Juggling Dynamite

Marc Faber, managing director of Marc Faber Limited and the author of the widely read monthly investment newsletter “Gloom, Boom & Doom” report, said weakness in China’s economy could spell big trouble global markets.

Faber said that if the Chinese economy grows at 3 or 4 percent—or even not at all, which he sees as a possibility—it will have a huge, negative affect on industrial commodities and the incomes of countries that produce them. In turn, he said, if countries such as Russia, Brazil or nations in Africa, Central Asia or the Middle East have less income, they’ll buy less from China, Western Europe and America, leading to very little earnings growth or an earnings contraction for those more prosperous economies.

Here is a direct video link.

Grown up comments from China this morning. The State Council has issued a statement saying that the government would “cut off credit to force consolidation in industries plagued by overcapacity as it seeks to end the economy’s dependence on extravagant investment funded by cheap debt.”

In other words rather than extending and pretending with still more liquidity injections into zombie banks and companies and continuing to bolster bad managers and habits, Chinese officials are saying they will now stand down and let the creative destruction of math and business principles do some much needed systemic cleansing. Wow. Would that the rest of the free world would become so pragmatic…we could be through the near-term pain of consolidation and on to true organic recovery at last.

See: China signals will cut off credit to rebalance the economy

Danielle was a guest today on Talk Digital Network with Phil Mackesy talking about recent developments in the world economy and markets. You can listen to an audio clip of the segment here.