Will a Chinese Economic Downturn Lead to Global Collapse?

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Starting off, we have four questions and what you may not get to read in many publications.  For each question you can choose one of three answers, a, b, or c.  Take the time to do the quiz before looking at the answers.

Question 1: Who holds the majority of US government debt?  Is it:

a) China

b) Japan

c) USA

Question 2: What percentage of products consumed in the US are produced in the US?  Is it:

a) 25%

b) 58%

c) 88%

Question 3: What percentage of products consumed in the US are produced in China?  Is it:

a) 78%

b) 23%

c) 2.7%

Question 4: American personal bank accounts held by US citizens currently contain:

a) $10 billion

b) $100 billion

c) $10 trillion

You can scroll to the bottom for the answers. But now let’s turn out attention to why the US market makes all-time highs in the face of negative news.

Despite messages being overwhelmingly bearish based on the accumulated debts of all the nations around the world, you just have to realize one thing: the market knows this already. In other words, the known is already discounted into the future expected price. The markets have already reacted to this news. It’s old. 

The other thing is, US markets are NOT going up just because the US Federal Reserve is printing money. US markets are going up because corporate earnings are increasing — and increasing substantially. One reason is certainly because many of them are finding effective strategies to avoid nation based taxes, but a far more important reason is because these companies are producing goods and services that you and I want to buy and use.

Much of this is technology based. US corporations have more cash in the bank than at any time in history. US markets are simply not going to collapse whilst this is the case. And we should not forget, the new energy methods (such as fracking) are providing prodigious lower cost opportunities that are feeding right through all levels of the economy. 

Having said that, US markets have now repeated history and they are due a retrace, which is likely this year and early next. 

The other things you should see, 2014 is looking very 1994, where despite fears that interest rate rises would decimate the recovery of house prices in both the US and UK in that year, (and Australia too at that time) stock markets retraced briefly but housing continued to rise afterwards.

China may well be in the beginnings of a downturn which is due about now. Everything we are used to seeing at the top of a cycle, is taking place; credit issues, tall buildings, bling and wealth on clear display. But I would not expect a huge collapse. A slowdown, but not a downturn. 

As we know, China’s economy has mightily affected the rest of the world. We will just have to be patient as things unfold. However, I think the US remains the more dominant player. And in the US, they are only just beginning their next real estate cycle. And here’s the important point: after every down turn the US has emerged stronger than before.

Now, back to the quiz at the top. The answers? The answers are all ‘c’. Did you get four out of four? I bet not. These are surprising answers, yes? You shouldn’t be surprised if the doom and gloom on the US turns into something much different.

Phil Anderson
for The Daily Reckoning Australia

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Phillip Anderson

Phillip Anderson

Phillip J Anderson is an Australian academic, author and student of stock, commodity and real estate cycles. Drawing on the work of British economist Fred Harrison and American technical analyst WD Gann, Phil developed his own theory about 18-year real estate cycles in the early 1990s. Since then, Phil has been using cycle theory to guide his own investment decisions — crediting the phenomenon with his decision to move to a 100% cash position in July of 2007, just before the GFC wreaked havoc on the Australian stock market. He has also built up a lucrative property portfolio here and in the UK. Phil is currently predicting a 14-year boom in Australian house prices; an idea he expands on more in a brand new Port Phillip Publishing film, ‘Remembering the Future’.

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4 Comments on "Will a Chinese Economic Downturn Lead to Global Collapse?"

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2 years 5 months ago
Interesting figures. However: Creating and holding you own debt only makes sense while others think your fiat currency has value and they have to hold it to trade. The US may service its internal economy but it has a very large trade imbalance and does not generate tradable products and is struggling to generate jobs. Three is linked to 1 – the US has to continually print Dollars to service its debt The $10Trillion is negligible when compared to the US banks liabilities if they start to fail – there are hundreds of Trillions of Dollars of derivatives that in… Read more »
slewie the pi-rat
slewie the pi-rat
2 years 5 months ago

the problem with this analysis is that the ‘cash’ can be transformed into a ‘rash’ once the banksters trigger another liquidity event and collateral-chain wash-out.
speaking of banksters and rashes, what’s holding up Fischer’s Senate confirmation for FED vice-chair?
1) He got offered a better position in Russia.
2) The botox supply-chain problems are delaying propagandaTV’s make-up dept.
3) DiFi needs another week on steroids to get properly pumped & primped to out him as a spook.
4) All of the above.
5) Who cares?

2 years 5 months ago

5) Slewie

The most untrustworthy of all of them…. the faux hawk they need for their “representative” face, the actor playing the useful idiot “reasonable” hawk, the one leading the murmur group, you know? The one that is there to lead the fold of the opposition whenever it is needed. Too devious to be labelled a poodle.

2 years 5 months ago

Crude oil production has peaked. So has productivity. Economic contraction from now on is inevitable. The economy is a surplus energy equation.
BTW. For you economic types. Modern agriculture is the process of turning fossil fuels into food. Your arguments and discussions will become irrelevant.
Peak oil mates, peak oil.

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