Chinese perspective (w/corrections) on America's Economic Crisis

A Chinese perspective on America's Economic Crisis

by Lau Nai-keung

Global Research, October 19, 2005
China Daily


It's time to take seriously a US-led global recession

I think it is time that we should take a serious look at the possibility that the US is going to take us down towards a worldwide recession in one or two year's time. ( with the help of OPEC, Russia and China see bottom of article )

It is well known that the US is the world's biggest economy, taking up about 30 per cent of global GDP, but it is now also the world's biggest debtor country. According to the most authoritative person on this subject, the US Comptroller General David Walker, who audits the federal government's books, the tab for the long-term promises the US Government has made to creditors, retirees, veterans and the poor amounts to US$43,000 billion, US$145,000 per US citizen, or US$350,000 for every full-time worker.

And this figure does not even take into account all the personal debts such as credit card bills and mortgages. With a low interest rate of 1 per cent running for the past three years in a row, savings plummeted to just 1.8 per cent last year, below 1 per cent since January and at zero in the latest estimate from the Bureau of Economic Analysis. In 2000, household debt broke 18 per cent of disposable income for the first time in 20 years. Credit card debt alone averages US$7,200 per household.

( Some of the American Corps are the "New Mafia", Banks are a good example, The interest rates 60% on some Bank credit cards would have put the Mafia in prison 30 years ago, usury.
The USA has the best politicians money can buy, and the lobbyists have bought them. Not only can they charge criminal interest rates, they got congress to make the bankruptcy laws harder for citizens to get out of the debt. The customer paradigm in the USA has changed from "the customer is always right " to "screw them hard". Corps regularly operate illegally and settle with class actions suits, and just continue the illegal activities, no criminal charges. )


The US Government indebtedness is financed this way: The US now runs a trade deficit roughly 6.5 per cent of its GDP and the gap is widened every day. Its citizens are spending ever more on foreign goods, and with the US dollar as the international currency, the US Government just prints money to finance the deficit. And with this money, central banks in the surplus countries purchase most of the US Treasury bonds as currency reserve.

By now, Japan is the largest creditor of the US Government, and the Chinese mainland has been a fervent buyer for the last few years. As for Hong Kong, most if not all of our reserves are in US dollar denominated assets. The US Government in turn uses this foreign borrowed money to finance as much as 90 per cent of the federal deficit which stood at US$412 billion last year. The federal deficit is expected to be running at about US$2 billion a day at the moment.

( Thats how they pay the Worlds cop, get to keep their money and always get a good interest rate. )

Put it simply, the Americans have been living way beyond their means for much too long. On top of this, the Bush Administration is cutting tax at least three times while fighting an expensive war in Iraq, which has already cost the country US$700 billion, and currently progressing at US$5.6 billion per month. Now the US economy is dependent on the central banks of Japan, China and other nations to invest in US Treasuries and keep American interest rates down. The low rates keep American consumers snapping up imported goods.

( Globalization will redistribute the wealth, we see International Corps, US Corps , Walmart for example as the conduit for the process, Arbitrage.
Employment arbitrage, Walmart exporting Jobs formerly in the USA to China buy buying finished products from China for lower price because of lower wages. USA has been getting over paid by the worlds standards. Walmart is employing $50 billion dollars worth of China labor.

And Corps. in the USA also need lower wages, hense the ease of illegal aliens coming to America, ie no border with Mexico. )

Any economist worth his salt knows that this situation is unsustainable.

( Wrong again, as long as the system remains balanced, it can continue as it has, the "problem" percentage wise of Global growth remains about the same, even though the total increases. )

This includes the country's economic guru driver Alan Greenspan, who recently warned his countrymen that the federal budget deficit would hamper the nation's ability to absorb possible shocks from the soaring trade deficit and the housing boom. Now he may have to add two more worries: soaring oil prices and cyclones.

The US is now clearly in huge trouble, economically, socially, politically, and internationally.

( The indicators for economic problems are there, and will have to wait while the War on the "nuclear threat" ( Iran & al Qaeda ) is funded, USA is acting as a proxy for the world is a big sense. )

The Bush Administration bungled big in cyclone Katrina's aftermath in New Orleans, and then a minor rerun from Rita in Houston, and this will trigger the general outburst of people's dissatisfaction with the government, leading to great internal turmoil lasting for many years. In all likelihood, long-term interest rates are going to rise, and the greatest property bubble the world has witnessed is going to burst in the next one to two years.

The countdown is in progress, and there is no way that anybody can do anything to reverse it either by short-term measures such as fiscal and monetary policy, or through long-term reform of tax policy, entitlement programmes and even the entire federal budget. This is as inevitable as gravity, and it will take place under a new and inexperienced chairman of the Federal Reserve Board. I do not want to sound alarmist, but I see very bad omens.

( It is a re balancing process, Globalization is/will re distribute the USA's wealth, we will no longer use world resources at the rate USA currently does. )

To make things simple, let us just examine some key economic issues raised by some economists:

What if the dollar plummets? Do stocks follow? How about pensions?

What if interest rates soar? How would all the new homeowners, who stretched to buy with adjustable and interest-only loans, cover their mortgages?

How would consumers with record credit-card debt make their payments? Would they stop buying? Stop taking vacations? What will happen if they go bankrupt? New rules going into effect later this year make it harder on such debtors.

How would a government, which depends on the taxes of a strong economy to operate, keep all its promises?

To us, the good news is that when the country is in deep trouble, the US will not have the energy to pick on China. Even when it is necessary to start another war to divert people's attention, it would pick one much smaller in size and weaker in strength, like Iran. This will provide a much more amicable environment for China to make good use of its "period of strategic opportunity" till 2020 for the country to pass through a turbulent zone between per capita income of US$1,000-3,000.

( The author doesn't recognize the Iran nuclear problem ( world basic safety ) is driving the economic problem, expenses for the GWOT, al Qaeda gets a nuke and everybody is in trouble, the "WORLD SYSTEM", through the USA will spend its self into bankruptcy for safety. )

But in the short term, now the US not only sneezes, and all symptoms indicate that it is going to suffer from a SARS-like trouble, the whole world should take extra precaution not to get infected. One thing is for sure, some time in the not too distant future, every central bank and institutional investor is going to dump US dollar and US Treasury bonds. Once, when a country like South Korea dumps the dollar, the still unsold US Treasuries in the asset column of Asian central banks - US$2,000 billion according to some estimates - will collapse. The cheapened dollar will cause a sudden jump in the US inflation, which forces the Fed to jack up interest rates. A giant leap in inflation will cause a severe recession, or perhaps a depression, in the US. These countries' exports to America will dry up, which in turn will spread the global economic downturn like wildfire.

( Which is why China won't dump the dollar, the structure, power, authority is not in any other currency, why does the WORLD feel safe holding USA dollars, look at Iraq, that is exactly why, POWER.. )

After the stampede, everybody is going to get hurt, not least the central bank of China, and the Hong Kong Monetary Authority, which are major US creditors and with the US as their number one export market. The recent currency reform of the RMB is most timely, and it is about time we should do something about the Hong Kong dollar. At the same time, China should make extra efforts to rekindle internal consumption, and diversify its market really fast before the great US bubble bursts.

( China is in a co-dependent relationship with the USA, ie selling $50 billion of plastic junk to USA through Walmart. And world comptrollers, treasury's no longer control the values of the worlds currency's, the market does, they are no longer big enough to successfully control values. )


Global Research Articles by Lau Nai-keung
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"The thinking now is that, OPEC knows the price is high, but as long as they don't see signs of a global recession, they're going to try to maintain the $90 price. OPEC's going to try to push the envelope.

Russia's oil minister announced that Russia does not expect to repeat double-digit production increases in the decade ahead, The Wall Street Journal reported (subscription required.) That more-modest Russian production estimate added to some analysts' concerns about a dwindling safety margin between global supply and demand, amid rising demand from emerging markets and resilient per capita demand from the developed world.

http://64.233.167.104/search?q=cache:-ZVe10WGM0EJ:www.bloggingstocks.com/2007/11/16/crude-awakening-opec-may-defend-90-oil/+%2490+oil,+world+recession&hl=en&ct=clnk&cd=1&gl=us

http://tinyurl.com/38y63g


The devaluing of the USA dollar is "capitalism's " indirect way of saying the GWOT is getting expensive, but is there any other choice? The system can go on/maintain for years and years re-balancing its self.

Gerald
Broker series 7 & 13


AND:

Morgan Stanley exec: US recession likely

The U.S. will likely slip into a recession in 2008 and such a development may affect Asian economies, Morgan Stanley Asia Chairman Stephen Roach said Friday.
"The global economy will be a very challenging one in the next couple of years. The subprime crisis is an early sign of a recession in the U.S. in 2008," Roach said at a function.
"While fundamentally the Asian economies are terrific, Asia remains an export-led region. If the U.S. sneezes, Asia will catch a cold," he said.
A sharp fall in prices of securities backed by housing loans to people with poor credit histories in the U.S. froze capital markets worldwide and triggered rate cuts by the U.S. Federal Reserve.

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Securties Exchange Commission: afraid of China

OPEC likes Dollar

China blocked another US ship: Pentagon


UPDATE:
China Tells Its Cities to Begin Stockpiling Fuel, Food - Post Media Reply
Updated: 2007-12-12 07:00


The central government Tuesday instructed 36 major cities to each maintain a minimum 10-day reserve of food and cooking oil supplies, as part of its measures to ensure market stability during the current period of rising food prices.

A notice jointly issued by five ministries led by the country's top economic planning agency, the National Development and Reform Commission, said the move was necessary to ensure a "ready" emergency production and distribution system.

The cities include Beijing, Shanghai and Guangzhou.

Local governments were also asked to designate companies to ensure the sound production and distribution of food and cooking oil.

"Local governments should also inspect those companies regularly to ensure the quantity and quality of their reserves," the notice said.

Warning of major increases in the prices of corn, wheat and cooking oil, yesterday's notice came with an announcement from the National Bureau of Statistics that the country's key inflation indicator, the consumer price index (CPI), surged to an 11-year high of 6.9 percent last month, of which 5.4 percentage points were a result of food price hikes.

Grain prices last month rose 6.6 percent over the same period last year, while cooking oil prices increased 35 percent.

Pork prices, which have been blamed for the recent increase in the CPI, soared by 56 percent.

Nine straight months of consumer price hikes, fueled by the rising cost of food, have taken their toll on the public.

Beijing resident Gao Ning said that since the summer, her family's monthly food bill had risen by 200 yuan ($27).

"With the major festivals drawing near, I hope there will be enough food on the market. Otherwise, the New Year holiday will be the most expensive yet for my family," she said.

In an effort to minimize the impact of rising food prices, the ministries also told local governments to closely monitor the needs of the poor and students.

People in disaster areas and those relocated because of major reservoir projects should also be given special consideration, they said.

In addition to yesterday's notice, the central government earlier launched a crackdown on the possible hoarding of food by suppliers during the current period of soaring prices.

http://www.chinadaily.com.cn/china/2007-12/12/content_6314411.htm
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China's Economic problems:


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