The+End+of+Chimerica

//For the better part of the past decade, the world economy has been dominated by a world economic order that combined Chinese export-led development with US over-consumption. The financial crisis of 2007-2009 likely marks the beginning of the end of the Chimerican relationship.// == = = =The End of Chimerica=
 * Published: || December 16, 2009 ||
 * Paper Released: || November 2009 ||
 * Authors: || Niall Ferguson and Moritz Schularick ||
 * Full Working Paper Text [[image:http://hbswk.hbs.edu/images/site/ico-pdf.gif width="16" height="16"]]

Executive Summary:
For the better part of the past decade, the world economy has been dominated by a unique geoeconomic constellation that the authors call "Chimerica": a world economic order that combined Chinese export-led development with U.S. overconsumption on the basis of a financial marriage between the world's sole superpower and its most likely future rival. For China, the key attraction of the relationship was its potential to propel the Chinese economy forward by means of export-led growth. For the United States, Chimerica meant being able to consume more, save less, and still maintain low interest rates and a stable rate of investment. Yet, like many another marriage between a saver and a spender, Chimerica was not destined to last. In this paper, economic historians Niall Ferguson of HBS and Moritz Schularick of Freie Universität Berlin consider the problem of global imbalances and try to set events in a longer-term perspective. Key concepts include: //.//
 * The financial crisis of 2007-2009 marks the beginning of the end of the Chimerican marriage of convenience. The end of Chimerica is desirable, though the divorce needs to be amicable and its costs kept down.
 * Currency adjustments must become a top priority in the international political debate. The world economy's key structural imbalance is that the second-biggest economy in the world has pegged its currency to that of the largest economy at a strongly undervalued exchange rate.
 * A policy of Sino-American competitive devaluation at the expense of U.S. allies in Europe and Japan is politically shortsighted and dangerous for global trade.
 * A renminbi revaluation would help the reorientation of the U.S. economy and potentially allow a quicker exit from the extreme policies currently being implemented by the Fed and the Treasury, which carry uncertain risks for the inflation outlook, global liquidity, and capital flows.
 * A renminbi revaluation would also solve at a stroke the problem of China's excessively large international reserves and dollar exposure.
 * Historically, periodic exchange rate revaluation has been the hallmark of economic success. It is time for China—and its currency—to step up.