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China: A Thought Experiment

Topic: International Stocks — China
Jul. 8 2015, 09:29 AM ET - by VF member kansasnoall (1147 gold star (click for information on feedback))

China: A Thought Experiment --



FACTS: (those things most agree upon)
1. China and the USA are the two largest economies of the world. Each is about 20% of the global GDP.
2. When a financial crisis occurs, GDP declines. See Panic of 1907 as an example. https://en.m.wikipedia.org/wiki/Panic_of_1907
3. Financial crisis occurs when three things happen over an extended period of time: GDP declines; Productivity declines; and over this same time period, the stock market rises.
4. Strong nations support weak nations to pull them out of financial crisis. The action is self interest because all nations need trading partners.
5. The world is tightly connected into one global economy. For the first time, if one nation gets the flu, most other nations will become sick.....with some getting a cold and others on the death bed.

WORRY: (those things that could happen; IF/THEN statements)
1. IF China's market completely collapses, then many other vulnerable nations will be impacted.
2. IF China's market collapses, then China's GDP will decline, sharply. All suppliers to China will feel the shock. The nations with the greatest number of suppliers will feel the greatest shock. Japan and Australia come to mind.
3. IF Japan and Australia go into recession, then the EU will goes into recession.
4. IF the EU goes into recession, then the USA goes into recession.
5. If 1 to 4 occur, then many Nations of the world become Greeks.

A Thought Experiment.....no more nor less.

Conclusions:
1. There are plenty of reasons to worry....and few to celebrate.
2. The tools of Global Central Bankers are narrowing.
3. It may be a good time to become defensive.

Kansasnoall

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China: A Thought Experiment