Vendor Financing

I picked this up from FTAlphaville today, where Merrill Lynch is arguing that the global vendor financing model - where China finances its customer - is coming to an end. I had thought of it in the very exact terms in 2005 here (http://gaurav1.blogspot.com/2005/06/oil-what-is-happening.html), so I feel happy that I wasn't wrong. It was one of my first posts. Though as I read that post again, I was certainly wrong on a lot of other things, like BSE being overvalued at 7000 and oil being overvalued at 55.

Merrill Lynch has published their 2009 economic outlook — the over-riding theme? Nothing less than the decline of the West’s financial supremacy.

From the report:

In the emerging world, particularly China, the vulnerability to the US financial crisis is likely to lead to a fundamental rethink of the development model. Expect long-run policies reducing ties to Anglo-Saxon consumption and a rebalancing in the global political power toward the emerging world.……

At its core, the global financial crisis brings an end to the vendor financing model, whereby excess consumption in the US was financed by a savings glut in the emerging world. The market will ensure this adjustment finally happens. This is coming from both directions…