To understand the world, policy responses and consequences, you really need to look at the macroeconomic imbalances. I’ve banged on enough about the eurozone and the reluctance of policy makers to accept that imbalances in the eurozone require a set of policy responses from Germany that seem politically unfeasible (i.e. domestic demand expansion, higher inflation, accumulation of debt and a trade deficit). No matter how much wriggling and squirming there is, it is impossible to get away from these verities.
However, it’s not just the eurozone that faces difficult and painful choices. China is another region of extreme economic imbalances that require policy makers to make hard choices. Michael Pettis outlines the choices that need to be made and the reasons and consequences in this thoughtful blog post. In some ways, I have more confidence that China will make sensible choices.
At least leadership understands the issues. The political system has the capability to take tough decisions and to see them through, unlike the eurozone. Whether those options will be taken is open to doubt given the influence of various interest groups within the Chinese political system.
lemmings can teach nothing 