ECONOMIC GLOBAL VILLAGE

Yesterday morning I was watching a "BIZ" report on CCTV9, the Chinese English language television station available on DirectTV. ("TV from outer space!") The commentator had an analyst on her show to help viewers understand what had just happened in the Shanghai stock market. The Chinese analyst was talking about Price to Earning Ratios, Market Corrections, etc. She sounded like someone from Piper Jaffray.

Tuesday morning (here) they were talking about events that took place there on Monday in China . I thought the program interesting, but as the day went on I became aware of the ripple effect of China's "correction" which affected stock markets around the world. Our own Dow Jones Average encountered its biggest drop since 9/11. Obviously, the growing Chinese economy has a tremendous effect on the global economy.

Ironically, the Christian Science Monitor ran an article in Monday's paper called "Watch Your Flanks, America!" The article talks about the American budget surplus turning into a budget deficit after the year 2000, primarily because of the Iraq war and tax cuts. The deficit is financed by issuance of bonds. The largest purchaser of these bonds currently is China. They will soon pass Japan as America's largest creditor. It is now estimated that two-thirds of China's massive foreign currency reserves are in US bonds.

The article points out that if China began calling in their "markers" it would cause economic disaster around the world. Some say that China would never do this, because it would hurt their people as well. But some analysts are now saying that Beijing's view is that the Chinese people are tougher and better able to withstand economic hardship (they're used to it), in comparison to Americans who have grown soft "living the good life". So if the growing calls for "protectionism" in the US are implemented to save certain US industries, the Chinese hold the trump cards that could bring ALL our industries to their knees.

You can read the full article at...... http://www.csmonitor.com/2007/0226/p09s01-coop.html?/s=hns