Is China ready to assume leadership of the globalized economy? - by Harold Jame
In a financial system that has become so demented, only institutions with more or less infinite resources can stem the tide. Such institutions can conceivably be self-help organizations, such as pools of powerful banks. The US Treasury indeed tried to put together such a pool last Sunday. But in a climate of profound uncertainty, self-help is not enough. Governments or central banks are needed, because only they are both big and quick enough. Only they could quickly come to the assistance of the giant housing finance institutions US Fannie Mae and Freddie Mac, and then deal with AIG. The second question is what kind of government can do the job? Not just any government will do. Mid-sized European governments can possibly rescue mid-sized European institutions, but in the case of really major financial conglomerates at the heart of the world’s financial system, there are probably only two governments that have the fire power: the US and China. China is the US of this century. The initial stages of the credit crunch last year were managed so apparently painlessly because sovereign wealth funds (SWF) from the Middle East, but above all from China, were willing to step in and recapitalize the debt of US and European institutions. The pivotal moment in today’s events came when the Chinese SWF China Investment Co (CIC) was unwilling to go further in its exploration of buying Lehman Brothers. CIC’s turning back will be held up in the future as a moment when history could have turned in a different direction.
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