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	Forecasting America's Destiny ... and the World's

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Generational Dynamics Web Log for 28-Jul-06
International concern is growing over China's "overheating" economy

Web Log - July, 2006

International concern is growing over China's "overheating" economy

It was only supposed to grow 8%, but it grew 11.3% in the second quarter.

In 2004, in an article stock market volatility, I mentioned China's economy in passing: "During the last three weeks, the Chinese government has been applying harsh controls to 'cool down' the economy, with the goal of achieving a 'soft landing.' China has been growing at 9% per year for almost 20 years, and international economists have been expressing concern about overheating since early 2003. China appears to be in a generational 'unraveling' period stock market bubble that has to burst at some point, and that a bursting bubble is very hard to control with a 'soft landing.'"

Now, two more years have passed, and not only has the Chinese economy not slowed down, it's accelerating even faster. It grew at 10.9% in the first half of 2006, and an even faster 11.3% in the second quarter.

Normally, the Chinese don't make any negative comments on the economy, since to do so would be to admit that the Communist Party is not in control. However, things have gotten so bad that Prime Minister Wen Jiabao has publicly stated that the economy needs to be 'rebalanced.'

From the point of view of Generational Dynamics, China is going through an economic unraveling that's very similar in many ways to the type of unraveling that America went through in the late 1990s, when crazed investors created an enormous "tech bubble," which finally collapsed with the Nasdaq crash of 2000.

But the story doesn't stop there. After the Nasdaq crash, the Fed lowered interest rates to near-zero, causing the tech bubble to morph into a general stock market bubble, a credit bubble, a real estate bubble, and a commodity bubble. The bubbles might have started collapsing in 2004, when the Fed started raising interest rates again, if it hadn't been for the Chinese economy.

China's unraveling era really began in earnest around the same time. For several years, China has been purchasing enormous amounts of American debt (usually in the form of ten-year Treasury bonds), pouring money back into the American economy that could be used to purchase Chinese textiles and other goods.

Today, with even Chinese economists calling economic growth "alarmingly high," China holds an incredible $941.1 billion in US dollar reserves as of the end of June -- soon to be over $1 trillion.

As I said, China's been trying to bring about this "soft landing" for four years now, and has failed for four years. Not only is the unraveling not being controlled, it's actually getting worse at an accelerating rate.

As I've described many times before, China is becoming increasingly unstable and is approaching a massive civil war as its bubble economy unravels. America's economy is also in a precarious situation, because of the astronomically high and exponentially increasing public debt, and because of the vastly overpriced stock market.

Conflict risk level for next 6-12 months as of: 9-Feb-2006

W. Europe 1 Arab Israeli 3

Russia Caucasus 2 Kashmir 2

China 2 North Korea 2

Financial 3 Bird flu 3

Key: 1=green 1=Low risk 2=yellow 2=Med 3=red 3=High 4=black 4=Active

A financial crisis in either China or America or, for that matter, in Europe or Japan will cause a "domino effect" that will precipitate financial crises around the world, and trigger a civil war in China, which will lead to war crises around the world. Generational Dynamics predicts that we're at a unique time in history, 60 years after the end of World War II, and that we'll soon have a new "clash of civilizations" world war. (28-Jul-06) Permanent Link
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Generational Dynamics Web Log for 28-Jul-06 International concern is growing over China's "overheating" economy

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Generational Dynamics Web Log for 28-Jul-06
International concern is growing over China's "overheating" economy