Important: Found this excerp from the PIMCO article
interesting and would like to use it as further evidence for the secular deflation that I'm expecting to hit next year:
<While China still only accounts for 4% of global GDP, it consumes tremendous amounts of commodities and other nations’ exports at the margin – 20-30% of the world’s cement, nearly as much steel, coal, and iron ore, and 7% of all the oil. Increasingly, as China goes, so goes the rest of the world, especially its Asian neighbors and Japan. Estimates are that 40-50% of Japanese growth is China-centric. A Chinese slowdown of some magnitude will be a challenging development for the Land of the (recently) Rising Sun.
Even if China stabilizes at a relatively high growth rate following credit and investment controls, there remains a perplexing secular problem in China that strikes at the heart of the global economy’s attempt to balance production and consumption. That dilemma after all has been central to our argument for “wet logs” in the past few years, and as we shift to a new metaphor, it is apparent that China/Asia holds a key to successful wire walking as well. With Europe and the U.S. heading towards either a demographically or finance induced savings mode, it would be hoped that the 1.2 billion potential consumers in China (and 1 billion in India) would pick up the slack. Problem is that the Chinese, Indians (and Japanese) like to save not spend, and that typically, private accumulated savings has to approach 300% of GDP before any semblance of “shop ‘til you drop” takes hold. China is years from that level. They also lack the financial infrastructure to facilitate a consumer led boom even if the spirit and body were willing. Credit cards and adjustable rate mortgages are not yet part of the Chinese consumer ethic. While the above is an admittedly brief summary of one of the global economy’s major secular imbalances, it describes a critical variable to any forward analysis: China’s wire walking needs to proceed briskly and with greater balance from internal consumption as opposed to investment – expenditures which currently exacerbate global supply.>
Basically the above outlines one of my reasons for pushing the deflation thesis. There's going to be a dead zone where global demand drops. It's bordered on one side by a significant fall off in demand from US consumers driven by higher interest rates, continuing flat to weak real wages, and sub par job opportunity & employment. The width in time of the demand dead zone is predicated upon the time it takes to reach the other side of it when China, other Asian nations (with some assistance from the Eruo zone) will have enough viable consumer demand to replace lower levels of demand from US consumers.
That <Demand Dead Zone> is where the secular Deflation is going to impact the global economy with a vengance. Continue to look at 2005 at the time for that to become clear to everyone.
JMVVHO, of course.
Isopatch |
