Sunday, August 28, 2011

Michael Pettis — Some predictions for the rest of the decade

Michael Pettis is somewhat pessimistic and foresees continued stagnation and deflationary tendencies in his crystal ball.
To summarize, my predictions are:

• BRICS and other developing countries have not decoupled in any meaningful sense, and once the current liquidity-driven investment boom subsides the developing world will be hit hard by the global crisis.
• Over the next two years Chinese household consumption will continue declining as a share of GDP.
• Chinese debt levels will continue to rise quickly over the rest of this year and next.
• Chinese growth will begin to slow sharply by 2013-14 and will hit an average of 3% well before the end of the decade.
• Any decline in GDP growth will disproportionately affect investment and so the demand for non-food commodities.
• If the PBoC resists interest rate cuts as inflation declines, China may even begin slowing in 2012.
• Much slower growth in China will not lead to social unrest if China meaningfully rebalances.
• Within three years Beijing will be seriously examining large-scale privatization as part of its adjustment policy.
• European politics will continue to deteriorate rapidly and the major political parties will either become increasingly radicalized or marginalized.
• Spain and several countries, perhaps even Italy (but probably not France) will be forced to leave the euro and restructure their debt with significant debt forgiveness.
• Germany will stubbornly (and foolishly) refuse to bear its share of the burden of the European adjustment, and the subsequent retaliation by the deficit countries will cause German growth to drop to zero or negative for many years.
• Trade protection sentiment in the US will rise inexorably and unemployment stays high for a few more years.
Read it all at his blog, China Financial Markets, Some predictions for the rest of the decade


googleheim said...

China china china.

I can only hope that the current economic malaise in the USA is helping expedite the revolutions in the Middle East by whatever factors - rising food prices, rising technological ability to inflict awareness of their human situation by self reflection and intracommunication.

I would then figure that if we can slow down even more in the USA, then we will have put a good punch back on China since they are not spending their dollars to STIMULATE their cash cow -- US the USA

Buffett is trying to encourage mega rich and mega corporations to pay more taxes to stimulate the USA for purpose of making .... Buffett richer.

Therefore, we are looking at China either going to spend their treasuries in our zone or keeping them.

A lot of people say it's crazy that the Chinese would get out of their Treasury holdings since they would drive them downward in process, but I would suggest this is yet ANOTHER OUT OF PARADIGM lobotomized view of their bank account at the TSY.

China needs to spend these treasuries in the USA zone for self-preservation or they will fall off in growth since we will not be consuming much..

So look out for China buying up our finished goods or not. It will say a lot.

Anonymous said...

Re German stubborness.

There's an old joke in German:

"Here lies Otto Schmidt

He had the right of way."