Like a pilgrim seeking the altar of St. Jude, patron saint of hopeless causes, U.S. Treasury Secretary Timothy Geithner journeyed to China in search of salvation. It is not spiritual healing that Geithner seeks but the most material form of assistance: sovereign loans to finance the growing debt of the United States, in the form of purchases of Treasuries.
Geithner symbolizes the collective desperation of elites throughout the crippled global economy, who look to China as the only and best hope for solving the global financial and economic crisis. And by focusing on specific economic data in a highly selective manner, analysts and economists are able to find glimmers of hope to salivate over. While the global economy overall will undergo collective contraction for the first time since World War II, the Chinese economy is expected to grow by at least 6% in 2009. Recent trends reveal some areas of increase in domestic consumption, such as purchases of automobiles. There has been in several instances an increase in manufacturing output, contributing to a rise in certain commodity prices as China's appetite for raw materials grows. However, look beyond the spin-doctors and a somewhat different economic picture emerges.
Where domestic consumption has increased, this has been in large part due to tax incentives being offered by the authorities in Beijing to stimulate demand. This is a short-term fix, and not indicative of a sustained trend. More importantly, China must maintain a very high rate of annual growth in order to keep employment levels steady. A growth rate in the range of 6%, a figure that would be considered miraculous in much of the rest of the world, is insufficient to prevent a rise in unemployment. Since the onset of the Global Economic Crisis, more than 25 million migrant workers have lost their jobs, as factories by the thousands that depended on export markets are shuttered.
Another question mark is the state of China's banks. Largely still controlled by the state, there has been a process of liberalization underway, and thus far the Chinese banking system appears to have weathered the economic storm better than most. However, only a few years prior to the onset of the global financial and economic crisis, China's banks were rife with corruption and mismanagement, leading to a vast accumulation of toxic assets on their balance sheets. In 2002, it was estimated that Chinese banks carried a half trillion dollars in non-performing loans; it is not clear what that number is currently, or how vulnerable Chinese banks are to their own nation's potential real estate bubble.
Much of the world is betting on the success of China's own stimulus spending program, which equals nearly $600 billion. However, despite the impressive aggregate size of the Chinese economy, per capita income still ranks very low, standing at 107 out of 179 nations, or about $2,000. The capacity of the economy to compensate for demand destruction in its principal export markets through comparable increases in domestic consumption does not appear to be sufficient enough to create a basis to hang the global economy on. What is more likely is that China will spend what it can, borrowing from its sovereign wealth funds and reserves, to inhibit the growth of unemployment so as to maintain social cohesion.
As for Geithner's agenda, his number one priority remains China continuing in its role as America's principal banker. Like large debtors everywhere, the U.S. Treasury Secretary and Obama administration actually believe they have China over a barrel. The U.S. was just a larger version of AIG or Citigroup in their framework; too big to fail, as China's major export market. For a time, it appeared that China's political and economic leadership reluctantly agreed. Recall the words of Luo Ping, a director-general at the China Banking Regulatory Commission, who told journalists back in February that, "Except for U.S. Treasuries, what can you hold? U.S. Treasuries are the safe haven. For everyone, including China, it is the only option. We hate you guys. Once you start issuing $1 trillion to $2 trillion [of Treasury bonds] we know the dollar is going to depreciate, so we hate you guys, but there is nothing much we can do."
Now, however, there are growing indications that a major reassessment is underway among China's principal economic policymakers regarding their country's huge investment in U.S. government debt, currently in the range of $1 trillion. A growing number of Chinese officials are on record as believing that the U.S. dollar will eventually lose its role as the world reserve currency. And while in the short-term China will continue to purchase U.S. Treasuries, its own domestic needs and financial limitations are likely to restrict those investments to a level that represents only a fraction of the vastly exploding U.S. government borrowing requirements.
Ultimately, China does not see itself as the St. Jude of America, but as a sovereign nation with an old civilization, downtrodden for the last two centuries by Western powers and Japan, but which is on the verge of emerging from the Global Economic Crisis as the preeminent world financial power. It therefore will make decisions on how it allocates its resources and financial reserves, not based on America's desperate borrowing needs to finance its profligate budget deficits, but on serving the supreme long-term national and strategic interests of the People's Republic of China.
Follow Sheldon Filger on Twitter: www.twitter.com/EconomicCrisis
Time to audit the FED folks. House Bill HR 1207
Tainted milk, asbestos-sulfur filled drywall, poison toys, petfood, toothpaste, shampoo, candy, dairy, tableware, cadmium dyes, lead jewelry, pesticide frozen foods, formaldehyde furniture, counterfeit drugs… the list goes on and on
Even the people who grew poisoned food in the Jiuyuan River picked it and sold it to an unsuspecting village a few doors down making those people sick.
Now maybe the Chinese People don’t care about their neighbors, but Americans won’t put up with that crap and even though we may fuss and argue politically amongst ourselves, without going to jail I might add, when push comes to shove and the American People feel they are under attack they will ban together. It's not a particular cultural or race we share it's an ideology, and will eventually unite us all in the end.
If China wants to continue to sell their products here they are going to have to spend money on their people, because Americans not only believe in freedom, they believe in a fair shake. China’s going to need to start spreading their new found wealth on regulations and education otherwise they can continue to poison each other, but not us.
There’s a slue of bills in Congress right now waiting to up the standards of goods from China or no deal and under Obama you better believe the FDA will grow and lastly, just as a reminder, the US media loves their good clean food.
The modernistic cities like Beijing and Singapore house about 10-15%of the population, the rest live at a level approximating Nigeria. It's per capita productivity is about 1/8 that of ours.
China doesn't have a local market capable of absorbing their manufacturing. Their economy is highly dependent on exports, and it has a long list of daunting stuctural problems.
I China getting ahead in the world? Yes, but let's keep it in perspective......
OK.. now that we have removed the first of your misconceptions, let's move on to the next ones.
Singapore is not China. It is, however, a model for a working city of the 21st century. Quality of life is excellent, and the economics are sound. Singapore's long term existential problems originate from the fact that China is copying some of their recipes for success... so they are now competing against a working copy of themselves with 100 times the size. That's really hard to beat!
"It's per capita productivity is about 1/8 that of ours."
That's an advantage, not a disadvantage. If they have 1/8th the productivity, with four times the population it means that by the time they catch up to 1/2 of the US productivity, they will have achieved the same level of production we have. Wow... just think where they will be by the time they catch up to our productivity!
Again, that's an advantage because they don't have a saturated market, yet. There is a billion people out there who all need a washer and a dryer. And you think they will import them from the US? Well, think again.
"Is China getting ahead in the world? Yes, but let's keep it in perspective......"
It's exactly the opposite. China is NOT ahead of the world, yet. But they have the potential to grow. And we, simply put, do not. You are right, it's not a fair fight. But they have the advantage.
:-)
How will they survive if the US doesn't buy their junk if it's no longer cheap?
How will they survive Marshall Law if they protest for shorter hours (14/7) cleaner and safe working conditions and affordable housing.
The Chinese Gov is stock piling commodities, which is why oil is up. Regardless they are not Capitalist or even Socialist they are Communist and when push comes to shove the government shoves hard.
Protests by the Chinese workers happen every day and are brutally squashed by the government and kept out of the news.
The Chinese People need to figure it out without our help as our dollars only support their human rights violating government.
Re-tool American and let's start making things again, better things, with quality standards, safety and a fair and living wage. Remember, we're Americans, we can have anything we want, let's start wanting something good this time, not just for the Bankers and CEOs, but for the people.
Yes We Can
It's foolish to expose your ignorance, but... The people of China are no more "communist" than the Cleveland Indians baseball team are indians. There is a Communist Party, yes. The government may be totalitarian but this is not communism. There is a stock market and private capital accumulation is permitted.
Here is some information for you: In the Marxist theory when the stage of communism is met there is a withering away of the state (there is no government then because it's not needed). Think a second about that and enlighten yourself a bit. The word communism and government do not fit together and it is impossible for one person to be "communal" if you catch the drift. Native Americans lived a communal life, but did that make them marxist communists?
split hairs away
http://www.treasury.gov.au/documents/580/Images/Poverty_Inequality-5.gif
you can see that there is an income wave sweeping through Chinese society. Many people are close to or below poverty level, but many others are catching up to income levels of industrialized countries.
The people who have money are driving the economy of the nation and are pulling more of the poor up. It's a very successful bootstrap process.
"How will they survive if the US doesn't buy their junk if it's no longer cheap?"
Where else are you going to buy your junk? We are not going to produce it nearly as cheaply over here and you wouldn't have the money to buy it, if we did.
If one compares our medicare and social security shortfall with China's GDP, we have to face the fact that we are looking at a hole that contains several Chinese economies at once.
And our annual budget is about the GDP of China... and... it is growing faster, too!
:-)
Nothing could be further from the truth.
china is NOT going to bail us out, because they're not our rich mommy/daddy. they are a COMMUNIST regime, and have less regard for us than their own people.
the chinese will develop their middle class, to replace ours. they will become the new consumer market for the 21st century. the elites will cater to them, selling off every piece of america one corporation at a time, one acre of land at a time. all resources will eventually go to china to maintain their staggering growth curve, and we will be a banana republic.
this is what the elite view as their most profitable option. the people of america will become dumber and dumber, as the ignorant continue to breed while the educated realize the modern world is no place to raise a child. there will be no military invasion, as the elite will continue to sell all of our resources (steel, corn) to the chinese with free trade agreements. the american population will be reduced to a mass of non skilled laborers and a few elites within gated communities who operate the conglomerates.
You've hit the problem without recognizing it. The issue of Geiuthner pleading for help from the Red Communists (have you missed this issue?) has everything to do with their (and others) cental bank monetizing our debt. Stop the train at this point and go back to elementary economics. We've consumed our way into this problem with the likes of morons like little George and greedy investment bankers, like Goldman (and you know the spell they hold over Treasury) and now we are victims. Were the Red Chinese unwitting fools or are they intelligent enough to have some plan in this? (we're still not certain about this) The only thing we know for certain is that this "train" will stop, and where do the indebted Americans go then. The trade deficits cannot be permitted to continue. (and that is where we should start) If America produced its own shoes, we'd have 400000 new jobs that would pay for themselves. Comparitive advantage did not include the arbitrage of wage rate differentials and/or manipulated currency values!
And we have to have growth! Each quarter must be more than the last.
Business has no loyalty; it is all about the hunt for larger profits.
‘Nothing personal American, its just business.’