|
My brain is teaming with issues related to the looming global recession and China. I will try and deal with them succinctly.
I first visited China (with BHP) at the tale end of the Cultural Revolution – yes that dates me but I was a very young man. The changes over the 33 years are beyond imagination. In those days there was no talk that China would again become the major global economic power.
But it seems to me that frailty we have seen in the western economic and financial system in the last year will catapult China along the path to supremacy.
In that same overseas trip just over 30 years ago I visited Japan and at that time was witness to a soaring economy and the tip was that Japan would replace the US as the new economy power but that was not to pass.
Over the centuries we have seen numerous empires come and go – the Roman, the Greek, the British to name just a few. Are we witnessing the decline of the USA as the clear political and economic leader of the recent decades?
I was taught at school that the demise of empires start from within and if so we might reasonably ask the question then what has been the drag on the world’s greatest 21st century power? Is it satiated consumption – that is are we just simply not able to consume more and more goods like plasmas, cars, computers etc., Or is it much deeper and fundamental than that – have we lost the balance of life and allowed obscene excesses to predominate?
This may appear at first glance to be esoteric and not relevant to successful investing but it is fundamental to the big picture. Can the western world resume its consumption trajectory and at the same time China’s 1.3 billion people emulate in time? Thus in China’s race to be number one is it also possible that we could see the USA ‘phoenix rise again’ and we have the mother of all economic booms? Possible.
China needs the USA – for the moment – whether either likes it or not – they are joined at the hip. Chinese exports to the USA are important – it is the difference between a sound economy and a fast paced one.
But more importantly China is master and maybe slave to USA debt. It would be painful for China if the USA was to fall over as it has much at stake. Is this holding up the USA dollar when ordinarily you would expect it to do as pundits have been predicting?
This is an intricate web we behold and it will be in the interest of everyone worldwide for it to hold together.
Enjoy the ride
Tom Scollon
Chief Analyst
|