The Next Phase of the Crisis

It will occur when investors, business, governments, the public - realize that China cannot pick up the baton from a debt weary Western consumer.

What tied China over during the last few years, after the collapse of exports, is bank lending on a massive scale. It stabilized their economy and the always important political situation.

But now stabilized, China is basically not concerned with taking the baton that Western business so eagerly hopes to hand them. The recent moves to constrain new bank lending in 2010 mean that there will be less of a long-term overhang of debt , but also less of an ability to power growth. And China's economy, sans exports, is mostly dependent on investment. Consumption remains stagnated at 35 % of GDP.

Market weakness in the last month is related more to a slowdown in China's credit binge than anything out of the EU. A world of overcapacity without a new consumer of last resort will lead to a new and deeper phase of the crisis.


1'China slowdown fears hit markets- Financial Times; Dyer
2'Growing Bearish' Forbes; Meredith