China Sends Bubbles to North America

In the past year, a huge amount of money has been flowing out of China. In the past, when this happened, it was because the Chinese central bank was buying foreign assets. But this time the People’s Bank of China has been selling foreign assets -- it’s China’s citizens and companies that are sending their money overseas.

This probably indicates that rocky times are ahead for the Chinese economy. People have some reason for wanting to get their money out -- either they’re worried about losing their investments in a China crash, or they’re betting on the depreciation of the yuan. Either way, we can probably expect more sluggishness or outright recession in China during the next year or two. That will inevitably have some sort of negative effect on the U.S., Europe and other rich economies, through decreased imports from developed countries and losses on the balance sheets of banks in rich nations.
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