[MCN] "The US economy is based on debt-financed overconsumption, while China’s is based on debt-financed overinvestment."

[Lance Olsen]

Excerpt : Ever since the US-China trade war began, the financial world has been in constant fear of the world order crashing. China and the US have accounted for most of the growth in the global economy in the past 10 or 20 years. Their symbiotic relationship has sustained global growth.

The US economy is based on debt-financed overconsumption, while China’s is based on debt-financed overinvestment. They lean on each other for balance, like two one-legged men walking along with interlocking arms. The renminbi’s peg to the dollar is both the symbol and substance of this mutual dependence. If this relationship breaks, the world is likely to go into a prolonged adjustment to reach a new equilibrium.

The uncertainty in the world order is occurring amid the biggest bubble ever in the global financial world. Quantitative easing by China and the US in response to the 2008 crisis led to massive debt build-up <https://www.scmp.com/comment/opinion/article/3039970/huge-public-corporate-and-household-debt-looks-new-normal-global> and asset appreciation along the way.

As asset markets have become so large, relative to the real economy, their turbulence determines the economic outlook and not, as is normally the case, the other way around. This is why the Fed has cut interest rates <https://www.scmp.com/news/world/united-states-canada/article/3035643/federal-reserve-cuts-rates-third-time-amid-us-china> during the trade war, even with unemployment at historic lows. It views the ensuing market turbulence as a threat to the economy. The Fed has gone from the financial bubble’s hostage to its guardian.

South China Morning Post (Hong Kong)
https://www.scmp.com/comment/opinion/article/3040618/federal-reserve-prolonging-trade-war-keeping-biggest-financial <https://www.scmp.com/comment/opinion/article/3040618/federal-reserve-prolonging-trade-war-keeping-biggest-financial>

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Domino effect could heat up Earth by 5 degrees Celsius  <https://www.dw.com/en/domino-effect-could-heat-up-earth-by-5-degrees-celsius-despite-paris-climate-deal/a-44968248>
https://www.dw.com/en/domino-effect-could-heat-up-earth-by-5-degrees-celsius-despite-paris-climate-deal/a-44968248 <https://www.dw.com/en/domino-effect-could-heat-up-earth-by-5-degrees-celsius-despite-paris-climate-deal/a-44968248>

Aug 6, 2018 ... Even if the Paris agreement is successfully implemented, the planet could still heat up by 5 degrees Celsius, scientists warn.

The lead authors say:

“Our study suggests that human-induced global warming of 2 degrees Celsius may trigger other Earth system processes, often called 'feedbacks,' that can drive further warming — even if we stop emitting greenhouse gases.” 

And:
“These tipping elements can potentially act like a row of dominos. Once one is pushed over, it pushes Earth toward another. It may be very difficult or impossible to stop the whole row of dominoes from tumbling over.” 


The above referenced PNAS article:
Steffen, Rockström et al. Trajectories of the Earth System in the Anthropocene. PNAS August 2018. [Open access]
http://www.pnas.org/content/early2018/07/31/1810141115 <http://www.pnas.org/content/early/2018/07/31/1810141115>
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