Inquiring minds are listening to Marc Faber on the global economy.
[youtube https://www.youtube.com/watch?v=rKIhIxfPyy4?rel=0&w=420&h=315]
Link if video does not play: Marc Faber speaks of Imminent Market Crash
Faber says China faces a recession defined as a slowdown to 3%.
Interestingly, 3% is the same long-term target that Michael Pettis at China Financial Markets has come up with. Indeed Pettis has made two bets with the Economist over growth rates and when Chain will surpass the US in terms of GDP.
The Economist says China will pass the US up by 2018. Pettis and I say no way. Pettis also says China will average 3.5% or less growth for the rest of the decade. I agree with Pettis.
For details of the bet and my thoughts, please see 12 Predictions by Michael Pettis on China; Non-Food Commodity Prices Will Collapse Over Next Three to Four Years; Nails in the Hard Landing Coffin?
Faber does not believe China’s GDP as stated now, and neither do I. Both of us think China has hugely understated inflation.
However, Faber sees a chance of serious inflation in the US. I don’t. Faber narrowly focuses on money supply and ignores credit. And credit will collapse once again if the US heads back into recession as Faber thinks. Indeed credit has at best held steady in this recovery, after one corrects for student loans.
Please see The Real Consumer Credit Story: Virtually No Recovery in Revolving Credit, No Recovery in Non-Revolving Credit
for a discussion.
Since credit dwarfs money supply, odds of significant inflation in the face of negative credit growth is not high. Those betting on high inflation or hyperinflation have simply been wrong, and will continue to be wrong until Bernanke reignites bank lending.
Given capital constraints on banks, consumer needs to deleverage, boomers heading for retirement with insufficient savings, and businesses reluctant to expand, Bernanke is fighting a losing battle and will be for quite some time.
Mike “Mish” Shedlock
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