Tag Archives: Economy

Why A China-Japan Conflict Will Cause A Global Economic Catastrophe | Economy Watch

Although a war is unlikely to break out anytime soon, the escalation of hostilities between the world’s second and third largest economies is concerning. According to Cambridge’s Centre for Risk Studies, under the worst scenario, conflict would lead to a global recession lasting between 18 months and four years, and tens of trillions of dollars of global output will be lost.

This is not to say that war will break out any time soon, or even that it is especially likely to. But conflict is entirely plausible, and its impact would be felt in economies around the world. Global firms, most of whom rely on Southeast Asia at some point in their business model, should recognise the possibility.

Why A China-Japan Conflict Will Cause A Global Economic Catastrophe | Economy Watch

So if I shouldn’t be all that worried about war, then why the article in the first place? In reality, the mere existence of an article like this means I should indeed be worried.

The US economy may never be the same after the Great Recession

‘Market analysts and economists at some of Wall Street’s biggest, most-influential banks also seem to be coming around to the view that the US and other developed countries may be losing their ability to grow quickly.’

Here’s the argument, in a nutshell: For some reason—perhaps related to demographic changes tied to the baby boom generation—the US economy has been losing its gangbuster growth potential for a while, perhaps since the 1980s. The economy has had good runs, but those stretches were enabled only by the emergence of debt-driven bubbles—like the housing market during the pre-crisis period—to keep the economy burbling above its natural tendency.

Summers isn’t the only one sniffing around this notion. Market analysts and economists at some of Wall Street’s biggest, most-influential banks also seem to be coming around to the view that the US and other developed countries may be losing their ability to grow quickly.

The US economy may never be the same after the Great Recession – Quartz

I’ve been talking about this for a few years. The US has moved in with Japan and will never get going again. These two are being joined by Europe and soon China. Unless a full blown depression is allowed to happen, an extensive build-up of bad ideas, bad decisions and corruption will prevent rapid expansion of the economy forever.

Preparing for China bubbles to burst: Andy Xie – Caixin Online – MarketWatch

Some financial accidents, e.g., trust products defaulting, may occur in the coming months. Their impact on the real economy will be limited. As the land bubble deflates, the resulting reductions in production costs and consumer prices should support the real economy by boosting exports and consumption.

When a few financial incidents occur simultaneously, the sense of panic may spread. The impact, however, should be short-lived. China’s land bubble has become almost entirely a financial phenomenon. Its problems should be contained within a small though vocal community.

To minimize the panic from a deflating land bubble, the central government should prepare contingency plans for unwinding trust products, property developers and local government financing vehicles.

Preparing for China bubbles to burst: Andy Xie – Caixin Online – MarketWatch

Robert Gordon: The death of innovation, the end of growth | Video on TED.com

The US economy has been expanding wildly for two centuries. Are we witnessing the end of growth? Economist Robert Gordon lays out 4 reasons US growth may be slowing, detailing factors like epidemic debt and growing inequality, which could move the US into a period of stasis we can’t innovate our way out of. Be sure to watch the opposing viewpoint from Erik Brynjolfsson.

Robert J. Gordon is among the most influential macroeconomists in the world. And the big picture he sees is not altogether rosy. Full bio »

Robert Gordon: The death of innovation, the end of growth | Video on TED.com

It Is Happening Again: 18 Similarities Between The Last Financial Crisis And Today

If our leaders could have recognized the signs ahead of time, do you think that they could have prevented the financial crisis of 2008?  That is a very timely question, because so many of the warning signs that we saw just before and during the last financial crisis are popping up again.  Many of the things that are happening right now in the stock market, the bond market, the real estate market and in the overall economic data are eerily similar to what we witnessed back in 2008 and 2009.  It is almost as if we are being forced to watch some kind of a perverse replay of previous events, only this time our economy and our financial system are much weaker than they were the last time around.  So will we be able to handle a financial crash as bad as we experienced back in 2008?  What if it is even worse this time?  Considering the fact that we have been through this kind of thing before, you would think that our leaders would be feverishly trying to keep it from happening again and the American people would be rapidly preparing to weather the coming storm.  Sadly, none of that is happening.  It is almost as if they cannot even see the disaster that is staring them right in the face.  But without a doubt, disaster is coming. The following are 18 similarities between the last financial crisis and today…

It Is Happening Again: 18 Similarities Between The Last Financial Crisis And Today

China is hitting an economic Great Wall

Yet the signs are now unmistakable: China is in big trouble. We’re not talking about some minor setback along the way, but something more fundamental. The country’s whole way of doing business, the economic system that has driven three decades of incredible growth, has reached its limits. You could say that the Chinese model is about to hit its Great Wall, and the only question now is just how bad the crash will be.

Start with the data, unreliable as they may be. What immediately jumps out at you when you compare China with almost any other economy, aside from its rapid growth, is the lopsided balance between consumption and investment. All successful economies devote part of their current income to investment rather than consumption, so as to expand their future ability to consume. China, however, seems to invest only to expand its future ability to invest even more. America, admittedly on the high side, devotes 70 percent of its gross domestic product to consumption; for China, the number is only half that high, while almost half of G.D.P. is invested.

How is that even possible? …

It’s all very peculiar by our standards, but it worked for several decades. Now, however, China has hit the “Lewis point” — to put it crudely, it’s running out of surplus peasants.

Hitting China’s Wall – NYTimes.com

Why the Status Quo Is Doomed

The wheels have come off the endless growth via expanding debt machine.

Progressives and conservatives have long shared a single agenda: growth. Growth increases prosperity and wealth, and this makes for contented voters who will keep voting for incumbents.

This agenda makes three implicit assumptions:

1. Inflation is OK as long as the economy and household wealth expand at a rate that exceeds inflation

2. Increasing debt is OK as long as income and assets both grow faster than debt

3. Wealth/income inequality is OK as long as the wealth/income of the bottom 90% is expanding at the same rate as the top 10%

In other words, if most of the wealth generated by growth flows to the top 10% (who coincidentally fund 99% of political campaigns) that’s OK, as long as enough “trickles down” to the lower 90% to boost their wealth/income by an equivalent percentage. (The top 10% actually own 83% of the wealth, and the top 1% own 43%)

charles hugh smith-Why the Status Quo Is Doomed

The new security order | East Asia Forum

Coming to terms with the Asian century means coming to terms with the biggest change in the global distribution of wealth and power since the Industrial Revolution. This change is driving nothing less than a revolution in the Asian regional order.

For the West, it means having much less power over how that order is conceived and maintained. For Asian countries it means that for the next few decades by far the most important new power will be China, as its economy not just overtakes America’s but grows to perhaps twice the size. For Asian countries, it also means learning again to live with powerful neighbours without the comforting intermediation of preponderant Western power. For Australia, it means both of these things. No wonder it is not proving easy.

… So the Asian century will not belong to any one country. It will be a time either of systemic rivalry and frequent conflict or of carefully cultivated compromise and cooperation between the region’s major powers.

And this means, finally, that coming to terms with the Asian century means coming to terms with the risks it presents and the options available to avoid them. …

The new security order | East Asia Forum

China does not respect the rights of individuals. As a tremendous amount of wealth and power are shifted in its direction, there is an excellent chance that this shift will not go well. If the shift were between two democracies then that would be different, but it’s not. One should not expect smooth sailing on into the future.

China’s Great Uprooting – Moving 250 Million Into Cities – NYTimes.com

China is pushing ahead with a sweeping plan to move 250 million rural residents into newly constructed towns and cities over the next dozen years — a transformative event that could set off a new wave of growth or saddle the country with problems for generations to come.

The government, often by fiat, is replacing small rural homes with high-rises, paving over vast swaths of farmland and drastically altering the lives of rural dwellers. So large is the scale that the number of brand-new Chinese city dwellers will approach the total urban population of the United States — in a country already bursting with megacities.

This will decisively change the character of China, where the Communist Party insisted for decades that most peasants, even those working in cities, remain tied to their tiny plots of land to ensure political and economic stability. Now, the party has shifted priorities, mainly to find a new source of growth for a slowing economy that depends increasingly on a consuming class of city dwellers.

China’s Great Uprooting – Moving 250 Million Into Cities – NYTimes.com

China expert: U.S. folds as China expands in South China Sea

An expert on China and its government warns that the communist nation has been aggressively claiming territory in the South China Sea. The United States, meanwhile, has responded weakly.

Gordon Chang, an attorney and author, says China has been claiming disputed islands in the area for over a year, which would shut the waters to international commerce.

Why? Because China’s political structure is “brittle” and its economy is “faltering,” Chang claims.

“And this belligerence, I think, is the result of internal weakness,” Chang says. “China right now is a threat to the
international community and to the United States not because it is strong, but because it is weak.”

China expert: U.S. folds as China expands in South China Sea