Hard Landing for Who?

July 15, 2011

A friend sent me a link to a CNBC piece, and said, “I’m concerned how we are all so linked together economically.  if the republicans and democrats don’t come together, and the US defaults at some level of government, that could screw up China and other places as well setting off some sort of global chaos—that really scares me.”

After reading the CNBC piece, I could see why my friend was concerned.

On June 14, CNBC played on the “fear factor” and it worked.  The headline for the CNBC piece was ‘Meaningful Probability’ of Hard Landing for China: Roubini.

In the third paragraph, CNBC tells us “New York-based Roubini is closely followed by Wall Street because he predicted the U.S. housing meltdown that precipitated the global downturn.”

After establishing Roubini’s credentials, the piece focused on the US’s economic future and the language changed to “it is a glass that is half full and half empty,” while Europe is described as “kicking the can down the road”.

After reading the CNBC piece, if you were to pick one answer as the one with the most dire potential consequences, which would it be?

A.  ‘Meaningful Probability’ of Hard Landing for China

B.  The US is a glass that is “half full and half empty”.

C.  Europe is “kicking the can down the road…” (so is the US)

However, a clearer picture appears after reading what “The DailyTicker” published June 13, 2011, at Yahoo.com, Roubini Says “Perfect Storm” May Clobber Global Economy.

Henry Blodget wrote, “Roubini’s perfect storm consists of four factors: The U.S.’s basket-case of an economy and budget deficit, a potential slowdown in China, European debt restructuring and stagnation in Japan.”

Roubini predicts there’s a one-in-three chance that these factors will clobber the global economy in 2013. One-in-three means there is a 33.3% chance this will happen and a 66.6% that it won’t.

As for “Kicking the can”, Blodget writes that Bloomberg quotes Roubini saying, “Everybody’s kicking the can down the road of too much public and private debt (except China). The can is becoming heavier and heavier, and bigger on debt, and all these problems may come to a head by 2013 at the latest.”

Does a “potential slowdown in China” mean the same as CNBC’s “Meaningful Probability of Hard Landing for China”?

Consider that in January 2011, the Economist’s View said, “China’s current-account surplus … is the largest in the world. … China’s external surplus stands at $316 billion, or 6.1% of annual GDP.”

Then Ethics Sage says, “On February 1, it was reported that China’s foreign currency reserves totaled $1.2 trillion. That’s about 8% of the US National Debt,” which is $14.3 trillion and growing.

Bloomberg paints a better picture for China of $2.85 trillion in currency holdings.

Who is going to land harder if Roubini’s “Perfect Storm” strikes?

A. China

B. Europe

C. the US

D. B and C

E. none of the above

Now that you have read more than what CNBC had to say, your answer to this question stands a better chance of being correct.

Isn’t it interesting how easy it is for a major element of the media (CNBC) to  be misleading?

Learn more from A Panel Discussion on China’s Economy


Lloyd Lofthouse is the award-winning author of the concubine saga, My Splendid Concubine & Our Hart. When you love a Chinese woman, you marry her family and culture too.

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