05 December 2010
China’s Dangerous Game
China has been buying U.S. Treasury debt in order to enable American consumers to buy its manufactured goods. This is a dangerous game that runs the risk of the collapse that caused the Great Recession of 2008.
During the 1990s and 2000s, corporate America and its toadies in Washington encouraged “cash-out refinancing” of home mortgages under the guise of broadening home ownership, but really as a way to bolster consumer demand. The liquidity it created for middle class Americans allowed expanded spending not only on manufactured goods (both domestic and imported) but also on financial, entertainment and a wide range of other services. When the bubble of real estate values burst, every sector of the U.S. and many other Western economies saw a sudden and lasting decline.
China’s leaders are wise to be transforming the country into a consumer society in order to replace its reliance on U.S. and Western consumption for the demand needed to support economic growth. China’s main attraction for Western investors has long been its dreamy billion-plus consumer market. If that is to be the destination for its own output in the future, its leadership must study hard the lessons of the Great Recession in order to avoid a similar collapse. Its investments in U.S. and other Western government debt can suddenly lose value when the band stops in this game of musical chairs and the only place to find a seat will be at home.
China has been buying U.S. Treasury debt in order to enable American consumers to buy its manufactured goods. This is a dangerous game that runs the risk of the collapse that caused the Great Recession of 2008.
During the 1990s and 2000s, corporate America and its toadies in Washington encouraged “cash-out refinancing” of home mortgages under the guise of broadening home ownership, but really as a way to bolster consumer demand. The liquidity it created for middle class Americans allowed expanded spending not only on manufactured goods (both domestic and imported) but also on financial, entertainment and a wide range of other services. When the bubble of real estate values burst, every sector of the U.S. and many other Western economies saw a sudden and lasting decline.
China’s leaders are wise to be transforming the country into a consumer society in order to replace its reliance on U.S. and Western consumption for the demand needed to support economic growth. China’s main attraction for Western investors has long been its dreamy billion-plus consumer market. If that is to be the destination for its own output in the future, its leadership must study hard the lessons of the Great Recession in order to avoid a similar collapse. Its investments in U.S. and other Western government debt can suddenly lose value when the band stops in this game of musical chairs and the only place to find a seat will be at home.
Comments:
Post a Comment
