The Crisis That Didn't Happen

Back when George W Bush was President, I thought the United States of America was headed for an economic crisis. Specifically, it seemed to me that global capital flows involved water flowing uphill in an unsustainable way. Rather than households in rich, slow-growing America saving money and investing it in risky, high-return China we had households in poor, fast-growing China saving money and investing it in the low-return USA. It didn’t make sense, and it wasn’t sustainable but it was happening. One result of this trend was that Americans were basically getting free manufactured goods. Like manna from heaven, Asian manufactured goods were falling on our shores without us sending stuff back to Asia in return. Consequently, workers who otherwise would have been employed making things were able to spend their time building houses. It was in some ways a magical time, but it was clearly built on an illusion. At some point, the backwards river of Chinese capital would stop flowing. In principle, the flow could have slowed and reversed gradually, but things had gone on for so long that a sudden stop and quick switch were most likely.