This is an interesting comparison. http://chronicle.com/temp/reprint.php?id=477k3d8mh2wmtpc4b6h07p4hy9z83x18
“In the end, the Panic of 1873 demonstrated that the center of gravity for the world’s credit had shifted west — from Central Europe toward the United States. The current panic suggests a further shift — from the United States to China and India. Beyond that I would not hazard a guess. I still have microfilm to read.”
Wouldn’t India and China be pretty much f*cked without the United States and the rest of Western Europe? Particularly China?
kkent… why exactly?
kkent Wrote: ------------------------------------------------------- > Wouldn’t India and China be pretty much f*cked > without the United States and the rest of Western > Europe? Particularly China? A very interesting point. There have been arguments that the emerging economies do not need the US, and that power is shifting from the US to the East. The recent meltdown should have confirmed this theory of decoupling, but they appear to have lost more. Falls have been steeper in the emerging markets, than even the US. They are yet to be immunised against a recession in the US.
Why exactly? Because who are the investors into the emerging markets? It’s not poor Indian villagers who finance and hire Indians or poor Chinese farmers. I’m sure the emerging markets would be screwed without American consumers buying their goods and without Western investors pouring their money into those economies. If the West goes bust, so does the East. Plain and simple. I know that’s simplistic, but if the West were to suddenly fall into a depression, who does China sell its goods to?
Well, China won’t contract as badly as other countries, since recession will make us want to save money by buying the cheapest things of those that we need. China will still be the cheapest stuff around for a while, so in a relative sense, China will do better than others. The problem is that there will still be a slowdown in China, as nonessentials have less demand. To some extent, emerging middle classes around the world will make up for some of this, but: 1) it’s still not enough to make up for the whole of American consumerist spending, pumped up by (formerly) easily available credit. 2) Those middle classes are largely rich by helping get goods to core countries (US, Europe, maybe Japan, Aus), so if that trade dries up, they may have to start clipping coupons too. To the extent that middle class wealth has created self-sustianing domestic demand for domestic products, there may be some decoupling from the US. But I don’t think it will be complete. Also, a lot of political unrest in the countryside in China has probably been silenced by the promise of better opportunities in the cities. If there is a global slowdown and Chinese factories are suddenly starting to lay people off en masse, China may start to experience a political stability problems, which would be scary for a lot of people.
“A very interesting point. There have been arguments that the emerging economies do not need the US, and that power is shifting from the US to the East. The recent meltdown should have confirmed this theory of decoupling, but they appear to have lost more. Falls have been steeper in the emerging markets, than even the US. They are yet to be immunised against a recession in the US.” Are you talking about decoupling of the stock market or the economy? The stock market has certainly been affected by whats going on in the US, because of FII pulling out money from the market. The economy has not doing that badly, yeah the growth might come down from 9% to say 7.5%, but 7.5% growth is still good. Exports contribute only about 20% to India’s GDP and I am not sure how much of it is to the western world. So while the stock market is not decoupled the broader economy is significantly decoupled although not fully. The points I make are more relevant to India than China.
kkent Wrote: ------------------------------------------------------- > Why exactly? Because who are the investors into > the emerging markets? It’s not poor Indian > villagers who finance and hire Indians or poor > Chinese farmers. I’m sure the emerging markets > would be screwed without American consumers buying > their goods and without Western investors pouring > their money into those economies. If the West goes > bust, so does the East. Plain and simple. I know > that’s simplistic, but if the West were to > suddenly fall into a depression, who does China > sell its goods to? kkent, India and China’s stock markets have already been impacted and will probably go down further…fair enough Their economies will slow too…I’ll give you that… but to say India and China are pretty much f*cked…is naive… The two countries form 35%-40% of the world population…a much larger part of the worlds YOUNGER working age population (I dont know the exact number)… to think that most of the working people there work to provide goods and services to the great US of A and not to the ‘poor indian villagers’ (?!!) is again… a bit misinformed. Domestic consumption will keep the economies of the two countries growing…albeit the meltdown of the US economy (if any) and the maxing out of the US consumer’s credit cards will result in slower growth because we’ll be selling you less stuff. In summary, domestic consumption is key for thw two economies.
I’m sure India would just “slow down” if 20% of its economy contracted by about 75% with a depression in the West. I believe that in itself would cause an Indian depression. On a completely different topic, I love the hubris of these authors. Diminishing marginal utility or real growth is pretty much inevitable. To a large extent, I’m not that impressed with 9% Chinese GDP growth. And to think that China, with a GDP per capita of–what?–less than $20,000, will all of a sudden emerge as the world’s economic power without the support of Western credit cards is laughable at best. Chad, I see your point about cheap goods. I was thinking the same thing, although knowing our government, they’d probably raise tariffs to satisfy populist demands during depression.
traditionally people live below their means in eastern countries -except ofcourse in certain urban pockets where youngsters have been lured by easy credit.indian and chinese households arent leveraged like the avg american household.so they are relatively safe. companies that are overleveraged will obviously take a hit in this credit deflation. if there is a recession,oil demand should slow down,that should help importers like india and china as well. wonder what happens to the middle east/russia ? putin and the sheiks may be in danger if oil goes below 70.
kkent Wrote: ------------------------------------------------------- > I’m sure India would just “slow down” if 20% of > its economy contracted by about 75% with a > depression in the West. I believe that in itself > would cause an Indian depression. > > On a completely different topic, I love the hubris > of these authors. Diminishing marginal utility or > real growth is pretty much inevitable. To a large > extent, I’m not that impressed with 9% Chinese GDP > growth. And to think that China, with a GDP per > capita of–what?–less than $20,000, will all of a > sudden emerge as the world’s economic power > without the support of Western credit cards is > laughable at best. > > Chad, I see your point about cheap goods. I was > thinking the same thing, although knowing our > government, they’d probably raise tariffs to > satisfy populist demands during depression. all of a sudden? funny. just like america became an economic powehouse all of a sudden?. there is a trend and nothing is gonna change that dramatically in 2 or 3 years.
But dyslexic, isn’t it this huge leverage from American import consumers that will be sorely missed, especially given the fact that Easterners tend to save more?
All I’m saying is that China is not going to emerge imminently as the supreme economic power in the world because America and Europe are in a financial crisis, something that we tend to enjoy every few decades. This just reminds me of all of those movies from the 1980s that overtly and sometimes surreptitiously alluded to the Japanese boss.
well the asians trade amongst themeselves too. the US is no longer China’s biggest trading partner(the EU is) .matter of fact, the ASEAN bloc is the 4th and fastest growing trade partner of China. no country will remain insulated ofcourse from this,but some are relatively less vulnerable.
kkent Wrote: ------------------------------------------------------- > All I’m saying is that China is not going to > emerge imminently as the supreme economic power in > the world because America and Europe are in a > financial crisis, something that we tend to enjoy > every few decades. This just reminds me of all of > those movies from the 1980s that overtly and > sometimes surreptitiously alluded to the Japanese > boss. agree.nothing is imminent
kkent Wrote: ------------------------------------------------------- > I’m sure India would just “slow down” if 20% of > its economy contracted by about 75% with a > depression in the West. I believe that in itself > would cause an Indian depression. > > On a completely different topic, I love the hubris > of these authors. Diminishing marginal utility or > real growth is pretty much inevitable. To a large > extent, I’m not that impressed with 9% Chinese GDP > growth. And to think that China, with a GDP per > capita of–what?–less than $20,000, will all of a > sudden emerge as the world’s economic power > without the support of Western credit cards is > laughable at best. > > Chad, I see your point about cheap goods. I was > thinking the same thing, although knowing our > government, they’d probably raise tariffs to > satisfy populist demands during depression. dude…why would exports plunge 75%? are you talking about a complete annihilation of the US and European economies? Im not saying India and China will not be impacted…and trust me…there are no hubris here…even so, I dont see any reason for the countries to be f*cked (your words not mine)…The slowdown is imminent…but a KO is definitely not!
KKent wrote: "I’m sure India would just “slow down” if 20% of its economy contracted by about 75% with a depression in the West. I believe that in itself would cause an Indian depression. " No way. 20% is the overall exports not just to the west. Every 1% decrease is US GDP reduces US imports by 4% (which would be close to the contraction of Indian exports to the US given a 1% decline in US GDP assuming all of India’s exports goes to the US). So for India’s exports to shrink by 75% the US economy should shrink by 75/4% close to 20%. Do you think thats possible? Even if it happens part of it is likely to be offset by the huge Infrastructure spend in India over the next 5 years.
Dyslexic, I hear ya. But again, these statistics remind me of the fact that Mormonism is the fastest growing religion in the western hemisphere. And how Freddie Mac stock moves 5%+ each and every day it seems because of the low value of the stock. Diminishing marginal utility. It rules our world. I’m anxious (prematurely no doubt) to see the condition of these fast growing economies in 20 years. Or in just a few years as I’m sure Americans in the 1980s would have been amused at the progress of the Japanese megolith over the last 20 years.
batterinram Wrote: ------------------------------------------------------- > KKent wrote: > > "I’m sure India would just “slow down” if 20% of > its economy contracted by about 75% with a > depression in the West. I believe that in itself > would cause an Indian depression. " > > No way. 20% is the overall exports not just to the > west. Every 1% decrease is US GDP reduces US > imports by 4% (which would be close to the > contraction of Indian exports to the US given a 1% > decline in US GDP assuming all of India’s exports > goes to the US). So for India’s exports to shrink > by 75% the US economy should shrink by 75/4% close > to 20%. Do you think thats possible? Even if it > happens part of it is likely to be offset by the > huge Infrastructure spend in India over the next 5 > years. My point is that the East is not self-sustaining. If/when the West were to fall into a deep depression, the East would feel it much greater than I think you assume. Of course the Middle East would be completely and utterly screwed by a depression in the West. That goes almost without saying. And the Third World would be even more impoverished as foreign aid would essentially dry up.