Monday, April 26, 2010

Marc Faber: China and Australia

If the insight of Marc Faber is correct concerning China, and he's not the lone person saying this, Australia, and any country strongly relying on Chinese demand for raw materials, or good and services, will find themselves going up and down with the Chinese economy, moving in unison with it.

Of course this is great as long a China continues to grow, but when it stalls, or if there is a bursting of their real estate market, it'll cause enormous repercussions for any business or country overly dependent on the Chinese, which to a large degree Australia is one of the leading ones.

China has largely been the reason Australia didn't suffer as much as other Western countries, as their focus on shoring up their domestic market has resulted in hundreds of billions being used for infrastructure projects, and some others that are dubious at best.

Some people who claim to have seen it say there are huge numbers of empty buildings sitting around which were built to create temporary jobs and nothing else. What happens when they sit around and generate no income? What happens when the bills come due in those cases?

Even if the Chinese government let's it all go, it was real money used to build, and that money was put into the system and has a significant impact on the economy.

China continues to say it's going to take measures to cool down its economy, but so far that has been only words and not actions. One way or the other China will have to cool off, as no country can continue to grow at that rate without severe consequences, especially since there may be many projects which have no use and no way to pay for themselves.

No matter if someone is an investor, a country or a company, the way of China can't continue to be only upward, and when that stops, there's going to be an awfully big headache to deal with, and quite probably a long one.

China should be a part of everyone's portfolio in some way, but those overly invested like Australia, will go as China goes. For now that's working great, what's going to happen when it no longer is?

Australia and others will discover that while they enjoyed a fairly sound economy during the worst of the great recession, they will probably suffer when other countries and economies are stronger, and China finally comes down to earth. The only question is how hard the economic gravity pulls them down, and if they land with a crash or only a thud. At this time it definitely seems a crash landing is what's ahead for Australia; it's not a matter of if, it's only a matter of when, and that may take some years (or not), but it will definitely come.

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