Monday, July 27, 2009

A Bubble in China...

Once you get past the hyperventilating coverage of the US economy, there has been growing concern about a bubble in Chinese stock markets.

However, Vitaliy Katsenelson over at Foreign Policy feels that the potential stock market bubble is unimportant. Instead, he paints a pretty dramatic picture of the entire Chinese economy as a bubble that is on the verge of bursting -- The China Bubble's Coming -- But Not the One You Think

There are lots of folks here in the US who would secretly (or not so secretly) enjoy the idea of the Chinese economy imploding, but they underestimate the effects on the US economy. If the Chinese economy implodes, who will buy the Treasurys that are funding US deficits and deficit spending? What happens if the US government has to come up with the cash it needs on its own, without its lender of choice -- who then foots the bill?

It is not a pretty picture.