Sunday, Feb 22, 2009
Liam Halligan - Meltdown when China stops buying our Gov't Bonds, and Eurozone disintegration
Sunday Telegraph: There will be slim pickings if China loses its appetite for Western debt
Liam Halligan points out two important points:
1. The entire credit boom was funded by Chinese sovereign savings in western currencies (and gov't bonds) and this will have to stop, especially as the UK and US plan to borrow unprecendented amounts..
He leaves the scary question: "Just what happens when China stops buying US government debt?", with the implication is that extreme measures, includng aggression, may not be out of the question.
2. Eurozone strains caused by PIIGS (+Austria) weakness are starting to show. Once Germany starts bailing these counties out (like an EU IMF) there may be German or EU demands on how it is spent.
"eurozone voters will become extremely nervous at an implicit transfer of sovereignty – and the central contradictions of monetary union are exposed"
3 Comments
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1. uncle tom said...
Very good article - China was originally motivated by a desire to get the USA over barrel - job done.. - but now they face the prospect of losing an awful lot of money as their currency advances against the greenback. This they can bear, but buying any more US debt is clearly stupid..
The Eurozone was created without the pooling of sovereign debt, or the consent of the people - a ticking time bomb.. Germany might contemplate bailing out the PIIGS - but can you see the French agreeing to bail them out?
2. bellwether said...
Usual superfiical fare from Liam.
but on leverage based on house prices the boom was funded by leverage which to a very limited extent was based on loans from China. In the main the boom was based
3. jackas said...
"It would not be in China's interest if we were unable to get our economy moving again," Clinton said in an interview with a Chinese television journalist, according to reports.
"So by continuing to support American Treasury instruments, the Chinese are recognizing our interconnection. We are truly going to rise or fall together," she said.
The days of America telling China to remain a well behaved third world nation are drawing to a close. This will end in tears.