The Vicious Cycle

My buddy JD turned me onto Thomas Friedman's book, "Hot, Flat, and Crowded". This is a great excerpt:

"At its core, the China-America growth engine worked like this: We in America built more and more stores, to sell more and more stuff, made in more and more Chinese factories, powered by more and more coal, and all those sales produced more dollars, which China used to buy more and more U.S. Treasury Bills, which allowed the Federal Reserve to extend more and more easy credit to more and more banks, consumers, and businesses so that more and more Americans could purchase more and more homes, and all those sales drove home prices higher and higher, which made more and more Americans feel like they had more and more money to buy more and more stuff made in more and more Chinese factories powered by more and more coal, which earned China more and more dollars to buy more and more T-bills to be recirculated back to America to create more and more credit so more and more people could build more and more stores and buy more and more homes . . .This relationship, so critical in inflating the post–Cold War credit bubble, was so intimate that when Americans suddenly stopped buying and building in the fall of 2008, thousands of Chinese factories went dark and whole Chinese villages found themselves unemployed."