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Old World is Old News

By June 6, 2012CMF Blog

Forget the noise coming out of the Old World: Greece and Europe – that’s old news. While European issues will nevertheless continue to be a drag on the global economy, the more significant changes are around China and the currently under-reported slowdown in its economic growth. I believe the reported information on the slowdown is only the beginning: what else are the Chinese not telling us?

A recent cutback in Chinese imports of raw materials indicates that more significant declines might be ahead for the Chinese economy and, subsequently, the global economy. What are the implications of a serious slowdown in China? Here is my short list of possibilities:

  • Potential uprising of Chinese locals protesting slowness in job and income growth
  • The Chinese cut back substantially on the purchase of US Treasuries, potentially causing US interest rates to increase
  • Financial markets continue through a sustained and more volatile period
  • Commodity prices tumble, including those for oil
  • OPEC is unprepared to adjust to this reality in a timely matter, resulting in some OPEC countries’ per barrel oil prices falling below what is needed for their governments to sustain the current rate of social welfare payments they provide to their people
  • This change in market price of oil, combined with existing international sanctions, sends Iran to the bargaining table

Last summer it was the Greeks and the US government that stalled the recovery. This summer, it will be the Greeks and the Chinese government – (I mean economy).

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