"The balloon is ready to burst"For the full report in the Channelnewsasia.com click on this link
Ailing eagle, worried dragon-a recession in 2007-by Adrian Tan
A vocal minority is talking about a recession in 2007, saying that the Federal Reserve should have paused its rate hikes earlier and not in August. And as the cliché goes: "When the US sneezes, the rest of the world catches a cold". The problem is that if the eagle has a severe chill, the dragon could catch pneumonia. And with both sick, the global economy is in trouble.
The doomsday scenario is premised on the questionable but plausible analysis that an economic bubble (bigger than the dotcom one) has developed in China — a view held by a quiet minority of experts. The bubble will be pricked by the US economy going into a severe recession, as investors and Chinese consumers in China worry about the consequences of a US recession. If this happens, China will no longer be able to fund America's massive budget and current account deficit by buying US treasury bonds. (It is doing this because it wants to keep its currency from rising against the US dollar, believing that a rising yuan is bad for exports to the US). The US dollar will collapse, bringing another set of problems.
A virtuous cycle — the US buys goods from China while China lends the US the money to buy Chinese goods and imports raw materials from third countries, which it uses to make goods that it exports to the US — turns vicious with the US being unable to buy Chinese goods because they do not have the money to lend the US as the US cannot afford to buy Chinese goods. And China cannot buy raw materials from third countries because there is no demand for goods from the US.
There will be a global recession.
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