China: the coming costs of a superbubble

[steven johnson]

At the beginning of the current financial crisis in late 2008 the Chinese injected a $568 billion stimulus into the Chinese economy. As a percentage of GDP, it would be like a $2 trillion stimulus in America, nearly triple the size of the one Congress passed last year. They reinflated their bubble.

The Federal Reserve injected enormous liquidity into our economy after 9/11. The bubble it created eventually burst. Watch out if the Chinese bubble bursts. It may be even more catastrophic.

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).



China: the coming costs of a superbubble

[Ozymanithrax]

1. Then again, maybe injecting money into an economy where fee markets were in free fall.

was the right thing to do.

But it does make for interesting times until we find out.

Besides, I think Bush's ownership initiative was the real cause of our downfall, creating a housing bubble on purpose, then convincing people that the worth of their homes would always go up. When you couple that with the damage done to the economy by fighting a war on credit, and add the lost productivity and economic opportunities due to the war, the economic collapse is predictable.

[FreakinDJ]

2. Creating a housing bubble on purpose to finance a War

Did I step all the way into "Tin Foil Land" with that one

[upi402]

3. Good argument

Seems a bit like a 'claim to value' argument though. Are there technical articles/studies that agree with it? Or is hard data, like the article says, hard to come by?

[girl gone mad]

4. I think one could make a compelling case that China saved the world from depression.

It was China's massive stimulus, not any of the goofy schemes Bernanke, Paulson or Geithner devised to cover failed the speculators' hydes, that kept us from completely going over the brink. And now it's precisely because of our ongoing weakness that China finds itself in its current monetary policy predicament.