Economically, I think, in our country, our collective scrotums are being slowly cut at the top of its cage.
If life were a chess game, China is making two moves for our one. At its will, in its proper time, they could have the capacity and desire to stop buying our debt. They would still receive the interest owed by us on the large paper they already own. We would and must continue to pay the interest on such. National bankruptcy would not (initially) be an option.
Where would we get our new money from? The dollar would freefall. The Euro and Yen would peg down the dollar to almost nothing. With no buyers from our depressed printing press, we could not sell treasuries, unless we offered usurer interest, which again would increase our negative spiral. Inflation would be rampant. We then must cut our expenditures–military, health, infrastructure, funds for catastrophic emergencies, all amounting to hundreds of billions- trillions: and raise taxes just to pay past debt and meet our depleted national expectations. Social Security would collapse, unemployment would see levels beyond the 1930s. Consumer buying would cease. Corporate profits would be nil. Mortgages would not be paid. Homes would go without insurance. Local governments would receive a pittance from their r/e taxations. Local services would cease. Schools would close. Continued inflation would be unstoppable. Financials would be doomed. The climate of the masses within the world would cause the hawks here to send troops (low paid mercenaries) throughout the world, aided by a national draft- for both male and female. Marshall Law would be imposed. Police/fire persons would not be paid. Then looting. Each man for his/her self.
Those holding market indices would be selling apples or pencils on empty street corners.
The US would be vulnerable for a fascist or totalitarian takeover.
With luck, China will hold off until our personal demise, allowing just us, to die with our balls intact. But maybe not!
What then if they stopped buying our treasurys? Hmm.
Also, could they just lower their cost for their goods even more and sell to the rest of the industrialized world? Causing what the OP said could happen to the US?
It is only the consumer mad spending of the U.S. that is keeping Chian afloat. If they hang us out to dry, they effectively destroy their own economy.
Despite the opinion of some Chinese bureaucrat in a section of government that is not even pertinent to the discussion, I really do not believe that China has a death wish.
Apologies for the brief hijack, but may I ask for an explanation of the “cage” metaphor? It sounds fascinating, and I’d like to be able to use the expression properly in the future.
Aherm, this is Marshall Law and this is Martial Law. (Although admittedly it’s possible you meant the former as a way to “protect us from real bad stuff”.)
Guess I was speaking without using my head. I was looking for a word that was meant to incarcerate, surround, impound or mew the testes within the scrotum.
Hope it works for you.
And, here’s the more complete Wikipedia disambiguation page. Personally, I thought that the Marshall Law thing you linked to would somehow refer to Justice John Marshall, but that didn’t even merit a reference on that disambiguation page. (I guess because while the terms “Marshall” and “law” may go together in this context, they aren’t used in the phrase “Marshall Law”.)
I think that all the fuss about China is largely hype. Yes, the Chinese economy is growing at 12% a year, but it’s a very poor country to start out with (even now, its total GDP is only a fifth of that of the US, let alone the per capita GDP), and there are still large areas of poverty, particularly in the less-visible interior. Barring catastrophe, China will eventually have a first-class economy, but it’s going to be on the order of 50 years, rather than the impending disaster that pundits seem to predict.
So, first go after Uncle Sugar and then Japan when ranting. There’s approximately $8.5 trillion in debt, and China holds $350 billion, which is what 4% of the outstanding debt and less than 10% owned by non US government institutions.
Both China and Japan have watched the value of their US debt holdings plummet as their own currencies appriciate and the greenback falls. Both Japan and China have the US as their biggest trading partner.
The US by contrast is spending how much on Iraq? If you want to protect treasuries, I think there are better ways than going after the China boogey man in this instance.
Creating some resemblance of fair trade with China would be a good thing. The United States allows China to dump and export subsidized goods into the US market. The Chinese exploit US intellectual property and violate copyright laws. One of the most disturbing practices is China’s failing to reveal the true value of the yuan and refusal to pony up the yuan to the open market currency exchange rate. The Chinese have managed to keep the yuan artificially low, a practice that went unchecked for years.
China has surpassed all predictions of its economic growth and is currently the fourth largest economy in the world, quickly moving into number three passing Germany. With its current growth rate, some economists predict China will surpass the United States by 2050 others say 2020. Although figures seem to indicate a trend towards slower Chinese growth, the actual growth rate is probably much higher. China’s control of information doesn’t allow economists to calculate an accurate figure.
It is corporate capitalism that drives US trade policy. Americans are waking up to a new, economically powerful China that has been allowed to create its own rules while the US loses its global edge not only economically but in R&D, education, and health.
I do understand that this is a global economy and countries are economically connected, but that doesn’t negate China’s unfair methods of climbing to the top while the US passively allows it.
Now this I don’t understand, and maybe someone can explain it to me. If the yuan is being kept artificially low, that means that China’s subsidizing its export industries at the expense of its own people, who demand some foreign goods. (Pretty much, taxing its people to support its industries.) What that means for us is a larger consumer surplus, as we get goods at a rate cheaper than they can normally be produced. As I’ve explained in a previous post, economists believe that free trade, even with a country that subsidizes its industries, is beneficial, since the gains by the consumers outweighs the loss of the domestic producers. Why do people, including top advisors in both parties, believe that the devaluation of the yuan is a bad thing?
Darn you, China Guy, I wanted to ask the OP what his estimate of what percentage of US bonds he thinks China owns. Like people who think that foreign aid constitutes a large percentage of the federal budget because it makes it easier to criticize, I think most people who rail the most against China must think that they own like 40% or more of US debt.
I also think that there’s a lot of mispercentions about what trade means for countries, in that trade generally doesn’t mean that one country grabs the other by the balls, but that the mutually beneficial business of trade links economies together because buyers are as dependent on sellers as sellers are dependent on buyers.
It is really ironic that those who claim that China is “making two moves for our one” or “they see five moves ahead of us” simply can’t look beyond one move themselves: China does something to try to trash the US economy. Alllllllright, but what happens next? The Chinese export driven economy hits a wall, economic growth tanks, and the Chinese people who have enjoyed growing standards of living suddenly end up begging on the street. Seeing as how the Chinese people have been willing to tolerate a repressive government because it has brought economic growth, Chinese leaders certainly understand that the only real think standing between them and widespread rebellion is continued economic growth.
The undervalued yuan keeps Chinese products artificially cheap to encourage exports while causing American products to be too expensive for the Chinese to import. Instead of importing from the US, China produces goods for their domestic market. The US has roughly a $250 billion a year trade deficit with China which has become trillions over the long term.
The massive trade deficit with China equates to a lower GDP and lower economic growth for the US. In contrast, China has trillions in reserves, 75 percent of the reserves is estimated to be US treasuries, and double digit economic growth. China has money in the bank to invest and lend while the US is sitting on a $6 trillion debt. As China’s economy grows, the US economy shrinks, and the US is now a debtor nation.
I don’t understand how a massive trade deficit and debt is good for this country. Debt is a controlling force.
Are you one of those guys who thinks whenever someone buys a Honda, a little piece of America is permanently lost to the Japanese? This isn’t rocket science - trade is a two way street. If Honda makes a car that will do the job for $100 less than GM can, then buying a Honda frees up $100 of your Bush Pesos to be invested in the apple pie factory of your choice. If the evil Japanese manipulate their currency so that their cars are $200 cheaper than the American model, well that’s an extra $200 in your pocket that you can invest, maybe even in GM, courtesy of the Japanese. What’s not to like?
The real “problem” that Americans are lamenting is the extremely low rate of national savings, even compared to developed countries in the EU. Greenspan (or was it Bernake?) calls this the “Asian Savings Glut”, because you know, those inscrutable Orientals have learned nothing about money in their 4000 years of history, and anyways it’s always the 'furriner’s fault. The real driving force behind the economic development of most of the Asian “tigers”, Japan, and China is simply the fact that their national savings rate outstrips the US by a huge margin, giving their governments and corporations (the distinction is blurry in a lot of Asian economies) the capital to plow back into industries while Americans spend their extra $100 on spinning hubcaps.
America has always managed to win in the end because the US economic model of free markets and free trade is so much more robust than everyone else’s. Ask the Japanese how well closely-linked megacorps with incestuos ties to the government worked out for them in the 1990s. The US is still the center of global innovation. No one is even close to matching Sillicon Valley or the Eastern Biotech corridor, and the world’s brightest and best will always choose the US over anywhere else. There’s nothing to worry about.