There are more news reportsÂ that the Chinese government has invested too much money in low productivity state owned enterprises. These SOEs probably offer kickbacks to the politicians but they are unlikely to yield Facebook or Google style profits.Â As these SOEs lose money, who pays for these bad loans?Â Â
I can imagine that if the losses are large enough that China will sell a few trillion dollars worth of US Treasury Bills or not roll their money over again when the existing bonds mature and U.S interest rates will rise sharply.Â How much will U.S interest rates rise to attract alternative capital to purchase them?Â Â Â How will this rate rise affect home prices? How will declining home prices affect rising foreclosure rates?Â General Equilibrium is an exciting field!
On an unrelated point, hereÂ is a cross-post on the job costs of individual states introducing carbon cap & trade legislation.