5.13.12 AEP: World edges closer to deflationary slump as money contracts in China

by John Galt
May 13, 2012 19:300 ET

 

The warning I posted about the gold market signalling something bad was happening (see: Gold is Sending a Dire Economic Warning) in the world’s economy very prescient appears to have been validated to date by the data coming from Communist China. The deflationary warning signal precious metals and commodities are sending is unmistakable and in tonight’s commentary by Ambrose Evans-Pritchard, that clarion is screaming a deafening alarm:

 

World edges closer to deflationary slump as money contracts in China

 

This trend was noticed in many markets this week from oil to real estate as the CMBS problem again began to rear its ugly head but what Mr. Pritchard noticed in tonight’s column in the U.K. Telegraph is that the Chinese contraction is real and should be taken into account by Western central bankers.

 

This excerpt from the piece is the an excellent warning for those who have been ducking the deflationary threat the world economy is now facing:
 

Narrow M1 data for April is the weakest since modern records began. Real M1 deposits – a leading indicator of economic growth six months or so ahead – have contracted since November.
 

They are shrinking faster that at any time during the 2008-2009 crisis, and faster than in Spain right now, according to Simon Ward at Henderson Global Investors.

 
If China were a normal country, it would be hurtling into a brick wall. A “hard-landing” later this year would already be baked into the pie.

 

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Something odd is now happening. The People’s Bank said new loans fell from $160bn (£99.5bn) in March to $108bn in April. Non-conventional lending seized up altogether. Trust lending fell by 96pc, bankers’ acceptance bills by 90pc. This is astonishing data.

 

It may not be as easy for Beijing to turn the tap back on again. Loan demand has been falling for months. Banks are offering credit. Companies are refusing to take it. This is the old Japanese story of pushing on a string, or the European story today.

 

“China is in deflation,” says Charles Dumas from Lombard Street Research. Yes, consumer price inflation is 3.4pc – though falling – but consumption is a third of GDP. Fixed investment is 46pc, and here prices have dropped 3.5pc in six months. Export prices have dropped 6.6pc.

I recommend everyone click on the link above to read the entire commentary as what many of us have detected appears to be coming true and the slowdown this time will impact the Untied States and Europe far worse than the “New World” and BRIC nations as we are still not completely recovered from the last period of deleveraging which either must be allowed to fade via contraction or inflation. So far, the world’s politicians are slow to the party to understand or grasp the magnitude of the problem that is approaching during this U.S. election year.

 

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