Sunday 10 November 2013

Marc Faber: China could spark a bigger crisis than in 2008

An alarming credit boom in China could trigger a global financial crisis that would make the one in 2008 look mild by comparison, says old gloomy eyes, Marc Faber.

“If I am telling you that we had a credit crisis in 2008 because we had too much credit in the economy, then there is that much more credit as a percentage of the economy now,” the author of The Gloom, Boom & Doom Report told CNBC late Thursday. “So we are in a worse position than we were back then.”

China, in particular, has seen credit as a percentage of the economy jump 50% in the last four and a half years, said Faber, the “fastest credit growth you can image in the whole of Asia.”

He’s not alone in this China worry, as lots of economists have been warning about rapid credit growth there, even as officials are trying to curb it.

Meanwhile, Deutsche Bank strategist John-Paul Smith told clients on Wednesday that China’s growth model continues to be based on “ever-expanding debt, which leaves the country and financial markets very vulnerable to any potential loss of from investors and lenders.”

That’s even though China may change forever this weekend, as the Communist Party holds its Third Plenum, widely expected to introduce lots of reforms.

In his note, Smith says Deutsche Bank has had a pretty straightforward preference for developed over emerging markets the past three years. But that that now rests purely on its negative view of EM, rather than the “positive attractions of U.S. equities, which has become a consensus call”, he points out.

“The U.S. market now appears somewhat overvalued, and vulnerable over the medium term to a shift away from capital to labor from a fundamental perspective, but could be headed for bubble territory if the situation with China and commodities plays out as we anticipate,” he said.

Faber warns that China isn’t the only problem area. Other Asian countries are also seeing big jumps in household debt.

“Government debt has not gone up that much, but household debt has,” said Faber. “In Thailand, where I spend a lot of time, we have had no recession, but we have had no growth either. It’s the same in Singapore and Hong Kong.”

The above from an article at MarketWatch. Regarding the last comment, this might also be very true for Malaysia. That is, if inflation is correctly reported (not the simply incredible low numbers that have been officially reported), and thus the inflation-corrected GDP.

The following article in The Economist "Household debt in Asia" seems to agree with Faber's last paragraph:

"A new report from Standard & Poor’s, a credit-rating agency, worries about weakening credit quality at Asian banks, as loose lending practices lead to rapid loan growth, resulting in a sharp rise in household debt. A recent World Bank study identified Malaysia and Thailand as having the largest household debts, as a share of GDP, among eastern Asia’s developing economies. In Malaysia, where household debt now exceeds 80% of GDP, the government has been seeking to curb credit growth. Thailand’s government boosted access to credit following the country’s big floods in 2011. The recent slowing of growth in many Asian economies raises concerns about the sustainability of all this personal debt."


  1. I don't seem to understand this chart. USA has lower household debt than Singapore or than any EM? We always read Japan has the highest total debt or exceed 200% of GDP? How come.

  2. Japan and US have a very high federal debt, household debt seems to be on par with other countries.