Why iron ore is doomed to a $20 future

Readers will know that the MB view is that the stronger this year’s global recovery, the quicker that China will tighten its most recent credit binge as its export sector booms. That clamping is already underway.

The reason why is well known and understood. In its formative stages, super-charged catch-up growth in a developing economy is a process of high investment into cheap wage exports and infrastructure modernisation. But, as the economy matures, those easy investment oppotunities with high returns fade and wages begin to rise resulting is fading exports snd rising consumption.

If the economy is not allowed to slow on this natural path then capital misallocation slowly bogs it down anyway, lumbering the economy with bad debts that clog its liberalisation process and productivity.

There are 1924 words left in this subscriber-only article.

Start your free 14-day trial today!

Comments are hidden for Membership Subscribers only.