Why China is so Important

This is from Calculated Risks Blog. Interesting Points.

GDP in the U.S. is now contracting, and imports are falling and the trade deficit is shrinking. And as foreign CB invest less in dollar denominated assets (and also try to stimulate their domestic economies) this could lead to higher interest rates for intermediate and long term U.S. assets. As I noted in 2007, the result could be a vicious cycle with higher intermediate and long term rates further depressing the U.S. housing market and consumption.Although this is very speculative, higher intermediate and long term interest rates in the U.S. for a short period wouldn't be helpful during a recession. This is something to think about as the Chinese economy slows ...