Thursday, April 17, 2014

Chinese Slow Down to Have a Major Impact on the World

One of the problems are “wealth management products” which the banks have set up as Ponzi schemes, offering high rates of return, but financing them not through investment but through the funds of new investors, Rickards said.
“How long could that go on. It will go on until something happens. There’s a failure, a fraud, something will cause a panic and everyone is going to run down and try to cash them in,” he said.

“They’ve set themselves up through wasted infrastructure investment, opaque financial product and ponzi financing – they’ve set themselves up for a collapse,” he added.

If China experiences a softer landing, it will have to be happy with growth of closer to four per cent, Rickards estimated. But if it faces a crash, or a bank default, growth may decline to two per cent.

“The world is not ready for this. China is 10 per cent of global GDP. If you take Chinese growth rates down from 7-7.5 per cent even to 4.5 per cent, let alone 2.5 per cent, which is possible, that’s going to have a major impact on the entire world,” he said.

- Source, CBC: