- Demand for Chinese crap drops
- Housing tanks, so Fed holds or drops rates
- Dollar tanks
- Imports from China get more expensive
- US inflation roars
- Demand of Chinese goods drops even faster
Well, then what becomes of China? And do we trust evil clueless corrupt communists to run what has become one of the biggest capitalist economies? Here's one view:
The Chinese economy reminds me of the movie Speed, where Dennis Hopper wires a bus with explosives and sets them to blow if the bus goes slower than 50 miles per hour.
The Chinese economy has 1.2 billion unsuspecting people on board. It could all blow if economic growth drops below its current pace of more than 8 percent. Even a small, otherwise harmless speed bump is likely to send this gigantic economy into a severe recession.
Though a pop in Chinese bubble is unimaginable to many, the same way as collapse of Japan and fifteen year recession that followed was unimaginable in late 80s. It is not a question of if but more of a question of when the Chinese economy will cross that metaphorical 50 miles per hour mark and falling into the deep abyss of prolonged recession and very possible deflation.
China is living through one of the greatest historical bubbles. Books will likely be written to describing its ridiculousness, but as always, they'll be written after the fact. Here are some suggestions for the book titles: The Chinese Conundrum or The Great Chinese Bubble or Irrational Exuberance.
22 comments:
My hero, Tank Man.
it's tough to say what would happen. I heard the chinese save 40% of their money and a lot of them don't have checking accounts. so a lot of their money is safe at home, most likley. I heard many loan their money out on the black market, so, we'll see.
my hero too
So...
dood...
If demand from Chinese goods drops, the prices go up?
Refresh my memory, if demand drops, what happens with prices? Isn't that what is going to happen with housing prices?
Sounds like general deflation to me, not inflation. Sure, you'll get kicked in the nuts on your house, but you can buy cheap trinkets from China.
prices first go up, then demand drops, inflation followed by eventual deflation. perhaps even american made goods find their way onto the shelves again as foreign goods become crazy expensive
I suggest this cycle finally reverses the trade imbalance
What happens? The US sells Ohio to China, that's what happens.
Oh yeah, and the Chinese economy goes...pop!!!
amen, the huge risks of investing in those strange and far off lands (like China) does not warrant the tiny real dollar reward that most joe schmoe investors receive in return. all these small time schmucks who crow over their 30% yoy returns on emerging markets funds are going to be sucking wind in a year as their profits and then principle evaporate into thin air or in the case of China - get turned into a red mist like a prarie doge getting slugged by a 30/06.
Also, you cannot trust any information about the Chinese economy because they are rife with corruption and cooked numbers (more than the US even). We have no way of knowing what is really happening there economically, it could all be a house of cards waiting to fall.
Sounds like the US.
If demand for Chinese goods drops in the U.S., The Chinese will try to flood other markets. They were willing to loan money to U.S. consumers to spur demand, so what's to say it can't work elsewhere?
Bernanke has stated flatly he will not allow deflation in the U.S. economy. It would destroy the banking system and probably lead to a civil war. They will inflate their way out of this mess and China, Japan, and Korea will help.
The Chinese are growing sufficiently fast that their own domestic sector will provide plenty of new demand.
Also, because of the 1-child policy, their population growth is much lower and hence the 10-11% GDP growth is all that more astounding.
The difference of US GDP growth to Europe's is almost all explained by higher population growth in the USA.
I.e. despite all the crowing about capitalism vs socialism, the US isn't doing that much better. And of course the average person is getting screwed. Median income (inflation adjusted) is DOWN, after a multi-year economic expansion. I think this is unprecedented in the history of the USA.
In China, their 'recession' will be 6% GDP growth. Do not worry about them.
They will not let the yuan float if it will result in unemployment at home, and they will not let the yuan float until US industrial capacity is fully annihilated.
We'll be buying cheap crap to our doom.
China's "explosive" growth is no different than the "explosive" growth of the smaller Asian Tiger economies of the 70's,80's and 90's.
The ONLY difference is that China is a way bigger country than the smaller "Tigers" and hence will ultimately have a much greater impact.
China, unlike Japan, is in the very beginning of developing their infrastructure. They have a LONG way to go and a LOT to get busy with.
I trust that China can spend the next decade or two developing their internal economy and do just fine without the US, or even Europe if need be.
Thinking that China absolutely positively NEEDS the US or that they will wither without us is just another example of American self-absorption.
Did we help kick off China's fantastic growth? Yes.
Was US policy toward China the catalyst for China's explosive growth? Yes.
Was it a good deal for China while it's lasted? Yes.
Will there be some temporary pain as China adjusts to a world without us? Yes.
Do they need us forever? No.
Long term, we need China more than China needs us.
We ourselves set that model up during the 80's and 90's with misguided thinking about who we were actually dealing with when it came to China.
We stupidly assumed/fantasized that China was yet another third world country that our politicians and businessmen could control to our own benefit.
We never bothered to take a look at what China has REALLY been all about for the past 5000 years- a self-centered, self absorbed greedy, culture that rivals our own in those aspects.
For thousands of years China considered itself to be the "Center of the World". And, as far as it's OWN corner of the world was concerned, it WAS the center. China was/is the "mother culture" for all of East/SE Asia, exporting language, religion, food, ideologies, political systems, educational systems, everything that we call "culture", to those other countries.
When the west and Japan went industrial and overtook China in modernization, it was a massive culture shock for the Chinese.
They had sat deluded in their own greatness for the whole of the 19th century while the rest of the world evolved beyond them.
Does this psychosis of "cultural delusion/superiorty" sound familiar to any Americans out there? I believe we call it fiddling while Rome burns. The Chinese did it in the 19th century and WE are doing it now.
The shock of being overtaken by cultures and countries that the Chinese had ALWAYS felt were their inferiors was so massive that it led to a Communist Revolution, a system totally antithetical to the traditional "my family first and screw the rest of you" traditional Chinese mentality.
Since that time, China has been chaffing at the bit to re-establish itself as the worlds' superpower.
Unlike the Romans/Spaniards,etc. of yesteryear,they have never gotten over their loss of percieved superiorty.
They will beat us hands down at our own game.
We have noone to blame but ourselves as we set up all the rules, CONFIDENT that we would "win" because we were simply too deluded about our own greatness to take a close look at who/what we were dealing with.
"And do we trust evil clueless corrupt communists"
Hey Keith - you get a deal on white hoods??
Um... I don't think you people realize that China has the US by the short and curlys...
Essentially, China has nearly a trillion US dollars and is purchasing US treasury bills on a monthly basis. Do you understand what that means?
ok... lemme eksplain a few tings...
Every day, Uncle Sam requires X billion dollars to keep the country going (where X is some number between 4 and 12). This pays for everything from sewers to the war in Iraq. Now... X-2 billion dollars comes from American taxpayers. But where does the other two billion come from?
Well... that's the cute part. Essentially, the Chinese LOAN you that money by buying US bonds, treasury bills, etc... with interest of course.
Now... The Chinese are holding BILLIONS of dollars worth of what is essentially... American debt. This is the money you owe to the Chinese - which they EARNED by selling you all of the stuff marked "Made in China".
Now... in order for the Chinese to squeeze the US - all they have to do is stop buying your debt... (maybe purchase more oil in Iran) and wups - no more money for roads, doctors, schools or anything else that's not critical.
But in the end... you still have to pay all that money back one day. That trillion which the Chinese are sitting on will need to be repaid by the American taxpayer of the future. PLUS interest. Something for your kids to look forward to.
Do you now understand what "730 billion dollar yearly deficit" means? 365 days x 2 billion = 730 billion.
Half of that deficit is "serviced" by the Chinese. If they ever stop - you're screwed.
So... don't make fun of the Chinese - at least they live within their means. They pay their bills on time dammit!
"Housing tanks, so Fed holds or drops rates"
What does our Tank storage situation have to do with the Fed? Is the military running out of land to store tanks on? Is the RE bubble to blame for lack of tank housing land?
seattle price drop...
China is a conglomeration of many smaller cultures - much like Europe. However, they managed to get their act together and unify alot sooner than the Europeans did - mostly through brute force of course.
And there's nothing new in China's greed. Europeans are exactly the same (Europeans took over the planet several times already, and managed to bungle it by infighting - ie witness the british / french / german / spanish / portugese empires up to the last century) and they probably will be again in the future.
Just wait until countries can't feed themselves. Then you'll see the gloves come off.
The US was supposed to be the NEW model. To show the world 'another way' of doing things - without kings, queens or emperors. Where individuals could make a difference. And rather than fighting over scarce resources, allow individuals the freedom to innovate and develop alternatives (ie witness Tesla, Einstein, etc.)
Instead, the US has succumbed to the same problem as all previous empires - an aristocracy (ie the super rich) which doesn't want change because it threatens their power base (A good example is Bill Gates and Microsoft). Unfortunately, they're blind to the fact that the status quo does the same thing - As innovation is quashed, the aristocracy in other countries provide the means and freedom for their own people to eventually overtake the aristocracy in the US. (which is what the Chinese are doing now)
Oh well...
Back to the drawing board for the US...
Are the Chinese saving in gold or fiat money? If the latter then there's no worry, those farmers going to city thinking money can buy them things will soon go back to their farms.
"That trillion which the Chinese are sitting on will need to be repaid by the American taxpayer of the future. PLUS interest."
Really? Says who?
"That trillion which the Chinese are sitting on will need to be repaid by the American taxpayer of the future. PLUS interest."
Really? Says who?
International politics isn't like personal politics. You don't just take a loan from the bank to buy a house and then hand in the keys when you can't pay.
Essentially, if the US defaults on its debts - then the US dollar won't be worth a plugged nickel... anywhere!
$60 dollar a barrel oil?... try $60,000! The fastest way for the US to become a third world country is refuse to pay - everyone else will just refuse to sell.
And since you need their oil more than they need your soldiers (which is about the only thing the US exports these days besides food and passenger airplanes) I'm pretty sure that you are going to KEEP paying... unless you want to give up your cars, 80% of your crop yields (tractors use diesel oil you know) and heating in the winter time.
And... since China actually overtook the US in exports:
http://www.manufacturingnews.com/news/06/0905/art1.html
I would say that China is the LAST country you want to piss off at this time. The US doesn't even manufacture T-shirts anymore. They ALL come from CHINA!
So... be proud... drive down that street in a GM behemoth (which has 99% of it's parts manufactured outside of the US - except the cigarette lighter) which guzzles gas from the mideast by the boatload, as you wear your clothes all marked "Made in China". Be proud that your country is the world's biggest debtor nation - and has lived beyond its means for the last forty years.
Oh... and sir... here's your bill. Pony up... or you can kiss your American Dream good bye!
Folks,
America in 2006 = British Empire in 1945
That's the best comparison. Both systems were essentially bankrupt and starting with the loss of India in '47, the crown started losing all of its major territories, ending with Bahrain in '71. The leftovers like Gibraltar and Hong Kong (til '97) really weren't all that significant, in contrast. From '45 till the early 70s, the Pound Sterling lost 2/3 of its value against the dollar. I suspect that in the decades to follow, the USD will follow a similar course but contrary to the doom/gloom crowd, I don't expect a Turkish Lira collapse of 9 Lira to 1 USD to 2 million Lira to 1 USD. The dollar is widely held worldwide and is used by virtual every exchange out there. It'll be a gradual worldwide diversification away from T-bills that'll take the wind out of the USD.
Anon-
China is not a conglomeration of many smaller countries as Europe is. There are tiny pockets of "ethnic minorities" in China but the vast majority of people in China (over 90%) consider themselves and all their ancestors for the past thousands of years to be Han Chinese. And they are very PROUD of that.
At any rate, these ethnic minorities have almost no power in China, beyond the exemption from the "one child policy" (a testament to how tiny their populations are). They were simply swallowed up by the larger culture/population of the Han Chinese. (Same as the Chinese are doing in Tibet as we speak).
China has been "unified" since B.C./A.D.
Qinshi Huangdi's (the First Emporer's) great accomplishment. That's going on more than 2000 years now! Even prior to that, those seperate "states" used the same writing system and had tons of cultural similarities and back and forths. They may have been at war with each other but they also had common enemies and more holding them together than pulling them apart.
And note this: Nowhere did I say that Westerners were NOT greedy, etc. In fact, I said the opposite! What silliness.
But if you think the Chinese are less greedy, less motivated by materialism and ownership than we are, then you're in for a big surprise!
Time to learn about this fascinating culture and start studying Chinese language to boot.
China will be THE player on the international scene.
Don't get left behind!
"But if you think the Chinese are less greedy, less motivated by materialism and ownership than we are, then you're in for a big surprise!"
Yeah - I do think they are less greedy, but maybe more ruthless at attaining what they want.
But then again - Europeans have had 2000 years of Christianity to calm them down a bit.
And if you recall - the Roman empire (the most brutal by far) also unified all of Europe in a similar way that the Han did in China. The only difference is that the Han empire never fell.
Did you ever ask yourself what would have happened if the Roman empire was around till the 20'th century?
At any rate - it's the Chinese turn this time around. Eurpoeans started having their population boom during the industrial revolution and already colonized most of the planet (more than 3 billion people have some lineage to Europeans)
The reason China has such a huge population is because they didn't have practically empty territory to move into (ie North and South America) like the Europeans did when they had their population explosion.
You can study Chinese if you want - but I doubt that the language will stay the same over time (if the Chinese begin to start colonizing that is). I mean... how many people speak Latin anymore?
Post a Comment