Thursday, January 15, 2009

3-4 years to become 2nd

China becomes world's third largest economy

The demand from China will be inflationary in the end, there can be no doubt of that because of finite resources. But this won't be inflation as in an over-expansion of the money supply, this will be goods becoming more expensive through shortage. If China manages to continue growing at 6% a year, perhaps that could be considered a collapse given their previous rate of expansion, but it isn't a collapse. So from this, there is a much shorter wait to the embedded UK inflationary problems than Japan had/has. But although the UK government seems to be under the impression that restoring inflation is good for the economy, it isn't because we will ultimately be left out in the cold as a nation dependant on imports but useless at exports. Exports collapsing as we speak.

Posted by stillthinking @ 09:47 AM (803 views)
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4 thoughts on “3-4 years to become 2nd

  • There are an awful lot of journalism graduates working in meeja who think that China’s is the second largest economy after the US, or even the first. Or even that saying so might make it so!

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  • Like Hollywoood the media relies on exagerated story lines. China are a relatively small part of the global economy (apx 5%) and I fear that just as they were the single greatest beneficiary of rampant leverage, they will suffer greatest from its unwinding.

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  • mountain goat says:

    China has received a lot of the “hot money” this is true. The report below in ny times shows this, as the trade surplus rose foreign reserves shrank last year. So China will suffer a short term (1-2 year) disruption from the current debt deflation/dollar crisis. Unless there are major economic policy mistakes after that China should have a good 10 years. Big ongoing infrastructure projects with FX reserves to fund it should see them through. After that they will start suffering from an aging population.

    “HONG KONG — China’s foreign reserves grew in the fourth quarter of last year at the slowest pace since the summer of 2004, as the country’s central bank found itself with fewer dollars to buy Treasury bonds and other foreign assets because investment money was flowing out of the country.

    China’s central bank released data on Tuesday evening showing that reserves grew by $40.45 billion, to $1.95 trillion, in the fourth quarter of 2008. That was less than half the growth in the third quarter and less than a third of the pace in the first half of the year.

    While China continues to run large trade surpluses, companies and individuals have been moving savings out of the country and delaying investments into China. The reserves actually shrank $25.90 billion in October, at the height of the financial crisis, and then gained $5.03 billion in November and $61.30 billion in December, according to the central bank.”

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  • MG thanks for that.

    Because my thoughts about the macro pic determine where I put money I’m sort of forced to keep an open mind about most things. The scenario you paint for China is quite possible and I will watch for what is happening out there and move if there is opportunity.

    A while back there was a lot of theoretical debates about gold and what might happen but I guess what matters is what is actually happening which will eventually confirm one theory more right than another.

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