CF and Captain:
Read the first two graf’s, plus item three, from "Five in the Morning" here.
China just recently passed Japan as the world’s second largest economy. Currently China’s economy is about 35% the size of the US, but growing at a much faster rate. China is attempting to manage it’s growth lest it get overrun by inflation, and suffer an "Irish Style" property bubble. It’s not in dispute that China will surpass the US. If the respective rates of growth, of 3 and 9 percent hold, China will overtake the US somewhere around 2030. Only an idiot would dispute that China will overtake US. No one currently knows exactly when.
US is not worried about China selling dollars, or refusing to buy US debt. US and China are joined at the hip. What's good/bad for the US, is good/bad for China also. Much, much bigger worry for US, is that oil would no longer be denominated in dollars. US/China is bilateral. Everyone uses oil.
Don't let your anti US ideology cloud your judgment.
Here are three different estimates of GDP by country. IMF/World Bank/CIA. If anyone has different figures I’d be curious to see them.
The amount of nervousness about the dollar is increasing and gold has broken all records this morning.
20/04/2011 - 13:17:45
Gold has broken the $15,000 (€10,300) an-ounce barrier for the first time.
Analysts have said fears over the global economy have sent investors looking to safer investments.
The precious metal has hit a fresh all-time high in the wake last Monday's shock debt downgrade warning for America.
Thanks Count B- not disputing figures or any of the above charts at all. I agree very much with all that you say except that I think there is a political Black Swan in all this.
The Americans and others have been pointing to the fact that China needs the US as a market for its low price exports and cannot damage the US market because of that.
I think that may be an assumption that is borne out of a misreading of the Chinese political mind. I don't claim to be able to read the Chinese or the ramifications of the external effects of the 'Harmonious Society' policies as I would be a liar as would be anyone else in the west attempting to read and predict China.
I know one thing about the Chinese political leadership. They are prepared to inflict hardship on their own people for a greater good in terms of politics and realpolitik. Recent actions in clamping down on internal intellectual freedoms emphasise that for me.
The US can only go so far- for example a US president and government is a dead man walking if it raises fuel prices to realistic levels at US filling stations and removes the quiet subsidies with which it bribes the US public to remain peaceful and quiescent.
If China decides to take the hit on damaging a major global export market for political gain worldwide and a place of supremacy which would then pay back any losses over the long term they wouldn't think twice.
Thats the political Black Swan. The US and China are too culturally different to write off a nuclear economic exchange and China would not hesitate I suspect if conditions are right for them.
Think National. Act Local. Oh- and superstition is just the dark matter of human history.
Captain, likewise, I don’t dispute your possible Black Swan theory. Except to observe, when China is autocratic, it is always on matters internal. On matters of foreign relations it tends to be very pragmatic. It will push, or resist, to the limits of pragmatism, but rarely go beyond. In a decade from now, when the Chinese economy is closer in size to the US, I think you’ll see them be more assertive and resistant. But they will calibrate their positions relative to their economic clout at the time. When they are dominant, who knows what will happen?
The things that might be indicators of where this will go ?
Chinese and US military spending, particularly in R and D
Incremental shifts, globally, away from use of the dollar as reserve currency.
The US is holding its miiitary spending steady and has stopped various NASA projects. China's is increasing.
A number of States have shifted away from dollar trade in the last decade. That could reach a tipping point. The current surge in gold prices is a result of a dent in the confidence that the dollar can hold its own.
Reserve currency status brings all kinds of benefits - the ability to try to print your way out of a crisis while making the world share the cost being one of them. Seigniorage is another - each bank note in circulation represents a loan from the public to the central bank that printed it - in the case of the US roughly 500 billion dollars being in circulation with an interest value of 25 billion or so. But the Irish debt makes everything look like small fry these days.
The outlier for us in the west as regards China is the fact that we don't think like they do and their pragmatism and long term strategic objectives are therefore unclear to us.
It is a wait and see scenario for us but whatever the attitudes of the bigger powers in the world there may come a time when we'll be glad of being a small country, fairly fertile and being positioned where we are. It is not such a bad thing to be clearly no threat to bigger dogs some times.
There may even be opportunities for us with a powerful Chinese nation being clear world leaders- as long as we can keep the big gob rockmonkeys among us quiet with their american fed and socially reactionary automated responses to any visible change.
Think National. Act Local. Oh- and superstition is just the dark matter of human history.
At least partially. if not directly, relevant to the thread.
Two interviews with Brits, that aired this week on Charlie Rose, (the best conversation on US TV).
1: Lionel Barber editor FT.
2: Interview with Mancunian, Jim O’Neill, Chairman Goldman Sachs Asset Management. He, who coined the term BRIC.
Just to demonstrate that it is not all flag and glory in the US.
Making fun of US Senators visiting China.
David Ignatius is WaPo’s lead foreign policy guy.
A very interesting interview on the risks of a second collapse in the US economy, gleaned from the S and P Downgrade report.
Here's a quote from S&P. The potential for further extraordinary official assistance to large players in the US financial sector poses a negative risk to the government's credit rating. Because of the increased risk, S&P forecast a potential initial cost to taxpayers for the next crisis to approach 34 percent of gross domestic product. S&P puts that into cash numbers. It may be as much as $5 trillion if there's another meltdown of the American and global finance sector. So that really then begs the question: if the real threat here is not sovereign debt default because of the size of the American deficit, but if it's really the threat of another collapse of the finance sector, then why isn't Mr. Bernanke and everybody else talking about Dodd-Frank financial regulation and how to make some actual enforceable rules that might prevent or mitigate such a meltdown?EPSTEIN: Well, you're absolutely right about this, about the point about the possible continuing meltdown of the financial sector. There are so many vulnerabilities facing large financial institutions like Bank of America, Citicorp, and so forth that simply have not been resolved. At the moment, some of these banks are showing good profits, but partly it's because of accounting tricks. They've shifted some of their income from their loan loss reserves, which are supposed to be held in case credit card debt and other things go south, and they've put it into their profits so they can pay themselves high bonuses.,,,what's happening now is Ben Bernanke at the Federal Reserve, they're trying to restore the health of these banks by keeping short-term interest rates really low, allowing the banks to take that money and engage in proprietary trading, and make a lot of money. And the Fed is hoping that that's going to restore the balance sheets and the health of the banks, and so that we won't have a financial crisis. But in fact what they're doing is facilitating precisely the kinds of behavior that led to the last financial crisis.
JAY: Well, we'll dig into this more in further segments. As Standard & Poor's says, we're talking about a 34 percent of gross domestic product that could be on the line here.
Last edited by C. Flower; 08-05-2011 at 07:27 PM.
At a risk of being called an eejit, I'd dispute the Chinese everlasting growth theory.
This convo could have taken place in the 1980's with Japan in China's place. They were taken down by untransparent banks and what turned out to be a mega-property bubble.
We should be well aware of the consequences of opaque banking and overpriced property. China has both, and an ever growing dependency on fossil fuels to boot.
Remember the 1980's/90's joke? President Bush (senior) goes into a coma and is woken 10 years later. He asks how national security and the economy are doing, is told "great", then asks for an illustration by requesting the current price of a Mars bar. He is told "one hundred yen"
But, by 2000, Japan was in the doldrums.....
The Chinese have ghost cities and ever expanding droughts....and an ageing population to boot.
That bubble will burst (we know not the day, nor the hour). Likely triggers; oil price, Western banking meltdown etc. The foreign exchange reserves, 3 trillion, seem huge, but when you compare them to the "assets" of the German banking system (now a smaller economy), at 7.6 trillion, it is easy to see that a really good banking crisis could make mincemeat of the reserves in a year or two, especially if the Govt is forced to cease subsidising fuel
Watch this space.
Last edited by Apjp; 08-05-2011 at 08:18 PM.
Or will they work their way out of it ?
China’s greatest liability is probably its demographics. It may become the first country in the world to grow old, before it grows rich. Economist has an article on the subject this week. I read somewhere else, that by 2040, China will have a population aged over sixty five, that is greater than the entire combined current populations of UK, France, Germany, and Italy, and because of the one child policy in effect since 1980, far fewer taxpayers to support them, so tax rates are expected to rise dramatically. The graph in the economist supports that contention.