January 14, 2016

IT'S A DEFLATIONARY EPOCH:

The China Bubble Pops (Robert Samuelson, January 13, 2016, Washington Post)

     The worst outcome -- a doomsday scenario -- would have China fostering worldwide deflation. Its growth would continue to deteriorate sharply, extending the decline in commodity prices and the weakness of global trade. Around the world, there would be more production cuts, layoffs and bankruptcies.

     Without predicting this sort of calamity, some observers see the present slowdown as the start of a long descent. "China is going to stagnate," says Derek Scissors, a China expert at the American Enterprise Institute. That doesn't mean a collapse, he says, but rather a slow drift to growth rates of 1 percent to 2 percent. These would equal today's American and European rates, even though China won't have caught up with U.S. and European living standards.

     China faces two problems, says Scissors, that dampen economic growth: high debts and an aging and stagnant population. The older population will shrink the size of the labor force; fewer workers will crimp the economy's output. (Between 2015 and 2040, China's working-age population 15-to-64 will fall by about 14 percent, projects the U.S. Census Bureau. That's nearly 140 million people.)

     Meanwhile, debt -- for households, businesses and government -- soared by $20 trillion in the past eight years, says Scissors. Debt service will squeeze borrowers' ability to spend and propel economic growth.


Not only is everything we buy going to be even cheaper, but all the money in China will flow to US securities.  The global economy desperately needs us to add debt, which they'll be happy to fund for free.

Posted by at January 14, 2016 3:31 PM

  

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