Could China Be Forced To Bring A New Global Recession by 2015? By Dian L. Chu, EconForecast Bloomberg on Sunday, Jan. 30 cited a 28-page report-The Financial Crisis of 2015: An Avoidable History--by Barrie Wilkinson, a London-based partner at consulting firm Oliver Wyman. The report describes a scenario--spanned 2013 to 2015-when WesternQE-induced inflation brings down China, creating a debt crisis in thecommodity sector--inclusive of resource-dependent countries as well as commodity producers-which eventually would plunge the world into another recession, and a new world order by 2015. "...the dramatic rises in commodities prices resulting from loose Western monetary policies eventually caused rampant inflation in China. China was forced to raise interest rates and appreciate its currency to bring inflation under control." Well, I think we are pretty much there already. "Once the Chinese economy began to slow, investors quickly realized that the demand for commodities was unsustainable. Combined with the massive oversupply that had built up during the boom, this led to a collapse of commodities prices." Although I see this as low probability, but can't totally dismiss it. That is why global markets always sold off whenever there was news about China.
"Having borrowed to finance expensive development projects, the commodities-rich countries in Latin America and Africa and some of the worldâ€™s leading mining companies were suddenly the focus of a new debt crisis.".
The report describes that the new commodity debt crisis--in a sub-prime-like fashion--would hit banks and insurers via direct or indirect exposure, causing many to finally default. Without the emerging growth engine, the world would once again fall into recession. New World Order By 2015? This new commodity debt crisis would then bring the judgment day to sovereigns in the US, UK and Europe with "debt mountains emerge as the ultimate source of global systemic risk." And 2013 to 2015 would become "the single biggest rebalancing of economic and political power since World War II." (See Chart Below)
My Take While I do agree that the sovereign debt is a great risk to another recession, and the scenario outlined by the report is quite plausible--when taking place in stages-most likely in the next decade or so, instead of by 2015. Furthermore, the scenario is based on the premise that China's inflation problem ultimately causes a new global recession by 2015; whereas the current inflation situation in China although quite alarming, is not yet out of control. From various indications so far, the Chinese central government seems to have committed to employ all necessary resources to rein in price bubbles, and I believe Beijing will most likely have it under control in the
next two years. The growth rate may slow down to 8% range growth instead of the break-neck double-digit pace. So, commodities might cool as China tightens, but still well supported as China puts a floor on commodities. Nevertheless, since “observable fragilities in the global economy” do exist aplenty, a renewed crisis of any kind is all but too easy to erupt. So, I guess the world could eventually get to the "Judgement Day"--regardless how or when--if it holds the current course. The report calls this scenario “an avoidable history,” and urges regulators to address the financial market distortions, and that bankers should monitor risk levels and not take on excessive risks in pursuit of high returns of the days past. Bloomberg dubbed Wilkinson as "The Loneliest Man in Davos"...So, the jury is still out on that avoidable history. (h/t Jeff Reagan)
DISCLAIMER DO NOT BASE ANY INVESTMENT DECISION UPON ANY MATERIALS FOUND ON THIS WEBSITE OR IN ONE OF OUR NEWSLETTERS. We are not registered as a securities broker-dealer or an investment advisor either within the U.S. Securities and Exchange Commission (the “SEC”) or with any state securities regulatory authority. We are neither licensed nor qualified to provide investment advice.
The information contained on our website or in any of our newsletters should be viewed as commercial advertisement and is not intended to be investment advice. Any information found on our website, or in any of our newsletters is not provided to any particular individual with a view toward their individual circumstances. The information contained on our website, and in any newsletter we distribute, is not an offer to buy or sell securities. We distribute opinions, comments, and information free of charge exclusively to individuals who wish to receive them. Our newsletter and website have been prepared for informational purposes only and are not intended to be used as a complete source of information on any particular company. An individual should never invest in the securities of any of the companies profiled based solely on information contained in our report. Individuals should assume that all information contained on our website or in one of our newsletters about profiled companies is not trustworthy unless verified by their own independent research. Any individual who chooses to invest in any securities should do so with caution. Investing in securities is speculative and carries a high degree of risk; you may lose some or all of the money that is invested. Always research your own investments and consult with a registered investment adviser or licensed stock broker before investing. This newsletter is a paid advertisement and is neither an offer nor recommendation to buy or sell any security. We hold no investment licenses and are thus neither licensed nor qualified to provide investment advice. The content in this report or email is not provided to any individual with a view toward their individual circumstances. ChartPoppers.com is jointly-owned subsidiary by Seo Freisin, Inc. (30%). And Allan James Group, Inc. (70%). While Seo Freisin and Allan James Group, Inc. have not been compensated for the distribution of this particular email/report, any future emails/reports regarding a specific company will be the result of an advertising and promotional campaign for which Seo Freisin, Inc. , and Allan James Group, Inc. receives compensation. This compensation constitutes a conflict of interest as to our ability to remain objective in our communication regarding the profiled company. Because of this conflict, individuals are strongly encouraged to not use this newsletter as the basis for any investment decision. Seo Freisin and Allan James Group, Inc. currently hold no shares in the profiled company. Seo Freisin, Inc., and Allan James Group, Inc., or its affiliates will hold, buy, and sell securities in the companies profiled. When compensated in shares, all readers should be aware that it is our policy to liquidate all shares immediately. We reserve the right to buy or sell the shares of any the companies mentioned in any materials we produce at any time. This compensation constitues a conflict of interest as to our ability to remain objective in our communication regarding the profiled companies. Information contained in our report will contain â€œforward looking statementsâ€? as defined under section 27A of the Securities Act of 1933 and Section 21B of the Securities Exchange Act of 1934. Subscribers are cautioned not to place undue reliance upon these forward looking statements. These forward looking statements are subject to a number of known and unknown risks and uncertainties outside of our control that could cause actual operations or results to differ materially from those anticipated. Factors that could affect performance include, but are not limited to, those factors that are discussed in each profiled companyâ€™s most recent reports or registration statements filed with the SEC. You should consider these factors in evaluating the forward looking statements included in the report and not place undue reliance upon such statements.
We are committed to providing factual information on the companies that are profiled. However, we do not provide any assurance asto the accuracy or completeness of the information provided, including information regarding a profiled companyâ€™s plans or ability to effect any planned or proposed actions. We have no first-hand knowledge of any profiled companyâ€™s operations and thereforecannot comment on their capabilities, intent, resources, nor experience and we make no attempt to do so. Statistical information, dollar amounts, and market size data was provided by the subject company and related sources which we believe to be reliable. To the fullest extent of the law, we will not be liable to any person or entity for the quality, accuracy, completeness, reliability, or timeliness of the information provided in this report, or for any direct, indirect, consequential, incidental, special or punitive damages that may arise out of the use of information we provide to any person or entity (including, but not limited to, lost profits, loss opportunities, trading losses, and damages that may result from any inaccuracy or incompleteness of this information).