by John Galt
July 10, 2012 05:25 ET
The idea that China is going to lead the world out of this crisis would be laughable until one sees the data and reads last night’s entry from Ambrose Evans-Pritchard in the U.K. Telegraph:
China heads for a deflationary shock
In this article, Mr. Pritchard states this terrifying premise for the world economy:
China is on the cusp of a deflationary vortex.
This was signalled late last year by the sharpest contraction in the (real) M1 money supply since modern records began. The hard data is now confirming the warnings.
Consumer prices have been falling for the last three months, producer prices have been falling for four months. This is not a food cost story. It is systemic.
“While an economy-wide generalized deflation is yet to be seen, the deflationary spiral looks to have started in some industrial sectors, attesting to considerable stress with the economy. Persistent deflation can be poisonous,” said Xianfang Ren from IHS Global Insight in Beijing.
Indeed it can be poisonous, and China already has the twin-afflictions of the deflation malaise: a fast aging nation, and a surfeit of factories and industrial plant.
That opening to his article is just the beginning of a nightmare scenario where a deflationary contraction in China could indeed lead to a collapse of world wide trade. The M1 data he refers to is more pronounced when looked at over a 5 year period:
(Chart from Bloomberg.com)
God help us all if this contraction begins to accelerate as it would mean that the time to begin a hyperinflation to counter this deflationary trend is now upon us and the central banksters know it.
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