A Tale of Two Economies: U.S. vs. China 32 comments
an article to
-
Font Size:
-
Print
- TweetThis
There can be no doubt that there are two, dominant economies in the world today: China and the United States. However, while China dominates as the new growth “engine” of the world economy, the U.S. dominates as the largest dead-beat the world has ever seen – trying its best to borrow the surpluses of all the world's productive economies.
This is not the first time I've directly compared the two economies (see “China: last economy to slow, first to recover”), however this time I will focus the comparison almost exclusively on debt versus savings – which makes the future paths for these two economies abundantly clear.
The current strength of China's economy is clear for all to see. Its manufacturing sector not only continues its impressive growth, but is steadily marching toward “high-end” manufacturing – where it has already surpassed the U.S. in automobile production.
Meanwhile, China's domestic economy, and consumer demand have demonstrated an even more spectacular performance – with China already becoming the largest automobile consumer in the world (“China's consumer confidence demonstrates robust economy”).
What makes this economic performance much more spectacular is that the explosion of China's domestic economy has occurred while individual Chinese citizens maintained an almost unimaginable savings rate of between 30% and 40%! It was this phenomenal pool of savings which immediately convinced me that China would decouple from the rest of the world when the global economy “crashed” last fall.
Sure enough, while most of the rest of the world plunged into recession, China suffered nothing more than a short “hiccup” in its growth.
On the other side of China's “balance sheet”, the national debt of China is a totally insignificant number, roughly equal to the national debt of Canada – at less than $1/2 trillion. Of course, China has roughly forty times as large a population, a much larger economy, and a much higher rate of both current and long-term growth.
Thus, China looks to the future with the following fundamentals in support. It has the world's largest manufacturing base, the world's largest population (meaning an essentially infinite supply of “cheap labour”), the fastest-growing domestic economy, virtually no national debt, and the world's largest pool of savings to fund (on a sustainable basis) rapidly increasing consumption and rapidly increasing investment in building China's economy much larger.
These facts are in direct contrast with the drivel which has been emanating from the U.S. propaganda machine. The talking-heads continue to pretend that China's economy is dependent on U.S. imports for its vitality.
China's ability to shrug-off the collapse of the U.S. economy refutes this completely. Instead, it is U.S. consumers who are dependent on a continued stream of imported Chinese goods – in order to prevent their rapidly waning purchasing-power from leading to an even larger drop in the national standard of living.
Similarly, the propagandists continue to spout the insanity that China is somehow “forced” to continue to lend the U.S. vast sums of money. Try walking into the office of your banker, and telling him that due to the global economic downturn, he is “forced” to lend you money. Don't let the door hit you on the way out (see “China now in firm control of U.S. debt markets”)!
The only thing more surprising than the infantile level of “reasoning” from the propagandists is that there are still legions of market-lemmings who take this seriously!
Just as the extremely positive future for China is assured, based on its current parameters, so too is the certainty that the U.S. will continue its economic devolution toward national bankruptcy and individual poverty. Once again, the numbers refute the propaganda coming out of the mouths of people like “Helicopter” Ben and Tim-the-tax-cheat.
The United States has had one of the world's lowest savings rates for decades. If that is not bad enough, at the peak of the U.S. housing “bubble”, when the perceived wealth of Americans was at its highest level in history, Americans had a negative savings rate!
At a time when Americans came into temporary possession of $10s of trillions in illusory wealth, they were spending this “wealth” faster than they were accumulating it. The “wealth” is gone, but the debts (in the TRILLIONS) remain.
I will now defer to the superb work of Michael Hodges in compiling data on the U.S.'s debt horror-story. The following graphs come from “America's Total Debt Report”, just one of his detailed essays on this subject. For those who have difficulty grappling with numbers, these graphs will clear up any doubts.
Hodges begins by comparing current, total U.S. debt (more than $57 TRILLION)with the existing debt level from fifty years ago.
As if this massive debt-growth isn't bad enough, Hodges adds that over 80% of this debt has been accumulated in less than twenty years. Keep in mind that today the Obama regime is increasing that massive, mountain of debt much faster than even the previous rate of debt-explosion.
This is followed by a graph comparing the explosive rate of growth in U.S. debt with the weak rate of growth in national income. What the graph obviously shows is that the U.S., as a whole, is leveraged with debt to nearly the same insane level as the Wall Street fraud-factories.
However, what is perhaps most illuminating is the graph showing the dramatic plunge in the amount of income produced by each additional dollar of debt. The reason this factor is so crucial is that the Obama regime (and their trusty, media-parrots) continue to pretend that the U.S. can borrow-and-spend its way out of its current difficulties. As Hodges points out, there has been a 63% drop in the amount of income produced by each additional dollar of debt – and this graph is declining sharply, meaning that the debt-utility of the trillions being spent today will be significantly lower still.
It shouldn't even be necessary to show people such a graph, since this should be patently obvious to anyone with a grasp of simple arithmetic. Perhaps this point will be still clearer when we compare this mountain of debt to the grossly-inadequate Gross Domestic Product (“GDP”) of the U.S.
As pointed out by Chris Martenson, in his own fantastic presentation, “The Crash Course”, roughly $2 TRILLION per year of supposed U.S. GDP is statistical “padding”. It is “deemed GDP”, where there are no dollars changing hands and no visible wealth being generated.
Strip away that padding along with the dramatic reduction in GDP caused by the Greater Depression, and we are left with a measly, $11 trillion/year in GDP. Please note that GDP is not the profits of an economy, merely an indication of economic activity.
Given that most U.S. debt is held by individuals and cooperations, and with long-term interest rates rapidly rising, just to service this insane mountain of debt will require something in excess of $3 TRILLION/year. This is more than 25% of annual GDP!
Obviously when more than ¼ of all economic activity is dedicated to simply paying interest on debt, then it is equally obvious that borrowing additional vast sums of money will simply make this ratio much worse. If this were not true, then no one would ever need to declare bankruptcy, they could just keep borrowing more and more and more – until eventually they “solved” their problem.
Is there anyone who still believes the Wall Street Liars, their servants in government, or the media-parrots, when they repeatedly assure one and all that increasing this debt far faster than at any time in history will “solve” the U.S.'s current economic nightmare?
The arithmetic cannot be contradicted. The “plan” of the Obama regime (and the Bush regime before that) is simply a guarantee of bankruptcy for the U.S. - with most likely a destructive episode of hyperinflation before the final, debt-implosion.
What must be pointed out here is that the U.S. is currently so leveraged with debt that it is most likely already too late to try to rescue the U.S. economy through reducing debt. Former U.S. Comptroller, David Walker has already outlined the horrific changes to U.S. spending and taxation which would be required (over many decades) just to eliminate the deficit (with the total debt still growing all this time).
The problem with even Walker's grim projections is that he uses the phony, “statistics” of the U.S. government in making those projections. Plug in real numbers, and the situation is unequivocal: the U.S. is 100% certain to default on its national debt, in a debt-implosion which will be very similar to that of the Soviet Union.
All that remains to be decided is how much worse the U.S. government will make that implosion – by piling countless trillions of additional debt on top of this unsustainable mountain.
Related Articles
|
-
The Seeking Alpha 100
See allThe top 100 stock
market authors
selected for publication
Seeking Alpha 100 » -
Fastest Climbers
Authors with the largestSee all
increase in followers
in the last 7 days
Fastest Climbers » -
Top Commenters
Top commenters,See all
as ranked by their peers
Top Commenters » -
Top Instabloggers
The 100 most active
Instabloggers.-
1
David Fry
-
2
TraderMark
-
3
Don Dion
-
4
Cliff Wachtel
-
5
Joseph L. Sha...
Top Instabloggers » -
1
-
Top StockTalkers
TopSee all
StockTalkers.
Top StockTalkers »
Tom- thebiggerboard.net
I agree with the viewpoint of your post, but the "Wall Street "fraud-factories" were running a lot higher then the 5.7 to 1 (57,000:10,000) demonstrated in your chart for American debt Vs. income.
I think the most amusing rhetoric to come out of the China doubters when the US banks started to sputter were the statements declaring that the Chinese banks were weaker then the American banks....how funny is that!
The US Federal Reserve and the Chinese bank systems have similar systems (although the Chinese system is still in its infancy) of 3 interest rates that the government manages for growth...the open market rate (rates on US securities..gets lots of press), the overnight lending rate/discount window rate (gets a little press), and the reserve rate (no press at all, as if it does not exist).
The reserve rate is the percentage the Fed requires banks to have on deposit at the Fed to operate. Traditionally this money on deposit at the Fed does not yield any income to the banks. The Fed has left this reserve rate untouched during the current downturn even as it took other inventive measures.
Chinese banks have been running at a nearly 20% reserve rate since the start of the downturn, while in the US the Federal Reserve has kept American banks at a SINGLE DIGIT reserve rate, unchanged since the start of the downturn, because it knows American banks are just too weak and adventurous to support anything higher for safety (before the downturn) or lower for stimulus (now).
If American banks had to meet the nearly 20% reserve rate standard of China, just about every American bank would be insolvent. I discuss this situation in my blog in the post- The Most Unintelligent Intelligence Report
America needs a new tax system that does not favor personal spending with tax breaks for interest debt (mortgages) and corporate spending with accounting methods and taxation schemes that strongly favor debt issuance. Once taxation incentives are corrected, with interest in SAVINGS accounts being deductible and benefits for corporate borrowing removed then half the battle will be won.
On May 27 10:28 AM HaavBline wrote:
> The in-your-face writing is pretty annoying. But unfortunately mostly
> true. It is hard to find faults in this article except a few very
> minor details.
I certainly take some abuse for my "bludgeon-you-over-the... style of writing, but don't believe that those attempting to refute the propaganda-machine have any choice. "Drowned out" by a ten-to-one margin from mainstream, talking-heads (if not more), writing with a more subdued style makes such contrary opinions too easy to overlook.
Regarding your suggestion that I over-dramatized the plight of ordinary Americans vs. Wall Street, keep in mind that the debt data presented was AGGREGATE data. Included in that aggregation are the OBSCENE sums of savings of the ruling-class.
For AVERAGE Americans (who have seen their REAL incomes declining steadily for roughly 30 years) they are leveraged with debt (relative to their incomes) as much as most of the reckless gamblers on Wall Street - but lack the ability to request blank-cheque bail-outs every time they financially implode.
On May 27 11:02 AM HaavBline wrote:
> I should elaborate on my 'minor complaints', though they don't change
> the thesis of this article:
>
> 1. China definitely suffer much more than a 'hiccup' as the author
> said. However, they have massive reserves and viable productive
> options to make fast economic transformations.
>
> 2. Total dollar debt growth from 1957 to 2008 exagerates the true
> picture, which is still very bad. For a fair comparison of debt
> load growth, it would be more convincing to adjust the total debt
> by population growth, inflation, and GDP growth. i.e. per-capita
> debt load burden as a percentage of GDP. I believe this will still
> show a much worsen picture, though not as dramatic.
Some people need to be "hit over the...." before they understand things. Keep it up.
and a side note to AM HaavBline:
You admit that things are bad. Any further quibbling is really about "degrees of badness."
Good luck with controlling your rage and try to get some sleep at night...
In 1957 I had no debt. In 2009 I have 1000 times more debt than I did then. Therefore I am bankrupt?
We were told that crony capitalism run by the Japanese was the wave of the future and that we would soon be owned by them.
Crony communism won't fare better than that by the Japanese.
If the ants in the anthill (known as China) will overthrow their oppressors, they have a chance to build a lasting future.
The Canadians haven't produced anything good since...
The Canadians haven't produced anything good.
I'd rather have Canada next to me rather than China.
Jeff, which country produces most of the world's innovations, US or China? Where does improvements in productivity come from? The smart technologies etc? What does China offer other than plain labor? Iam simplifying a bit here, but you get the picture?
BTW, US GDP is about twice the size of the Chinese, no? China, without any doubt is the fastest growing economy, with high work ethic, but beating down on the US is pretty lame, IMO.
"Improvements in productivity" over the last 20 YEARS come mostly from CUTTING WAGES of workers - while the "bosses" awarded themselves HUGE wage increases for "improving productivity". LOL!!
As for the size of the U.S. economy it is an illusory "house of cards" because it is built on $57 TRILLION of borrowed money - with no hope of every repaying it. How big would China's economy be today if it had mooched more than $40 TRILLION from other nations in just the last 20 years?
I'm not trying to "beat down" on anybody. I'm trying to help people remove their "blinders" so they can BEGIN to protect themselves from the total meltdown on the way for the U.S. - with NO ONE in the U.S. government making ANY EFFORT to protect its own citizens.
Go ahead and "shoot the messenger", but it's YOUR "funeral" which is coming.
On May 27 01:00 PM Gtarras wrote:
> "the U.S. dominates as the largest dead-beat the world has ever seen
> – trying its best to borrow the surpluses of all the world's productive
> economies."
>
> Jeff, which country produces most of the world's innovations, US
> or China? Where does improvements in productivity come from? The
> smart technologies etc? What does China offer other than plain labor?
> Iam simplifying a bit here, but you get the picture?
>
> BTW, US GDP is about twice the size of the Chinese, no? China, without
> any doubt is the fastest growing economy, with high work ethic, but
> beating down on the US is pretty lame, IMO.
-Interest income 100% exempt from taxes
-No yearly limit on retirement contributions
-No taxes on capital gains or dividends
I don't see the federal or any state government enacting this because the political class is totally addicted to spending, and you cannot have spending unless you have tax revenue.
On May 27 11:09 AM Tom- thebiggerboard.net wrote:
> America needs a new tax system that does not favor personal spending
> with tax breaks for interest debt (mortgages) and corporate spending
> with accounting methods and taxation schemes that strongly favor
> debt issuance. Once taxation incentives are corrected, with interest
> in SAVINGS accounts being deductible and benefits for corporate borrowing
> removed then half the battle will be won.
Given all the statistics and analysts, where may one find the truth of it...?
It being the given vantage point from which one so seeks to know, being political, social, economic, financial.
First, it should be noted that the mechanics of your comparison requires not the US but the US/EU alliance; it has provided China with a seat at the G-20 (not G-7) table. As its currency remains debilitated by restrictiveness, the Communist Government's anti for recently venturing into the heady games incumbent of world financial markets is wholly derived from its about equal holdings of foreign capital reserves "issued" between those two (US and EU). The article's arguments lack that context.
As for the specifics cited, all that I can say is that the Chinese banking and SOE-dominated economy is bankrupt. This last stimulus package -- equal to one-third of its foreign capital reserves -- was necessary to prevent the system from seizing into a series of defaults.
If the US and EU decide to halt treasury payments due to the CCP's government sponsorship of the North Korea regime, the social-economic consequence would return China to its cultural revolution era -- overnight.
Chinese people understand that reality relative to the dictatorial structure of the regime under which they live here. As I gather you do not, Chinese people understand Chinese history a la the 14 dynasties preceding the CCP. All 14 are considered by those whom I talk and study with to be dictatorships that repeated patterns of social-economic dysfunction that eventually resulted with demise.
Hence why common Chinese citizenry save (cash, not via financial instruments) at such high rates. The people here live in fear. I mean fear...
I grew up in Maine and have enjoyed many trips throughout Canada. Last time, in Quebec City, just before moving to China, I saw the reenactment of when the Canadian military alliances defeated the invading American expeditionary force.
I served four years in the US Army as an enlisted law clerk. Two years were served in South Korea -- first tour stationed about 30 minutes south of the DMZ.
My point here is that I have experienced different levels of fear. When I say that China's Communist system operates and survives based on a sophisticated culmination of fear-based realities, I am not attempting to match the hyper-caustic tone of your writing style.
Thus, perhaps, in the evolution of your well-honed macro/micro mix of advocacies, you might take the time to live and learn about the people and system with which you are polarizing in said article.
Most Chinese people personally experienced some aspect of the last social-economic breakdown of the country (i.e., the Cultural Revolution). They know the craziness, the inhumanity that results from a system, this system that is absent rule of law and those First Amendment Rights of freedom of speech, press, and religion.
Until those systematic inequalities are resolved to the satisfaction of the majority of the Chinese demographic, your article serves as a disparate collection of statistics and analysis.
dr
Ps. Primary modus operandi of Chinese Thinking that I have come to learn and understand in terms of commercial and financial applications...
1. Who controls the relationship, the lender or debtor? The debtor.
2. What is considered consensus among common Chinese citizenry and business people alike as to being the primary means of wealth generation? Stealing from the government.
However, as you can see by many of the commenters, it's going to take a lot to get through about the future of the global economy to many Americans who continue to wallow in past glories.
On May 28 10:10 AM drDimick.com wrote:
> Jeff, the thinking reflected in this article – either amplified or
> clouded by tone and inflection -- represents one of the reasons why
> I moved to China in March 2006.
>
> Given all the statistics and analysts, where may one find the truth
> of it...?
>
> It being the given vantage point from which one so seeks to know,
> being political, social, economic, financial.
>
> First, it should be noted that the mechanics of your comparison requires
> not the US but the US/EU alliance; it has provided China with a seat
> at the G-20 (not G-7) table. As its currency remains debilitated
> by restrictiveness, the Communist Government's anti for recently
> venturing into the heady games incumbent of world financial markets
> is wholly derived from its about equal holdings of foreign capital
> reserves "issued" between those two (US and EU). The article's arguments
> lack that context.
>
> As for the specifics cited, all that I can say is that the Chinese
> banking and SOE-dominated economy is bankrupt. This last stimulus
> package -- equal to one-third of its foreign capital reserves --
> was necessary to prevent the system from seizing into a series of
> defaults.
>
> If the US and EU decide to halt treasury payments due to the CCP's
> government sponsorship of the North Korea regime, the social-economic
> consequence would return China to its cultural revolution era --
> overnight.
>
> Chinese people understand that reality relative to the dictatorial
> structure of the regime under which they live here. As I gather you
> do not, Chinese people understand Chinese history a la the 14 dynasties
> preceding the CCP. All 14 are considered by those whom I talk and
> study with to be dictatorships that repeated patterns of social-economic
> dysfunction that eventually resulted with demise.
>
> Hence why common Chinese citizenry save (cash, not via financial
> instruments) at such high rates. The people here live in fear. I
> mean fear...
>
> I grew up in Maine and have enjoyed many trips throughout Canada.
> Last time, in Quebec City, just before moving to China, I saw the
> reenactment of when the Canadian military alliances defeated the
> invading American expeditionary force.
>
> I served four years in the US Army as an enlisted law clerk. Two
> years were served in South Korea -- first tour stationed about 30
> minutes south of the DMZ.
>
> My point here is that I have experienced different levels of fear.
> When I say that China's Communist system operates and survives based
> on a sophisticated culmination of fear-based realities, I am not
> attempting to match the hyper-caustic tone of your writing style.
>
>
> Thus, perhaps, in the evolution of your well-honed macro/micro mix
> of advocacies, you might take the time to live and learn about the
> people and system with which you are polarizing in said article.
>
>
> Most Chinese people personally experienced some aspect of the last
> social-economic breakdown of the country (i.e., the Cultural Revolution).
> They know the craziness, the inhumanity that results from a system,
> this system that is absent rule of law and those First Amendment
> Rights of freedom of speech, press, and religion.
>
> Until those systematic inequalities are resolved to the satisfaction
> of the majority of the Chinese demographic, your article serves as
> a disparate collection of statistics and analysis.
>
> dr
>
> Ps. Primary modus operandi of Chinese Thinking that I have come to
> learn and understand in terms of commercial and financial applications...
>
>
> 1. Who controls the relationship, the lender or debtor? The debtor.
>
>
> 2. What is considered consensus among common Chinese citizenry and
> business people alike as to being the primary means of wealth generation?
> Stealing from the government.
My response was based on my research and observations made since moving here. If you read my book, I attempt to address issues that may be helpful "for state planners both central and provincial governments" (as so indicated by the subtitling on the bookcover).
Hope this informations helps... dr
The big US bank valuations, as you correctly said in another article, are a complete fantasy unless the USG covers their bad debts. In which case, it will push the USG debt even higher still.
BTW, regarding China, I've been there, too. Almost all the money is going to the elites. The vast majority of Chinese live in absolute poverty, working 12-14 hours a day, with almost no social benefit support. China can't expect any significant internal consumer demand unless it forces the factory owners to pay higher salaries or allows its workers to unionize - both inconceivable for the Chinese elites.
On May 28 10:10 AM drDimick.com wrote:
As for the specifics cited, all that I can say is that the Chinese banking and SOE-dominated economy is bankrupt. This last stimulus package -- equal to one-third of its foreign capital reserves -- was necessary to prevent the system from seizing into a series of defaults.
If the US and EU decide to halt treasury payments due to the CCP's government sponsorship of the North Korea regime, the social-economic consequence would return China to its cultural revolution era -- overnight.
Chinese people understand that reality relative to the dictatorial structure of the regime under which they live here. As I gather you do not, Chinese people understand Chinese history a la the 14 dynasties preceding the CCP. All 14 are considered by those whom I talk and study with to be dictatorships that repeated patterns of social-economic dysfunction that eventually resulted with demise.
Hence why common Chinese citizenry save (cash, not via financial instruments) at such high rates. The people here live in fear. I mean fear...
I grew up in Maine and have enjoyed many trips throughout Canada. Last time, in Quebec City, just before moving to China, I saw the reenactment of when the Canadian military alliances defeated the invading American expeditionary force.
I served four years in the US Army as an enlisted law clerk. Two years were served in South Korea -- first tour stationed about 30 minutes south of the DMZ.
My point here is that I have experienced different levels of fear. When I say that China's Communist system operates and survives based on a sophisticated culmination of fear-based realities, I am not attempting to match the hyper-caustic tone of your writing style.
Thus, perhaps, in the evolution of your well-honed macro/micro mix of advocacies, you might take the time to live and learn about the people and system with which you are polarizing in said article.
Most Chinese people personally experienced some aspect of the last social-economic breakdown of the country (i.e., the Cultural Revolution). They know the craziness, the inhumanity that results from a system, this system that is absent rule of law and those First Amendment Rights of freedom of speech, press, and religion.
Until those systematic inequalities are resolved to the satisfaction of the majority of the Chinese demographic, your article serves as a disparate collection of statistics and analysis.