And who will rescue the Chinese?

Posted on November 28, 2011

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James Altucher, who wrote that Pearl Harbor caused the financial crash of 2008.  Does that make the international hopes of Chinese consumer spending growth the signal the upcoming event horizon?

With the global economy fighting the doldrums:

After 30 years of rebuilding from WWII, Japan’s domestic consumption exploded then languished, leaving them with a lost decade (or two…).  China is now more than 30 years since first opening up during the Nixon years, and the world’s economic hopes rest on the Chinese middle class to raise their consumption and maintain their 9-10% per year growth rate, a rate which any economist worth her salt will tell you is unsustainable.

Since 2000, China’s domestic consumption is down sharply, while US consumption continues its persistent ascent, even in the wake of the 2008 Financial Crisis.  Meanwhile, China’s GDP growth is out-pacing US GDP, led by exports and government-led investments.  Eventually, exports are already in decline and government investments will slow as infrastructure projects evaporate (see “China’s Ghost Cities“).  Then what? The Chinese consumers that depend on exports and government spending for their paychecks won’t be able to spend, so it won’t matter if they constitute 35% of 70% of the Chinese economy – they’ll be in a severe depression.

But no one seems to care.  We’re still several years before China slows to 3-5% – five, ten, or maybe fifteen, but for now, sentiments rests on motivating the Chinese to spend, spend, spend to stimulate global economic sluggishness.  The Chinese continue to support the clueless US consumer, buying and holding more than $1.5 trillion in foreign reserves.  When these purchases subside following the inevitable Chinese meltdown, who will bail out China?

And you thought that Bank of America was too big to fail.  What happens when a $6 trillion dollar bank quits financing our debt and their expected consumer spending fails to materialize?