Is China set to go the European way?
In this issue:
» China's ravenous appetite for commodities
» US in worse financial shape than Greece
» QE3 seems inevitable
» QIPs are losing flavour
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But for that to happen, one will have to be assured that the emerging nations are not dealing with serious problems of their own. And that sadly is not the case. For while the developing world is growing at a healthy pace, this growth has brought with it the problem of inflation.
And that's not all! The massive amount of debt amassed in the developed world has so far grabbed the headlines. But one would be mistaken in assuming that these are the only economies that are dealing with the debt problem right now. For debt has become a burden for the emerging economies too. Take China for instance. The pile of debt incurred by local Chinese governments is being seen as a key threat to the world's second-largest economy. An estimated 20-30% of the loans are deemed to be at risk of defaulting. Official figures report that China has borrowed in excess of US$ 1.9 trillion (approx. 9 trillion Yuan) which could well be an under estimate. With the global economy already burdened with the sorry situation in the US and Europe, default on debt by the Chinese is something that it will be unable to cope with. And it's not just China. India too has been trying to bring its fiscal deficit lower. But the target now seems way beyond reach as subsidies rise on account of firm crude prices. Thus, a debt build up in the emerging nations of the kind seen in the US and Europe could have unfathomable repercussions on the health of the global economy. Best to assume that a major correction in asset prices is not impossible as the debt positions begin to unwind. It is now not a question of 'if' but 'when'.
Do you think that besides inflation, rising debt will be a major concern for the developing economies? Share with us or post your comments on our Facebook page.
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Now the shocking part...Several economists and investors think that the US is in an even worse financial shape than Greece. If you account for all the money needed to cover future liabilities arising thanks to programs like Medicare, Medicaid and Social Security, and other debts raised during the 2008 financial crisis, the total figure magnifies to nearly US$ 100 trillion. That kind of debt is much bigger than Greece or for that matter any other developed economy.
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The adverse situation appears to be caused by the Green Revolution of the 1950s. This movement introduced more productive food grains like rice and wheat to the world. It relied on high levels of fertilizers and pesticides which boosted food production immensely. But, at what cost? Gains in food production on one hand led to negative effects on natural resources. Land degradation, groundwater depletion, pollution etc, have become so serious now that it is threatening the future productive potential of land. FAO says that the global population is forecast to climb to 9.2 bn in 2050 from an estimated 6.9 bn in 2010. This would need a 70% jump in world agricultural production. Farming thus needs a major shift to more sustainable practices. Global leaders need to reach take strong action before it is too late.
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04:56 | Today's investing mantra |
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4 Responses to "Is China set to go the European way?"
Neeraj
Jun 14, 2011Rising debts and fiscal imbalances are going to harm the Indian economy as well. The fundamental stimulus for both the chinese and indian economy was a large infusion of FDIs , whose outflow at any stage would cause difficulties for these two economies . The Indian economy in particular is needed to cut down its fiscal deficits drastically and the wasteful expenditures are needed to be curbed. The all round growth of rural economy is very much desired and the mindless urbanisation is needed to be stopped, so that the national development can take place. An important fact must be kept in mind that the prescription which suits a amall country like Singapore can't suit a country like India having a mammoth population.
Yugandhar
Jun 14, 2011"....Land degradation, groundwater depletion, pollution etc, have become so serious now that it is threatening the future productive potential of land...."
Finally something sensible from EM with respect to agriculture.
Sthithapragnja
Jun 14, 2011Eq.Master Team,
With all my humility fortified with abundant ignorance,I am prompted to observe a thought which flashed through my simple mind thus :
When an automobile goes up a mountain road with many "U" turns/bends, you may have to apply brakes to slowly negotiate the U Turns/Bends encountered while driving up the Hill !! But when you are coming down the hill( with the force of Gravity accelerating your vehicle)you require the brakes all the more as in a situation when the Inflation as well as Debt pile up
for many of the economies of the World !!
I had also read about the Four different forces acting on the Aircraft in four different directions called as "LIFT", "THRUST"," WEIGHT" and "DRAG". To make it a little more simple :Lift and Thrust have to balance as also the Weight and Drag before the aircraft could take off and be airborne !!
Similarly the economy also is to be balanced on all the four directions to facilitate it being moving at take off speed and to be airborne and gliding smoothly !!
I hasten to conclude !!
Seth
Jun 15, 2011Who is to blame for the current situation that most countries have landed themselves into? Why do all the countries make the same mistake simultanously? All the countries have a huge mechanisim of financial planning and implementation. What motivates the Governments falling into the debt trap? WHO WILL HAVE TO INTERVENE TO CORRECT THE IMPENDING DISASTER ACROSS THE PLANET ? Real Estate is a major culprit which triggers the aspirational need of the citizens, the desire of living in bigger, better homes is one trigger which leads to debts being contracted.THE ANSWER to the current problems is to INVOKE the GOD of THREE.Let each man limit his needs to three of any thing. three sets of clothes, three family members, three meals, three rooms in a house,three vehicles, three of evry thing and no more; where FOUR or even the concept of FOUR is a sacrilage/ blasphemy.Let this religion of three continue to be practiced for Three years and the world will be a better place rid of all the evils. QED