Sunday, December 19, 2010

What is this? Do I smell a trigger?

At least someone is willing to step up and write out a recipe for this soufflé collapsing.

China Credit ‘Bubble’ Headed for Bust, Blackhorse’s Duncan Says
“China has the greatest economic bubble in history,” said Duncan, author of “The Dollar Crisis” first published in 2003. “There’s a real risk it’s going to collapse in a Great Depression-style scenario.”

The pin that may prick China’s bubble, Duncan said, is a backlash against free trade among voters in the U.S., where unemployment last month rose to the highest since April. The U.S. House of Representatives in September enacted legislation that would let U.S. companies petition for duties on Chinese imports to compensate for the effect of an undervalued yuan. Protectionist sentiment could gather steam in the next two to three congressional election cycles, Duncan said.
Premier Wen Jiabao’s government has been creating about $250 billion worth of yuan each year “out of thin air,” Duncan said. To keep its currency from appreciating, the People’s Bank of China has been printing yuan to offset the dollars flowing in from a trade surplus that expanded to $27.2 billion in October, the most since July.


jesse said...

Look to 2013. What will be the makeup of the US political scene at that point? Populist anti-trade agendas may be seen as the winning ticket in 2012.

The seeds may even be sewn earlier than this, given the flexibility of Obama's spine.

GG said...

I haven't sensed a political movement towards broad anti-trade measures. For one thing, much of the profits end up back in the hands of U.S. companies. Apple, for example. I expect it is too intertwined to get truly painful trade barriers in place. And in the end, it's only 5% of China's GDP.

More likely is that the run up in commodities will bankrupt China before they can build enough additional empty cities as make work.

There is an Australian workshop paper that is apropos to this notion that I have not finished reading to make a post about. Sources of Chinese Demand for Resource Commodities