Wednesday 14 September 2011

The China Syndrome

In the film The China Syndrome the plot worries about a meltdown at a Nuclear plant - one caused by a systems failure that causes an unstoppable chain of events leading to a meltdown and explosion.

Today, in a world of Global Economics, a different China syndrome is unfolding as this FT article shows:
“Countries should fulfil their responsibilities and put their own houses in order,” Mr Wen said. “Developed countries must take responsible fiscal and monetary policies. What is most important now is to prevent further spread of the sovereign debt crisis in Europe.”

Mr Wen has been begged by Italy and others to help them out of their Sovereign debt crisis. China is seeking to use it muscle to obtain better terms for its WTO membership in return. Also though, China needs to worry about the collapse of the West. Much like the Greece/Germany stand-off, the debtors have a good hand to play as well as the creditors. If China allows a series of defaults in the West then much of its export driven surplus will come to an end.

Moreover, with poor domestic demand, China will soon collapse into major recession. Especially as a Euro failure will also cause a US recession due to its banking exposure and already weak outlook. Interestingly, the real pain will be felt by those who export the most - China, US and Germany and least felt by those countries who import the most - their standards of living will drop as imports become expensive, but this will balance out as the glut of global exports works it way through.

To stop this chain of events from causing a global meltdown there is an answer, China and Germany need to rescue the debtor countries before their export markets collapse. Time is fast running out for them to do this as they prevaricate when faced with the need to abandon their mercantilist policies that have served them so well over the past decade.


Jan said...

Just like Monopoly! When someone starts winning,whatever any other player does makes little difference. In the end the only way for the game to continue is for the winner to bail out the loser(s)!

Electro-Kevin said...

Jan - Except Monopoly money is fake ...

...oh dear.

And that brings me nicely on to my point. What good is this trade to China if the money is fake ?

I can see them wanting more than money.

America has gunboat diplomacy x10 in its dealings with the Chinese and though it's never admitted to being an Empire it is in all but name.

What has Europe got ?

Bill Quango MP said...

500 million people.
That's a lot of trainers and hoodies shifted.

Old BE said...

I don't know why people find this confusing. If you are a business that sells widgets and your customer says "hey you know we think we've bought too many widgets and now we've run out of money to buy widgets" then you can either shut up shop, find some new customers, lower your prices or lend your customer some money on good terms.

In this case the customer is Britain, France, Italy, Spain, Portugal and that is a lot of widgets that might simply not be sold. A good lot of the stuff we buy in does not need to be replaced very often as many rich world consumers have already been noticing...

Electro-Kevin said...

I still don't understand.

Making widgets to sell to people - and lending them the money so that they can buy them ?


Timbo614 said...

Don't fret. None of the money is real. There is NO money anywhere. There is only debt used to creates credit (or actually as I understand it credit used to create debt money).

So it doesn't matter if they "lend" us our own make believe money or we spend out own. At the end of the day we can delete all the money from all the computers and next day, guess what? The sun comes up, the food still grows, water is still drinkable :) It's a medium of exchange that has got out of control. Which also does not matter so long as we all have "confidence" in it's existence!

Electro-Kevin said...
This comment has been removed by the author.
Electro-Kevin said...

Timbo - Some money is real. It's just a matter of waiting for the world to work out whose is and whose isn't.

Electro-Kevin said...

I do worry, Timbo.

I think the Chinese are going to own us.

I think that this has been their game plan all along.

And it cost them nothing - except the sweat and tears of peasants they don't give a shit about anyway.

They could quite possibly take us without even the trouble of going to war.

Blue - it's not confusing at all. I see things in very simple and clear terms as you know.

Politicians love complexity. It's where the power is. The problem is that they're too arrogant to see that there are people cleverer than they are - especially those they underestimate because they are small, slitty-eyed and yellow.

I think we've been had good and proper.