1 Fearing a ‘Made in China global recession’ (Matein
Khalid in Khaleej Times) Every global recession since the Opec oil shocks of
1973-74 was triggered by a contraction in the $17 trillion US economic
colossus. Yet as I scan the world of late-summer 2015, I am convinced the next
global recession will originate from the $10.4 trillion Chinese economy, whose
growth rate has slumped to its slowest pace since 1990.
China's trillion-dollar shadow banking system,
Marxist-Leninist wealth management Ponzi schemes and Beijing/local government
borrowing have built up the biggest debt load in the history of humankind, now
a staggering 250 per cent of GDP. The $4 trillion bloodbath in the Chinese stock
market this summer has not been amplified by draconian state intervention.
Unfortunately, this "Beijing put" will not prevent a Chinese economic
bust and history's first "Made in China" global recession.
President Xi Jinping has consolidated more political
power than any Chinese leader since the death of Deng Xiao Ping. Yet his
frequent purges, economic restructuring and anti-corruption campaign has had a
chilling impact on consumer spending/capex. Think October 1929 in New York,
December 1989 in Tokyo. Not even monetary largesse from the People's Bank of
China will prevent a growth decline in China and a "Chinese lost
decade" that will transform the global economy, asset prices, power
politics and financial markets.
China had periodic boom bust cycles/cash crunches in
the 1980s and 1990s. Yet China's domestic economic convulsions had minimal
global impact since China's economy had not yet joined the World Trade
Organisation, or become the $10 trillion monster that is the largest export
destination for 40 countries worldwide, the world's largest importer of copper,
coal and steel.
In 2014, China contributed 38 per cent to global
growth. As the vicious bear market in crude oil, Dr Copper and iron ore ($190 a
metric tonne two years ago, $48 now), the Middle Kingdom is going bust. History
will rank the Chinese stock market bubble in 2014-15 in the same league as
Kuwait's Souk Al Manakh crash, Dutch tulip mania, the Nikkei Dow bubble,
dot-com craze in late-1990s Silicon Valley or the Jazz Age financial madness on
Wall Street. Only the Chinese bust will trigger a global recession.
2 Greece worries of stock plunge (BBC) The Athens Stock
Exchange is set to plunge by as much as 20% on Monday when trading finally
resumes after a five-week closure, traders have predicted. The bourse was shut
just before the Greek government imposed capital controls at the height of the
debt crisis.
Takis Zamanis, chief trader at Beta Securities, is
among the pessimists. "The possibility of seeing even a single share rise
in tomorrow's session is almost zero," he said. Shares in banks are likely
to be particularly hard-hit because Greece's financial sector needs to be
recapitalised.
A report in Avgi newspaper, which is close to the
government of Prime Minister Alexis Tsipras, suggested Athens was asking for
about 10 billion euros this month for bank recapitalisation. Banks account for
about a fifth of the main Athens index.
Although Greece struck a bailout deal with its
creditors last month, political in-fighting in Athens over the conditions could
still result in Mr Tsipras calling an early election. The Greek economy has
begun to reverse the gains it was making before Mr Tsipras's Syriza-led
coalition took power in January on an anti-austerity platform.
The European Commission expects Greece to go back
into recession this year, with the economy contracting by between 2% and 4%. The
Greek economy was in recession for six years until 2014.
3 Big tech’s big problem – it’s role in rising
inequality (Katie Allen in The Guardian) Look around and it seems pretty
obvious that technology has made daily life easier. But, for all the
convenience that new innovations afford us, what if this rise of technology is
actually exacerbating inequality? There are certainly some red flags right now.
The first warning signs come from financial markets
where technology stocks have soared this year. Search engine Google’s shares
recently hit a record high of over $700, making it one of the most valuable
companies in the world, second only to that other tech giant Apple. The moves
have fired up the tech-heavy Nasdaq index and taken it back to the giddy
heights of the dotcom bubble 15 years ago.
The problem is not rising share prices per se, but
rather what they are telling us about the power of shareholders and the
consequences in terms of what is left over to be invested in wages and
innovation. This question of how the profits of technology trickle down is
explored in the recent book iDisrupted by economist Michael Baxter and
entrepreneur John Straw.
Analysing the economic impact of emerging
technologies, they highlight two potential agents for rising inequality. Firstly,
patents, and the way they ensure that profits from innovation accrue to larger
companies and their owners. Secondly, the fact more goods are being offered for
free online. The problem with this is that just about the only means left to fund
digital products is advertising, a sector where revenues are increasingly
dominated by a handful of companies such as Google and Facebook.
The authors of iDisrupted also look to Ford in their
argument on the importance of profits trickling down. They cite the carmaker’s
doubling of wages at his factory to $5 a day and the oft-disputed claim that
his motivation was the hope other manufacturers would follow suit and so the
potential number of car buyers would rise.
It may be the stuff of myths, but a century later
the story provides a neat way of explaining how a rising gap between the few
haves and the many have-nots could stop technological advances in their tracks.
Baxter and Straw sum this up: “Those who suggest that technology may create a
world of extreme inequality may be right, but equally it may be that unless the
profits from technology trickle down, pushing up wages and creating demand,
then further technological evolution may be impossible.
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