Posted on 08/28/2009 8:31:36 AM PDT by TigerLikesRooster
The Ongoing Chinese Annexation Of The US Consumer
Submitted by Tyler Durden on 08/28/2009 09:21 -0500
Recent conversations over the symbiotic relationship between China and the US all end up focusing on three key concepts:
- The lopsided trade balance (China exporting and the US importing)
- China's willingness to continue investing in US assets even with a declining dollar, a debt load which will likely one day result in a payment moratorium (the banana republic syndrome) and collapsing economic drivers
- Who can inflate yet another fiat bubble faster (opinions are split here, although China is conclusively in the lead for the time being) and deflate respective massive debt burdens
There is much more, but ultimately these three are what it all boils down to. And, continuing the simplified reduction, the key driver of all these three really has to do with consumption, which is not only what drives the US economy (70%+) but has been the driver for global growth over the past several decades.
The irony is that the US consumer is now essentially a vassal state of China's production complex, and all the unbalanced trade and credit flows do, is provide the funding to stimulate the US consumer to purchase even more Chinese products. A side-by-side compare and contrast of the two consumer classes demonstrates why the "IRR" on Chinese investment in the US will always be much higher than any concerns of debt repudiation or outright bankruptcy.
The chart above says it all.
The fate of China, for lack of its own middle class, is intimately tied with the ever increasing discretionary purchasing capacity of US consumers: the discretionary differential is staggering: a 35x multiple! And instead of fostering the growth of its own middle class, a long, tedious and expense process for what is essentially an overpopulated communist country, a much easier detour to feed its excess production capacity is merely to keep purchasing the securities that will fund the US consumer's purchasing and maxing out of assorted credit cards until such time as every single bathroom and shoe closet boasts at least 3 plasma TVs.
The implications are interesting - the US realizes that it has not only a loaded gun to the temple of China's US debt funding complex, but that every single chamber is loaded.
What are China's alternatives? An internally sourced credit bubble which will be a one-time boost to spur consumption by Chinese citizens has already fizzled, with the ironic outcome of instead purchasing refrigerators, the Chinese took all the cheap money and invested it in the stock market. Alas, the marginal utility to the overall Chinese economy from this gambling bonanza is nil, as very few Chinese companies have used the run up in the Hang Seng and the Shanghai Composite to lower their cost of capital. The last is an evil Catch 22 of market bubbles - nobody will buy equity offerings from companies, which every sophisticated investor realizes are so expensive only as a function of overeager retail spirits (let's see AIG try to price a follow on at $50/share - we dare Goldman to pitch that idea to Benmosche). And bubbles tend to pop. But in the meantime the excess liquidity will spur a one-time pick up in the purchase of all dollar-denominated goods (read great Dell and Intel results), with the trendline promptly reverting back to normal.
So the conclusion is that it always has and always will be about the US consumer. And any concerns that China may stop purchasing US securities are, unfortunately, groundless - China can ill afford to push the US middle class into a greater savings mode, and thus will cooperate as much as it can with the Federal Reserve in keeping both mortgages (for the illusory net wealth effect) and interest rates as low as possible for as long as it can. However, this being simply another fiat-funded bubble, and due to its Ponzi nature, a much more vicious one, the second this symbiosis ends for whatever unforeseen reason, the impact on China, and by implication on the US, will reverberate throughout monetary and fiscal policies and likely result in civil unrest both in the US and China, once Walmart can no longer provide cheap garbage to satisfy the American demand for constant credit-financed unneeded products, and once the China GDP illusion of minimum 8% growth is popped, resulting in an end to the Communist-Capitalist hybrid experiment.
He does get it right. That is what is coming sooner or later. A monumental turn in world history.
Ping!
Something the ‘free traders’ blindly ignored or refused to pay attention. Nothing in this world is literally ‘free’.
Yeah, but let’s not forget who is to blame for all of this. It is the government whose interference in the free market (read: regulations, taxes, and duties) have driven out the manufacturing industry. Those who possess the means of production will always have an edge on those who don’t. To bring this back to our shores (and let’s be honest, American companies would love to—there is a lot of investment and expense in running manufacturing overseas that could be done for less in a free-er America), government needs to scale back and let the markets run their courses.
But, of course, we can’t let that happen, can we? /sarc.
Interesting. The Dells and the Intels are also, for now anyway, Obama-Pelosi proof.
As with most political issues that ultimately punish ordinary Americans, the fix for this one is eminently simple: cut our taxes (to stimulate economic growth), and disband the unions (to bring production costs down and encourage domestic manufacturing).
China is the neo-Soviet Union, but with a better economy and a sword of dependence over our heads. Our idiot politicians forget this.
Chinese junk is ruin our retail sector. Everything you buy from China is suspect. Bad materials, poor design, bad workmanship..etc. Just yesterday a friend had to replace four Chinese made tires after just three years..no tread wear, but they were coming apart.
They take shortcuts in every phase of production..except the packaging, to keep you from seeing the poor product until you get it home.
Walmart might as well be owned by the CHinese.
Some people are waking up to what the fleece traders have done to this country. I wonder which political party will first open their eyes?
There is no recovery until we make more of what we consume. The shopping mall economy is running out of people earning money.
A very loud PING!
Nothing is "free?" That's the argument the free traders tell protectionists nearly every day of the week.
I put the over/under on the number of people on this thread who have read the article at 2.
***once Walmart can no longer provide cheap garbage***
It’s not just Walmart.
Ace hardware
True Value hardware
Dollar Tree
Dollar General
Attwoods
Cato
Barnes and Noble books
B. Dalton Books
K-Mart
Hastings Books
Target
Almost every store in this town has some Chinese goods.
The local power company is building a new power plant near Texarkana, Arkansas. The boiler will be made by that great AMERICAN manufacturing company Babcock and Wilcox, Bejing division.
Everything from plumbing fixtures to kitchen appliances to radios to record players (Yes, record players for those who still like their vinyl) come from China.
And dozens of other stores sell stuff made in China.
Go ahead. Check any store! Last week, we were in a major clothing retailer tht also had small figurines. all made in China.
Like I said, it’s not just Walmart.
What amazes me is the fact that so many people actually believe this nonsense.
If you think their pet food fiasco was bad how about radioactive cheese graters.
http://peswiki.com/index.php/Directory:Recycled_radioactive_metal_contaminates_some_consumer_products#News_Reports_on_the_Radioactive_Contamination_of_Consumer_Goods
Interesting, thanks. Especially that ‘savings rate’...USA 3.8% vs. China 49.9%
Nah. Having all of our stuff made somewhere else while we deliver each other’s pizzas will be great for our country.
It’s also interesting that our 3.8% savings rate works out to $1774 per capita, their savings rate works out to $1574 per capita.
Actually the promise was prosperity for all under so called 'free trade' agreements. And personally speaking I am NOT opposed to 'free trade' in theory, but it is the 'fine print' under liberalism that always concerned me. It sure is interesting how the 'free trader' crowd sure made it their purpose to by the nature of agreements to PROTECT themselves.
Not "all," but "more than under the alternative(s)." Here's your problem: you are attributing a fictitious (and false) argument to someone else.
I don't remember that promise. You have a link?
In the long run, unrestricted free-trade will unquestionably lower wages in the US and raise wages in the developing countries.
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