Thursday, September 17, 2009
For decades, China produced goods for American consumption. Now that Americans are losing their homes and jobs at record rates, while defaulting on their credit cards, who has the wealth to consume China's goods and keep their manufacturing industry alive?
People argue over why China still loans money to the U.S., though at a decreasing rate. This is because China must do the best it can to keep the U.S. buying their products while they create jobs for their population that do not rely on foreign economies.
- U.S. imports are collapsing.
As the dollar loses its purchasing power, the amount of goods we can purchase from China decreases also. This means Chinese factories creating goods to be exported to the U.S. will begin closing as they lose business, resulting in higher unemployment for Chinese migrant workers. The chart above shows the amount of U.S. imports in millions of dollars from China and ends at July 2009. Wait until the graph is updated to include this fall (the dollar has weakened substantially in August and September) and winter. *Track the dollar index here.* - The Chinese people are savers.
The average household savings rate of the Chinese is about 30% of disposable income. In 2005, 2006, and 2007, the average U.S. household saved 1% of disposable income.
Since the economic crisis of 2008 and 2009, Americans have begun to save, "reaching 6.9 percent of after-tax personal income in May, the highest rate since 1992."
Changing the traditional belief in savings for the Chinese will not be easy and will take time. Remember it took time to outsource America's manufacturing to China while encouraging Americans to be "consumers." "Spending by Chinese households as a percentage of GDP is roughly half the US consumption ratio and remains significantly below private spending levels in Europe and Japan." (China's Consumption Challenge) - The Chinese economy is not as strong as it seems.
CNBC would have you believe that China is the "new America." That China will build up a financial system that creates wealth comparable to Wall Street's peak. Well I'm not buying it. It seems the world "elites" do not want to allow any nation after America to prosper to the extent of becoming a superpower like America was. We see the push for global governance of the financial system including more regulation and worldwide deindustrialization using "global warming" or "climate change" as the cover. It looks like a general push to force all nations to give up their sovereignty in order to support a world government intent on limiting growth of human population to a "sustainable level." Besides all that, it's not only the U.S. trying to stimulate our economy, the Chinese are trying to stimulate theirs too.
Though China's 4tn yuan ($580bn, £352.7bn) economic stimulus package is much more sensible than the U.S.'s, it still proves that China is suffering from the effects of a worldwide economic collapse. Plus, opponents of the stimulus package argue it only addresses infrastructure necessary to remain an export driven economy while neglecting the domestic population. In other words, it's a temporary solution that is betting on U.S. and world consumption to return to pre-collapse levels. This will not happen anytime soon.
I do think China will be the most successful nation economically in the future, but it is too early to bet the house that they will survive a collapse of the U.S. dollar. - A sudden U.S. dollar collapse could devastate China.
As the U.S. Dollar toes the edge of the cliff (must read), China (and the world) might get caught off guard and be severely affected by a sudden collapse of the U.S. dollar. China still has over $1 trillion USD in reserves. Although they are stockpiling vast amounts and types of raw materials such as gold, iron ore, other industrial metals, and agricultural commodities, $1,000,000,000,000 is still a lot of money to lose in a hyper-inflationary collapse of the USD.
Besides, the world powers/banks can push for a new global reserve currency all they want but time is running out. Do they have a system ready to replace an ancient USD based financial system? How fast could the world powers come to an agreement on any plan if the beloved US dollar was to collapse suddenly?
This is why I can't see China "wishing" the U.S. would just collapse already. If it was like that would they still be funding our adventures in the Middle East, South America, and within our own banking system? - China risks revolution.
The Chinese people are already restless because of human rights issues and unemployment. A second wave of unemployment caused by China losing more manufacturing jobs due to disagreements with the U.S. will jeopardize any stability their government currently enjoys. This is why I think the Chinese are doing their best to be tough on the U.S. debt problem while trying to build up their domestic economy as fast as possible.The current wave of layoffs affects a young and vibrant cohort most capable of carrying violent collective action against the state. Without any systematic triggers, we at least will see a spike in localized riots which necessitate the mobilization of People’s Armed Police (PAP) units all over China. The central government would also be compelled to (and they are doing so already) roll out generous unemployment benefits for migrant workers and college graduates (to the tune of 300-400 billion RMB). If a systematic trigger occurs and instability spreads to a sizable city, we will see the large scale mobilization of both PAP and army units and possibly substantial bloodshed. In most scenarios, the CCP regime would still survive a large scale, cross regional rebellion. However, “overall investor confidence” will be lost.
What is the “systematic trigger” which I refer to? I don’t know exactly what it would be. However, if we look back in history, it can be a wide range of events, including the death of a popular leader, a serious natural disaster, the spread of a deathly infectious disease, a small student demonstration turned violent, religious groups… (more)
High and sudden unemployment could easily be the trigger for social revolution in China.
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JAY: Are you really 20 years old? Well, whatever age you are this is magnificent stuff and I've got to get you and Marc together as Facebook friends as soon as possible. This is so good, he might hire you now!
I hadn't focused myself on the GDP issue in China as much as the USD peg, the US government securities held by the PRC government but also don't forget there are tons of very wealthy business and financial interests in Hong Kong and Guandong and Shanzhen (sp?) who have also sopped up all that USD liquidity and lent it back at shitty carry,
From that perspective as well as from a manufacturing export perspective, China is stuck with the USA and is dependent on this current USD which still has way too much air in it. They can be junkies and try to keep staying high one day longer and one day longer continually sopping up the fiat money and theb squeezing back out buying US Treasuries until NATURE cries "Uncle!".
Or they could adopt a slow steady policy of voiding themselves of the US Debt as they come to some decision on their own currency: Float, Stay USD-pegged, Switch to SDR, or arrange a Ruble/Rupee/Dinar/Tenge/Hryvna kind of weighted basket as all those countries have discussed together [EXCLUDING THE USA ha!]
It's a bad situation all around. My view is that prudence is best. It looks to me like that's what the PRC govt is doing. Cutting back on the lending, letting old stuff expire, making probe sales into the swaps markets etc.
With the EVIL EMPIRE OF THE USA you cannot do anything sudden or of your own free will!
Venezuela has the same PEG/US CREDITOR problem. The Bolivar is linked at like 2.4/$ or so. And for all the propaganda about Chavez they sure don't mind it when he lends the US Treasury money! Because the USA seems on a permanent war footing and is so dependent on air travel, Chavez who has a huge portion of the world jet fuel market locked up, does have some leverage of a different kind with the USA to DEMAND that the value of their Treasury holdings be protected. In the end, no one tells the USA what to do.
I agree with Celente and Marc and all those guys, this situation is NOT SUSTAINABLE. By accident, it could crack tomorrow if for example another natural resource ecconomy like Chile or Norway had to sell alot of USD or T-debt. And if they do it quickly into the ICE, everybody will be selling dollars as fast as possible and Uu and Chavez won't have the luxury of waiting because they don't want something worth 3c that they paid par for.
At any rate, VERY FINE WORK. Friend me on FB and I'll send you a letter of introduction to accompany your friend request of Marc.
--Brom Keifetz
This is what I've read many times and I still don't understand the logic.
Imagine you have a pub and among many guests there are some, which takes a food and they are not paying, they just issue IOU. It goes on and I ask you how long are you going to receive IOUs. I believe after some weeks you will realize it is better for you tell them don't show here again and you will rather throw away all those IOUs then cook another meal for another IOU.
So I think there will be some tensions, but Chineses don't need Americans, they will be better without cancer.
Hey Jay! Hope you're doing great. Re: your post - Well thought out, and I sure hope you're right.
KELSO: Don't give me a big head lol
Just looked up carry trade currecies and found this:
http://www.zerohedge.com/article/usd-lays-claim-being-top-carry-trade-currency-ft
So it's using a cheap currency to buy riskier, but more profitable assets?
Now I know what that LIBOR ticker on CNBC means!! lol
And you know the U.S.A. isn't going out without taking the world with it...
And I did see that China said it will allow defaults on oil derivatives?
"like Chile or Norway had to sell alot of USD or T-debt. And if they do it quickly into the ICE, everybody will be selling dollars as fast as possible and Uu and Chavez won't have the luxury of waiting because they don't want something worth 3c that they paid par for."
What's ICE?
And I sent you a friend request.
Thanks KIT. Good to see you back in the blogging game!
stibot: I do think the Chinese will get out sooner or later. Maybe their waiting until the U.S. causes its own collapses. If it takes too long then maybe they will say enough. They could say "enough" slowly. Who knows? And watch the video in the middle of the post on China's relation to the U.S. consumer. We really are in it together atleast for now.
So I even installed flash player but video is not available for foreigners :-)
Perhaps it is this one.. Outsourcing Unemployment: Vanguard
Jay,,, good analysis. There are several fundamental problems to keep in mind. The West spent the last 60 years inventing labor-saving devices and, at the same time, tried to keep full employment. It didn't work, so U.S. GOV borrowed 80 % of the savings worldwide. 50 % of Americans depend directly or indirectly on a check from GOV.
The whole world has far too much manufacturing capacity. Capitalism, in it's brutal quest for efficiency, tries to eliminate as many producers as it possibly can. In doing so, it shrinks it's pool of potential (solvent) consumers. High unemployment is going to be a constant. The "machine age" produces more and more with less and less human involvement. I don't see any cure for unemployment. Dan
Yes stibot thats it.
MYSELF: interesting point. That could be why the Financial sector has to grow and be more and more creative to make up for losses in real industry?
Jay,
Nice post, indeed.
China leveraged many of the jobs from our country when we signed the trade policy in 2001.
This forces everyone (the regular, working, people) into competing with their wages, basically.
But everything is askew and it seems this policy of "free trade" is enriching the very Elite and making most everyone else poor as hell. Middle class is disappearing and we are morphing into the Haves and Have Nots.
However, there is a small, but lethal caveat, in that, China put much of its eggs into one basket (the US Dollar). So, yes, there is potential ruin for them if we fail.
But they are already hedging their bets and taking over the precious metals as best they can.
I believe that there will come a time in the very near future that China and several other countries that we "depend" upon to service our needs (for they don't just sell us shit anymore).
They are capable of providing for themselves. We aren't.
Eventually they will pull the plug and then we are truly fucked.
Hyperinflation will hit and we will not be able to provide shit for ourselves and there will be starvation.
We need to stop this form happening somehow and get back to a sane, balanced economy with our own competitive manufacturing... played on level playing fields.
I fear it is too late for that.
BuelahMan: All the things we should have learned like growing our own food and simple survival skills will come back to haunt most of us. SUCKS
im with Kelso. I would like to add that the juan is a lot more problematic, especialy since u consider the cost of raw matrials around the world, that china needs to continue thier prosperity. just a thought
great post folk
All the things we should have learned like growing our own food and simple survival skills will come back to haunt most of us.
Funny you should mention such:
http://buelahman.wordpress.com/?s=wicked+garden
I write about this self-sufficiency thingy often. I CAN grow my own and am doing so as I write this. I have a freezer full of food and am trying to take the freezer off grid and power it with solar.
I can skin a buck and run a trot line (as Waylon sang in one of my posts).
I have an advantage over many people when it comes to "living off the land", because I grew up in the country farming and hunting.
There are too many folk that don't have a clue about these things and if the shit gets rough, they are fucked.
Dr Stephens once pondered about how inner city folk will be forced to go into the country and take shit.
THIS is where the problems will truly emerge if they come to my place.
I will feed folk, but don't take my shit unless you can take a 30-06 at the same time.
Some damn good info man. Recently got into the whole "economic crash" shit. oh boy ....
keep up the blogging brotha' man