Marc Faber: U.S. Economic Slowdown Will Not Curb China's Growth
By Jon A. Nones 26 Nov 2006 at 10:58 PM EST
SAN FRANCISCO (ResourceInvestor.com) -- The dollar fell to a 20-month low against the euro and a three-month low versus the yen in London today, ahead of Fed Chairman Ben Bernanke’s speech in the U.S. on Monday. Marc Faber, Editor of the Gloom, Boom & Doom Report, told listeners at the San Francisco Hard Assets Conference the dollar is doomed - but that doesn’t mean China is too.
“Thanks to Bernanke … with his money printing machine … U.S. bonds will soon be worthless,” he said.
Faber said the rate of total debt growth in the U.S. is currently at 12% per annum. Prior to the Fed’s interest rate hike campaign in Q2 2004, total debt was growing at a rate of 7% per annum. He said that total debt has risen to 330% of the gross domestic product (GDP) in comparison to130% in 1980.
Last quarter, GDP increasing at a real seasonally adjusted annual rate of 1.6% after a 2.6% increase in the second quarter, according to the Commerce Department. The economy has grown 2.9% in the past year, the slowest year-over-year growth in three years.
The current account deficit is 8% of GDP, up from 2% just four years ago, said Faber. Last quarter, the U.S. current account showed a $218.4 billion deficit, near the record $223.1 billion for the fourth quarter of 2005.
Investments in the all important housing market fell 17.4% in the third quarter, the largest decline since the first quarter of 1991. Purchases of previously owned homes dropped 0.5% last month to an annual rate of 6.15 million.
The Commerce Department also reported the September deficit on trade in goods and services was $64.3 billion, with China accounting for $23.0 billion. Some analysts say that a slowing U.S. economy will drag on the global economy, and especially China.
Adrian Day, Adrian Day Asset Management, said earlier in the day that Brazil, Russia, India and China make up 60% of global commodities consumption.
Paul van Eeden, President of Cranberry Capital Inc., said if the U.S. economy slows, consumers will spend less and thus the U.S. will import less. He said China, with 30% of its GDP coming from exports, will suffer and demand for commodities will in turn slow.
But Faber said global trade is growing at much faster rate than global GDP. Therefore, Asian exports will continue to rise despite a slowing U.S. economy.
Earlier this month, the People's Bank of China said it is looking to diversify its $1 trillion reserves across currencies and asset classes. And just last week, Treasury Secretary Henry M. Paulson Jr., former Goldman Sachs chairman, enlisted Bernanke to join an unusual delegation of cabinet members to China next month showing increased concern over China's economic policies.
China's economy, the world’s forth largest, is forecast to continue to grow at around 9.5% in 2007, with fixed asset investment up 20% at $1.68 trillion in 2006, according to the National Bureau of Statistics.
According to Faber, China not only has lower costs of goods and services, but has made huge advances in productivity. China’s exports are expected to jump 15% in 2007, with the trade surplus expected to reach $177 billion, $30 billion more than in 2006. Faber said 58% of all imports into the U.S. come from U.S. subsidiaries operating in the country.
The world is amidst a global economic expansion, with China growing close to 10% annually and India growing at over 8%. Emerging economies are growing faster than industrialized economies, and that’s why “the U.S. is losing its competitive position,” said Faber.
In particular, China's housing market is flourishing as an estimated 8 million people flock to cities each year and economic growth feeds into family incomes.
“The no-brainer in Asia is the real estate market,” Faber said.
Urbanization in China has grown to 37%, while India has grown to 30%. Faber said that close to 50% of China’s population is under 25 years old, and they will soon enter the urban real estate market.
In 1999, the Chinese government announced that all vacant residential housing units built after January 1, 1999 were to be sold, not allocated. Since then, the private housing market has experienced tremendous growth.
China is expected to increase 5.5 to 6 billion square meters' of housing floor space, or 70 million sets of houses in the coming 10 years, according to the China Real Estates Association. And prices per capita in China are about 8 to 10 times lower in the U.S., Faber said.
Conclusion Day said the dollar is expected to decline 30%-40% in value in the next few years. But according to Faber, China’s growth will continue despite a U.S. economic slowdown.
In other words, Asia’s demand for commodities will continue to support higher prices.
COMMENT: Increasing the money supply (M3 is increasing at 11% at present) either by the FED or through issue of more debt results in high inflation.
