Blog Why Not?!

China and US
Ravings and ramblings about China
Economics, 081122

From what I gather it goes something like this: China has been thriving of the dept burdened US "surplus" and is now facing problems with overcapacity, since it is not sure that Chinese domestic demand will be great enough. And with products piling up, households needing to save money, defaults and so forth, there is the risk of what Roubini labels global stag-deflation. In US the situation could be worsened by a liquidity trap. If this is so, will people really be able to continue spending and buying the production surplus of China?

I read somewhere that Chinas situation is similar to that of US during the great depression. US solved part of their problem by production contraction. Since every one has problems, no one seems to be able to export ones problems. Now US has to save and buy American and China have to create domestic demand. From what I understand this implies a fiscal deficit in US and perhaps debt reduction for their insolvent households. China has to expand fiscally.

But what kind of domestic demand is there in US for what kind of products produced in US? On what should China spend their money?

The Swedish saying Skilja agnarna ifrån vetet springs to mind. During bad times the stronger grows stronger and the weak weakens. My thought are on the line of utilities being a candidate and in extension green utilities. Green, so that we we will not perish from pollution and green because it calls for new products.

- Aramis

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Blog Why Not?!
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