Payback time has come

China is not ending, its growth trends are simply mean reverting following the secular credit boom that pushed global consumption well beyond historical norms between 2001-2011 and allowed many developing economies to leap (temporarily).  The world finally hit a debt limit around 2011 and must now ‘payback’ by working financial leverage back down over several years. Mean-reverting prices for assets–commodities, energy, equities, bonds, real estate–and many services–like education, are all par for the course.

Since we can no longer add more credit to ‘afford’ high prices we will have to go back to old fashioned ‘tricks’ like paying off debt, building up savings and finally wage growth for the masses before consumption can start the next secular boom.  The credit-fueled consumption boom was a hell of a ride up, but equal and opposite in the other direction should now be expected.

Axiom Capital managing director of research Gordon Johnson discusses China’s economic growth. Here is a direct video link.

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