Europe’s Credit Crisis is China’s Trading Problem

“Really, you need to stop this,” a friend told us last night. “You’re depressing the whole country. Or at least the people who read you every day. And why bother? Gloom and doom has gone mainstream. You sound just like everyone else now. If you were a real contrarian you’d be happy.”

We’ll tell you how that conversation ended shortly. But first, we concede, yesterday WAS a happy day!! The ASX/200 was up nearly 2%. Human beings are made to be resilient. And investors were determined to shake off the black dog of depression caused by Europe’s mammoth currency problem.

Mind you that problem hasn’t gone away. It just receded from consciousness for a day. It’s back in today’s papers, in fact. BHP’s Marius Kloppers and Rio Tinto’s Tom Albanese both warned yesterday that Europe’s credit crisis could impact them, albeit indirectly.

It’s not so much final demand they’re worried about. Europe isn’t a huge customer of raw commodities. But China is. And China is Europe’s largest trading partner. So there is a knock-on effect…somewhere down the line.

But in the here and now, the two mining mavens recognise that a lot of global trade and commerce runs on short-term finance. By short-term finance, we mean companies who borrow money from banks for 30, 60, and 90 days. This regular flow of credit and capital keeps the wheels of global trade greased.

When credit freezes up, it doesn’t take trade long to follow. Europe’s banking crisis is global in nature for this very reason. It threatens the regular flow of credit between banks and businesses. In the age of short-term globalised finance, nothing is really local.

Probably why the RBA has the CLF its own pre-emptive bank bailout measure to soften the blow of the global debt problem.

Dan Denning,
for Markets and Money

Dan Denning
Dan Denning examines the geopolitical and economic events that can affect your investments domestically. He raises the questions you need to answer, in order to survive financially in these turbulent times.

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