China Bubble Ready To Pop

26 Mar

From the Financial Post (Canada):

The Chinese economy is a financial bubble that will inevitably pop, says Edward Chancellor, author of the classic text on financial manias, Devil Take the Hindmost. In a new report for GMO, the Boston-based money manager Mr. Chancellor lists 10 signs of a bubble in progress. They range from “blind faith in the competence of the authorities” to “a surge in corruption” to “inappropriately low interest rates.”

He figures the Chinese economy meets all 10 of the criteria. And he has harsh words for some of the cheerleaders for China: “Wall Street … tends to downplay the darker aspects of the Chinese demographic story,” he writes.

“China’s population is set to decline in 2015. The worker participation rate will peak this year. It’s anticipated that the number of people joining the workforce will fall off quite rapidly. Yet it’s this section of the population that tends to move to cities and has provided China with an apparently limitless supply of cheap labor.”

Mr. Chancellor figures that if China’s economy slows below Beijing’s 8% growth target, calamity will ensue. Excess capacity will stifle new investment, the real estate bubble will burst and non-performing loans will bring down the banking system.

One Response to “China Bubble Ready To Pop”

  1. Nicholas Byrne March 26, 2010 at 9:05 am #

    Well lets face it, a nation with GDP growth of 8% (if true) will double its economy in less than 10 years at that rate. A bubble if there ever was and what is worse is that this was built on the back of the devoleped nations demand for cheap products, especially from the US.

    Oh, and how is China going to afford to keep buying US treasuries?

    Lets face the real global crisis here and I’m not talking about debt. The inability to expand the credit supply that is required to fund existing debts within a centralised banking world is due to the price of energy, oil energy to be precise. Without cheap oil, there is no economic growth and with no economic growth, no demand for credit and thus dbet deflation and price inflation.

    Oil demand destruction has now become a permanent self reinforcing feedback for developed nations economy’s. Oil has now almost completely decoupled from the US dollar? Does that mean anything to anyone?

    Oil demand from developing nations is keeping the price to high for western economies that desperately need a return to an energy price equilibrium.

    Until we face the hard reality that oil production rates will never again meet global demand we are kidding ourselves. There is no recovery, only artificial “stimulus” until no one has the money to purchase government debt.

    Barnaby, I do not believe in peak oil. I know it, and the evidence that we will face a permanent decline in the rate of production in the coming decade is all but conclusive to everyone but the completely stupid or ignorant.

    Our “leaders” should be held accountable for the train wreck that is about to happen as all the parties are well aware of peak oil and have chosen to ignore it as something that the private sector will fix. Yeah, and we’ll all be driving to work in flying cars ten years from now right? Get real you pack of egotisticalvote hungry m**grels. You all have a responcibility TO THE NATION OF AUSTRALIA and its time you all remember that.

    When is the Australian government going to face up to the elephant in the room. Queensland is now going to export our nations precious LNG resources to China along with the Timor gas just when we should be converting our own nation over to an energy source that could help fuel our economy in the wake of oil declines for decades to come. Disgusting, our children will not forgive us and I for one will not forgive or forget.

    Barnaby, you are the only real politicain we have, you are not afraid to speak your mind against the consensus and hold the interests of this nation above your own. If you are not aware of the energy crisis we are facing then now is the time to learn and bring it to the attention of our sleeping apathetic nation. I’m not a fan of the greens but by the time this crisis hits home and people discover that they were the only party that attempted to do something about it, you are going to look like a fool, just like all the others…

    You are obviously well aware of the real peril our global economy’s are in. Why not take that knowledge and follow it to where the problem really is, energy. And for the love of god, do something about it.

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