Marc Faber: China Bubble Crash Poses a Huge Global Risk

By: Aftab_Singh

Marc Faber was interviewed on CNBC yesterday. He had some interesting thoughts on China, geopolitical trends, gold, equities, bonds and cash. See below for the video and summary.

Summary:

• Disappointing growth (or a crash) in China is a huge risk for the global economy.
• If Chinese growth really slows down (or if they have a crash), it will impact Australia, Brazil, the Middle East, Canada etc.
• This could backfire as commodities producers buy less goods from China. This could trigger a vicious spiral on the downside. There is a good chance that this could happen.
• The world central bankers would really not be able to help if this comes to pass. Maybe they could prop up the financial markets by supporting equity prices, but they would not be able to help the real economy.
• If you’re ultra-bearish about everything, then you’re probably better off in equities than in bonds and cash. Precious metals would probably be the best.
• 10 years ago, a huge shift in economic power away from the West and towards Developing Economies began. The EM goods markets are far larger than the Western goods markets.
• This shift in economic power from the West to Developing economies is accompanied by a shift in political and military power. The West will not just sit there and do nothing – the Libyan expedition is the ‘first shot’. The Western world will want to control the oil flowing to China from the Middle East. Then it will come to war – and you definitely don’t want to own US government bonds then!
• In the worst scenario, you don’t want to be in dollars and government bonds.
• People in the west have abandoned personal responsibilty for their actions. Asia is different — people have to keep reserves for the things that would be insured by government in the West.
• China is lucky because they don’t have government healthcare. The US should fire half the government including the president.
• In Asia, things like abortion are never discussed. They believe it is up to the individual to take responsibility for his life.
• Compared to the US government debt and the monetary base, the gold price is probably cheaper today than it was 10 years ago.
• Having said this, we had a little bit of euphoria in the gold market recently and a correction is due.

Aftab Singh is an independent analyst. He writes about markets & political economy at http://greshams-law.com .

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