The U.S. markets are closed today, so a teachable moment about why you have to look both ways before crossing Wall Street. If you look to the right, that’s the eurozone crisis. Look to the left, beyond New Jersey, and there’s China. Either way, you’re looking at some danger.
China watchers keeps hoping their policy makers can engineer a soft landing for its overheated economy. No one wants to see such a huge global player — and U.S. trading partner — crash land.
Economist Kash Mansori writes the Street Light blog. He’s says China’s currently in a huge housing bubble, one that makes the U.S. housing bubble — you know, the one that got us into our current mess — look pretty minor. Kash says, “You have to remember that [China’s] still a developing economy. Individual households in China have many fewer options for where to put their savings…and a lot of households tend to use real estate to save their money.”
In other words, if home prices in China drop, there could be riots in the street.
So, why should Americans care?
A drop in the Chinese economy could hurt the U.S. in two ways. First, China buys a lot of U.S. exports, so that market could dry up. Plus, there could be a surplus of Chinese materials making their way into the U.S. market, which could impact domestic manufacturing, raising cries of dumping and protectionism.
Still, there are some big “ifs” in this scenario. China may muddle through this year. And, Kash Mansori says when the global financial crisis hit in 2008 and 2009, Chinese policy makers took aggressive steps to keep China out of the fray. It could be that they’ll be ready to jump in again.
In the meantime, while the world is watching Europe in the coming months, don’t forget to look left every now and then.