The Debt Bomb: The U.S., Europe and Now … China? (Folha, Brazil)

Jul 19, 2011 by WILLIAM KERN (Worldmeets.US)

Is the last shoe in the global debt crisis about to drop? Folha columnist Patricia Campos Mello writes that with a possible slowdown on the horizon and a municipal debt crisis that may amount to 30 percent of China’s GDP, the ‘bond buyer of last resort’ for both America and struggling E.U. countries may no longer be capable of coming to the rescue.

For Folha, Patricia Campos Mello writes in part:

It is now emerging that local governments in China are laboring under excessive debts that may reach 30 percent of the country’s GDP. The Moody’s credit ratings agency recently warned that Chinese banks are weighed down with debts they are unlikely to collect on and which were underestimated in the official accounts. This surge of lending followed official guidelines to accelerate infrastructure projects after the 2008 financial crisis and to prevent the country from falling into recession.

Fear is running up the spines of many analysts – are we again facing a nasty surprise that could trigger another crisis of catastrophic proportions?

In the U.S., China has been the largest purchaser of debt for many years. In Europe, it has emerged as the bond buyer of last resort for countries like Portugal and Greece that are virtually broke. If the slowing of the Chinese economy is chaotic and its municipal debt crisis becomes a horrible surprise, there goes the white horse.

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