U.S. Recession, Chinese Crash(Eric Roseman)

U.S. Recession, Chinese Crash

If the U.S. economy issoftening this quarter and heading into recession, then it's fair toassume that other global economies will also slow. The prevailingtheory of global "decoupling" is nonsense. Consumer demand in localmarkets like India and China remains too nascent and still largelyunsupportive of a domestic-led expansion without a boost from Americanexports.

I have very little confidence that China can escape aslowdown if the U.S. suffers a recession. Asian emerging markets stillheavily rely on U.S. and European exports. Inter-regional trade amongthese countries has certainly grown but again, is hardly enough tosustain solid growth without consumption demand from the West.

Ifthe Federal Reserve and the European Central Bank (ECB) have been toolate cutting interest rates to boost economic growth since last summer,then you could say the opposite about The Bank of China. The Chinesemonetary authorities are struggling to reign in credit.

TheBank of China has raised short-term lending rates since 2005 but to noavail. The economy continues to boom despite government efforts to coolgrowth and rampant money-supply, or the excessive creation of bankcredit.

Chinese inflation is soaring, interest rates are stilltoo low and most of all, most banks have recklessly issued real estateloans. If you think sub-prime is a major crisis issue in the UnitedStates, wait until China's banking system finally comes undone when thehumungous building boom draws to a crushing conclusion.

It'sabsolutely ridiculous to believe China's economy won't crash. All greateconomic powers over the past one thousand years have suffered majordepressions on the way to greatness, including the United States,Germany, Japan and England since the mid-19th century.


Bubble Trouble

China'sconsumption boom will end, at least temporarily, as the economyeventually adjusts from hyper growth to a mid-cycle slowdown. I thinkthis transition has already started.

Also, if that's true,then all industrial metals and most chemical and industrial materialmanufacturers are trading in "bubble" territory right now. They're ripefor a major decline over the next 12 months. The same goes for MainlandChinese stocks - heavily overvalued and also primed for a major crashfollowing a 300% advance since 2006.