Analyst warns of US depression & China implosion

Yep, it’s so bad some companies are actually resorting to telling the truth.

Société Générale says it expects the United States’ economy  to enter a depression and that China’s economy in in danger of  imploding. Albert Edwards, an analyst for the European financial services giant, wrote:

While economic data in developed economies increasingly reflects depression rather than a deep recession, the real surprise in 2009 may lie elsewhere. It is becoming clear that the Chinese economy is imploding and this raises the possibility of regime change. To prevent this, the authorities would likely devalue the yuan. A subsequent trade war could see a re-run of the Great Depression.

If this sounds apocalyptic it is at the very least a needed antidote to the incessant whistling-past-the-graveyard we are hearing from so many other official sources. My current favorite comes from Philly Fed Chairman Charles Plosser:

I expect the housing sector will finally hit bottom in 2009 and the financial markets will gradually return to some semblance of normalcy.

Plosser also says he  doesn’t expect unemployment to hit double digits. While I am not certain Mr. Edwards is right, I would happily bet my next mortgage payment Mr. Plosser is wrong.

Sadly I suspect Mr. Edwards isn’t that far off. I have been concerned for several years about what would happen when China learned the realities of capitalism. (Go here for a PDF of an article  I wrote a couple of years ago — Learning to count in Chinese: A look at how tough it was to do business there even when the going was good) The nation’s leaders have even less compunction than our own about fiddling with statistics and regulations to reflect the reality they want instead of the one they have. (Their latest move — loosening loan requirements as a way to deal with the excess of bad loans held by Chinese banks. Suddenly Citi’s management looks smart!)

After years of being told all was well and that it would only get better, the people of China may be more than a little angry to find out that both gold and rainbow are entirely mythical.

Beijing was already facing significant trouble from people restive over grotesque pollution problems; disillusioned by the end of a once-adequate social safety-net; and totally outraged by the deaths of thousands of children in last year’s earthquake because officials were paid off to OK shoddy school construction. The only thing holding this all together was the lottery-like salvation promised by capitalism. For years the Chinese believed in the forced and fake “equality” of  Communism. That belief has been replaced with faith in a particularly ugly and rapacious type of capitalism.  IIt is anybody’s guess as to what happens when they find out they’ve been sold a bill of no goods.

This reminds me of an exchange between novelist Ken Kesey and Hunter S. Thompson. The ever egotistical Mr. Thompson was surprised that John Lennon had been murdered while he had not.

“I mean, I’ve pissed off quite a few citizens in my time,” Thompson said.
“But you’ve never disappointed them,” Kesey replied.

By Constantine von Hoffman, a veteran business journalist and author of the blog CollateralDamage.biz, a satirical look at marketing and business.

Last 3 posts by Constantine von Hoffman

• Housing prices sink as underwater number rises - August 11th, 2009
• The home price increase that isn’t - July 28th, 2009
• Why the increase in housing starts means trouble - July 21st, 2009

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Tagged as: Charles Plosser, china, depression, Economy, fed, Hunter Thompson, John Lennon, Ken Kesey, Societe Generale