China’s coming magnificent bubble
–James Saft is a Reuters columnist. The opinions expressed are his own–
If and when China makes its currency convertible and opens its financial system the stage will be set for a bubble that should make the dotcom and housing booms look tame.
China has recently signaled its key aspirations: for a greater international role for the renminbi and for Shanghai to become a great financial capital. Neither is imminent, but both imply, if not require, a series of steps that, taken in combination with China’s legitimately great potential for growth, could lead to a bubble of magnificent and dangerous proportions.
Magnificent in that, like the dotcom bubble or the railroad boom in the U.S. in the 19th century, a bubble in domestic China is directionally right and will build useful things which will change the world. A bubble, after all, needs a good story and China has one of the best ever.
Dangerous because, like the housing bubble, it will inevitably go too far and could take down banks and banking systems globally.
Perhaps rather than dotcom or housing, the most useful template for China is closer to home; namely the Japanese bubble which preceded its ongoing malaise, according to Dylan Grice, a strategist at Societe Generale in London.
“In the medium term we face the mother of all asset bubbles in China. The fundamental story is a good one; there are just lots and lots of people to sell to,” Grice said.
Hello James,
I wish we would take notice of China bubble burst from the solid foundations of unshakable US economy. Unfortunately US economy is more fragile than ever. My point is that before China bubble burst we will witness US total collapse.
Total US debt (Gov + private) comes to 370% of GDP. Common sense tells that we cannot pay it out. But there is no alternative so people keep buying US/EU debts. As soon as somebody (China) provides alternative XYZ to US debt we will see run of capital from USD to XYZ.
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USA the cost of managing debt will jump 10x from current 2%-5% (That rough range for LIBOR). We all know what even 10% LIBOR would do to “conservative” financial institutions with 15x leverage (Goldman
Since all my savings in USD I wish somebody can prove me wrong using simple math.