Where Global Economies Come Unraveled

Thursday, October 9, 2008 8:01
Posted in category The Big Picture
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For those of you who have a computer, or a TV, or perhaps still have that environmentally unfriendly paper subscription to the journal, you will know that there is a global economic crisis playing out.

China, making its debut over the last few years, has taken a lot of heat about its role in the global market place, and I find it really interesting that so many are coming out with the “China angle”for this event as well.

When the first strings off the ball of yard began to loosen up, the question in everyone’s mind was what was China’s exposure to the US mortgages.  Did their banks have large holdings, small holding, none at all?

Then, as the crisis has progressed over the last 2 weeks, the talk has been about will China get involved.. will they buy up US banks.. that they can provide the funding needed to solve the entire problem.

But, today I saw perhaps the most interesting angle to date.  That should the US economy really tank, and exports from China to the US also go down, other economies such as Canada’s are likely to suffer as a result as well.

“All signs are pointing towards an across-the-board slowdown in the Chinese economy,” Lan Xue, Citigroup’s head of China research, said in a note to clients this week. “We believe the hope for a rebound is fading fast.”

This may come as a shock to investors who were betting that China’s voracious appetite for oil, metals and other raw materials would forever prop up Canada’s resource-fueled stock market. But the evidence is hard to ignore.

Call it Trickle Down supply chain management if you like, but with many countries around the world fueling the raw material needs of China, the current downturn in largest economies could hit the developing economies even harder.

for China, the reduced need to purchase so many materials could actually be a blessing in disguise at it will be able to more readily manage the limits of its recent growth, but it is clearly a situation that could impact others who have come to depend on China to buy their steel, oil, coal, timber,  aluminum, zinc, copper, rubber, and so on.  the impact will (hopefully) be a drop in global prices to their pre-2005 levels… bu this will mean that countries who have grown used to these cash payments will have to learn to do without.

.. and that is the third domino into the pile.

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