Afterthought: What if the system really fails?

via WikipediaI have been rethinking my podcast with Paul Denlinger and some of the arguments he used. Although the financial crisis has not solidly arrived in Europe too, and Asia might be next, I still had not taken all the alarm signals that serious. Too much I still saw the crisis as a US problem, where its citizens have been living beyond their means for a very long time. In both China and large parts of Europe, that was not the case. But that is not where it ends.
In the past the argument was that a decline in US economy could actually work out beneficial for the Chinese economy as the need for more affordable goodies might actually increase the demand for China's export products.
The problem is of course that when the financial system is no longer guaranteeing letters of credit, nobody can buy that stuff, even if the market might need it.
I see the same thinking mistake in the European media, now here the banks are in heavy weather. They go to real estate expositions and ask the potential house buyers if they would still do it. Unfortunately, that question is less relevant if the banks no longer provide mortgages.
Maybe I should drop some of the pathological optimism when I think about China. Yes, it might still have a solid economy and yes, it is probably partly shielded from the impacts of the financial crisis. But when this structural change is heading for a collapse, the problem might be different from what I thought it was.
I realize that government and central banks have used that mantra of the systematic challenges for the financial infrastructure. Maybe I should take them more serious.

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