The Great Shift: China Rising, U.S. Falling 72 comments
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We are living through one of the times in history when a major and irrevocable shift is taking place. It will be a time that will be the subject of controversy amongst historians and, no doubt, there will be arguments about causation, about what set off a chain reaction of change. They will perhaps ponder and wonder that so many people were so blind to what was actually taking place before their eyes.
The shift that we are witnessing is the move of economic power from the West to the East. It is a well worn theme on Cynicus Economicus, that we are seeing the rise of China, and the fall of the US, and the process is now accelerating. Alongside the fall of the US, we are also seeing further declines in countries like the UK.
When I first arrived to work in China in 1997, I could see the emergence of an economic juggernaut. Sure, there were huge problems, and I encountered the legacy of communism in a generation of senior managers who were next to hopeless. Despite that, when I finally left China, I could see that the future was going to be Chinese. I could see a generation of hard nosed business people emerging.
The experience in China shaped my thinking on economics. On the ground in China I could see the massive investment from the West shaping a new and dynamic China. The Chinese welcomed us with open arms and, when I first arrived, were still somewhat in awe of the success of Western business. However, as time progressed, I also saw that Westerners were seen as a soft touch, who would overpay on everything.
The establishment of joint ventures was just one example of the many ways in which the Chinese would extract great deals. When I first arrived in China, all of the consultants were urging investments in joint ventures, and would prattle about notions such as 'guanxi', without any real knowledge of what they were talking about. The Western companies would send out a senior executive with orders to arrange a joint venture. When they arrived in China, they would be presented with four or five prospective joint venture partners, all of whom would have opaque business operations.
In the end, with all of the partners similarly opaque, the Western executive would settle on the least ugly partner. The documentation would then be drawn up, and the business would commence. It was at that point that the Western company would find out that they were supporting a whole raft of pensioners and other commitments in the joint venture. As part of the deal, the Western company would introduce new technology and process, train the management and the workforce. The trouble is that they were training the people ready for a new company to be established by their joint venture partner, and the new company would take all the technology, process and training, and open a competitor company. The competitor would be free of all of the social commitments and other costs.
Then there were the deals where, in order to win a contract, China would insist on technology transfers. I remember a GE power station turbine deal with technology strings attached, or the opening of an assembly plant by Airbus in order to secure deals in China. In so many cases, the price of doing business in China was risking the very thing that made the Western companies such a success; transfer of technology and process.
Then there is 'outsourcing', the rush to China to cut costs at the price of de-skilling the Western work force. It is not just the factory workers, but the designers and engineers who end up de-skilling. A good designer or engineer will understand the process of manufacture. Whilst there may be a legacy of good designers, as time goes by, the great design will emerge in the location of the manufacturer, and that will mean China. It will take time, but it will happen. The other trouble with outsourcing is that, as the manufacturers undertake the work, they will gain scale and experience, and will one day seek to move up the value chain. They will be in a position where all they need know is how to market and distribute their products. Outsourcing may make profit in the short term, but often at the cost of the future of the company doing the outsourcing.
Alongside this, there has been the artificial manipulation of currency by China, and no respect for intellectual property rights. The countries of the West have allowed this to take place, and now appear powerless to stop such practices.
There is a reason why I have returned to the subject of China. I have long argued that the ascent of China will progress far faster than most analysts and commentators suggest. I have long argued that China will emerge as the winner from this crisis, and have argued that their currency will be the new reserve currency in the future. Over many, many posts, I have tracked their steady process of internationalisation of the RMB, and consistently argued that the $US is so weak that it must collapse. I have returned to the subject as the mainstream media are finally really starting to understand what is taking place. Amongst the many articles, it is this article from Ambrose Evans-Pritchard that inspired me to return to the subject:
Beijing does not need to raise money abroad since it has $2 trillion (£1.26 trillion) in reserves. The sole purpose is to prepare the way for the emergence of the yuan as a full-fledged global currency.
"It's the tolling of the bell," said Michael Power from Investec Asset Management. "We are only beginning to grasp the enormity and historical significance of what has happened."
[and]
"Everybody in the world is massively overweight the US dollar," said David Bloom, currency chief at HSBC. "As they invest a little here and little there in other currencies, or gold, it slowly erodes the dollar. It is like sterling after World War One. Everybody can see it's happening."
The article was a response to news (since denied) that China, France, Japan, Russia, and the Gulf states were planning to abandon the $US for pricing of commodities. Ambrose Evans-Pritchard argues that the currency of pricing commodities is of no importance, but this is something with which I disagree. This is what I had to say on the subject of the emergence of the RMB as a reserve currency in April:
However, the real key to reserve status is when trade is more broadly conducted in the RMB, such as move to trading oil in RMB. Perhaps Venezuela will offer such an opportunity? An article here suggests that Venezuela may need to turn to China for financial support, and this may well present an opportunity for China to start this process:
In Latin America, the external funding situation remains relatively stable but in the case of further deterioration of capital flows, the solid economies would be able to tap the IMF or the Inter-American Development Bank ((IADB)) for non-conditional lines of credit, while the economies with less sound macroeconomic frameworks such as Ecuador, Argentina and Venezuela would most likely only be able to obtain funds through more formal conditionality or by turning to lenders like China.
Returning to the question of whether it is possible, I see no reason to prevent the RMB from taking on this role. There has been talk about the RMB not being 'liquid' enough, the lack of depth of their financial markets. However, I take a fairly simplistic view, which is to ask whether a currency has the underlying strength of being able to be used to purchase goods and services. The answer to this question is, of course, 'yes'.
It appears that ambitions for pricing of oil in RMB are far more ambitious than I first thought. Whilst the story has been denied, there is an underlying logic to the story that belies the later denials. It is only a matter of time before we see commodities priced in RMB.
In order for the RMB to succeed the $US as the reserve currency, it was always going to be necessary for the $US to collapse. The US has undertaken policy that will ensure such a collapse, and it is simply for the reason that the US is fiscally incontinent, printing money, and pouring the wealth of the future into zombie banks. When the $US falls, the US will finally see the forces of inflation unleashed, as the massive imports of commodities, goods and services surge in price. It is at this point that the underlying reality of where real economic power lies will finally become clearly visible. It is at this point that the real wealth generating capacity of the world will emerge into the light.
When the US is no longer able to borrow, when it is reliant upon what it actually produces, rather than borrows, it will be apparent how bad the situation has become. The same will be true of several other economies, such as the UK. For many years, these economies have been subsidised by the economies to the East and, without any further subsidy, they will find life is far harsher than they have ever imagined.
The rise of China is no mystery but, no doubt, the historians will manage to find controversy, manage to bury all of this under complexity. The economists will meanwhile suggest that the transfer of economic power emerged out of the banking crisis. The reality is far simpler.
The Western world was complacent, arrogant, and bloated. Collectively, the West allowed the emergence of a new competitor who used mercantilist policies to accumulate the modern equivalent of bullion, they allowed the export of all that had made their economies such a success and, when confronted with reality buried their heads in the collective sand of borrowing and money printing. Whatever happened, once China opened to the world, a new economic challenge was inevitable. However, the way that the West met the challenge has ensured that China will emerge as the great economic power.
As we move towards the end of 2009, we are entering into a new world, a new economic structure. We are witnessing a change in the world that will be viewed in hindsight as one of the defining moments of the 21st century.
Note 1: I have not referenced as many points as usual. However, many of the points made are consolidating the points made in previous posts, and these provide support for the case that I am making. I have listed some previous articles on China and the $US, if you are interested in seeing my case in greater detail, and the evolution of my thoughts on China's rise:
- July 2008, China - What Future?
- August 2008, China Propping up the $US
- January 2009, Free Trade 'Yes' - Mercantilism 'No' - Why China Should be Shut Out
- January 2009, The Myth of the Eternal Status of the $US as 'the' Reserve Currency
- February 2009, China's Pivotal Role in the Next Step for the World Economy
- Fenruary 2009, China and the US - Fighting on the Edge of a Cliff
- March 2009, Economics and Power, the Loss of US Power
- March 2009, China, Gold and the $US
- April 2009, China as the World Economic Power?
- April 2009, The RMB as the Reserve Currency
- May 2009, China, the RMB and the $US
- July 2009, The RMB as the Reserve Currency - an Update
- September 2009, The Rise and Rise of China
Note 2: Am I repeating myself here, or does this post add to past posts? Comments welcomed. If readers feel I should move off this subject for a while, I will do so.
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This article has 72 comments:
If for example China were to get into a trade war with the E.U or U.S. who is to say that China couldn't use the legal system to dissolve the JV contracts in place to takeover a VW-Geely JV or a Ford-Chery JV? I think the Fiat Joint Venture was the canary in the coal mine so to speak, when their Chinese JV partner took over the entire operation.
It is a scary thought to think that Western and Asian companies can invest heavily in China only to have their investments taken over though LEGAL agreements that they signed onto in order to enter the Chinese market.
We are arguing about the wrong things in America. What we need to be talking about it permitting American companies to repatriate 100% of their profits without entering into a JV agreement or requiring the sharing of any of their proprietary technology.
You are one of the few Americans I know who knows about this issue.
However I disagree on your assumptions of the Yuan. Indeed the Yuan can be used to purchase goods and services from China, however, China's overly restrictive non free floating policy largely negates its value as a world currency. Naturally they wish to retain the status of the RMB being an undervalued currency in order to maintain their competitiveness not against the US but from the US finding and shifting its production elsewhere.
The hesitance to embrace the RMB has been witnessed by China's several failed bond auctions. Further muddying their currency they regularly view currency as a zero sum game and detest anyone who accumulates RMB reserves seeing this as a sort of theft of business from them. Sooner or later they want it returned to them through purchase of Chinese made goods. This logically negates their ability to be a reserve currency since, by definition, it involves allowing anyone to keep it in reserve.Thus China has pressed for a basket of currencies approach in which their manipulated currency can hide while still retaining their unfair currency policies.
Although the US has gone a long way in ruining the value of the dollar, the US remains a reserve currency largely because no other country allows their currency to float so freely nor has enough of it and corresponding debt to meet the world's demand. That may change over time but it won't stem from China. Rather, I'd look more towards a Euro fulfilling a role as a global reserve currency.
I will go further, and add that the author appears to assume the trends he identifies (mostly correctly) are inherently durable. I think this is an open question.
For example, if a deflationary depression were to really get started, it would reliably do 3 things:
1) Drop average US wages to more competitive levels
2) absolutely gut US demand, and thus US imports from China
3) encourage protectionism (everybody knows it's bad; almost everyone will do it anyway)
These three, by themselves, would completely up-end the model the author seems to expect to function indefinitely.
People are a resource, no doubt about that. But Free(r) people are a better resource. And I don't believe for a minute that the Chinese central government will react to economic disaster constructively - it's just not in their nature. And look at the dumb-ass responses of the freer nations of the world have embraced. Rest assured that the responses of the heirs of Mao will be worse.
So, yes, someday China will rise to prominence . . . but probably only after another horrific bit of history, much like the 40's. A country where owning land is not only illegal, but unconstitutional, clearly just hasn't rehabbed from communism long enough to avoid succumbing to that poison when times get tough again.
1. The Chinese wonder is in it's infancy and has yet to be derailed. This initial "shock" might do a bit more damage without pieces that move. This rigidity is inherent in planned economies and this is probably the biggest risk looming on the horizon.
2. The rise/fall thesis is predicated on the allocation of resources globally. Any disruption to the allocation system and it's underpinnings (read credit markets and participants) can create long-term dislocations. The ability to create these disruptions could easily push out the inevitable equilibrium that you are not properly discounting.
Great article
China will be a great power,of course, but then for centuries, with brief interruptions it HAS been a great superregional power....but not more.
China has 4 fundamental strategic weaknesses that ,in my view, will prevent, its assured displacement and replacement of the US in the affairs and imagination of the world
1. It has the worst demographic profile of any major nation. It is aging rapidly and the ratio of workers to dependents is falling fast. Unlike Japan, China is growing old before it had the chance to become rich or healthy. China will, in about 15 to 20 years, have the greatest concentration of unskilled, frail, very poor old people in the world : 4 grandparents, 2 parents dependent on one adult child.
Moreover China's gender ratio (male to female) is the most grotesquely unbalanced in the world. China has too many young males who can find no mate: the social consequences of this are vast and generally unexplored but they are not benign. China's systematic slaughter of baby girls in the second half of the 20th century(as a consequence of its vile one child policy) will haunt it for decades.
By 2025, India will surpass China in population and moreover have a much larger pool of(exploitable?) young, cheap, labor with far fewer old people.
No nation in history ascended the arc of global greatness while in deep demographic decline
2. China has succeeded admirably via technological imitation and the application of enormous amounts of cheap foreign capital to cheap and coerced labor. This model is scalable only so far. After that growth must come from tremendous, transforming, globally applicable innovations(as it did for Germany, Britain, the USA and to an extent, Japan). China does not innovate in transforming ways because innovation id a deep threat to a communist government.
3. China lacks a network of forward bases worldwide from which to project presence and power. It takes decades to build this irreplaceable network. Only the USA today has this network but it should not assumed that as the USA abandons this multi decade and highly successful project and retreats that ANY nation will replace it. Rarely in history are circumstances so favorable for a global power project as they were for the America over the past 100 years. Moreover, rarely in history has any Nation had the vision and resources to be a "shining city on a hill" for all people(No, it was not realized, except in part but that is not relevant here) as America did in the 20th century.
4. China's popular or even classical culture has very limited global appeal. Truly great Powers also succeed in cultural dominance....Rome, Greece, Western Europe, the US each in turn. Japan and Russia never did.
India's popular and classical culture seems to have much grater global appeal and certainly much greater appeal in the Global South than China's. India's movie industry is the biggest in the world, for example and apparently Indian entertainment is becoming popular in several parts of the world. Who watches made in communist China movies in Africa, the Middle East ,southeast Asia or in the West?
When America rose to greatness it did not have suspicious and culturally hostile neighbors on every side...on the contrary.
China will be challenged in certain ways by India, resented by Russia, disliked by Japan and Korea and viewed with fear and ethnic hostility by Indonesia and the Philippines. The Indian navy ,in particular will challenge the Chinese navy and both China and India are likely to collide in Africa, Southeast Asia, the Middle East
and central Asia.
We do not know what comes after America's retreat but it is unlikely to be a smooth transition to CHinese hegemony: it may be a dangerous and fragmented world for decades until some presently unanticipated, new order emerges.
The China stimulus has been around $600billion, for an economy 1/3 the size of the US economy. You don't see banks increasing lending by 30% YOY without wondering what the heck is going to happen to the NPLs at China banks.
China's consumers have no social safety net so they save 40% of income. Consumers in Europe and the US are massively scaling back spending. How does that impact China when all the metrics - factory utilization, exports etc. are going down sharply? I'm not betting on China consumers spending big time any time soon.
If you think it is a scary proposition that the US faces with 300m, I would not want to be the one trying to figure out how to keep the boat with 1.3billion people in it afloat.
Western companies were stupid as to transfer their know how to China. Really, this was breath taking stupidity. The world is a huge place. American companies should spend more time on Latin America, India, Vietnam, Indonesia, Dubai and other fast growing economies. America talks about China far too much. GE Healthcare is doing the big push into India. Other American companies should take note. There are enormous opportunities elsewhere in the world. We don't need to obsess about China. It's a big world with lots of great opportunities everywhere. America needs to get back to its roots and innovate.
We grow fast by innovating. Small business produces most of the jobs. There is a fatal flaw in the US innovation machine - lack of seed capital. If the future Google, Apple, Microsoft can't get $200,000 in seed capital, our best and brightest start ups can't even get their foot on the bottom rung of the financing ladder. We don't need Washington's tax credit for small business hiring. We need seed capital. Then you will see a flourishing renaissance in America's creativity and the company creation machine will crank into high gear. The US company creation machine is right now broken.
As the old saying goes, man does not live by bread alone and the need for "circuses" and powerful "memes" as well is very much a part of the overall mix that will continue to shape global commerce.
The contributions that Hollywood has made to "branding" the US dollar as a globally accepted instrument of value are a powerful counter-force to the ineptitude of its bankers
1. A reserve currency fulfills 2 roles: firstly as a means of trade and secondly as a reserve store of value. There is no reason why the world needs 1 reserve currency, or 1 currency to fulfill both roles. The dollar will gradually lose its role in both areas. The RMB will develop as a means of trade but shows no signs of being held for other reasons.
2. I guess we all have our views, but I see no evidence of a dollar "collapse". Things would have to change materially for a "collapse". I see evidence of a long term decline - with periodic gains along the way. A dollar collapse in the next 10 years would also collapse China because of how their economy is organized.
3. I don't agree that "China will emerge as the great economic power" - not THE as in singular anyway. You ask for comments on your emphasis. My comment would be: let's look at the rest of the world. What about India? Strength in outsourcing, good demographics, English (international) language skills- you bet! What about countries with lower cost bases than China? What about some of the countries that actually have the basic resources that we will all, including China, need in future?
Having said that, China will be a problem for a while. In large part, because our MBA's get dumber every year. This quote should be central to every B-school curriculum-- it's obvious to everyone who WORKS for a living (or tries to): "Outsourcing may make profit in the short term, but often at the cost of the future of the company doing the outsourcing." it's not time for the US to ride into the sunset. It's hard to see now, but I feel we have another good century or two left in us. After that, I think I'm betting on India-- they a number of key leg-ups over China: better educated populace; better demographics; honest-to-god FUNCTIONING government.
My hope is that our Govt. will get a clue and get more protectionist. Not to the point of all-out trade war, but enough to make up for China's UNFAIR advantages (To wit: lack of safety and environmental standards; lower wage structure)
The problem for EVERY country is that their fortunes depend on the fortunes of the rest of the world, and some (China) more than others.
The US is fading because our exports have long been less than our imports, but that problem is not due to China. It is one word:
OIL.
Fool me once, shame on you...fool me twice....well, I think you get the point. Profits and profitability matters and hard nosed business acumen, tempered by empathy is a good long term way to practice one's affairs. However, don't raise your kids to grow up to be suckers...focused on greed.
On Oct 08 08:48 AM CaptainJJack wrote:
> The biggest hole in the "China rules the world" thesis is that China
> is an export driven economy. Until that changes they hurt themselves
> every time they try to exercise their power.
>
> The problem for EVERY country is that their fortunes depend on the
> fortunes of the rest of the world, and some (China) more than others.
>
>
> The US is fading because our exports have long been less than our
> imports, but that problem is not due to China. It is one word:<br/>
>
> OIL.
On Oct 08 08:40 AM youngolf wrote:
> Super great comments above. The USA has to have a resurgence in small
> business and entrepeneurship to survive, to defuse this 'too big
> to fail' environment we are in. Small business/sole proprietorship
> can only flourish when one does not have the issue of how to 'health
> insure' themselves and family, and eliminate the risk of losing everything
> to illness. Health care reform is necessary. The current system causes
> talent to migrate to the large employer with the great benefits.
> This has to stop.
Hollywood is losing its clout. Take a look at the Korean TV production industry. Better story lines, character studies, less explicit ... They are much more appealing to a large part of the world than what America now produces.
On Oct 08 06:43 AM morph366 wrote:
> User 353732 is right to stress that China may not be able to rival
> the US in terms of the "imagination of the world".
> As the old saying goes, man does not live by bread alone and the
> need for "circuses" and powerful "memes" as well is very much a part
> of the overall mix that will continue to shape global commerce.<br/>The
> contributions that Hollywood has made to "branding" the US dollar
> as a globally accepted instrument of value are a powerful counter-force
> to the ineptitude of its bankers
Economies continue to grow as a result of an almost pyramid scheme in terms of population.
On Oct 08 06:06 AM User 353732 wrote:
> We are in an interregnum between the fading of the US as the world's
> first and only global hyperpower and a new arrangement among Nations.
> However, it is not evident to me that the American century will
> be inevitably replaced by the Chinese century.
> China will be a great power,of course, but then for centuries, with
> brief interruptions it HAS been a great superregional power....but
> not more.
> China has 4 fundamental strategic weaknesses that ,in my view, will
> prevent, its assured displacement and replacement of the US in the
> affairs and imagination of the world
> 1. It has the worst demographic profile of any major nation. It is
> aging rapidly and the ratio of workers to dependents is falling fast.
> Unlike Japan, China is growing old before it had the chance to become
> rich or healthy. China will, in about 15 to 20 years, have the greatest
> concentration of unskilled, frail, very poor old people in the world
> : 4 grandparents, 2 parents dependent on one adult child.
> Moreover China's gender ratio (male to female) is the most grotesquely
> unbalanced in the world. China has too many young males who can find
> no mate: the social consequences of this are vast and generally unexplored
> but they are not benign. China's systematic slaughter of baby girls
> in the second half of the 20th century(as a consequence of its vile
> one child policy) will haunt it for decades.
> By 2025, India will surpass China in population and moreover have
> a much larger pool of(exploitable?) young, cheap, labor with far
> fewer old people.
> No nation in history ascended the arc of global greatness while in
> deep demographic decline
At the root of everything lies the question of whether the country's political structure is conducive to sustained growth. In the west, the classic pattern of development has been for economic change to stimulate demands for political reform and greater democracy. Fear of political change could hold China back; the top-down fiscal package exacerbated the fundamental weakness of the economy in expanding the role of state owned enterprises. The stimulus has rewarded many state owned enterprises and over the long run the role of SOE’s must be reduced while giving wider berth to small, privately held companies which will be more responsive to market changes and better incentivized to innovate.
The second biggest challenge for China is to move from an export driven economy to a more balanced model in which domestic consumption plays a larger role that it does today. Relative lack of healthcare and the cost of a decent education mean that families save far more heavily than in the west, leaving them with less money left over at the end of the month to spend. China must extend upon its rudimentary social safety net and expand educations, pensions and health care
The demographic issues is interesting because China is unusual in that it is experiencing the problems of both a developing and developed country; high economic growth along with an aging population. It is unclear how will address this issue but it is clear the government is worried about the cost of a western European-style welfare state. The important point, though, is that China’s population is large enough to support well above average growth for decades until this issue is addressed.
Other challenges include the gap between living standards in the cities and in the countryside; the comparison between the wealth of the coastal strip and the poverty of the inland regions; the mismatch between the country's projected growth rate and its energy needs; and the need to improve the structure and regulation of its capital markets.
In the longer term, Beijing has to decide how to use China's growing economic clout on the global stage. China has allowed Americans to live beyond their means for years by using its export earnings to buy US Treasury bonds but it is clear to both that this is unsustainable; both countries are preparing for change, including an expanded role for the Renminbi.
The most thought provoking article on this site in some time.
They sell us their real goods at below their cost. How unfair is that? How much longer can they keep it up?
And I stopped reading there. That number is at least 2X China's population. What else in the comment is wrong?
But maybe some traders here can explain to me how to profit from buying high and selling low.
Good post.
1. China has developed and presently recognized the other side of the aggressive mercantilist policy. For example, so much of the state funding has gone into heavy industrial capacity, that the state has imposed a prohibition on the construction of new aluminum smelting plants, etc. This overcapacity can only be absorbed by steady foreign buying, and the US market will continue to be an important element. Just based on the size and maturity of its markets, the US can only fall so far, even if it is nowhere near its former heights .
2. US deindustrialization has been a long ongoing process (I remember writing papers and debating the matter as a university student in the 1980s, by which time there was already a considerable literature). The only possible remedy is a governmental policy solution which will be highly controversial. For example, the firm in which I work, a US manufacturer, was late to the Asia import game and entered only reluctantly. At that point, our competitors were "all in" and began to undercut our prices materially, so we faced a stark choice: either join the foreign sourcing party, or go out of business. In either case, we could not sustain the same level of domestic production and employment.
We chose the lesser of two evils, and still employ some US manufacturing workers. Margins have eroded anyway, because buyers know the foreign sourced product is cheaper, and nobody in our industry has much pricing power. We live and raise our families in these communities, and would have preferred to maintain full employment. That would only have been economically feasible if something like a tariff had decreased the cost gap between foreign sourced and domestically produced goods. Is that an argument for protectionism? Would such a thing be viable? I understand perfectly well what economists say, having been educated by them.
What about the indirect hard and soft social costs of deindustrialization? Unemployment insurance, law enforcement and prisons, falling property values, etc, social stability, human happiness. How much do any of these matter? Certainly the economists will have their answers for these as well.
To the world
1. Emerging market people living standard have doubled
2. China a major military power
3. Iran is becoming a major nuclear state. ( oil money)
To the United states and western Europe
1. Unemployment at depression level
2. Lower living standard, No real income growth and commodities are up big.
3. State and counties are broke
4. S&P at lowest level, may under 500 if you consider dollar depreciation
5. Middle class is vanishing at the alarming rate.
In other world
We are shipping our living standard to emerging countries. WOW, what a free market. Please Promote free market, it is good for USA .
"Ambrose Evans-Pritchard argues that the currency of pricing commodities is of no importance, but this is something with which I disagree."
Me, too.
Firstly there is a need for a Unit of measure - or Value Standard - to be used as a reference point for pricing. It is often pointed out that the actual transaction currency is irrelevant - it is what happens to the proceeds which matters.
Secondly, there is the requirement for a Unit of currency - a generally acceptable tradable token or object redeemable for value, and ideally representing a store of value.
These need not be the same.
As John Law said in 1705;
"Money is not the Value FOR which Goods are exchanged, but the Value BY which they are exchanged"
The distinction becomes apparent if you look at the Swiss WIR business barter/credit clearing system. On the WIR - which is essentially just an accounting system - goods and services change hands between thousands of Swiss SME businesse on credit terms, and discipline in respect of debit balances (ie defaults) is imposed through a charge over WIR members' property. This property backing probably accounts for the fact that the WIR is still humming away like a Swiss watch 75 years after being launched.
The point I am getting to is that no 'fiat' Swiss Francs change hands, because all balances are settled in goods and services not FOR Swiss Francs (as a currency), but BY REFERENCE TO Swiss Francs as a Value Standard.
There is no reason at all why global trade should not be carried out within a network of WIR style Credit Clearing Unions, but it will be seen that this would require a "Value Standard" which is meaningful to the average user.
John Law again:
'Every thing receives a Value from its use, and the Value is raised, according to its Quality, Quantity and Demand.'
I have difficulty in seeing that gold has much in the way of use value over time. You cannot live in it, heat your house or fuel your car with it, or type emails with it. Perhaps more natural candidates for acceptable (fungible) currencies would be Units redeemable in land rental value (nationally) and Units redeemable in energy (internationally) such as units redeemable in btu's of gas, gasoline and other carbon-based fuels/energy vectors in particular.
As for a global Value Standard, it appears to me that a fixed Unit of
energy is the natural candidate.
So to sum up, rather than energy being priced in dollars or renmimbi, perhaps dollars and renmimbi might be priced in energy?
American power is not simply going to vanish. But it is going to change, as it needs to regenerate itself ( and regenerate its understanding of who it is and wants or needs to become).
America is having and heading into an identify crisis -- and when we're trying to resolve that the world will change considerably.
I especially like your geography lesson -- as I also think that is a HUGE issue. How many friendly states you have on your border. Do you think America would have risen to global power so quickly if it had been surrounded by potential enemies? Could it have sent its armies all around the world to act as policemen for capitalism if it would have had complex arrangements on each one of its borders? Not very likely.
I also agree that the failure of the global economy will NOT affect America only (or America and Europe only). China will make a LOT less money exporting to Vietnam and Laos and the Philippines and India than it did to America and Europe. If deflation sets in, like it is now, and will probably do so for the next decade or so, buying habits in the First World will change drastically and mercantilism in the Third World will also be devastated. China won't be able to keep funding billions of infrastructure stimulus bills to overbuild in housing and to run up stock prices for ever if her export trades does not recover.
On Oct 08 06:06 AM User 353732 wrote:
> We are in an interregnum between the fading of the US as the world's
> first and only global hyperpower and a new arrangement among Nations.
> However, it is not evident to me that the American century will
> be inevitably replaced by the Chinese century.
> China will be a great power,of course, but then for centuries, with
> brief interruptions it HAS been a great superregional power....but
> not more.
> China has 4 fundamental strategic weaknesses that ,in my view, will
> prevent, its assured displacement and replacement of the US in the
> affairs and imagination of the world
> 1. It has the worst demographic profile of any major nation. It is
> aging rapidly and the ratio of workers to dependents is falling fast.
> Unlike Japan, China is growing old before it had the chance to become
> rich or healthy. China will, in about 15 to 20 years, have the greatest
> concentration of unskilled, frail, very poor old people in the world
> : 4 grandparents, 2 parents dependent on one adult child.
> Moreover China's gender ratio (male to female) is the most grotesquely
> unbalanced in the world. China has too many young males who can find
> no mate: the social consequences of this are vast and generally unexplored
> but they are not benign. China's systematic slaughter of baby girls
> in the second half of the 20th century(as a consequence of its vile
> one child policy) will haunt it for decades.
> By 2025, India will surpass China in population and moreover have
> a much larger pool of(exploitable?) young, cheap, labor with far
> fewer old people.
> No nation in history ascended the arc of global greatness while in
> deep demographic decline
>
> 2. China has succeeded admirably via technological imitation and
> the application of enormous amounts of cheap foreign capital to cheap
> and coerced labor. This model is scalable only so far. After that
> growth must come from tremendous, transforming, globally applicable
> innovations(as it did for Germany, Britain, the USA and to an extent,
> Japan). China does not innovate in transforming ways because innovation
> id a deep threat to a communist government.
>
> 3. China lacks a network of forward bases worldwide from which to
> project presence and power. It takes decades to build this irreplaceable
> network. Only the USA today has this network but it should not assumed
> that as the USA abandons this multi decade and highly successful
> project and retreats that ANY nation will replace it. Rarely in history
> are circumstances so favorable for a global power project as they
> were for the America over the past 100 years. Moreover, rarely in
> history has any Nation had the vision and resources to be a "shining
> city on a hill" for all people(No, it was not realized, except in
> part but that is not relevant here) as America did in the 20th century.
>
> 4. China's popular or even classical culture has very limited global
> appeal. Truly great Powers also succeed in cultural dominance....Rome,
> Greece, Western Europe, the US each in turn. Japan and Russia never
> did.
> India's popular and classical culture seems to have much grater global
> appeal and certainly much greater appeal in the Global South than
> China's. India's movie industry is the biggest in the world, for
> example and apparently Indian entertainment is becoming popular in
> several parts of the world. Who watches made in communist China
> movies in Africa, the Middle East ,southeast Asia or in the West?
>
>
> When America rose to greatness it did not have suspicious and culturally
> hostile neighbors on every side...on the contrary.
> China will be challenged in certain ways by India, resented by Russia,
> disliked by Japan and Korea and viewed with fear and ethnic hostility
> by Indonesia and the Philippines. The Indian navy ,in particular
> will challenge the Chinese navy and both China and India are likely
> to collide in Africa, Southeast Asia, the Middle East
> and central Asia.
>
> We do not know what comes after America's retreat but it is unlikely
> to be a smooth transition to CHinese hegemony: it may be a dangerous
> and fragmented world for decades until some presently unanticipated,
> new order emerges.
The US falls on political correctness.
I would add that some other trends are emerging in manufacturing which might render the manufacturing investments China has made obsolete.
There is the myth of US "de-industrialization." The manufacturing jobs have declined but overall industrial output is as high as ever due to ever increasing automation. This will probably continue until it's much like the agricultural industry, 1%-2% of the population to run the robots that make everything and more of it each year.
The percentage of GDP relative to overall GDP attributed to Manufacturing will also shrink, but there will still be more "stuff" that is made. This trend is also starting to take hold in sectors of the service industries. Have you called up a travel agent lately to book airline flights? I thought not. Increasing levels of automation and innovation will continue these trends. Soon we might have robots making other robots that perform services, such as cleaning or fighting wars, etc. for us (roomba anyone?).
Even in engineering, I see these trends, increasing use of ever-more powerful software that automates certain low-level engineering design work are increasing the output of each engineer. The effect is better designed products that are developed with increasingly faster product-development cycle times.
Also, the diversity of products being designed are proliferating. The cost-effectiveness of these products will come from "flexible" manufacturing cabilities that can run low-number production numbers easiliy and with less and less set-up costs. Pretty soon, the cost/part of a one-off part will be almost the same as a million part-run. Companies will be able to make parts "on-demand" and thus try out ideas quickly, letting the market itself tell them to make more or not. Read about "the long tail" coined by Chris Anderson to get the idea. What effect will this have on jobs? Well, I'll tell you, those that are the most creative, the most agile, most networked, most innovative will be the winners, and those that cling to the way things are will be the losers. And the need for strong technical skills is a plus but increasingly, even those are becoming "commoditized" so that even those without technical skill but have creativity, can compete by having good ideas and "innovation networks" to get the idea out there. Incidently, the cost of failure is getting lower and lower (due to the agile manufacturing mentioned above) and the fact that one can "rent" the talent/resources on-demand, and thus there is no need to invest (take the added risk) in capital equipment/skills that you can just contract out to someone who specialized in that area. Of course, that also means you have competition from everyone else too, but that will make everyone better I hope.
Easy to see the progression in the U.S. We started out with very poor roots. People worked very hard (it was that or die of starvation). We were self sufficient in most raw materials. We mined coal, iron, copper, lead, silver and zinc wherever they could be found. We drilled for oil and gas anywhere it was accessible. People damned rivers wherever a flour mill or sawmill needed power and to water our farmland. We built railroads. We used the lumber from our forests to build our houses and businesses. We built coal and nuclear power plants as needed to power our cities and industrial processes. We built highways to quickly move goods and people where they were needed. We built pipelines to move oil and gas to where they were in demand. For our businesses and government we hired those best able to perform the job. We prevailed in great wars because we were self sufficient and didn't have long supply lines to protect.
Now in the 21st century we have become spoiled. We let hundreds of thousands of acres go brown to give extra water to a tiny fish, and import more and more of our food. We no longer build dams because anything that "changes nature" is bad. Building a new highway or factory takes years of environmental impact studies and millions of extra dollars and navigation of myriad lawsuits. Our domestic oil reserves in offshore waters and Alaska are off limits, we prefer to import it. More and more of our lands are put off limits for use growing forest products. We haven't built a nuclear power plant in decades and nuclear material is "temporarily" stored all around the country because our newly built storage facility is blocked due to politics. Our abundant coal reserves have now come under fire, with global warming advocates preferring to starve the country for electric power and artificially increase its cost. Even solar and wind power projects the Greens claim to prefer are put on hold or abandoned because of environmental or aesthetic concerns. Factories are ugly and smelly so almost all the everyday things we use are imported. Civil lawsuits have run amok, further raising the cost of doing business.
Meanwhile we have increased our "safety net" to where it is no longer really necessary to contribute. Food, shelter, and medical care is available without working so many don't. We have our old age provided for us so personal saving has become obsolete. We have to take into account political correctness when hiring rather than just getting the best employee available.
To make up for all these roadblocks we have placed in front of ourselves over the last few decades we have borrowed money from other countries and printed it to continue our lifestyle and maintain our facade of competitiveness. We seem to be reaching the limits of this, however.
Those of us in the U.S. need to realize there are billions of people in the world who are very poor and willing to work hard and build their countries without regard for all the politically correct roadblocks and speed bumps we have put before ourselves. These people are where we were 100 or 150 years ago, they are not yet spoiled. And they are going to be holding the economic, and military, power in years to come while we continue to struggle under our self-made load.
China, like Japan, has made its economic fortune through export-led growth. This actually can work OK when you're Japan, a nation about half the population of your largest market. It can't continue to work for China: there's simply no way for the US and Europe to demand enough for China to achieve Japan's numbers. For China to lend American consumers money to buy more Chinese stuff they can't afford is a mirage of demand . . . and absent that mirage, there aren't industrial jobs for the hundreds of millions of Chinese who'd like to enter the industrial workforce.
China has a billion people. A billion people in a one party state whose legitimacy is shaky, which has no meaningful ideology ("Communist" Party of China? Really? What's the "Communist" party?) and with ethnic conflicts which boil over into violence unpredictably, and which has massive environmental degradation.
The latter is significant-- the weakest link in state capitalism/Sovietism is that the Government won't regulate the pollution of state owned firms -- the regulator and the regulated are the same entity.
So people breathe foul air, drink foul water: this poisoned the Soviet Union, and its true in China, and a major source of unrest.
My two renmbinbi's worth is this: China's political and economic models, borrowed like a Disney DVD from the other Asian Tigers, can't be sustained. You can't say when it will crack, but crack it will.
I wonder if Cynicus' comments on designers e.g. creative classes are as simple as he suggests. Certainly past dictatorships from Rome to Germany and Russia produced lots of discovery and innovation.
Regarding Chinese integrity and deception, are those qualities and practices viewed differently in China compared with most western philosophy? If so, China's business and trade influence in many western countries may become more suspect and not very welcomed. But then, are we and our very wealthy so different?
I agree with others that India will become a very strong economic force, but I wonder if they want to be a world military power.
Thanks to Cynicus for taking the time to write the article and thanks to those who took time to write the amazing and well thought-out comments that followed it.
It's great to see people are interested and involved in what's going on in the world.
Can China Lead a Recovery? www.etfdesk.com/headli...
1. The US stands in a long line of nations that have held first place (or shared as contenders for first place) as global mercantile powers since the late 1600s (think Spain/Portugal, the Netherlands, France/England, UK, UK/Germany/US and US). Excluded from this list are essentially territorial empires such as Sweden around 1700 and thereafter Prussia, Austria and Russia which were important militarily and territorially but were not economically significant on a global scale. The relevance of the list in which the US stands is that while in retrospect we can see the events in history that marked the emergence of each to relative supremacy (and events that marked it being superseded by a rival), all (with the arguable exception of Portugal and perhaps Spain) continued to be important economic and social trend setters and leaders in the world as they had been before their breakthrough into notional ‘first place’. In short, being the ‘number one nation’ can be overrated (and even a burden) and, for the citizens of ‘declining’ countries, they continued to live relatively well and make valuable contributions to world civilization and didn’t necessarily find the loss of national preeminence impedes this continued relevance. This is not an argument in favour of lassitude or against reasonable striving; only for a balanced clear-headedness and against hysteria.
2. Clearly India, China and (in what the US has considered its own back yard) Brazil are rapidly rising economic and political powers. (Nigeria, Indonesia and Pakistan may have a similar liftoff in a later generation but it is much too early to speculate about these prospects.) The combination for each of India, China and Brazil of its physical size, population and resource base coupled with newfound political cohesion, modern infrastructure and modern media, information technology and economic institutions and practices makes such explosive change possible and probable. However, as others have observed, these countries face many challenges as well as opportunities and we should not assume that their rise will be smooth and uneventful. In short, just as the ‘fall’ of the US is not somehow preordained and will be not precipitous, neither will the ‘rise’ of the other large global nations.
3. Let’s not put a wrong spin on demography. While it is true, for example, that Japan is just too small geographically and by population to become even the pre-eminent East Asia power and that its aging population presents it with special challenges, it would be an ultimate dead end for it to see its salvation in somehow doubling its population by adding 20 and 30 year olds. This is not going to happen and it would have many negative social, political and ecological implications if serious attempts were made to achieve these ends. Aren’t there lessons in this for the nations of North America and Western Europe?
4. The forgoing is not the basis for arguing that the US (or each of the other major economic players) should be either complacent or, on the other hand, unduly defensive. A guarded optimism, diligence and prudence are called for by all concerned.
It arguably follows that individuals and companies seeking to do business in unaccustomed markets should show similar guarded optimism, diligence and prudence. Others have noted the opportunities and pitfalls of naivety or unrealistic optimistic or pessimistic expectations.
4. Let’s not put a wrong spin on the best means for a leading economy to compete with an emerging one. It’s not a race to the bottom in matters of living and working standards and rewards. Sure, there will be a certain amount of ‘off-shoring’ during the initial phases but ultimately the race within the emerging economy will be to raise its standards and rewards to the highest attainable levels. The trick for both sides is to avoid undercutting of reasonable standards during the transition phase.
Meanwhile the Philippine, Korean, Thai Taiwan and even the Indonesian central banks were forced to buy USD to prop up the so-called reserve currency because its precipitous fall in value against many currencies is causing problems with all other economies. AUD again at .90.....
The Yuan may not become the new reserve currency but thats more the Chinese wish than anything else. Strong moves are being telegraphed that SDR are going to emerge as the new reserve currency as USD devalues 50%. The timing may be more rapid than expected.
On Oct 08 04:36 AM Moon Kil Woong wrote:
> Cynicus, I fully agree with your analysis in the beginning. It is
> a natural progression stemming from Adam Smith's wealth of nations.
> A country's wealth stems from its ability to produce. As we shifted
> from production to financial manipulation we have gone a long way
> in abandoning what made the US rich and prosperous from the beginning.
> Innovation and invention by neccesity requires a link to production.
> We have given up a lot more than we thought transferring production
> overseas in order to save money.
>
> However I disagree on your assumptions of the Yuan. Indeed the Yuan
> can be used to purchase goods and services from China, however, China's
> overly restrictive non free floating policy largely negates its value
> as a world currency. Naturally they wish to retain the status of
> the RMB being an undervalued currency in order to maintain their
> competitiveness not against the US but from the US finding and shifting
> its production elsewhere.
>
> The hesitance to embrace the RMB has been witnessed by China's several
> failed bond auctions. Further muddying their currency they regularly
> view currency as a zero sum game and detest anyone who accumulates
> RMB reserves seeing this as a sort of theft of business from them.
> Sooner or later they want it returned to them through purchase of
> Chinese made goods. This logically negates their ability to be a
> reserve currency since, by definition, it involves allowing anyone
> to keep it in reserve.Thus China has pressed for a basket of currencies
> approach in which their manipulated currency can hide while still
> retaining their unfair currency policies.
>
> Although the US has gone a long way in ruining the value of the dollar,
> the US remains a reserve currency largely because no other country
> allows their currency to float so freely nor has enough of it and
> corresponding debt to meet the world's demand. That may change over
> time but it won't stem from China. Rather, I'd look more towards
> a Euro fulfilling a role as a global reserve currency.
Though I didn't see any reference to the core value systems that have underpinned these shifts.
In the US we've been encouraged to live for today, appearances are everything, if your nose is too big or your boobs are too small well then just borrow some money to get plastic surgery, if your neighbor got granite countertops then you should borrow money to get them too, etc etc. Borrow and spend, not save and invest. Take a look at the movies and TV shows and music videos of the last 30 years, it's all there. Add in a little Texas-style bragging about "We're Number 1" (and if you disagree then we'll send our military and $1 trillion to change your regime...)
Contrast that to Confucianism: save, invest, get educated, sacrifice, pay your debts, think about family, think about the future.
Two completely different value systems
If the $ drops by 50%, China will have the purchasing power / exchange value of $1 trillion.
If the $ drops by 90%, China will be holding just $200 billion worth of purchasing power.
Will they attempt to buy US equities? Or US real estate? Do you really think Congress will sit idly by and permit that to happen?
It is a fact that China has manipulated its currency for years. If the dollar becomes worthless as predicted, will the Europeans and Japanese allow China to continue to artificially set exchange rates vs. their currencies? Besides they euro and yen, there are no other currencies (or economies) large enough to replace the dollar as a universal exchange currency.
Does Beijing propose to use its tightly held, untradeable outside its borders currency, the Renmbiyuan, to act as a world reserve currency? Remember, China is the country that brought you counterfeit high-grade aircraft bolts, lead in paint, melamine in foods, failure to respect IP rights, rampant copying of software, music & movies, and scores of other issues.
The RMB/yuan reminds me of Disneyland Dollars: they only have value inside the park.
Sign me: Just askin'
1. The Muslim world is growing increasingly skeptical of a rising communist/Godless, superpower. This is a taboo subject that the financial world has yet to delve into. Think the U.S. had it bad from terrorists? When China begins standing in America's boots, they will experience similar events as we witnessed from their ethic Uyghurs.
2. As the U.S. government and western corporations beef-up IT security, China will have less technical information to feast upon, which will remove that edge they have gained so quickly from stealing almost every bit of technical knowledge that propelled them into the 21st century.
3. People aren't paying attention enough to the emerging effects of not having westerners there to quickly consume Asian exports like they once did (See current bankruptcy rates in southeast Asian economies for a more realistic picture of the economic climate in Asia).
If the $ drops by 90%, China will be holding just $200 billion worth of purchasing power.
Will they attempt to buy US equities? Or US real estate? Do you really think Congress will sit idly by and permit that to happen"
Let them buy US property. Hope they can carry it back to china someday.
Is there really anyone who thinks there is such a thing as a "no-doc" loan if you arent immediately able to turn around and sell that phony paper to a buyer who doesnt understand your loan is worthless?
Is there anyone who doesnt think the people behind these massive multitrillion dollar frauds should not be sent to jail?
It may well be that china is going to eat our lunch, but it is because we have become so corrupt that we not only do not jail the guilty, we "bail them out". The system is corrupt beyond repair.
waitin4mypitch says the following:
"At one point in the article (paragraph 7, to be precise), it is stated that "[i]n so many cases, the price of doing business in China was risking the very thing that made the Western companies such a success; transfer of technology and process." I find the use of the word "was" here to be noteworthy. With no further discussion within the article itself that even suggests, let alone fully explains, why it is that this phenomenon is viewed by the author as a thing of the past, I am very interested to hear the thoughts of others on whether the misappropriation by Chinese companies of non-Chinese industrial technology is a problem which continues to be significant or whether, as the article suggests, this is somehow no longer a meaningful concern."
The use of the past tense was an error. I think the process is ongoing, though Chinese companies are also advancing in their own right, such as in the supply of telecoms equipment.
Overall, I would like to thank all of those who have commented. Whilst not agreeing with some of the views, it is refreshing to see so many intelligent considerations.
"bob adamson" commented with insight, well done!
Let's see herein:
1/ The transfer of technologies to China and/or to any emerging nation is NOT free of charge; but do not expect China and/or others to pick up only 'nuts and bolts' from any 'supplier'. This is a reality and fact of life that can never be changed; even a non savvy punter will tell you that!
2/ Remember too that China has one of the oldest civilisations on Earth dating back >6000 years; and was a very rich and powerful nation in politics and military power but was one which did not embark upon 'hegemony' ambition. Apparently, was silly NOT to do so then; but not anymore now and ever in the sense of 'hegemony game'; simply as "bob adamson" mentioned all those lessons of the past colonial and hegemony hedges emerged from "outback" then ought to be learned since these lessons are already earned and have been had so sadly. You see, all had failed & hurt themselves so badly!
3/ Global scene continuously evolves and China had its turns too many times to be superbly strong and powerful in the past thousands and hundreds years well before all others emerged; but its turn is given up via natural flow. UK, USSR, EU nations, Mid_Eastern nations, India have had it too and now seeing USA taking its orderly turn to wind down modestly is not a surprise at all. Whereas, Korea(s) and Japan shall have to adapt to changes being played out now with the enlightenment of China's influence since they really do share a common ideology no matter how one phrases it or denies it the ways politicians play the games.
4/ A praise for England (UK), through its past colonial occupations and conquests, it has delivered an immortal tool; and that is "English Lingo" & a useful "Governance System" on the map of the globe so commonly used and practised. Excellent job, Sirs! Likewise, any nation that uses such goodwill will see that it grows with ever strengthening vigor and love of it by every user of it; anyone wishes to dispute this remark? Hence and otherwise, we shall not be able to "write and talk" here today the ways we all enjoy it in this website; could we?
**This is said to challenge some comments about negativity effects on the "shifting of gears & cultures" in trades and fair exchanges.**
5/ It appears that India will be able to do a fantastic job in Southern Asia, Mid-East and Africa due to certain affinity of "skin reflective indexes" plus common spoken English lingo and religious practices like all feathers flock together by nature; but it does NOT mean that fishes, birds, crocodiles, hens and ducks can't swim happily along the same river. Though, it must be aware that ideology and political clashes can only achieve one single outcome and that is "feathers tearing and skinned".
6/ As mentioned in my previous comments about RmB vs USD, along the line a certain timeframe away both of these currencies will rise and that is a choiceless scenario because the two super and superb industries in this world will 'clique' and correlatively find a solid trend. One believes US folks are heaps brighter than most others think so when politicians 'return to earth life' once again.
7/ My gut feeling about world's first interest rate rise ( thought Aussie would not do it) was wrong in that instance; but there are speculations about a 'snappy election' call by Labor camp. But, soon to be, AUD will fall across the board since RBA had intervened to shore up AUD at about 0.62 vs USD only months ago and one cannot see the reason now for RBA not to intervene at above 0.8000 vs USD. **It was said then by RBA that a fair value was 0.7500 and many economists thought so then; what have changed? Fundamentally, nothing has changed in Australia but instead has inherited a very risky scenario due to its over priced AUD. Local folks do not have the solid capacity to consume foreign products with an over priced AUD advantage, but its main life line in export activities suffer enormously. These exporting entities form Aussie solid core of employers; and if these continue to suffer then Labor's housing or home units sale stimulus program will fall flat on its own face! Don't get carried away and caught!
8/ RmB will not take on as the preferred reserve currency although it will over time, extend into a more flexible international currency similar to all international players because one suspects that China is locked in too busily in fine tuning its domestic market and developments. To China, it is a matter of fixing its >60% poor cousins and a huge land mass devout of modern amenities and facilities as a top priority agenda. It will be a gradual exercise that you will probably not be able to notice, at a few pips per month perhaps, growing at a steady GDP figure <10% ! China is bent to spend on internal structures and domestic infrastructures using its huge reserves to beef up anything from basic health food, educational matters, better environments, cleaner energy sources, ... .to .... outer space programs. Good to see!!
Will USD and USA fall? No way in any lingo; else the smart and speedy Japanese and Chinese would have dumped them into the oceans earlier on. Technologically, politically, demographically and geographically, how could AUD, NZD, EUR, GBP, JPY, RmB and others in the emerging basket of currencies measure up to USD unless of course if US folks prefer the war footing efforts so much so that its domestic folks have to suffer while 'an eye closed' SEC could cause a wealth_theft thermal runaway effect?
**Cut off those war efforts; spend on local folks instead, else US folks would have to carry much more burden than those already limped by wars and conflicts in them for a well overstretched time period. It still proves without a single doubt that USA has heavily lost in every war (and every way in wars) like all others in wars so far as history retells and repeats. Is this intelligent? **
On currencies play, savvy or not folks, do NOT ignore warnings of central bankers calling for 'stronger dollar' for there is an underlying reason among the G20. US Fed is not deaf or blind either. Don't be caught, again!
As the post_author and adamson have said herein, it will be foolish if US folks do not jump onto China's bandwagons for a smoother ride, together.
On Oct 08 06:55 PM zhliu wrote:
> Can't the living standard of China and US rising together, it is
> not a zero sum game.
yes, it may seem true that chinese culture today does not have wide appeal because it is so unique and different from the west.
but historically, the influence of chinese culture could be found everywhere in asia. in thailand, vietnam, japan, korea, burma, malaya, etc.
in fact, japan, korea and vietnam didn't have their own handwriting in the past and they used to use the chinese script. chinese culture was the dominant culture in the east -- just like the roman empire in the west. till this day, the koreans still worship confucius.
who's watching chinese movies? go to anywhere in asia, and everybody have watched jackie chan movies before.
india's movie industry may be the biggest in the world, but outside india, few watch indian movies.
yes, india is also a great culture and civilization but india was never one country or empire the way china has been. indian culture also influenced much of asia, e.g. buddhism. historically, ancient india is like the greece of the east, while china the roman empire of the east.
it is too early to dismiss the possibility of chinese culture dominating the world. if one day, china has the most advanced technology in the world, its culture, quaint it may appear now, will suddenly appeal to everybody. of course, the most advanced technology isn't enough. u also need size, and china is huge.
india also has the potential of dominating the world, but at this moment, china seems to be ahead of india.
of course, it is also possible that USA will be no. 1 for a long long time.
On Oct 08 06:06 AM User 353732 wrote:
> 4. China's popular or even classical culture has very limited global
> appeal. Truly great Powers also succeed in cultural dominance....Rome,
> Greece, Western Europe, the US each in turn. Japan and Russia never
> did.
> India's popular and classical culture seems to have much grater global
> appeal and certainly much greater appeal in the Global South than
> China's. India's movie industry is the biggest in the world, for
> example and apparently Indian entertainment is becoming popular in
> several parts of the world. Who watches made in communist China
> movies in Africa, the Middle East ,southeast Asia or in the West?
>
They're out to improve the lives of their people. Much like what the US Government should be doing. You can't fault people for looking out for their own interests. The will to search for a better life should be admired. Not hated, and certainly not feared.
As for the article, I mostly agree with the author, except:
- Author makes it sound like the West is a monolithic entity that somehow should protect its interests by not sharing technology. Somehow, he infers that to be unfair.
Well, I've got news for ya. The West is not monolithic. If an American car company won't do the venture, then a Japanese company will. If a Japanese company won't, then the Koreans might. If not Koreans, maybe Germans.
Point is, in the end, the Chinese joint venture will have the technology ANYWAY, and you end up being shut out of the largest growth market the world has yet to see. The Chinese are playing perfectly fairly in this case. You have a choice of doing business there or not. No one's pointing a gun to your head to setup shop there. The company executives aren't naive. They know the risks.
So instead of putting the blame on China all the time, maybe we should be looking inward. Why is our workforce losing competitiveness and drive? Why does everyone in the States feel like they are entitled to live a wealthier and better life without putting in their dues? As I've mentioned before, their ascent and our descent is easy to explain. They work harder, for less money. If we want to beat them, we need to produce more work for less pay. No other solution will do.
What is there to challenge when you have nothing and none knows what China is all about, isn't it Guruprasad V. ? Ask the Martians, perhaps, for at least we know for sure they possess no hateful spite!
Under a decade of protectionism beginning say in 2011, which countries will have a rising standard of living and which will having a diminution? If China made iPhones to sell in China at one price....and a higher price in the US? The US should seize this opportunity to realign its economy for the next decade, before the Chinese have enough strength to seriously retaliate against the rising protectionism in the US.
That said, there is no political will in the US...and the future is realistically quite dim for Americans in particular.
On Oct 08 09:19 PM talld wrote:
> Our present predicament was brought about by intrinsic corruption.
> For example, does anyone really believe that AIG should have had
> the right to sell tillions in insurance with virtually no reserves
> to cover a market reversal?
>
> Is there really anyone who thinks there is such a thing as a "no-doc"
> loan if you arent immediately able to turn around and sell that phony
> paper to a buyer who doesnt understand your loan is worthless?<br/>
>
> Is there anyone who doesnt think the people behind these massive
> multitrillion dollar frauds should not be sent to jail?
>
> It may well be that china is going to eat our lunch, but it is because
> we have become so corrupt that we not only do not jail the guilty,
> we "bail them out". The system is corrupt beyond repair.
One should also be reminded that -- despite competitive devaluations of the currencies of SKorea, Thailand, Vietnam, Indonesia, etc --- the Chinese did not devalue the RMB but linked steadily to the dollar. This had the effect of stabilizing the global trading system but arguably at the cost of reduced Chinese market share vis-a-vis their Asian competitors for some 4 or 5 years. On the other hand, while this permitted the Vietnamese shoe manufacturers to build critical mass at the expense of Guangzhou factories, it also provided impetus to the higher valued-added electronics sector.
So the Strauss-Kahn/IMF mantra about Asian mercantilism and the global trading imbalances should be seen for what it is: simplistic polemic that camouflages the true underlying causal relationships.
On Oct 08 03:03 PM User 357705 wrote:
> Its without surprise that the preponderance of comments here indicate
> their authors are either badly informed, sadly propagandized or in
> denial.
>
On Unit(s) of Value: There are only two kinds: Units of work - Human effort as labor, innovation, procreation, food, etc and, Units of Inherently valuable tangibles: Gold, oil, coal & other minerals, water, land, air.
Units of energy pre-suppose viable economic systems in which to use it benignly.
On Oct 08 11:01 AM Chris Cook wrote:
> First rate post, Cynicus, and a very high standard of comments to
> follow.
>
> "Ambrose Evans-Pritchard argues that the currency of pricing commodities
> is of no importance, but this is something with which I disagree."
>
>
> Me, too.
>
> Firstly there is a need for a Unit of measure - or Value Standard
> - to be used as a reference point for pricing. It is often pointed
> out that the actual transaction currency is irrelevant - it is what
> happens to the proceeds which matters.
>
> Secondly, there is the requirement for a Unit of currency - a generally
> acceptable tradable token or object redeemable for value, and ideally
> representing a store of value.
>
> These need not be the same.
>
> As John Law said in 1705;
>
> "Money is not the Value FOR which Goods are exchanged, but the Value
> BY which they are exchanged"
>
> The distinction becomes apparent if you look at the Swiss WIR business
> barter/credit clearing system. On the WIR - which is essentially
> just an accounting system - goods and services change hands between
> thousands of Swiss SME businesse on credit terms, and discipline
> in respect of debit balances (ie defaults) is imposed through a charge
> over WIR members' property. This property backing probably accounts
> for the fact that the WIR is still humming away like a Swiss watch
> 75 years after being launched.
>
> The point I am getting to is that no 'fiat' Swiss Francs change hands,
> because all balances are settled in goods and services not FOR Swiss
> Francs (as a currency), but BY REFERENCE TO Swiss Francs as a Value
> Standard.
>
> There is no reason at all why global trade should not be carried
> out within a network of WIR style Credit Clearing Unions, but it
> will be seen that this would require a "Value Standard" which is
> meaningful to the average user.
>
> John Law again:
>
> 'Every thing receives a Value from its use, and the Value is raised,
> according to its Quality, Quantity and Demand.'
>
> I have difficulty in seeing that gold has much in the way of use
> value over time. You cannot live in it, heat your house or fuel your
> car with it, or type emails with it. Perhaps more natural candidates
> for acceptable (fungible) currencies would be Units redeemable in
> land rental value (nationally) and Units redeemable in energy (internationally)
> such as units redeemable in btu's of gas, gasoline and other carbon-based
> fuels/energy vectors in particular.
>
> As for a global Value Standard, it appears to me that a fixed Unit
> of
> energy is the natural candidate.
>
> So to sum up, rather than energy being priced in dollars or renmimbi,
> perhaps dollars and renmimbi might be priced in energy?
In the US, "jobless recovery" blithely masks ominous social unrest (sales of guns & ammo outstripping all else). Where are the entry-level jobs coming from to re-employ the millions unemployed and the tens of thousands of badly-educated American youth and immigrants?
In China, unspoken/unknown by western economists is the looming disparity between China's newly affluent and vast rural hoardes (half a billion?) who threaten the PRC with real "revolution" or horrendous "population control" methods... Various "5-year plans" have been tried to no avail.
One-sided "carbon caps" will be the final nail in our coffin unless an amazing breakthrough in solar energy or nuclear fusion occurs.
The US Administration doesn't seem to have a clue, other than papering over the past 30 years of stupidity. I can't recall anytime that hyper-inflation ever solved anything.
Can’t happen here? Consider that the economic high ground has changed three times in the last 750 years. The Dutch lost the economic high ground to Spain 500 years ago. History remembers it as the Tulip Bubble. Spain lost it to England 250 years after that and England lost it to us 250 years ago. We are in the process of losing the economic high ground to China.
Each of those economic transitions was caused by the same two conditions: The losing country had accumulated more debt than their economy could support and the losing country had such incredible hubris they were unable to see it.
I don't see them ever becoming the leading Country that others seem to see. If the dollar is to fail It will be replace with a world wide currency. As to a gold becoming a standard I just don't see it or it would still be in use. Money or Gold or what ever is just a means to smooth the transactions that we make. The value or which is only a rough estimate of what people agree on.
I was speaking with someone some years ago who had come back from a visit to China and he said he was rather amazed at the attitude of some of the people he had spoken with.
He said at one point his guide made a sweeping gesture towards factories as far as the eye could see, and he said that a few months ago that was all fields. He proceeded to matter-of-factly assert that China would bury the U.S. He said others made no bones of the fact that they considered us adversaries but were quite confident that they would prevail against us.
If those are really their intentions, I have to wonder whether they might not be waiting for an opportune time to unleash a financial attack upon us. I imagine they could do so quite effectively by beginning to sell some of the mountains of our debt, or perhaps even stop buying more when we are most vulnerable. We're actually pretty vulnerable right now, and with the dollar already dropping quite a bit, it probably wouldn't take a lot to start a bit of a panic.
On Oct 10 01:11 AM JeffDB wrote:
> Their rise has been rather ominous, particularly given their apparent
> mindset and hostility towards us, not to mention their worldview.
>
>
> I was speaking with someone some years ago who had come back from
> a visit to China and he said he was rather amazed at the attitude
> of some of the people he had spoken with.
>
> He said at one point his guide made a sweeping gesture towards factories
> as far as the eye could see, and he said that a few months ago that
> was all fields. He proceeded to matter-of-factly assert that China
> would bury the U.S. He said others made no bones of the fact that
> they considered us adversaries but were quite confident that they
> would prevail against us.
>
> If those are really their intentions, I have to wonder whether they
> might not be waiting for an opportune time to unleash a financial
> attack upon us. I imagine they could do so quite effectively by
> beginning to sell some of the mountains of our debt, or perhaps even
> stop buying more when we are most vulnerable. We're actually pretty
> vulnerable right now, and with the dollar already dropping quite
> a bit, it probably wouldn't take a lot to start a bit of a panic.
On a more philosophical sense, what good does it do America to open it's markets to elevate the overall prosperity of the world if in that process, the overall prosperity of the US declines? We have grown the pie through free trade, but greatly deminished the size of our slice.
We should begin build a system of "market access" fees to level the playing field against cheap labor and other market advantages enjoyed by foreign producers. Call these tariffs if you will (our country was initially financed on tariffs, until we discovered the wonderful concept of income taxes), but I prefer to think of them as "slotting" fees, similar to those used by supermarket chains.
In any event your post on the question of social cost in the quest of lowest cost production (for conspicious consumption) is one we hear too infrequently. Seeing your post gives me hope we will someday move past the alter of "free trade", because it isn't.
> A few comments on the Chinese ascendancy / US decadence meme:
>
> 1. China has developed and presently recognized the other side of
> the aggressive mercantilist policy. For example, so much of the state
> funding has gone into heavy industrial capacity, that the state has
> imposed a prohibition on the construction of new aluminum smelting
> plants, etc. This overcapacity can only be absorbed by steady foreign
> buying, and the US market will continue to be an important element.
> Just based on the size and maturity of its markets, the US can only
> fall so far, even if it is nowhere near its former heights .
>
> 2. US deindustrialization has been a long ongoing process (I remember
> writing papers and debating the matter as a university student in
> the 1980s, by which time there was already a considerable literature).
> The only possible remedy is a governmental policy solution which
> will be highly controversial. For example, the firm in which I work,
> a US manufacturer, was late to the Asia import game and entered only
> reluctantly. At that point, our competitors were "all in" and began
> to undercut our prices materially, so we faced a stark choice: either
> join the foreign sourcing party, or go out of business. In either
> case, we could not sustain the same level of domestic production
> and employment.
>
> We chose the lesser of two evils, and still employ some US manufacturing
> workers. Margins have eroded anyway, because buyers know the foreign
> sourced product is cheaper, and nobody in our industry has much pricing
> power. We live and raise our families in these communities, and would
> have preferred to maintain full employment. That would only have
> been economically feasible if something like a tariff had decreased
> the cost gap between foreign sourced and domestically produced goods.
> Is that an argument for protectionism? Would such a thing be viable?
> I understand perfectly well what economists say, having been educated
> by them.
>
> What about the indirect hard and soft social costs of deindustrialization?
> Unemployment insurance, law enforcement and prisons, falling property
> values, etc, social stability, human happiness. How much do any of
> these matter? Certainly the economists will have their answers for
> these as well.
BINGO! SCORE! Hole in one! Better than calling them "tariffs" which gained dirty-word status when they were OVER used before Depression 1.0 (1930's). I don't think modest "fees" would do anything but good. All in moderation: take income tax: too much kills the economy; too little, and you have no services.
Corrollary 1: the GOVERNMENT has to do it. Individual businesses are all looking out for themselves (which is, no doubt, as their Boards would have it) instead of the COMMON good; and they are all SHORT term thinkers, again to please the Boards, except for a few truly unusual companies, like Apple, which play a deep game.
Corrollary 2: the Gov't doesn't WANT to, because they are in the tow of all the lobbyists.
Corollary 3: we need to elect THINKERS. In my mind (IMHO), Obama fits the bill-- smart, concerned about the future and the common good. Too early to say whether he can be EFFECTIVE in the stable known as Washington, though. Caving on the public option (again, IMHO) means we may not get to remove ONE barrier to making American workers cost-competitive with other nations-- the fact that US health ins. is so expensive. It's surely one factor killing Detroit.
On Oct 10 10:42 AM Bobco23 wrote:
> I too am a simple accountant. The rationale for "free trade" never
> made sense to me, although like you, I have had that "religion" crammed
> down on me throughtout my university and business years. What corporation
> would open its market's freely to a competitor? The core business
> concept is to create a unique product or service or to obtain a competetive
> advantage to preclude others from entering (destroying) the corporation's
> market.
>
> On a more philosophical sense, what good does it do America to open
> it's markets to elevate the overall prosperity of the world if in
> that process, the overall prosperity of the US declines? We have
> grown the pie through free trade, but greatly deminished the size
> of our slice.
>
> We should begin build a system of "market access" fees to level the
> playing field against cheap labor and other market advantages enjoyed
> by foreign producers. Call these tariffs if you will (our country
> was initially financed on tariffs, until we discovered the wonderful
> concept of income taxes), but I prefer to think of them as "slotting"
> fees, similar to those used by supermarket chains.
>
> In any event your post on the question of social cost in the quest
> of lowest cost production (for conspicious consumption) is one we
> hear too infrequently. Seeing your post gives me hope we will someday
> move past the alter of "free trade", because it isn't.
But I'm afraid that I believe in Uncle Sam. He just needs the voters to give him the right officers, and I DONT mean Ms Palin.