As we approach 2010, it’s amazing and scary to think how close the world came to another Great Depression. For my money, that was too close for comfort. Although the global economic recovery is still fragile, at least we’re recovering.  With the New Year approaching, there are a new set of indicators to pay attention to. Top on that list is China. I’m not that concerned with China holding close to a trillion dollars in reserve, since selling dollars wholesale would certainly be mutually assured destruction for the U.S and China. What concerns me is U.S unemployment staying at high levels next year and the congress looking for scapegoats.

If we allow China to become the scapegoat, and this theme starts to catch on with members of Congress, we’re going to have problems. Next year, pay close attention to the debates being held in Congress and see if any anti-China legislation starts to gain momentum. Of course, China’s currency policy is manipulative and needs to be reformed. But telling one of your largest creditors what to do, well, that just isn’t going to work. Whether we like it or not, the Chinese finance minister is our lender in chief. How we allowed our country to get so deeply in debt and become a debtor nation instead of a creditor nation is a story that will be told for generations to come. But it is what it is, and right now, China has the upper hand.

Here’s my main concern next year. Congress decides to punish China for manipulating there currency. At the same time, Congress also wants to take the heat off of them, so they allow legislation like this to gain traction. Eventually they’ll turn our rightful anger for decades of economic mismanagement against China. China, being a proud country and realizing they hold most of the cards, calls our bluff and starts making large dollar sales to retaliate against our policy. This causes a run on the dollar of a magnitude we have not seen in our lifetimes.

In this hopefully unlikely scenario, exchange controls in the U.S get put into motion immediately and all citizens are unable to move any money outside of the U.S.  This exchange control law was beefed up during the Bush administration Patriot Act debate.

Playing offense means you have a small nest egg of money invested outside of the U.S. This is absolutely legal and above board. The law states you must report all foreign bank accounts to the IRS, which you do when you prepare your tax return and the law also states you need to pay income tax on all money earned globally-check.

We are living in unprecedented times. Are the odds of this scenario happening likely? They’re not. But why do we buy life insurance? Why do we buy homeowners insurance? In the event the unlikely happens, we’re covered.

Next year, pay close attention to the rhetoric coming out of Washington. If you hear signs of China bashing getting louder and more mainstream, call me and we’ll discuss how best to play offense.