I believe the US is more likely to enter into deflation, and possibly a double dip. The validation required for this to happen is when Chinese imports stops growing. The timing of which will affect the severity of the double dip.

Logic dictates that for an economy to raise it's exports, there must be markets who are willing to take it in as imports.

China, with the largest population in the world, contains the ability to pull everybody out of recession.

However, China's is at the moment is trying to cool it's red hot economy to a more sustainable level, as the country could be engulfed in the biggest bubble ever to burst in the history of economics. (due to it's large population) and unrest due to the disparity between the rich and the poor.

But if China's attempt to cool it's economy shifts to a point where by the level of imports is not enough to create growth in the US, the US will very likely enter into deflation.

From a strategical stand-point however, history, human nature of conquest, of being the best, it may seem to me that it is actually IN China's interest that US enters into a long bad recession. Much like US vs Russia during the cold war.

Warfare has developed to a point where it is no longer viable, or feasible. However, the modern economy I believe is the new battleground. Cynical as it may seem, anybody who've played a game on the world, ran a country, what is their ultimate objective? If not to bring prosperity and superiority to their own people and ultimately themselves.

Cynical as it may seem, the recent moves by the Chinese government to offload US treasuries, and to stress-test their otherwise healthy banking system for 60% drop in property prices, could be seen as a pre-emptive check, on the impact of a double dip in the US. http://www.chinadaily.com.cn/china/2010-02/18/content_9473134.htm

This opinion might be too far fetched, but an even more worrying and more subdue scenario is that China continues to grow just enough that the US do not enter into recession, thereby, preserving the integrity of the debt they hold, and over the next half of the century, milk the US.

Whether these come true or not, not really my concern, but I sense the financial crisis of 2008, signals the start of the next chapter of events that would change the world, and I feel excited by the thought of it.

Later.

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