The Sun Will Set In The East.

As generals are constantly prosecuting the last war rather than exercising modernity for the next, so too do American economists when admiring their own position papers on the current global financial crisis.

China is the perfect example.  While the esoterics of Austrian bank exposure to Hungarian mortgages is explained by academics on the financial networks, the Chinese real estate bubble continues to grow like a bloodthirsty tick, it's western democracy hosts unaware of the true nature of the parasite.

The EU, not the U.S., is China's largest trading partner.  Central planners in Beijing have tightened their monetary policy in recent months with the belief that their European export market, with its wafer-thin margins, would continue on the path to recovery.  With the Yuan pegged to the new-found strength of the dollar due to the collapsing Euro, China now finds itself in the position of trying to reign in runaway domestic inflation with the prospect of self-deconstructing world demand for its own products.  Moreover, the Shanghai composite index is now officially in a bear market, and Timmy Geithner wants Beijing to further appreciate the Yuan against the dollar in order to further America's export market in China.  Good luck with that fortune cookie.

Meanwhile, American economists continue to yawn at the prospect of a Chinese real estate market about to pop.  The herd mentality is that a country of a billion-plus people will keep aggregate demand growing, albeit at a slower rate, for years to come.  I believe some of these same economists made similar predictions about the American real estate market when the Federal Reserve tightened monetary policy in the winter of 2007.

China's biggest problems are internal.  Chinese workers are committing suicide because their savings are being eaten up by inflation.  Political unrest lies just beneath those workers graves.  Beijing will not let that happen.  They will slow domestic consumption at all costs.  When the dam bursts, American hedge fund and government pension fund managers will be self-inflicting their own dirt naps.

Welcome to globalization.