Wednesday, May 5, 2010

Who Will Bail The Bailers?

Investor Marc Faber, publisher of the cheerily-titled Gloom, Boom and Doom, predicts a crash of the Chinese economy within the next nine to twelve months. It is estimated that upwards of 60 percent of the Chinese GDP growth is driven by construction. Although the government has implemented various fix-a-flat measures to try to contain housing prices, it has stopped short of raising interest rates, saying that it remains committed to expansionary policies. Sound familiar?

It's like Groundhog Day...


"The Hammer" said...

I think the world right now is infatuated with the Chinese economic model. This state capitalism of theirs seems to offer huge growths rates and political control as well. A win win for politicians. But it's not hard at all to get those kinds of growth rates in undeveloped countries. If you have 10¢ and double your money you have a 100% growth rate, but still only 20¢. State capitalism, planned economies, however you want to describe it are doomed to fail. If a worldwide depression is coming, and I think it's a real possibility, free markets and free minds are the only thing that can save us.

NavyAustin said...

Some notes on scale:

The US working adult population is about 150 million people. The EU also has about 150 million working adults - 300M combined.

China has about 300M working adults in the cities, and another 300M in the rural provinces. These rural Chinese are facing a mass urbanization and dislocation as modern farming technologies are introduced - think of the Joad family in the Grapes of Wrath, where one man with a tractor could do in a day what the family would do with mules in a month.

All of those migrating from the country to the city are driving *down* wages and driving *up* the cost of housing. Low wages and expensive housing retards the growth of a working/middle class in China that can actually consume the goods they produce, so it is still an export economy.

With the US and European export market nearly saturated, where will future Chinese growth come from?

Newer Post Older Post Home