As the global recession grows, the risk of a Chinese economic meltdown increases:
In conclusion, the risk of a hard landing in China is sharply rising. A deceleration in the Chinese growth rate to 7% in 2009–just a notch above a 6% hard landing–is highly likely, and an even worse outcome cannot be ruled out at this point.
The global economy is already headed toward a recession. A hard landing in China will have severe effects on growth in emerging market economies in Asia, Africa and Latin America, as Chinese demand for raw materials and intermediate inputs has been a major source of economic growth for emerging markets and commodity exporters. The sharp recent fall in commodity prices and the near collapse of the Baltic Freight index are clear signals that Chinese and global demand for commodities and industrial inputs is sharply falling. Thus, global growth–at market prices–will be close to zero in Q3 of 2008, likely negative in Q4 of 2009 and well into negative territory in 2009. So brace yourself for an ugly and protracted global economic contraction in 2009.
Read the whole thing. The short story is that China’s economy requires a massive and ever increasing amount of exports in order to sustain itself – exports are already falling and will collapse in 2009, while China’s government already seems to have used up the resources necessary for any substantial fiscal stimulus. Bad news for China and the world – and confirmation of my idea of “Freedom Trade” to replace free trade…had we not done this much business with China and instead put our money in free nations, we wouldn’t have this massive collapse in an explosive country about to happen…of such stuff are world wars made.
Obama sure has a full plate – and only a rejection of liberal dogma gives him a chance of weathering the storm. The engine of global economic growth – the United States – has to be revved up, and only tax cuts and regulatory restraint will do the trick. We’ll find out soon if Obama is as smart as his minions say he is.
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