The global financial crisis and China’s economic security

YANG Bin (杨斌)
Institute of Industrial Economics, Chinese Academy of Social Sciences
Abstract:
As financial derivatives have exploded like bombs, one after another, capital injections by the U.S. and European
governments are becoming gradually ineffective. These rescue measures will fail to reverse the banking crisis, and even worse, may plunge the global economy from deflation into a cycle of inflation during recession. Ultimately, economic collapse and hyperinflation may occur simultaneously. In response to this grave possibility, China should unite other stakeholders in demanding the U.S. government strictly distinguish two kinds of debts in its rescue package: The first are bonds such as U.S. pension funds, 3A grade bonds issued by Fannie Mae and Freddie Mac, and U.S. government bonds held by other countries. These are creditor’s rights, which should be guaranteed with top priority. The second kind are debts deriving from the speculation of financial institutions such as highly leveraged derivatives, which have reached astronomical figures. Attempts to rescue such bad debts will only lead to hyperinflation.
Key words:
Financial crisis, financial tools, inflation, economy safety

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