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Chimera in Great Reset

The Great Reset short video talks about the fate of Chimerica, the longtime dominant economic power involving two states - the United States
of America and the Peoples Republic of China.
According to this video, once Chimerica dominated the world
economy. This monster economy led the world by spending (US) and
saving strategy (China). The American economy was paying China with
many dollars while China, looking for a good place to store these
dollars, lent these back to US. However, as this course continued, the
US economy bubbled and eventually crashed. This hurt the monster
economy very much and caused the rise of four grim reapers namely:
the rising public debt, increased government intervention, creeping
protectionism and the rise of saving and the decline in spending.
Despite

what

is

happening, Chimerica lives

on

but

the

global

imbalances remain. The world, then, continues to witness this cycle of


bubble and burst. In this unwanted situation, Chimerica responds by
breaking up: US saves more and consumes less, while China spends
more but it is not able to replace that of US. The problem, however, is
when US demand freezes, Chimerica would be in an endless free fall.
This economic turmoil also causes social and political unrest,
threatening worlds peace and order and freezing international trade.
This leads to a question of how the world can survive the Great
Depression II, can be ready for the Great Reset or will see the end
of Chimerica.
The message of this video about the Great Depression II is, for
me, not anymore true these days and though I believe that there is a
reset in the global economy, Chimerica will still survive.
To

begin,

Chimerica (from chimera which

means

monstrous

hybrid) was termed by Niall Ferguson and Moritz Schularick in 2007

and used to describe the combination of the Chinese and American


economies forming the major engine of the world economy (Ferguson
2010). It is the combination of Chinese export-led development and
American overconsumption. For China, this financial marriage was due
to its potential to propel the economy forward by means of export-led
growth ; while, for US, the monstrous economy meant being able to
consume more, save less, and still, maintain low interest rates and a
stable rate of investment (Ferguson 2010).
Unfortunately, this symbiotic relationship was marred by politicsas state intervened, the invisible hand got distorted. Since Chinas
financial system is owned and managed by its one-party government,
the latter can intervene in the forex market and maintain control over
domestic money aggregates at the same time (Ferguson 2010). This
currency

intervention

led

to

vast

accumulation

of

dollar-

denominated securities in the reserves of the Peoples Bank of China


and the State Agency for Foreign Exchange (Ferguson 2010 p.4). By
2009, Chinas dollar reserves reached up to 12% of US GDP. In US, this
caused lower interest rates, thereby increasing consumption and
widening gap between savings and investment (Ferguson 2010). The
problem of housing bubble then existed in the American economy.
Facing decline in global demand, today, US private savings are
rising again in exchange for mounting deficits. Meanwhile, Chinas
economy responds by investing into domestic constructions and
infrastructures, thereby increasing domestic demand (Ferguson 2010).
These responses halt the Great Depression II but, yes, the video is right
for saying that imbalances remain- the American economy having
problem on trade deficits while, despite of increase in domestic
demand, Chinas surplus remains (brought by state policies of
subsidizing exports and taxing domestic consumption).
Nevertheless, statistical figures show that Chimerica, though
constantly predicted to fall, will still be the worlds superpower at least
for two more decades. With low labor cost, high saving rates and

competitive exchange rate, Chinas share in global GDP will continue to


increase. If Chinas economy growth rate continues to increase by
7.5% a year and yuan appreciating by 3% a year, it could overtake US
by 2020 (Piatkowski 2011). Meanwhile, the American economy, with
positive demographics, strong macroeconomic policies and flexible
labor markets, can continue to grow at a stable pace of 2.5% by 2025
(Piatkowski 2011). Also, though challenged, the prestige of US dollar as
the premier reserve currency will continue to allow it to borrow abroad
in low interest rate (Piatkowski 2011). Indeed, the global financial crisis
of 2008-2010 only hurt Chimerica in the short term, but the prospect of
growth still continues. Another probable reason is the changing
perception on capitalism of the Chinese people, at least the
intellectuals, paving a desire for greater liberalism and, consequently,
a chance for reduced state intervention.
In terms of international relationships, since according to the
social constructivism theory, just ones show of aggressiveness
stimulates others to retaliate, China would not want the international
community to go against it as its national interest is growth.
Furthermore , I believe, that in the international community today, a
hard-headed state would not remain to be such when economic
sanctions are already being imposed upon it as the world has already
witnessed its negative impact several times (as in the case of North
Korea). In addition, with US urge to impose tariff on Chinas exports
and the pressure from the international community, China would make
ways to protect its interest (i.e. through revaluation of its currency)
and, consequently, not necessarily intentionally, make the world a bit
far from the brink of another Great Depression. Hence, despite the
economic war of imbalances, the Sino-US relationship is likely to stay
peaceful at least on the surface of the international community.
With unexpected mishaps that can be brought by e.g. climate
change, policy change, and political conflicts, we will never know what

would exactly happen. But, as of the moment, the fall of Chimerica is


too soon to be anticipated.
Sources:
Ferguson, Niall. The End of Chimerica: Amicable Divorce or Currency
War?. US: 2010. Accessed February 22, 2013.

Piatkowski, Marcin. The Inexorable Rise of Chimerica: The Long Term


Scenario.

Warsaw:

2011.

Accessed

February

12,

URL: http://www.tiger.edu.pl/publikacje/TWPNo122_Piatkowski.pdf
(IwrotethispaperformyEconomics190.1classinUPDiliman)

2013.