Can This Marriage Be Saved?

China and the US are the power couple of the modern economics, but there are some clouds on the marital horizon. Michael Pettis, filling in on Brad Setser's Blog takes a look at the immediate future of this co-dependent relationship:

It is hard to overestimate the importance to China's near-term and longer-term prospects of the 17th Plenum in two weeks. These meetings, held every five years, are the main events of China’s political cycles and it is during these meetings that the big promotions to senior positions within the Party and, juiciest of all, membership in the Standing Committee of the Politburo are made. The Standing Committee consists of the nine men (previously seven, and there are not completely credible rumors that it may be reduced to seven again – the decision has everything to do with factional fighting) who are the ultimate source of power in China today, and is headed by President Hu Jintao and Prime Minister Wen Jiabao.

Although the deliberations are secret, the months leading to the congress are rife with factional infighting, sweetheart deals, attacks on frontrunners, corruption scandals, and the all-important maneuvering for promotion. Unfortunately, on the assumption that that any serious contender must at all costs avoid doing anything that may give rise to criticism before the promotions are decided, the period before the meetings tends to be a time in which very little, no matter how urgent, gets done. For this reason, although the government is watching with terror China's rising inflation, after the last interest rate move little has been done except to freeze a number of prices, and this latter is rumored to have been done almost solely to prevent rising prices from ruining the feel-good ambience that is always required to permeate the national congress meetings.

Some suspect that the imbalances of the relationship, which require China to take, take, take American debt while the US takes, takes, takes Chinese trade good are unsustainable. The monetary consequences of this asymnmetric flow, which is maintained by China's artificial peg of the RMB to the dollar seem finally to be resulting in the long predicted inflation.

China based Pettis has a not-quite an insider's look at how it could play out and some of the pitfalls involved.

Comments

Post a Comment

Popular posts from this blog

Anti-Libertarian: re-post

The most pointed critique of social security and liberalism in general is the libertarian critique. The problem with libertarians, for a liberal, is that we have too much in common. We both believe in individual rights, tolerance of individual differences, and dislike government prescription of religion. The basic difference, it seems to me, is the different answers we give to Cain's (with thanks to the Captain - my original version had the corpse asking the question!) famous question: "Am I my brother's keeper?" That's not really my basic bitch against the libertarians though. My real complaint is the same as my complaint against most religion - its premise is a fraud. For those who can't stand to wait for the punchline, I believe that trying to implement libertarian principles leads to tyranny or social disintegration. Demonstrating that takes some historical (and pre-historical) context. For all but the last 15,000 or so of the 100,000 years the human spec
Read more

Uneasy Lies The Head

Uneasy lies the head that wears a crown ........... Shakespeare Henry IV, Part II. So it is with us and our slightly distant primate cousins , so it seems. A 9-year study of wild baboons in Kenya by Princeton University and the Institute of Primate Research may turn conventional assumptions of alphas males upside down. The study found that alpha males have high testosterone levels, which allows them to dominate other baboons, get access to more food, and attract better mates. This is expected. Surprisingly, though, the alpha males also have high levels of stress hormone glucocorticoid, which scientists measured from their feces samples. In fact, the stress of alpha baboons was on par with low-ranking baboons. The convention wisdom is that access to food and females provides life security and thus less stress for dominant males. Conversely, weak males who are constantly threatened by starvation and physical violence from stronger males are thought to be more stressed. The st
Read more

We Call it Soccer

The US played its best, and maybe only good game of World Cup, but lost thanks to brilliant goalkeeping by the Swedish keeper and the bizarre method soccer uses to settle ties when three US stars could not put the ball on frame from the 12 yard spot.  At the end it came down to a blocked shot that spun in by maybe a couple of centimeters. Well, that's football - too much like life.   Which brings me to a modest proposal.  Replace the thirty minute overtimes with as many 7-player 15 minute periods as needed to settle it.  Scoring should be much easier with fewer players.
Read more