China As Depression Candidate
Pleiades sent in this interesting read today… If you thought China was going to be the economic engine that pulls the world out of the post-GFC slump, then you might not want to read this contrarian article here.
In a recent interview with Kathryn Welling at welling@weeden, he argues that the Chinese economy at present bears an uncanny resemblance to the US economy in 1929, just before the onset of the Great Depression.
He points to eight key similarities – the massive disparity of wealth, income and education; the rapid industrialisation and displacement of labour; opaque and misleading economic and financial data; a massive build-up of leverage across the “rising” class; bubbles in both residential real estate and fixed asset/infrastructure development; an accelerating and uncontrolled growth in disintermediated credit; the expected transfer of economic growth to domestic demand; and, finally, an accelerating price/wage spiral.
At present, he says, China has lost control of its economy. “Essentially, in its own zeal to placate its masses with rapid growth, China has created a tide of inflation that threatens it with widespread social unrest. But if it crushes speculation and clamps down on credit, it risks a deflationary collapse that would also threaten social harmony. The upshot is that China no longer controls its own destiny. The free markets do.“
That last bit is actually quite ominous because if there’s anything to be said about Free Markets, is that they tend not to be on the lookout for mid to long term ramifications; they’re in it for increasingly shorter hauls.
if China should fail, and at some point it will, then there will be repercussions the likes of which will impact Australia severely, for if Australia got through the GFC lightly thanks to a variety of factors, the main one was how connected it was to China. Should China falter, then all those un-cashed chips will be there to be cashed in, so to speak.