Wednesday, March 2, 2011

Unsustainable

A USD 6 Tn economy is expected to grow at 10% in real terms with inflation of 4-6%. This would imply a nominal GDP growth rate of 14%. This would imply that by 2016, China will be the largest (or close to the largest) economy in the world.
This is a country where 'freedom' or 'rights' have an obscure meaning, accountability is very difficult, extremely cheap loans are provided to companies and is a country which holds a USD 1.2 Tn warchest.
It is also a country which is steadily building its military muscle, is capitalistically colonizing countries in Africa (of course, the other 'developed countries' are much better at that game), discloses very little of its monetary policy and the transparency in its financial system is almost non-existent.

When (not if) this new 'engine' of the world collapses or slows down, what would the consequences be?
Can the US already be scheming for such an occurrence?
Can China be anticipating such a tactic?
If China crashes to a great depression sort of deflationary spiral, how would global markets react?
Would USDs be in demand or would people flee to gold? - because I don't see China going down without inflicting some damage elsewhere. China does seem to be Danneskjold-ish.

Do such thoughts prevent an investor from investing or is it absurd to think of the great crash of 2011/ 2012?

5 comments:

  1. the belief rite now is that china will never collapse. the recent quake in japan mite have awakened a few to the age old idea of risk diversification, but i still believe it will be really difficult to see china go down coz its too big (and i really mean too big) to collapse or be allowed to collapse - there cud b a correction and the other economies would be looked at but to see the manufacturing hub of the world collapse would result in all economies (developed or not) to go down nd it would b far worse than the financial crisis tht hit us a couple of years back. do u think a event like tht cud actually be allowed to happen

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  2. "allowed to happen". Allow me to digest that for a couple of days.

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  3. "the belief rite now is that china will never collapse" - whose belief are you referring to? And please excuse me when I ridicule the naivety of the masses when they say "this will not be allowed to happen". The housing and securities crisis couldn't be avoided - it was controlled with massive medium term consequences. I urge you to read Bill Gross and Michael Pettis

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  4. dude..as far as i understand frm wht i read nd comprehend, it seems a far way out before i c a catastrophe of the nature of 07-09 to happen in china (other countries may be). there a few experts who believe china is closing on 2 d pt frm where d only direction is down south, bt i still feel tht it mite not b in the near future...nd wen i say it will not b allowed to happen is coz of the socio-political environ in our neighbour...

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  5. Let's set a timeline. We look back at this post in October 2012 (18 months from now) and then we look at how the world has turned out.

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