China's Dagong Warns Coming Economic Crisis Is Worse Than 2008, Blames Credit-Based Consumpti

[TaiShang]

Chinese Rating Agency Warns Coming Economic Crisis Is Worse Than 2008, Blames Credit-Based Consumption
By ITAR-TASS
Global Research, February 06, 2015
ITAR-TASS 4 February 2015

BEIJING – The world economy may slip into a new global financial crisis in the next few years, China’s Dagong Rating Agency Head Guan Jianzhong said in an interview with TASS news agency on Wednesday.

“I believe we’ll have to face a new world financial crisis in the next few years. It is difficult to give the exact time but all the signs are present, such as the growing volume of debts and the unsteady development of the economies of the US, the EU, China and some other developing countries,” he said, adding the situation is even worse than ahead of 2008.”

“The current crisis in Russia is caused by Western countries’ sanctions rather than internal factors. If we look at the US and the EU countries, their crises were caused by internal and not external factors,” the president of China’s Dagong rating agency said.

“As distinct from Russia, the scope of crediting in these countries exceeded the potential for the production of goods and created a bubble. This crisis was transmitted to the entire world through the policy of quantitative easing and the use of the printing press. All the countries had to pay for that,” he said.

A setback in the growth model focused on credit-based consumption may become a source of a new crisis, he said.

“Developed countries, including the US and the EU, remain the main consumers. But these countries develop only if there is consumer demand while the main potential for this consumption is based on borrowings. The US, the EU and Japan are increasing consumption through growth in crediting, which poses a risk,” he said.

Some emerging market countries have also been increasing consumption through crediting in recent years and the global economy has been based on the model that promotes consumption through funds that will be earned in the future,” the head of China’s Dagong rating agency said.

 

[Yizhi]

i'm mostly worried by EU, with the Greece drama.

 

[Maxtini]

This imbalances partly was caused by export-driven policies of developing asia, hoarding a lot of US dollars while artifically depreciate their own currency.

The logic is simple, when you produces more than you consume, you end up exporting you product to others and have a trade surplus. But you cannot expect to export everything and have a trade surplus in perpetuity (Asia and China), because in the other end, someone will continuously lose money and have trade deficit in perpetuity (Europe and America).

In an ideal situation where curriences are exchanged freely, those with trade deficit will have its currencies depreciate to the point that diminishes their buying power and reverse the trade flow. However, because of the policy pursue by China, Japan, and other export driven asian economies, this is not the case. Asian countries continue to excessively hoard US dollars in an attempt to keep its currency low (and partly to protect themselves by accumulating larger reserve in case 1998 financial crisis happen again)

What follow is that US and Europe need to continuously print more money and rely on debt to finance this deficit. This is unsustainable. That's why in recent years everyone calls for a domestically driven economy.