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William Pesek

Bad Loans Could Bust China

The real threat to the world economy isn't a stagnating Europe -- it's China, where bad loans threaten a catastrophic bust. 

The risk of what Nobel laureate Paul Krugman calls "Japanification" -- a semipermanent economic funk -- has haunted China for at least a couple of years now. Last week a Bank of America Merrill Lynch report again asked, "Will China Repeat Japan's Experience?"

Let's dispense with the suspense: Yes, China very likely will. And the outcome will have far more serious global implications than Krugman's main worry, which focuses on the chances of stagnation in Europe.