Carnegie Endowment for International Peace
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The current cycle of globalization could end in a painful period of debt adjustment and payment imbalances across the globe, with a likely slowdown of growth in China, a possible abandonment of the euro, and the risk of increasing U.S. protectionism.
Ineffectual loan quotas have led Chinese banks to devise new, riskier lending mechanisms. This trend will continue as long as China maintains its loose monetary and credit policies.
Chinese growth may continue at a rapid pace this year, but a growing liquidity-induced bubble will eventually require major reforms.
Although an appreciation in China's currency value could benefit the United States in theory, Chinese leaders would likely counterbalance such a rise with policies that could further damage both the Chinese and U.S. economies.