Hamilton: Krugman's Worries about China

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Source: economistsview.typepad.com --- Thursday, July 25, 2013
Jim Hamilton says to keep your eyes on China's economy: Worries about China, by Jim Hamilton : Paul Krugman is among those starting to be concerned about an economic downturn in China. Here are my thoughts on this issue. ... What rings alarm bells for me is the recent sharp spikes in interbank lending rates..., such moves could definitely be signaling some financial fragility. ... Paul Krugman writes: Suppose that those of us now worried that China's Ponzi bicycle is hitting a brick wall (or, as some readers have suggested, a BRIC wall) are right. How much should the rest of the world worry, and why? I'd group this under three headings: 1. "Mechanical" linkages via exports, which are surprisingly small. 2. Commodity prices, which could be a bigger deal. 3. Politics and international stability, which involves some serious risks. To Paul's list, I would add a fourth: financial linkages. If there are significant disruptions to China's system for funding credit, that could have implications for anyone borrowing from or lending to Chinese entities..... I'd also like to add an observation to Paul's second point involving commodity prices. A significant economic downturn in China could well mean a collapse in oil prices. One would think that, as a net importer, this would be an overall favorable development for the United States, and certainly it would be a significant plus for many individual U.S. firms and producers. But it's worth re ...

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