what you posted was interesting.

I think the trade imbalance will be resolved very soon by this US recession.

Nov China’s export was -2.2%. although import was -17.9%, it was mostly due to falling comdty prices. however, comdty prices have stablized since then. Dec or 1Q09 will mark the first time China sees a shrinkage in trade balance.

esp, now comdty seems to be the place to invest and given the size of all the infra projects in stimulus pkges worldwide. prices are likely to rise.

if by then US is running at a 9% unemployment. China’s export will still be in trouble, and china will see hot money, investment net outflow. b/c USA will be the ideal place for investors.

in addition, when US sees that 9% unemployment rate, what will China’s unemployment rate be? my wild guess would be >20% in urban area and much much bigger in rural.

according to many broker’s report on money flows in the recent months, outflow is in all developing and emerging countries. USA is the country sees the most inflow.

In a sense, an excess of liquidity has historically been present more often than not. Were that not the case, the prices of goods and services (both current and future) would drop moderately over time (roughly in line with productivity increases). Further, bubbles (being a condition in which demand moves positively with price, rather than the more normal inverse) are forming more often than not as the “excess” liquidity sloshes about between targets and durations.

Generally speaking, this sloshing about sets up economic ripples which are out of phase, and the sloshing is self-canceling. Every so often though, waves end up being in phase, which is what we’re seeing today. Correlations which are ordinarily negative suddenly become positive. Self-limiting cycles become self-reinforcing. What formerly appeared linear becomes non-linear.

Assigning blame to a particular wave is pointless, since it’s the interaction of the waves that causes the problem, not the waves themselves.

What we really need is a better understanding of why and how liquidity bubbles become the equivalent of in-phase waves.

Extending your driving analogy, the problem with speed limits is they concentrate thinking on the wrong idea. Speed doesn’t hurt anyone much. It’s the sudden stopping that does all the damage.

I think you are confusing bankers try to circumvent regulation with regulatory ineffectiveness.

This can be seen clearly with a driving analogy.

You could make the argument that since drivers will try to avoid speed limits, one shouldn’t have them.

I think most of us would prefer driving on roads with speed limits!

The broader point referenced above with respect to China is the politicization of financial flows in China, which has produced distortions that, in concert with different excesses in the US produced such large bilateral imbalances.

One problem is that a lot of models of risk assume that people will be willing to accept more risk for more return, when in some situations they won’t. If I thought that my bank had a 5% chance of going under tomorrow and I had no FDIC insurance, then I’m not going to be happy if the bank promises to pay me 15% interest since 15% of nothing is nothing.