The End of Chi-America

Niall Ferguson has probably written the best feature-length essay I’ve seen thus far on the political economy of the Sino-American relationship:

“In particular, I came away convinced that we are living through the end of something Moritz Schularick and I christened “Chimerica”. In our view, the most important thing to understand about the world economy over the past 10 years has been the relationship between China and America. If you think of it as one economy called Chimerica that relationship accounts for around 13 per cent of the world’s land surface, a quarter of its population, about a third of its gross domestic product and somewhere over half of economic growth in the past six years.

For a time, it was a symbiotic relationship that seemed almost perfect. To put it very simply, one half did the saving and the other half did the spending. Comparing net national savings as a proportion of gross national income, American savings declined from above 5 per cent in the mid 1990s to virtually zero by 2005, while Chinese savings surged from below 30 per cent to nearly 45 per cent. This divergence in saving allowed a tremendous explosion of debt in the United States because one effect of what Ben Bernanke, chairman of the US Federal Reserve, called the Asian “savings glut” was to make it very much cheaper for households to borrow money – and to a lesser extent for the government to borrow money – than would otherwise have been the case.”

Ferguson’s theory is that the East’s excess savings provided the West with an incredible amount of easy money, which in turn led to some very lax (and perhaps imprudent) lending, which then created the housing bubble whose collapse we are all feeling right now.

Then Ferguson goes on to draw a series of connections and parallels between the first Industrial Revolution and what he considers to be the second Industrial Revolution in the East, and from these connections he draws various geopolitical implications, which I will not summarize because you should really read the article yourself.

All in all, this is a fascinating, well-written article; it’s certainly much better than what constitutes “analysis” these days in the MSM.