Structural imbalances:

1. US-China: China keeps the Yuan pegged at a low price against the Dollar; this encourages the US to buy Chinese goods; in turn China buys US bonds ($850 Billion) which keeps the yield low and this allows US interest rates to remain low, increasing consumption of US goods.
The US is increasingly resentful of the damage the above is doing to US jobs and reacted in the following ways:
•	Started QE2 to devalue the dollar
•	Congress has branded China as currency manipulator and will put more tariffs on Chinese goods if the Yuan doesn’t appreciate 
•	Recent tariffs increased on: Tyres, Aluminium, copper tubing
China has:
•	Allowed the Yuan to appreciate: 2.5% since July
•	Has retaliated against US tariffs by placing tariffs on US poultry 
•	Started to buy a lot less US treasuries (but unlikely to sell them…yet)

2. European (and Dubai) sovereign debt crisis (will talk about this later)
3. Ongoing concerns about bank capitalisation (will talk about this when we get on to monetary policy)
4. Flow of capital form QE issuing states to emerging economies and commodity economies (Australia, Canada, New Zealand)
The flow of capital is causing the following problems:
•	Speculative bubbles in property and stock markets
•	Rising inflation
•	Appreciation of currencies which all can damage development and growth?