Aftershock: Protect Yourself and Profit in the Next Global Financial Meltdown, 4th Edition

CHAPTER 7 Global Mega-Money Meltdown It’s Not Just America’s Bubble Economy—It’s the World’s Bubble Economy

A popular fairy tale gained favor in early 2008, proposing that the rest of the world, especially China, had magically “decoupled” from the naughty U.S. economy. The idea was that regardless of whatever foolishness and financial problems we happen to get ourselves into here, China (and to a lesser extent the other emerging markets) would continue to be a reliable hotspot for investment profits. Even more magical, these burgeoning economies might actually help buffer the rest of the world, and even the United States, from the full impact of the U.S.-led recession.

Unfortunately, by the end of 2008, it became fully evident that this decoupling myth could not be further from the truth. It was just another failed attempt at wishful thinking and economic cheerleading. In fact, when the U.S. housing bubble, stock market bubble, private debt bubble, and discretionary spending bubble all began to burst in late 2008 and 2009, the speed at which the rest of the world fell into deep recession was staggering. In the fourth quarter of 2008, gross domestic product (GDP) in the United States declined by 6.2 percent on an annual basis; in the United Kingdom, it declined by 5.9 percent; in Germany, GDP declined by 8.2 percent; Japan declined by 12.7 percent; and South Korea declined by a staggering 20.8 percent.

Both Germany and Japan had accelerating declines in the first quarter of ...