China: the coming costs of a superbubble
Oh shit!
I really - really - hope I get another job before this happens.
China: the coming costs of a superbubble
China may seem to have defied the recession and the laws of economics. It hasn't. When China's bubble bursts, the global impact will be severe, spiking US interest rates.
The world looks at China with envy. China’s economy grew 8.7 percent last year, while the world economy contracted by 2.2 percent. It seems that Chinese “Confucian capitalism” - a market economy powered by 1.3 billion people and guided by an authoritarian regime that can pull levers at will - is superior to our touchy-feely democracy and capitalism. But the grass on China’s side of the fence is not as green as it appears.
In fact, China’s defiance of the global recession is not a miracle - it’s a superbubble. When it deflates, it will spell big trouble for all of us.
To understand the Chinese economy, consider three distinct periods: “Late-stage growth obesity” (the decade prior to 2008); “You lie!” (the time of the financial crisis); and finally, “Steroids ’R’ Us” (from the end of the financial crisis to today).
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A friend of mine was telling me of this almost two years ago. He'd spent lots of time traveling through China and witnessed firsthand the "Late-stage growth obesity” as the Chinese government built and built with no business to back up the expansions. And he thinks the “Steroids ’R’ Us” section of the piece actually underplays the degree of corruption among those construction projects. One example there is how all those new buildings in Chengdu just collapsed in the recent earthquake there. The builders used substandard materials, shoddy construction, bribed the inspectors and pocketed the difference.
Aside from spiking interest rates, aside from US businesses suddenly losing their source of endlessly cheap consumer goods to sell and thus keep their businesses running, another thing to contemplate about China's bust is what it'll do with all those T-Bills. If China suddenly finds itself in dire need of massive cash infusions to keep itself going then you'd better believe it'll call those Treasury Notes in.
That will be good for our economy in the long term. It'll also be good for our foreign policy in the long term as having so much of our national debt in the hands of fascists is not a good thing for us.
It's that short term involved in getting to that point however that's gonna suck. When China crashes it's gonna hurt us to and do so on lots of levels. That's gonna suck and that's gonna get ugly to.
Lucky us.
I really hope I get a job and some money in the bank before this takes place...
Madoc
Hat tip: chuckles48, bearsbearsbears