Carnegie Endowment for International Peace
China’s economy can only continue to grow rapidly through ever riskier increases in debt. Eventually, Chinese authorities will either choose to slow growth and curtail investment sharply or they will be forced to do so by their excessive debt.
Rising wages and capital costs are squeezing China's small- and medium-sized enterprises, while administrative attempts to mandate lending through quotas are distorting credit markets.
If Europe wishes to prevent long-term high unemployment and stagnation, Spain must acknowledge its own debt problems and Germany needs to recognize its role in promoting regional and global imbalances.
Global trade imbalances result from national policies that stimulate high or low saving or consumption rates, rather than from cultural predispositions to save or spend, making coordinated policy reform crucial to rectifying those imbalances.
International and regional financial institutions need to work together to negotiate a plan to reduce Greece's debt load if they wish to recoup any of their losses and prevent Greece's long-term stagnation.
Although China has taken positive steps to address the debt burdens of local governments, it remains to be seen how it will repay that debt. Meanwhile, the increase in international trade denominated in RMB is likely being driven largely by speculative demand.
In spite of nominal changes in the value of China’s currency and domestic interest rates and wages, China’s economy remains unbalanced, as real interest rates continue to outpace real wages and any real appreciation of the renminbi.
If China is able to rebalance its economy by increasing consumption and thus reducing its trade surplus, the United States would benefit from the decline in its trade deficit with China.
Although an increase in China's domestic consumption as a share of its GDP will cause its current account surplus to decline as it buys fewer U.S. government bonds, this will not necessarily be a bad thing for the U.S. economy.
The costs of the dollar's status as the international reserve currency now outweigh the benefits, and the United States should take the lead in moving to multi-currency reserves.