Posted by: Tony Carson | 16 November, 2009

Chimerica is chimera

It was called Chimerica, the uniting of China and America to make up a third of the world’s economy on 13% of the planet’s land.

It was the sweet confluence of production and consumption: China made, America bought:

Thanks to the Chimerican symbiosis, reports Niall Ferguson in the NY Times, China was able to quadruple its gross domestic product from 2000 to 2008, raise exports by a factor of five, import Western technology and create tens of millions of manufacturing jobs for the rural poor.

For America, Chimerica meant being able to consume more and save less even while maintaining low interest rates and a stable rate of investment. Overconsumption meant that from 2000 to 2008 the United States consistently outspent its national income. Goods imported from China accounted for about a third of that overconsumption.

The financial crisis since 2007 has put the marriage on the rocks. Correcting the economic imbalance between the United States and China — the dissolution of Chimerica — is now indispensable if equilibrium is to be restored to the world economy.

In essence, Chimerica constituted a credit line from the People’s Republic to the United States that allowed Americans to save nothing and bet the house on … well, the house.

It appears the day of reckoning is at hand. The full story is here.

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