China's economy and trade surplus surge even more explosively - 20-Jul-07 - Generational Dynamics

Generational Dynamics Web Log for 20-Jul-07

China's economy and trade surplus surge even more explosively

Once again, mainstream macroeconomics failed to predict or explain what's going on.

China's annual growth rate has been above 9% since the early 1980s. In the last five years or so, the Chinese have been using various macroeconomic techniques to "cool down" the economy. Each year, Chinese officials promised that the growth rate would slow down to 6-7% the following year.

Now the Chinese Ministry of Commerce announces that the economy is growing "at a blistering pace."

The Chinese economy rose at an annual rate 11.5% in the first half of 2007. According to Chinese officials, it continued on a "sound and rapid" path which needs some "adjustment." However, the announcement doesn't mention that these are the same "adjustments" that they've been trying for a number of years now.

From the point of view of Generational Dynamics, the entire Chinese economy is unraveling. It's in a huge economic bubble, where hundreds of millions of people have "bet" -- by investing in the stock market or by spending a lot of money or by taking marginal jobs -- that the economy will continue growing at that rate. A slowdown in the economy will not be a "soft landing," as hoped, but will be a crash that will pull those millions of people down with it.

China's trade surplus was $112.5 billion in the first half of 2007, up 84 per cent from the first half of 2006. China's foreign reserves are the world's largest at $1.3 trillion at the end of June.

The Miyanville blog has prepared a table of the growth of China's foreign reserves for the last few quarters:

2005 4th quarter Up +$  49.9 billion
2006 1st quarter Up +$  56.2 billion
2006 2nd quarter Up +$  66.0 billion
2006 3rd quarter Up +$  46.8 billion
2006 4th quarter Up +$  78.4 billion
2007 1st quarter Up +$ 135.7 billion
2007 2nd quarter Up +$ 130.6 billion

There's no explanation for this kind of explosive growth in mainstream economics. These figures are a surprise to "experts," who did not predict them, and can't explain them now.

Generational Dynamics explains what's happening as following: China had a major national financial crisis that began in 1932, and triggered Mao Zedong's 1934 Long March, followed by a 16 year civil war.

Just as America's dot-com stock market bubble of the 1990s began at exactly the time that the survivors of the 1929 stock market crash all disappeared (retired or died), all at once, China's bubble economy began in the early 2000s, just at the time that the survivors of the 1932 financial crisis all disappeared, all at once.

The entire Chinese population is in this younger generation. Like America's Boomers and Gen-Xers, the Chinese believe that there is nothing to fear from debt and that nothing can ever go wrong for very long.

That's why major financial crises always occur every 70-80 years -- the length of a human lifetime. The next bubble begins when the people who lived through the last bubble and crash all disappear, all at once.

This week's announcement by Bear Stearns announcement that its $12 billion hedge fund investments are now almost worthless was the latest of many shocks and imbalances in the American economy, and is a sign that America's credit bubble is coming apart at the edges.

A few days ago I wrote that food prices have been growing explosively, so much so that they appear to have reached some kind of "tipping point."

The same is true of those foreign reserve figures listed above. The growth rate is so enormous, that it's mathematically impossible that it be sustained for much longer. (20-Jul-07) Permanent Link
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Generational Dynamics Web Log for 20-Jul-07 China's economy and trade surplus surge even more explosively

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Generational Dynamics Web Log for 20-Jul-07
China's economy and trade surplus surge even more explosively