the opinionist

Just as an increasing number of nations around the world join the growing demand for a more multi-polar world [1,2,3,4] and the demise of an over-extended United States – seemingly power-drunk on global domination - along comes a wave of speculation on the possible instability and ultimate collapse of the next supposed Hyper-power, China!

Article by FirstPost - “The Dragon’s catastrophic potential”

Article by WorldTribune - “China’s utterly distorted economy is a train wreck waiting to happen” by Sol Sanders

Article by AsiaTimes (older but accurate!) - “China-US: Double bubbles in danger of colliding”

It appears the Chinese economy might not be the muscle-toned high-spirited stallion of an economy … nipping at the ankle and eager to over take the over burdened, over spending, overly bureaucratic United States. Perhaps China is nothing more than a doped-up, flee-ridden old Nag of a nation pumped full of artificial stimulants (insanely greedy foreign investment, suspiciously cheap currency, corrupt and politically motivated) and two-whips away from a nasty fall.

It appears the explosive success of the Chinese economy may be propped up on a wobbly $1 trillion portfolio of bad (non-performing) loans based on poor business guidance, political-favors and good-old-fashioned Western greed.

When these loans are finally rationalized, valued and recalled … the foreign investment in China will dry up quicker than a bottle of vodka at a Lindsay Lohan party.

An implosion in China will mean what? Potentially a mixed bag of economic depression or perhaps a bit of good fortune that may extend the U.S.’s global dominance for just a little while longer!

China is reported to hold over a trillion dollars worth of U.S. dollar-backed assets (treasury bonds etc) and as a nation - it imports over $800 billion worth of goods and services per year from the good old U.S. of A.

If China implodes economically and, therefore, politically, it would be forced to bail itself out by dumping its holdings of U.S. debts on to the open market. This sounds catastrophic and could potential thrust U.S. interest rates into the stratosphere!
However and contrary to the doom and gloom of public perception the U.S. Treasury Secretary, Henry Paulson, has suggested China’s holdings of U.S. Treasury bonds amounts to little more than one day’s worth of trading in the Treasury bond market. Hello to a painful hangover … but no puking! [article in ChinaDaily]

At the same time - political instability in China that would almost certainly exist if the Chinese populace (viciously careful savers) - are suddenly holding worthless investments. A change in power, or even the uncertainty of a civil rebellion would see the global investment markets fleeing for the security and dominance of the U.S. dollar which has been an increasingly weak commodity in recent years. Huzzah!

On the downside interest rates in the U.S. would spike dangerously? Surely the tepid housing market that appears to be supporting the viability of the U.S. economy would collapse completely? What of the stock market? U.S. corporations tinted and flavored by Chinese investment, cheap markets and a touchy feely laissez-faire cowboy economy would feel a significant pinch. Not a fun scenario for Mr. and Mrs. 401k.

The USNews interviewed Will Hutton, author of “The Writing on the Wall: Why We Must Embrace China as a Partner or Face It as an Enemy” … as saying “According to the World Bank, if China’s economic growth rate fell by just 2 percent, up to 60 percent of China’s bank loans would become non-performing - so threatening both China’s and, via Hong Kong, Asia’s financial system.”

How can such risk have been allowed in the first place? Which bloody donut in Washington swept such risk under the rug and out of public view? The economic stability of the United States is a matter of national security. To place the viability or security of the American citizen in the hands of a communist nation with questionable business ethics and a taste for U.S. treasury bonds is, without question, the most incompetent abusive of trust – but there lies a whole different rant for another date and time.

Politically? A broken China and the world stage would transform overnight into a very different scene. A crippled Chinese economy would significantly ease the strain on the world’s oil markets. The price of Crude would puke as demand from a once unquenchably needy China loosens … so too would the choke of demand for black gold. Cheap oil is a hefty tax cut on the U.S. economy, core inflation and, therefore, interest rates and national investment.

The growing political influence (and interference) of the world’s nasty energy titans - Russia, Venezuela, Nigeria, Saudi Arabia etc - are tied to the escalating price of energy – oil, natural gas, coal.

The world’s commodity prices would slacken as the pressure of demand on the commodity producers weakens. Is this a bad thing? Perhaps environmentally Al Gore might smile but his Chinese friends might have issues.

The U.S. economy - currently by deficits, trade imbalances and out-of-control Government spending - would see a rebalancing of obligations. Is this a bad thing? With the country heading towards bankruptcy thanks to over-zealous spending, Medicare and social security obligations and an exploding current account deficit – perhaps the Chinese economic meltdown wave might be a useful excuse to readdress the nation’s fiscal forecast.

Japan’s banking collapse in the 1990’s saw over a decade of economic depression and political weakness. An economic collapse in an already politically awkward China would be dramatically worse. China faces the diverse realities of city-wealth and rural-poverty and is already struggling to suppress rural annoyance over the regional inequalities of haves and have-nots – of poor farmers versus billionaire industrialists. It must surely face an insurmountable struggle to regroup and rebuild as a communist-centralized nation.

Who knows? Perhaps a kicking over of the world’s anthills is exactly what the U.S. needs to put its insanity of over-zealous Government spending and influence in check. Of all the doom and gloom associated with the upcoming supposed dominance of China and its potent influence over the United States economy – I think a shock to the world economy by a bursting of the Chinese bubble might be just what the doctor ordered. It might fix the problems seemingly entrenched in the current U.S. economic system and would a weakened communist China be so bad? Cheaper oil means a quieter Russia and, God-willing, a lesson in humility for those domineering oil producers.

Posted on July 2nd, 2007 under China, Russia, US Treasury Bonds, Venezuela, oil •  Email This Post • RSS 2.0 feed • Leave a response, or trackback