When he coined the term Chimerica in 2006, Niall Ferguson was refering to a mutually beneficial relationship: cheap money from China and wild spending from America.
But recently he has called for the end of Chimerica — seeing as America’s economy sucks and China looks a lot like bubble.
Published this week, his latest paper shows how insane fiscal policy in China created the monster.
Good for U.S.: 'Simply put, because Beijing keeps the exchange rate fixed, the dollar cannot devalue against China (and other parts of Asia) despite the large U.S. trade deficits. This makes it impossible for the American economy to earn its way out of the slump.'
Good for China: 'In brief, the sooner China faces the fact that it cannot avoid sizeable losses -- say about 20 per cent of GDP in renminbi terms -- on its dollar reserves, the better. These financial losses will be a modest price to pay for a development model that propelled China from Third World status to an economic powerhouse in less than 15 years...'