As I repeatedly warned, China’ possession of both the world’s biggest FOREX holdings of other, mainly dollar, floating currencies, the world’s largest holding of other countries debts, but also has probably the world’s biggest Sovereign Wealth Fund available for investment and purchases. So China is no longer saving money but spending money and this is keeping much of the other G20 nations afloat. Bailing out the EU is just one of the startling uses of all of this creditor wealth. China also is refusing to bail out the US because we foolishly decided to use the Pentagon to project power in Asia. So we will be ruthlessly reduced to printing money which then causes inflation.
For two generations, Japan and China have masked inflation in the US via buying our debts and holding trade dollars in inert FOREX accounts. This era of passively using debt here in the US to run our vast trade deficits overseas is about to come crashing down if Asian powers cease holding US dollars in their FOREX accounts. Japan, for example, didn’t want to disgorge its immense FOREX holdings after the earthquake and tsunami so instead, the US gave them more banking help to make the yen cheaper against the dollar.
So the US dollars were not spent. Japan’s Sovereign Wealth Fund can’t be tapped to save its own people because it would make the yen stronger. This, in turn, interferes with exporters in Japan. Increasingly, the life styles of the Japanese people have been declining as foreign trade expands just as this exact same thing is happening here. Our international corporations like this, they keep their profits overseas as well as shipping outwards and this, in turn, makes the general country’s finances worse, not better.
More exports=more profits overseas which leads to keeping these profits out of country. The declining taxes on these profits means governments have to tax citizens all the more to keep afloat or like both Japan and the US, simply silently run up immense government debts.
It now seems that the Chinese communists who are supposed to be cruel and stupid, are actually spending their own trade surplus profits to expand trade and increase the amount of money flowing back into China. That is, China’s export profits go back home, not to say, the Cayman Islands or Jersey Islands, etc. The government of China realizes that Sovereign Wealth is when a GOVERNMENT, not an international corporation, holds the profits from trade.
The US model whereby trade profits are held by individuals who then hide this from the government is obviously a wretched failure because this system has destroyed our industrial base, pushed millions of former factory workers into severe poverty or a life a crime (mostly as drug dealers) and put the government deep into debt. The solvent Chinese system stands in stark contrast with the insolvent Japanese and US systems. That is, the inability to tax trade profits lies in the dark heart of the crisis hammering both Japan and the US and is directly connected with the ZIRP system and declining wages of workers in the home base states.
In the EU, the crushing of social benefits continues so a General strike hits Greece, as the austerity vote looms. This will spread since more than one EU country is going to see its social services cut ruthlessly while at the same time, the economic system is at its worse. This ‘screw down on services during depressions’ is exactly what causes huge disruptions, revolutions and wars. This is the core of the problem of pure capitalism which depends on coddling the rich: social services go up in good times and down in bad times which is wretched!
It should be the opposite and the point of having a government is to insure that social services RISE during depressions and then are reduced as good times puts people back to work. The US housing crisis, for example, isn’t due anymore to speculators buying multiple houses with no money down and then flipping them. These speculators are long gone.
The US housing market is now crashing due to people losing jobs. As social services are cut and inflation in food and fuel shoot upwards, spending on social services collapse. For example, in the US, the energy program for seniors has been decimated by the GOP even as the cost of heating homes shoots upwards. This, in turn, makes people on fixed incomes much, much poorer. Cutting money for heating when fuel prices rise hurts the elderly and now Congress is talking about cutting medical care and other programs like money for nursing homes.
This, in turn, hammers other parts of the economy as we see teachers, nurses and local police fired en mass. This increases the number of homes going into default on loans. Decreasing the pay of government employees fixes nothing. Since the rich demand tax cuts every time social and employee spending is cut, there is this futile sense of despair as attempts at balancing the budget evaporate every time it is done. The rich’s demands for incessant tax cuts degrades the system meaning, as the depression grows, their wealth increases so they encourage it to get worse and worse just as public spending should increase.
That is, the need to seize the wealth of the rich in time of depression is uttermost. If we protect the wealth of the rich and hammer the poor, we get an eternal depression. The rich, after all, in export heavy economies don’t care if there is no domestic demand. If profits are in exporting goods, they will have to PREVENT the workers from buying what they produce. This means, more money for the exporters and cheaper wages and near-slave labor working conditions.
Examples of this are obvious: in Japan, back before Japan was totally dependent on exporting a lot, the workers had lifetime employment. Today, this has vanished. Over a third of the adult population is part time workers. The full time workers no longer have lifetime employment and all workers have seen wages decline even as the government goes deeper and deeper into debt. The ZIRP depression now has lasted two generations! Major Corporations Oppose Rule Comparing Pay Of CEOs To Workers is typical of our rich: they are scared that workers might learn about how wealth is being moved relentlessly upwards into fewer and fewer hands.
Finally, everyone is noticing the next stage of the Chinese 50 Year Plan as China’s government, which has intercepted a great deal of the foreign trade profits, now moves outwards, spending its trade dollars before they totally lose value as the US frantically prints money to keep afloat: BBC News – China seeks to raise its business interests in Europe
As well as dealing with the eurozone debt crisis, Mr Wen will be looking to boost trade. Chinese companies appear to be on something of a shopping spree at the moment.
“Without democracy, there is no socialism. Without freedom, there is no real democracy,” Wen told an audience at the Royal Society during his visit to Britain.
Robert KaganWEEKLY STANDARD, JANUARY 20, 1997
The advocates of engagement — whom we might call “the new China hands” — offer a host of sunny assumptions about China’s future and the helpful role the United States can play in shaping it. China wants to join our international order, the theory goes, or at least can be persuaded to play a responsible role in the world if only we help China’s leaders understand what’s good for them. By engaging with China, Nye argues, we can “affect how the Chinese define [their] interest.” And as the Chinese come to view the world within the “larger context” we provide for them, “the prospects for conflict [will] diminish.” China, Zoellick believes, “should welcome regional stability and the avoidance of contests for dominance.”
Wilhelmine Germany was a nation on the move, with a dynamic economy, increasing military strength, and a rising ambition both to settle outstanding international grievances and to play a role on the world stage commensurate with its new power. Zoellick argues that the “failure to deal effectively with Germany’s rise led to seventy-five years of conflict.” The new China hands warn that the failure to deal effectively with China’s rise could have the same dire consequences.
Containment is unthinkable — a very dangerous “pipe dream,” according to Henry Kissinger. As Admiral Richard Macke, the one-time commander in chief of our Pacific Fleet, once put it, “What we have to do is make China one of our friends. We can’t confront them, we can’t isolate them.”
The new China hands insist that the United States needs to explain to the Chinese that its goal is merely, as Zoellick writes, to avoid “the domination of East Asia by any power or group of powers hostile to the United States.” Our treaties with Japan, South Korea, the Philippines, Thailand, and Australia, and our naval and military forces in the region, aim only at regional stability, not aggressive encirclement.nd containing Germany. The problem was that Britain did not deter and contain Germany enough. In Crowe’s view, Britain needed to take a “resolute stand” against Germany’s challenge to the international order. Her Majesty’s government had to undertake “all risks of a possibly disagreeable situation [rather] than to continue in the path of endless concessions.” The British did not take Crowe’s advice until it was too late to avoid war. If the analogy with Wilhelmine Germany tells us anything, it is that the best way to deal with a dissatisfied emerging power is not to adjust to it but to make it adjust to you.
But the Chinese understand U.S. interests perfectly well, perhaps better than we do…. Even when the United States and its Western allies have no conscious designs to undermine dictators, we exert pressure merely by our existence — both as a beacon of hope to those living under tyranny and as a vast machine for the global dissemination of information. The replica of the Statue of Liberty erected by the students in Tiananmen Square was tangible evidence of these abstract notions about the global consequences of an information age dominated by the democracies. Deng himself said the democratic uprising had been “determined by the international and domestic climate.”
It is worth recalling the historical analogy with which we began. As Paul Kennedy explains, Wilhelmine Germany could not have been appeased “unless the British were willing to accept a substantial diminution in national influence and safety.” The new China hands wouldn’t dare make such a grim recommendation to the United States. But the strategy of engagement — an effort to steer a middle course between appeasement and containment — may be the most perilous of all. It neither satisfies the demands of the emerging power nor deters that power effectively enough to prevent a serious confrontation.
This is a willful misreading of history! Germany became united and then did several things Britain refused to do. The British elites believed in keeping the lower classes oppressed. So, they figured, if this class of people were hungry, stunted, and above all, IGNORANT, the upper classes would have more servants, the lower people would lose fist fights with the elite boys, and the inability to read or reason would make them easy to control or cheat. This is IDENTICAL to the US policy of keeping blacks from being educated or well fed.
Germany, on the other hand, decided that a strong peasant class that eats well and is muscular as well as educated makes Germany stronger! So the Germans were better fed and got free schooling. The invention of ‘kindergarten’ is due to Germany: they expanded the education to younger ages. Then, there was college: free if you passed the tests. All the other educational parts were all paid by the state, from cradle to grave.
This was viewed as an INVESTMENT and it paid off, hugely. Germany went from an intellectual backwater to one of the top research nations on earth. This was killing the British/US models and the US moved more and more into the German system, copying the kindergarten business, the state universities which began in the late 19th century, etc. As we imitated Germany, we grew stronger. Imitating England was fatal.
Quickly, Britain lost power as German industrial innovation shot upwards rapidly. Meanwhile, Britain was at work on expanding markets via it military: taking over a country or territory and then forbidding them from buying either German or US goods, for example. So Britain had this restive, angry population of foreign people who wanted to get rid of the invaders. This cost a lot to run. When Germany attacked England, it was very undefended due to all the troops and money being spent to hold down restive foreigners.
Germany’s problem was, they tried a military solution to the problem of Britain. The Chinese discussed this a lot with me as we read history together in the mid-1980’s. They did NOT want to be in the position of Germany before WWI. And the key to this was to buy up US debt so that if we did threaten war, China would simply bankrupt us rapidly. This requires delicate measures in that the Chinese would have to persuade other nations to side with them. And eventually, Japan WILL side with China due to the simple fact, WWIII would mean the annihilation of every Japanese person. There will be nothing left there when all the nuclear power plants are wrecked.
Japan can’t afford any wars at all. Recognizing this is life and death for them and I suspect, the populace doesn’t worry about if China dominates Asia. They are being crushed by their own leaders and elites, after all! What do they lose if China runs things? It cannot be worse than the present system. And spreading socialism is the new Chinese style and this is funny as hell since this is what many Japanese would probably want at this point in time! Not US-style rich at the top and everyone else paying through the nose for a basic education, etc.
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26 responses to “Chinese Sovereign Wealth Versus US Sovereign Debt”
Please write a book.
And create a political party.
I always thought it was interesting that these 2 percentages are the same:
USA 5% of the worlds population uses 25% of the worlds energy.
USA 5% of the worlds population has 25% of the worlds prisoners!
not virtually more than any nation,in real numbers the USA has more people in prison than China!
There are so many more ways to run afoul of the state in liberal democracies.
A state has no use for innocent people, because innocent people have little use for the state. The more criminals that can be created by legislative or administrative fiat, the more compliance the state can generate.
Always remember it is never wise to be the first person to stop clapping.
Besides creating a Party and writing a book, please tell us more about greece, what do you think will happen there ?
Strictly from a monetary point of view, which is an wholely abstract view, it looks like the Chinese have made a major “Go” move.
Who could have foreseen that Japan and Europe would be stuck holding their dollars while China gets to spend theirs freely? Quite a powerplay, again, from a monetary view.
I seriously doubt China will be able to collect on any purchases made outside of China over the long-run. The end of the industrial age will prevent that from happening, in my opinion.
Like the USA, China has a water scarcity problem.
Water, like energy, can neither be created nor detroyed;it can only change form.
We’re both doomed! But the Chinese are taking measures to conserve, unlike our corrupt capitalist” free market system that cannot address the problem through land use regulations.
Isn’t there an old Chinese proverb about “man not owning the land, but the land owning the man.”
The poetic clarity of your analysis is a contemporary example of a Chinese proverb, or it’s as if your penetrating macro view is captured in a micro Persian miniature painting.
Someone above asked what will happen next in Greece. Well, the “government”, which does not represent the people, plans to ram austerity measures down the throats of the their constituents. I believe this will be the model that is followed everywhere except in Iceland and other areas where the people can resist with some hope of winning.
There is also no mention of China in all this, and I suspect this will continue to be the case as well.
Finally, I must confess that I still cannot grasp the meaning or purpose of rolling over another 110 billion or so in debts that now represent 150% of Greek GDP, with another “aid package” (made of what?) to be put together for next year in the same amount or more. The Greek debt drama, as well as all the other debt dramas, have left me more in a state of “shock and awe” than any pounding of a desert city by a mobile howitzer.
To say that rolling over infinite debts on little countries that can never repay them under any circumstances is a good idea and necessary is like saying that flying into the sun is a great way to access infinite energy.
Maybe I am not a homo sapien. Maybe I am a Neanderthal, or some other thought-to-be-extinct member of the human family because I really just don’t get it. No matter how many explanations I read, I still don’t get it.
Nice article Elaine. Would you like your 5 year old daughter to spend the night with a pedophile? Is it hatred to not approve of perversity which goes against nature? Anyway, maybe we should blame God for homosexuality, since the Bible says, “Therefore God gave them over to a reprobate mind to do those things which are not appropriate.” Maybe that’s why they think they’re born that way, because God gives them over to unnatural desires.
But what’s the point in arguing over an issue everyone has made up their mind about and will never agree?
As Lindsey Williams has been saying: “Watch China. China is the big one. Keep on eye on China.” America is a land destined for destruction, and I don’t see how allowing homosexual marriage will change that fact. Marriage itself was destroyed in the 1970’s when No Fault Divorce was passed. Big deal. So homos can get divorced now. Great for them!
ELAINE: I was raped when a small child by a professor who was heterosexual. Rape of children has nothing to do with sexual orientation and everything to do with who has power and who is out of control.
As for marriage: it is a social, legal and property document. Marriage, when one has no property, becomes meaningless which is why most women on welfare don’t have it and it is designed to be withheld from women who are poor and married. See?
On the other hand, if you own property, legal documentation of relationships is vital.
My daughter’s generation is forging a new “partnership” form of marriage: see Riane Eisler and her work. It is true that the old model of marriage, which depended upon the legal disenfranchisement of one partner, and control by law and social shaming, is gone. But the basics of love and pair-bonding will never be gone. To call homosexuality unnatural is a misreading of nature. Gender is not a polarity, but a continuum, as are its physical expressions. Partnership marriages are as freeing of men as they are of women. Whatever representatives of older cultural expressions of marriage may believe, the younger generation is living a newer form that is both healthier and more “natural.” I think you can call it that because it causes all parties to the relationship (including kids) to attain a greater degree of mental and physical health and well-being.
I love love love love love love love this post..
Thank you for sharing to us.
Well written, hope to have more articles
Come on, hard.
you seem to be completely myopic when dealing with china.
china is going to have the same problem that other countries have-which is greed at the top.
i saw an interesting comment on business insider about small businesses having a difficult time getting loans from the state owned banks in china, which could certainly represent a problem going forward for china.
as for greece, the greeks are going to default on the debt and it is just a question of how long can it be delayed. there is no way they will have the production to “grow” their way out of the mess.
China certainly has greed at the top. The difference with the US is simple: the Chinese at the top also want China to be much stronger. The top US people (the bankers and investment guys) don’t care about the US being solvent or anything, they want to go on looting expeditions.
So they chop up our economy and sell it to foreigners which is the exact opposite of what is going on in China.
Pat Robertson. I don’t like commenting on this sleazeball, but here goes. Now let’s see…Robertson is a messenger from God, right? Is this the same God that told the good reverend Pat to send in the CIA to try to assassinate Hugo Chavez, even though Chavez was fairly elected? Check. (BTW: I don’t know if God would be happy with the death of Chavez, but I am sure the Big Oil companies would be pleased.).Is this the same Pat Robertson who had his tax status stripped because of his right wing activities? Check. Is this the same Pat Robertson who comes from a long line of wealthy politicians, whose dad was a influential US Senator? Check. Robertson has been preaching eternal damnation for the country for so long you would think people would start questioning the good reverend’s judgement, but I guess some folks take this fraud seriously. Well, these are the same people who take Michelle Bachmann seriously, so what can one expect?
Elaine: “The Chinese discussed this a lot with me as we read history together in the mid-1980′s. They did NOT want to be in the position of Germany before WWI. And the key to this was to buy up US debt so that if we did threaten war, China would simply bankrupt us rapidly.”
Ho hum. Reuters reported that Beijing will assume or shift 2 trillion to 3 trillion yuan ($308 billion-$463 billion) of local governments’ outstanding debt in an effort to ensure against a mass default which could bring down the economy. The National Audit Office said on June 27 that local-government debt totaled 10.7 trillion yuan ($1.65 trillion), or about 27% of China’s 2010 gross domestic product. The total represented the tally at the end of 2010 and marked the first time the NAO had released official data on these obligations. (http://tinyurl.com/3os6ryo)
This is the tip of the iceberg. Those in the know understand that figures available to the public never reflect actual reality. Doubling that figure would still be conservative, in my opinion. The Chinese regime is an absolute dictatorship, they can and do, cook the books. All governments do, but they do it with impunity.
So while China studied and planned against America, inspite of their effort to improve on the mistakes of America, have instead mimicked themselves into a poor facsimile of the same. That have irresponsibly doled out huge loans to local governments (what more the National government?) who have expeditiously stolen huge amounts to fill their pockets (ask the Hong Kong and Macanese casino and luxury shop operators who are their cash cows). The Communist “Liberators” are just as good if not better at liberating the people of their money, just like their cousins on Wall Street across the pond. The difference is they use slave labor to fill foreign contracts, while in the US they pay the slaves and tax them to death. Their good fiscal policy turns out to be good window dressing. How original!
Lastly, the US should not be underestimated under any circumstance. You don’t vaporize $2.3 Trillion dollars (my guess is more) of Pentagon money (http://tinyurl.com/33bl2v) without having some really serious kit stashed away, waiting to be used on an unsuspecting aspiring military domino. China fits that bill nicely.
The US may have a better grip on Sun-Tzu than the Chinese.
In deference to the Chinese people, it’s not their fault, communism has a tendency to lower the intellectual bar of bureaucrats since they can do things with impunity, and they rarely have to think except when it concerns saving their own ass.
Vast deposits of rare earth minerals, crucial in making high-tech electronics products, have been found on the floor of the Pacific Ocean and can be readily extracted, Japanese scientists said on Monday.
The discovery was made by a team led by Kato and including researchers from the Japan Agency for Marine-Earth Science and Technology.
They found the minerals in sea mud extracted from depths of 3,500 to 6,000 meters (11,500-20,000 ft) below the ocean surface at 78 locations. One-third of the sites yielded rich contents of rare earths and the metal yttrium, Kato said in a telephone interview.
The deposits are in international waters in an area stretching east and west of Hawaii, as well as east of Tahiti in French Polynesia, he said.
He estimated rare earths contained in the deposits amounted to 80 to 100 billion metric tons, compared to global reserves currently confirmed by the U.S. Geological Survey of just 110 million tonnes that have been found mainly in China, Russia and other former Soviet countries, and the United States. (http://tinyurl.com/3arrktt)
So much for China’s intention to monopolize and inflate the price of Rare Earth supply globally. This will certainly add pressure to militarize and continue their military expansionism, as they desperately try to stem the tide of uprisings at home, the lack of water and food supply, not to mention the failed one child policy in Central China.
Consider this, they doctor the financial numbers, you can bet they doctor the population figures as well. Of course, that is even assuming they can count them properly, which is highly doubtful.
You cannot eat ghost cities and overpriced apartment blocks. Too much emphasis on form without function. Big doodoo that.
South East Asia will soon be seeing and feeling the effects of these mistakes and problems very soon.
We are beginning to hear the popping sound and the whoosh of capital flight in China. As expected, critical mass is accelerating in ever increasing intensity as investors start to realize that its economy is more like rice puff pastry with nothing inside.
In June 2008, blue-chip investment bank Morgan Stanley sold US$109 million worth of convertible bonds issued by waste recovery group Sino Environment Technologies, based in Fujian , to a group of lenders including US investment firm Stark Investments.
Sino-Environment’s share price has since crashed from S$1.30 (HK$7.18) on the day it sold the convertible bonds to S$0.135 when the stock was suspended from trading in September.
Read more: http://www.businessinsider.com/another-warning-sign-china-based-singapore-listed-firms-collapsing-amidst-debt-and-fraud-2010-1#ixzz1RZ0Jkaib
The most recent S-chip bond default came from China Milk Products Group, based in Heilongjiang, that produces bull semen and cow embryos for cattle breeders,
The vast majority of the investors who bought US$150 million worth of convertible bonds China Milk sold through Deutsche Bank in December 2006 have exercised an option to get their money back, a person close to the agricultural company confirmed.
China Milk’s net profit tumbled 73 per cent in the three months to last June compared to a year previously. The business was hit by last year’s tainted milk scandal on the mainland, which cut demand among dairy farmers for new livestock.
Read more: http://www.businessinsider.com/another-warning-sign-china-based-singapore-listed-firms-collapsing-amidst-debt-and-fraud-2010-1#ixzz1RZ0RKvFk
And worse, The Singapore state investment fund, the biggest foreign investor in China’s banking sector, has sold 49% of its shares in Bank of China and 8% of its China Construction Bank holdings for a total of US$3.6 billion. http://tinyurl.com/3epzaqh
Prior to 1985 [?] The USA produced most finished goods and those goods were the trademark of quality.
true… not sure who said this, but it still rings true: Power attracts the corruptible. Absolute power attracts the absolutely corruptible.
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Great post .. many keen insights here. Thanks! 🙂
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