Will China lead the world into depression?

Telegraph blog ^ | 01/15/09 | Ambrose Evans-Pritchard

[TigerLikesRooster]

Will China lead the world into depression?

Posted By: Ambrose Evans-Pritchard at Jan 15, 2009 at 13:27:42

Oh no!

Albert Edwards at Societe Generale has issued another terror alert:

Sell everything. Hide in a bunker with plenty of whisky. The S&P 500 index of US shares is about to crash through its half-century support line to 500.

"Technicals say it is time to bail out. Cut equity expose and prepare for rout. US depression looking likely. While China's 2009 implosion could get ugly."

Mr Edwards -- who is of an "Austrian" persuasion, ie hates excess debt -- was one of the very few economists to see this whole crisis coming, and to issue warnings clearly and emphatically (unlike others who now claim to have been seers, but in fact hedged). He said interests rates would be slashed to zero and that bond yields would fall to the lowest in history. All this has occurred.

The key argument is that markets have been sold a pup on the China growth miracle and have massively underestimated the risks for the global FX and trading system as this unravels.

"The Chinese economy is imploding and this raises the possibility of regime change. To prevent this, the authorities would likely devalue the yuan. A subsequent trade war could see a re-run of the Great Depression.... Do you really trust politicians to "do the right thing"?

Mr Edwards has been tactically bullish on equities since the end of October when the MACD (Moving Average Convergence /Divergence Oscillator) for the S&P 500 broke upwards. This technical indicator broke down again two days ago.

[TigerLikesRooster]

Ping!

[Judges Gone Wild]

Too late. Hank Paulsen already did.

[RC one]

As long as they’re right there in the abyss with the rest of us, I don’t care if they lead or follow.

[grey_whiskers]

No, just itself.

But it will lead the world into hyperinflation or hyperstagflation, as its supply capacity collapses and all of the "stimulus dollars" hit the US economy.

Too many dollars chasing too few goods.

This could be obviated by electing true Republicans -- not free-traitors and RINOs -- who will make a business-friendly, manufacturing-friendly haven out of the US, creating true economic growth (production of US goods and services) to soak up all of the Helicopter-Ben money down the road.

(Oh, and cutting Fed. spending to reduce those pesky deficits which must be funded with foreign $$).

Cheers!

[Perdogg]

oh please!

[GOPJ]

Thanks for the ping.

[Hawthorn]

Ambrose Evans-Pritchard is about as unreliable and nutty as they come -- at least when it comes to matters economic.

So if you take what he says and then believe the opposite, you'll be correct most of the time.

[Try it, you'll like it!]

[Golddigger3]

Ambrose Evans-Pritchard is about as unreliable and nutty as they come -- at least when it comes to matters economic.

He was quoting an Austrian school economist that predicted everything that happened so far, and the money quote isn't that China will implode but that the US stock market is in for a rout and that the economy is in for a Depression.

[Zhang Fei]

This is the interesting passage:

Could the economic situation in China become so bad that it threatens the regime itself? Of course it could. But before being swept away in a tidal wave of worker unrest it has one key tool in its economic armoury it has used before. MEGA-DEVALUATION. China has a track record of such things. At the end of 1993 the authorities devalued the yuan by 33pc.

Note that back in the early '80's, the yuan traded at about 2 yuan to the dollar. By the late 90's, it had depreciated to 8.25 to the dollar. It only started to appreciate in 2007, but may yet reverse course to go back to 8.25 yuan to the dollar, or 10 or 16, depending on how badly the economy deteriorates or how threatened the regime feels internally.

[Zhang Fei]

Ambrose Evans-Pritchard is about as unreliable and nutty as they come -- at least when it comes to matters economic. So if you take what he says and then believe the opposite, you'll be correct most of the time.

For this economic cycle, your criticisms apply to Bush, Paulson and Bernanke, not Evans-Pritchard. In fact, Evans-Pritchard has been right on the money in predicting that the US is in terrible shape, but everyone is in much worse shape, the difference being that the US will go through the wringer first, and everyone else will hit lower lows (than the US) a little later.

[Zhang Fei]

Here’s an interesting take on China’s impact on the global economy. Evans-Pritchard hasn’t been perfect, but he’s been right more often than wrong.

[ponder life]

Note that back in the early '80's, the yuan traded at about 2 yuan to the dollar. By the late 90's, it had depreciated to 8.25 to the dollar. It only started to appreciate in 2007, but may yet reverse course to go back to 8.25 yuan to the dollar, or 10 or 16, depending on how badly the economy deteriorates or how threatened the regime feels internally.

I personally believe that the yuan will continue to strengthen.