what China Daily has to say, which isn’t quite the same: “In the 17-year history of China’s stock market, a stamp tax hike usually led to a slump in the market.

China started collecting a stamp tax on the Shenzhen Stock Exchange in July, 1990, but only levied on sellers at 0.6 percent. Four months later, buyers were also subjected to the tax.

The tax triggered a downturn in the Shenzhen market, forcing authorities to cut it in half to 0.3 percent in October 1991. At the same time, the Shanghai Stock Exchange also began collecting duty on both sides of trades.

On May 10, 1997, the tax rate was upped to 0.5 percent, which may have caused a bear market that lasted until mid-1999. The rate was lowered to 0.4 percent in June, 1998 before being adjusted to 0.3 percent one year later and then to 0.2 percent in 2001.

Regulators further lowered the duty in January 2005 to 0.1 percent in order to boost stock prices during a market slump lasting from 2001 to 2005.”

Q1 2007 GDP was revised lower this morning, down to 0.6%. Economic bulls and the Fed continue to forecast an abrupt change in this trend.

On the other hand, Nouriel Roubini writes: “This writer has been a serious bear on housing for a long time: but after listening to these most sophisticated analysts of housing, mortgage lending and the MBS markets from a top global financial firm my concerns seemed almost not bearish enough. The main message from these analysts and the data is that the housing recession, the subprime carnage and the broader mortgage mess are getting worse, not better; and things will get worse well into 2008. There is no end in sight to the housing recession and we are only in the first innings of the mortgage credit crunch.

As for private consumption (that is about 70% of GDP) its prospects are now weak and cast a serious shadow for US economic growth in the quarters ahead.”

Nouriel, that’s right. You are not nearly bearish enough. That’s what being an economist will do for you. Economics isn’t the dismal science anymore, now it’s the science of cheerleading market and economic manipulation. Pump ‘em up, pump ‘em up, pump ‘em up, waaaay up! So far the game is Keynesians 1, Austrians 0. But it is far from over.

For your main course, a must read: Who’s Holding The Bag?

And for dessert, from Bloomberg: Subprime Fiasco Exposes Manipulation by Mortgage Brokerages.

The US constitution gives the federal government the power to regulate interstate commerce. Reasonable enough, but the definition of regulating interstate commerce has been stretched beyond belief to expand federal powers way beyond the original intention. Here’s an example from today’s Chron, involving a carjacking. Two creeps carjacked a woman’s rental car in San Francisco.

“Bibbs and Watson are facing federal charges because the rental car was made in Michigan, sold from a dealership in Oklahoma and shipped to California during interstate commerce.” Not that I have any affection for carjackers, but that should be a purely local matter. The carjacking has nothing to do with interstate commerce. This kind of tortured association has justified an expansion of federal power which is a major reason why the US is so screwed up. Washington is too far away to be managing the prosecution of street crime in San Francisco. Accountability is vague and diluted, costs run away and effectiveness is minimal.

It would have been a better pun if the crime had occurred in the Mission. Unfortunately, it was in Potrero Hill. Close, but no cigar.

China’s government has trebled the stamp duty on the trading of shares in a bid to cool the country’s overheated stock market. The tax will rise from 0.1% to 0.3% with immediate effect, Beijing said.

This isn’t fighting a fire, this is p*ss*ng on the ashes. Now if they had made it maybe 5%, that might have got someone’s attention. Even so, given current turnover of USD50 billion per day, that represents an additional USD100 million a day in stamp tax!

At some point, though, they are going to rein this in. The Chinese government does not like being ignored, it sets a bad precedent. And besides, highly productive activities are being sacrificed for trading:

(China Daily)

Updated: 2007-05-21 14:52

“Workers do trading on the toilet.

Workers in Chengdu, Sichuan have turned to trading in the toilet to avoid being caught by their bosses. Many business are getting frustrated by staff trading instead of working and have been clamping down on the activity, forcing staff to trade in secret.

Undeterred by the firewalls installed on their computers to prevent them visiting trading-related websites, crafty workers intent on making their fortune now call their brokers from the toilet.”

I am really working hard to resist the temptation to exploit further opportunities for toilet humour. It really isn’t funny, it’s sad. A lot of people are going to lose their savings.