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11-12-2010, 10:10 AM
Dec 11, 2010
Economist warns of biggest bubble ever
TOKYO: China's economy is history's biggest bubble and may be headed for collapse, says Blackhorse Asset Management chief economist Richard Duncan, who correctly predicted a credit boom would trigger a global recession.
A more than 50 per cent surge in China's money supply since 2008 helped fuel economic growth in excess of 9 per cent per year, even as its trading partners sank into recession.
The expansion also saddled the country with factories that produce three times more goods than can be bought by China's workers, 80 per cent of whom make less than US$5 (S$6.50) a day, he said.
'China has the greatest economic bubble in history,' said Mr Duncan, author of The Dollar Crisis, which was published in 2003. 'There's a real risk it's going to collapse in a Great Depression-style scenario.'
The pin that may prick China's bubble, Mr Duncan said, is a backlash against free trade among voters in the US, where unemployment last month rose to the highest since April.
The US House of Representatives in September enacted legislation that would let American companies petition for duties on Chinese imports to compensate for the effect of an undervalued yuan. And protectionist sentiment could gather steam in the next two to three congressional election cycles, Mr Duncan said.
To prop up the flagging US economy, the Federal Reserve last month announced a new round of so-called quantitative easing, US$600 billion in Treasury purchases by the end of next June, to keep borrowing costs low and deflation at bay.
Chinese central bank adviser Xia Bin has said the plan amounted to 'uncontrolled' money printing.
But in a phone interview this week from Bangkok, Mr Duncan said: 'It's hugely hypocritical for the Chinese to say anything about the US doing quantitative easing because they're the kings of quantitative easing.'
Premier Wen Jiabao's government has been creating about US$250 billion worth of yuan a year 'out of thin air', he said.
To keep its currency from appreciating, the People's Bank of China has been printing yuan to offset the dollars flowing in from a trade surplus that expanded to US$27.2 billion in October, the biggest since July.
Central banks in the United States, Japan and Britain have embarked on quantitative easing this year to spur growth, while Europe has responded to a sovereign-debt crisis by setting up a US$1 trillion bailout fund. The US dollar has fallen 9 per cent in the past six months, according to Bloomberg Correlation-Weighted Indexes.
'We're going to have more paper money creation, so the dollar is going to continue losing value,' Mr Duncan said. 'Right now, the Fed is in the lead, but given the crisis in Europe, the European Central Bank may have to step in with another big round of its own money creation to bail out the banks.'
As an analyst, Mr Duncan began warning of imbalances in Thailand's economy in 1993, preceding a devaluation of the baht in 1997 and the Asian financial crisis that year. Before joining Singapore-based Blackhorse, he was head of investment strategy at ABN Amro Asset Management. He has also worked at Salomon Brothers and the World Bank.
In The Dollar Crisis, he argued that persistent US trade deficits were creating an unsustainable boom in global credit that was destined to break down, triggering worldwide recession.
And this week, he said monetary and fiscal stimulus by governments worldwide helped stop the recession from becoming a depression, but failed to address the core problem, which is the collapse of American manufacturing.
The economist said the US government should boost investment in fields such as nanotechnology and solar energy that could help rebuild the nation's export sector.
'The current policy response - trillion-dollar budget deficits and paper money creation on a mind-boggling scale - is based on the belief that it's better to die tomorrow than to die today,' he said.
'There's no evidence to suggest that it's going to correct the root cause of the problem.'
BLOOMBERG
Economist warns of biggest bubble ever
TOKYO: China's economy is history's biggest bubble and may be headed for collapse, says Blackhorse Asset Management chief economist Richard Duncan, who correctly predicted a credit boom would trigger a global recession.
A more than 50 per cent surge in China's money supply since 2008 helped fuel economic growth in excess of 9 per cent per year, even as its trading partners sank into recession.
The expansion also saddled the country with factories that produce three times more goods than can be bought by China's workers, 80 per cent of whom make less than US$5 (S$6.50) a day, he said.
'China has the greatest economic bubble in history,' said Mr Duncan, author of The Dollar Crisis, which was published in 2003. 'There's a real risk it's going to collapse in a Great Depression-style scenario.'
The pin that may prick China's bubble, Mr Duncan said, is a backlash against free trade among voters in the US, where unemployment last month rose to the highest since April.
The US House of Representatives in September enacted legislation that would let American companies petition for duties on Chinese imports to compensate for the effect of an undervalued yuan. And protectionist sentiment could gather steam in the next two to three congressional election cycles, Mr Duncan said.
To prop up the flagging US economy, the Federal Reserve last month announced a new round of so-called quantitative easing, US$600 billion in Treasury purchases by the end of next June, to keep borrowing costs low and deflation at bay.
Chinese central bank adviser Xia Bin has said the plan amounted to 'uncontrolled' money printing.
But in a phone interview this week from Bangkok, Mr Duncan said: 'It's hugely hypocritical for the Chinese to say anything about the US doing quantitative easing because they're the kings of quantitative easing.'
Premier Wen Jiabao's government has been creating about US$250 billion worth of yuan a year 'out of thin air', he said.
To keep its currency from appreciating, the People's Bank of China has been printing yuan to offset the dollars flowing in from a trade surplus that expanded to US$27.2 billion in October, the biggest since July.
Central banks in the United States, Japan and Britain have embarked on quantitative easing this year to spur growth, while Europe has responded to a sovereign-debt crisis by setting up a US$1 trillion bailout fund. The US dollar has fallen 9 per cent in the past six months, according to Bloomberg Correlation-Weighted Indexes.
'We're going to have more paper money creation, so the dollar is going to continue losing value,' Mr Duncan said. 'Right now, the Fed is in the lead, but given the crisis in Europe, the European Central Bank may have to step in with another big round of its own money creation to bail out the banks.'
As an analyst, Mr Duncan began warning of imbalances in Thailand's economy in 1993, preceding a devaluation of the baht in 1997 and the Asian financial crisis that year. Before joining Singapore-based Blackhorse, he was head of investment strategy at ABN Amro Asset Management. He has also worked at Salomon Brothers and the World Bank.
In The Dollar Crisis, he argued that persistent US trade deficits were creating an unsustainable boom in global credit that was destined to break down, triggering worldwide recession.
And this week, he said monetary and fiscal stimulus by governments worldwide helped stop the recession from becoming a depression, but failed to address the core problem, which is the collapse of American manufacturing.
The economist said the US government should boost investment in fields such as nanotechnology and solar energy that could help rebuild the nation's export sector.
'The current policy response - trillion-dollar budget deficits and paper money creation on a mind-boggling scale - is based on the belief that it's better to die tomorrow than to die today,' he said.
'There's no evidence to suggest that it's going to correct the root cause of the problem.'
BLOOMBERG
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