Aside from Sovereign default risk scares, the other bit of news spooking the markets is some rather disturbing inflation data from China.
Officially, prices grew at a 4.4 percent annual rate in October, the biggest jump in more than two years. But it’s striking how many people you meet in Beijing who say official statistics lowball the true inflation rate.
One economist I spoke with says inflation is probably running at twice the government’s estimate….if China’s inflation rate climbs to 6 or 8 percent or higher, then the situation changes significantly. China’s central bank would continue to raise interest rates. The government might step into to control prices for grain or other commodities. It would probably be forced to rein all that money flowing out of the banking system that’s fueling China’s boom. Lenders would pull back.
And if all that happens, then the China miracle goes on hiatus, at least for a while. And the world will notice.”