World edges closer to deflationary slump as money contracts in China

Monday, May 14, 2012
By Paul Martin

All key indicators of China’s money supply are flashing warning signs. The broader measures have slumped to stagnation levels not seen since the late 1990s.

By Ambrose Evans-Pritchard
TelegraphUK
13 May 2012

Narrow M1 data for April is the weakest since modern records began. Real M1 deposits – a leading indicator of economic growth six months or so ahead – have contracted since November.
They are shrinking faster that at any time during the 2008-2009 crisis, and faster than in Spain right now, according to Simon Ward at Henderson Global Investors.

If China were a normal country, it would be hurtling into a brick wall. A “hard-landing” later this year would already be baked into the pie.

Whether this hybrid system of market Leninism – with banks run by Party bosses – conforms to Western monetary theory is a hotly contested point. The issue will be settled one way or the other soon.

What seems clear is that China’s economy did not bottom out as expected in the first quarter. It is flirting with real trouble. Yao Wei from Societe Generale says a blizzard of awful data “screams out for easing”.

The Rest…HERE

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