Looking at recent predictions about where the Chinese and US economies are heading really echoes the cold war. But the arguments are valid and if either, or both of them, crash it would, as we all know, badly destabilize the entire global economy.
China today – the US in 2007?
More and more investors and analysts recently seem to be focusing on potential problems facing the Chinese economy, and they’re worried, to put it mildly.The reason for their concern sounds like a description of the US in 2007, a destabilizing property price bubble and rising bad loans at its banks. All due to China’s recent recession-busting credit boom and even cautious IMF is warning of the consequences of the Chinese economy over heating.
Stock markets worried
The stock markets actually seem to believe the Chinese economy is in trouble. Experts are worried that Chinese growth during the last two years based on enormous government stimulus and unconstrained lending from banks offer only a shaky foundation for further growth. The Shanghai Composite, have hence steadily declined since late 2009.
Boom and bust?
The Chinese economy used to rely on exports to the US, but that changed with the recent recession. Over-investments and over-building has hence driven it for the last few years.
As a result inflation increased and the Chinese government had to curb lending as well as raising interest rates. The slowing down of such rampant lending could actually crash the economy, or at least slow it down.
The good news however is that there are differences between the current troubles in China and the US bank and sub-prime mess. One is that Chinese home owners are not as heavily mortgaged as the Americans were. And another that the Chinese government sits on a 3,000 billion dollar surplus that can be used to prop up sick banks.
Chinese economist predict the US economy will crash
On the other hand, Chinese economists are predicting the US economy will, again, crash. Maybe as early as this year due to the explosive increase of the use of financial derivatives that took place between 2005 and 2007.
According to their calculations, the derivatives that are coming due this and next year are worth ten times as much as the ones that caused the latest downturn and will deal a catastrophic blow to not only the US but the global economy.
Another problem experts see is the loss of faith in US treasury bonds.
Dire predictions for the world economy with its fast growing developing countries and stagnating Western nations. So who’s right and who’s wrong? Will the Chinese or US economy crash? What’s your opinion? Are we heading for a deep depression? Maybe the most important question is that if the Chinese economy slows down, or worse crash, how prepared is the rest of the world to cope? Important because even a small decline in China’s growth can, unfortunately, cause massive problems all over the world.
Photo: The White House – Flickr