The Austrian theory of the business cycle is clear: when a central bank inflates, it will produce a boom. When it slows the rate of monetary inflation, the result is economic recession. I have written about this here.
China’s central bank has been the most inflationary of any industrial nation. Now it has slowed, because price inflation was becoming a threat to the nation’s stability, especially in rural areas. There will be a recession in China. I have been predicting this since May of 2010. It has taken longer than I expected.
The signs are beginning. Industrial production is slowing. Real estate prices are beginning to fall in large cities.
When the recession hits, there will be enormous losses for investors in Chinese stocks. Investors will find that the story of “unstoppable China” was just another inflation-driven bubble dream. Central bank inflation turns stock markets into casinos.
When China moves into recession, all of Asia will, too. The recession in Europe will accelerate.
As Chinese factories try to stay open, they will lower their prices. This will place additional competitive pressure on Western manufacturing. This will hold down price inflation.
It will also push down the price of oil and other commodities as demand falls.
This is good news, unless you face competition from Chinese products. Most workers do not.