The global economy is in a more dangerous position than it was in 2008, the year of the financial crisis, Marc Faber, editor and publisher of The Gloom, Boom & Doom Report, tells CNBC.
Faber points to a recent report from former Bank for International Settlements chief economist William White who points out that total credit in advanced economies is now 30 percent higher as a share of GDP than it was in 2007.
“If I am telling you that we had a credit crisis in 2008 because we had too much credit in the economy, then there is that much more credit as a percent of the economy now,” Faber says. “So we are in a worse position than we were back then.”
China’s large jump in borrowing is a major factor in the increase in worldwide credit.
“Look at China, its credit as a percent of the economy has increased by 50 percent in the last 4 1/2 years,” Faber explains. “This is the fastest credit growth you can imagine in the whole of Asia.”
The increase in household debt in Asia is also a worry, he adds, saying household debt has increased even more than government debt has.
“It will end badly,” Faber predicts.
The question, he says, is if there will be a minor economic crisis followed by a huge amount of money printing or if an “inflationary spiral” will come first.
Prices for products in Singapore and Hong Kong are more expensive than in the United States because high property prices mean shops have to pay higher rents and then must pass along those costs to consumers.
“So asset inflation can flow into consumer price inflation at some point,” Faber told CNBC.
Many economists worry that a financial crisis in China could spread though out the world.
That’s why the world’s eyes will be on this weekend’s meeting of Chinese leaders, notes Reuters columnist Anatole Kaletsky.
China, as well as other emerging markets, now poses the greatest risk to global economic stability, he writes.
“China has recently become not just the strongest engine of growth in the world economy, but also the biggest source of potential economic surprises, both good and bad.”
Reforming its financial system without sparking an economic downturn will be challenging, Kaletsky predicts.
“Rather than risk a macroeconomic hard landing by trying to simultaneously restructure industry and clamp down on credit,” he says, “the Chinese will probably concentrate on reforming state-owned enterprises and shifting demand from heavy industry to services, while leaving the more ambitious financial reforms for another day.
[by Michael King, writing for MONEYNEWS]
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