Looks like Chinese authorities will have to do more than increase the transaction tax to let some air out of their stock bubble. Shanghai shares, which fell 6.5 percent yesterday on news of the tax increase, came back this morning.

The exchange here involves China "A" shares, which are traded in yuan and available to Chinese investors. This thing may end up making the Nasdaq stock bubble look small. Chinese investors are plump with cash, thanks to America's enormous trade deficit with China. Because the country has been communist for 60 years, they've never been able to buy stocks and never seen a bull market up close. Valuations now are something like 40-50 times earnings -- what Japan and the Nasdaq sold for before they cratered in the 1990s and 2000s, respectively. The kicker in China is the communism: This country is allocating trillions in capital by bureaucratic decree, not market signals. At some point the whole thing is going to cave. Yesterday I made fun of Alan Greenspan for spouting off on the Chinese bubble. But he's right.