Global liquidity tightning 2010

Interesting aspect (although obvious) has occurred on the back of massive stimulus/bailout programs that goverment embarked on in 2009. 1) China is becoming a massive credit induced bubble 2) European countries deficits won't be able to cope with Greece's horrendous deficit/debt issues 3) The US public has finally had a enough of bailouts and spending by the US goverment. As correctly assessed in China's gift to the West - a double dip recession problematic 2010 economic conditions will lead, all evidence is now pointing that way, to a double dip recession in 2010. Which should occur more so in the first half of 2010 before US mid term elections in 2010. As discussed on this blog, Obama will try and appease the electorate by attempt to clamp down on banks that have been bailed out and the massive profits that occurred from tax payer and 0 % rate loans (free money) from the Federal Reserve. Essentially this is a nice slap in the face of interventionist economists, more so Keynesian style economic thinking. Stimulus and bailouts are a temporary support in an invertible economic boom/bust scenario. But assuming that wealth is restored by goverment underpinning assets is an extremely poor assumption. The public backlash against additional funding to ailing banks and bad businesses should reach a tipping point in the coming years - as the US goverment deficits implode.

China is trying (slightly) to tightening liquidity and credit, China is a bubble on the back of a huge goverment stimulus. The simplistic aspect of the reason/s China is in trouble is basically two things 1. it has overcapacity with it's inventories and 2. the US consumer are not returning to strength any time soon. It could be argued that China's overcapacity could insulate the country from extreme inflation say hyperinflation, but the problem which China (and the massive credit bubble of 2008/2009) will have to either go back into a recessionary environment or face invertible inflation. The US is simply not going to pick up the slack (buy) on China's exports. There is an implosion aspect of the Chinese ecomomy that could be on a tipping point scale (at that point), meaning it could tip into a credit default aspect (private) quite rapidly. China went too hard too fast after the global downturn, in fact every country did pouring money into the banking sector which issued credit on goverment guarantees.