GEORGE FRIEDMAN: A crisis is brewing that will tear the global system apart…(Brace For Impact…)
George Friedman, Mauldin Economics
BusinessInsider.com
June 3, 2016
The global system has reached a breaking point. All the pressures that have built up over the months and years have finally begun to tear it apart. There is much to tell, but for today, I will mention only three countries: China, Saudi Arabia, and Germany.
From 1991 to 2008, the consensus was that more exports make an economy stronger. This was true until 2008. However, the exporter is only as strong as his customer’s appetite and ability to buy what he sells. When demand falls, what was once a strength becomes a weakness.
The financial crisis of 2008, followed by the recessions in Europe and the United States, was the first step in this shift.
China was hit first
Weakening demand hurt China’s ability to export enough to sustain its economy, which had been built on massive inflows of cash. That ate away at China’s economy for years, as the Euro-American appetite for Chinese goods never quite returned and new competitors emerged that undercut Chinese prices.
China’s growth rate declined, and with it, its consumption of industrial minerals.
Mineral producers lived in a fantasy world for a while. They didn’t accept the fact that 2008 had diminished the appetite for Chinese industrial products. The illusion kept commodity prices high until it could no longer be denied that China’s industrial output would not require the same fantastic amounts of minerals.
This fantasy had also held high both prices and hopes in the oil markets. As reality set in, however, world oil supplies increased, and the price of oil and industrial minerals collapsed.
The Rest…HERE
