WLW

Sun, 18 Feb 2007 16:06:44 +0800

That is a totally plausible outcome, if not optimistic. It is also possible that Chinese industry will slow down due to the increased expense of exports, and a large portion of the 200 million countryside-to-city migrants will be out of work, increasing crime, homelessness, drug-use, etc. Further, there will likely be a backlash in some countries when the Chinese government starts snapping-up key industries and assets. US interest rates will certainly need to rise to ensure US gov's cash-flow, assuming there are other T-bill buyers. Increased interest rates could send the US into a recession, and with US consumers already massively indebted, the problems could be very severe. Most concerning is the prospect of the unraveling of the US dollar as the reserve currency of the world. Basically, for the last 60 years, there has been a trade-off: the US supplies a security umbrella so that a large portion of the world develops without a great concern of military conflict or planning, instead focusing on economic development, but the dollar is the reserve currency, basically giving the US greatly increased (nearly unlimited) spending power. There is an argument to be made that we are seeing the end of Pax Americana, and there are people and nations (think about China's ally Iran) who are actively promoting this as an anti-US tactic. Ultimately, the end of dollar hegemony is probably inevitable, but when and how will determine if it is "soft-landing" or not.

nanheyangrouchuan

Sun, 18 Feb 2007 15:11:26 +0800

No problem, this will even out alot of imbalances in the US economy. Question is what will happen to the chinese export machine when Americans pare back their spending?

Shanghaiist: How to spend a trillion dollars

WLW

nanheyangrouchuan