● Unbalanced: The Codependency of America and China
By Stephen Roach
Q&A with author via Yale University Press
Q: How has the U.S. and China’s unbalanced relationship created a false sense of prosperity?
A: Beginning in the late 1990s, the income-strained U.S. economy drew increasing support from the so-called wealth effects of surging asset markets – first from equities, then from residential property and finally from cheap credit. The problem was that each of these asset-dependent underpinnings ended in bubbles – bubbles that ultimately drew support from Chinese purchases of dollar-denominated assets. Washington, Wall Street, and Main Street collectively deluded themselves into thinking this asset-dependent growth was a new recipe for economic prosperity. When the bubbles popped, however, it quickly became apparent that this was a dangerous false prosperity. To the extent that export-led growth in China was dependent on America’s asset and credit bubbles, it, too, went down a path of false prosperity. When the export underpinnings of China’s external demand collapsed in late 2008 in the depths of the Great Crisis, this, in fact, became painfully evident.
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