I have often thought that international macroeconomics boils down to looking at all of the big nations that have some degree of economic flexibility, and are willing to make non-economic decisions for political purposes.  They drive the excesses in the global economy through their actions.

It is not as if their actions have no cost, but that the cost is realized later.  They get to impose their will for a time, but eventually their non-economic actions catch up with them, impoverishing them, and set the stage for the next set of actors to abuse their power.

Tonight, I want to talk about China.  Bloomberg has a great piece up about Andy Xie, former Morgan Stanley economist who posits that China will head into inflation because of their monetary and fiscal policies.  If true, it is my opinion that a bursting of a China Bubble will decrease demand across the world.  The world depends on a China with increasing demands for all kinds of raw goods.

My view is that China is stretching itself too far economically.  The powers that be chose too fast of a growth path, and inflationary consequences will come, and spread to assets in China, as well as Western nations.

In the long run, there is no free lunch.  No country can permanently force the rest of the world to do their bidding, whether that is buying up debt, or buying goods or services.  Eventually the terms of trade change, and either value is delivered, or trade collapses after a default.

Be aware.  The global economy could shift down dramatically if China has to slow down its economy because if inflation.

I never thought the deal where Sam Zell bought Tribune was fair, because it relied on the savings of workers in their ESOP [employee stock ownership plan].  Here is what I wrote in the past:

• Your Money or Your Job! (Or Both!)
• Tribunes are to Promote Justice among Common Men
• Tribunes are to Promote Justice among Common Men, Redux

Well, now Mr. Zell is getting sued by Tribune employees, and he deserves it.  Zell could not have bought out Tribune without the support of the ESOP, but his actions harmed the economic interests of the ESOP, and thus the employees.  Many will agree to anything if their job is threatened.  The semi-coercion plus failure will not work out well for Mr. Zell.

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And, speaking of not working out well, we have the NYT Op-ed on AIG.  I say good, let AIG, the Fed and the Treasury disclose what they said during the bailout.  We already know that many areas of AIG would have gone under without the bailout.  Though the Treasury Secretary has changed his tune on why AIG was bailed out, originally it was only and ostensibly for AIGFP, the derivatives subsidiary.

Let AIG and the Government reveal what they said  regarding the bailout.  The American people deserve to know it.