Especially disturbing is price data. In Q3, nominal GDP growth of 6.2 percent was less than the officially reported real growth of 6.9 percent. China, therefore, looks like it is now caught in the deflationary trap of falling prices. Deflation, in turn, suggests a 1930s-style crash is increasingly possible. China has too much debt—perhaps as much as 350 percent of GDP at the moment—which becomes impossible to service in an era of rapidly declining prices. The country over the last year has seen a number of “first” defaults. So far, the central and provincial authorities have managed rescues for many of the obligors, but at some point they will have no choice but to let failing borrowers go under in far greater numbers.Amazing.
In these circumstances, the best case scenario for China is several decades of recession or recession-like stagnation, much like Japan experienced in the 1990s and the first decade of this century. China’s leaders won’t say the goal of the just-completed Work Conference was to avoid the sudden adjustment of a collapse, but that appears to be the case.
The US consumer has never recovered and everyone acted as if the party could go on when the guest of honor went home with a severe headache and vowing to never drink again.
I think we're starting to see the inevitable.
We just saw the oil bubble pop (no one wants to admit it...they just talk about weak commodities prices) and early indications show that the Christmas season didn't deliver the way that many expected.
But the thought that China could be headed toward a collapse? Wow! This doesn't make me smile but is a source of worry. What happens when a Communist govt is faced with its newly formed and powerful middle class suddenly having to head back to the farm?
Is it a case for revolution, or does leadership divert attention by engaging in overseas adventures.
This bears watching.