China's Emergence As A Global Superpower

[quadraphonics]

China has invented a Market Economy in that they let the market determine what will be produced, rather than micro manage economy with central planning of production as USSR did, but the CP leadership "guides" the economy so relatively little is for the consumption of its people. Mostly of production is for export and building the strength of the nation etc.

Yes, China operates a mercantilist economy, just like every other developing nation in world history. They invest a large share of the GDP into expanding industrial production and manufacturing, and don't rely as heavily on consumption. This is not a Chinese invention, nor is there any reason to think that China won't back off on investment and ramp up consumption as it progresses. Also, where I come from there's more to "the strength of the nation" than industrial capacity, but you're welcome to your opinion...

They supress the natural desires of the masses (for vacations, status items, stylishes clothes, etc. = "the good life") via propaganda and information control.

Nonsense, Chinese consumption is growing every day, as you yourself have mentioned repeatedly in this thread. The only thing checking it is the low exchange value of the yuan and the fact that much of China's population is too poor to buy luxury goods anyway. In point of fact, the Chinese government is eager to transition more to a consumption-based economy, as was made explicit in the premier's speech yesterday:

http://www.chinadaily.com.cn/english/doc/2006-03/06/content_526859_2.htm

Man, the days of Chairman Mao squeezing the people to death in the name of crash superpower programs are long over. China wants to be like any other developed country, with a high standard of living, modern infrastructure and, hence, a consumption-based economy. Like every other developing nation in history, they will get there by pumping up production capacity via an export-driven economy, and then transition more towards consumption. In the process, the value of the yuan will rise, ending the massive trade gaps and inflows of FDI, and allowing China to ease the strains on its ecology via imports. In another ten or twenty years, China's investment and consumption rates will resemble those of Japan, Europe and America. To suggest that China will somehow continue on a mercantilist policy long after it has developed a modern infrastructure that is proportional to its population is ridiculous, primarily because there would be no benefit to China.

 

[Billy T]

Yes, China operates a mercantilist economy, just like every other developing nation in world history. They invest a large share of the GDP into expanding industrial production and manufacturing, and don't rely as heavily on consumption. This is not a Chinese invention, nor is there any reason to think that China won't back off on investment and ramp up consumption as it progresses. ...

Of course mercantilist economies were not invented by China. - I have read all of Adam Smith's wealth of nations* so know that very well. What China has done new is to use propaganda, information control (even Google etc.) to "guide" the aspirations of the masses, so that they do not make the normal pressure to share in the wealth that is being created. This will (I hope) not work forever, but is now permitting the CP leadership to restrict "the good life" to a select few, those "more equal" ones, and keep the masses hard working to build and staff all the new factories etc. or as you say: "They invest a large share of the GDP into expanding industrial production and manufacturing, and don't rely as heavily on consumption." We agree completely on this, I think.

I too think that there will come a time, perhaps only a year or two hence, when the CP leadership will begin to share the wealth with the masses, not for the more noble reasons their communistic ideology would suggest, but because:

(1) The rural life is difficult, even compared to the masses in the cities, so almost 2 million are migrating to the cities each month. The CP leadership wants some of this flux as it helps restrain demands of the urban masses for more of the "good life," but 2 million/ month is too much - more than required for that suppression of the urban masses and causing problems as many of the new urbanites cannot find work in the cities. This is why the first increment of wealth sharing will be (and is) going to the farmers, as your reference noted. Also China with fewer farmers now needs to import food from Brazil etc. - that cash could be used as part of the economic weapon China is developing (I think) to either destroy the US dollar or at least, by the threat to do so, restrain US from supporting Taiwan with anything stronger than words.

(2)The CP leadership also recognizes that if the dollar is destroyed, the shelves of Wal Mart etc will no longer be absorbing the Chinese production. Even if the dollar remains strong and the great accumulation of dollar reserves is used by China only to assure (by threat to break the dollar) that US does nothing more than talk about "the need for stability" etc. when China begins to get serious about establishing control over Taiwan, The CP leadership knows that the US leadership knows any such threat is not creditable unless China has an alternative market for the stuff that is now going to Wal Mart etc. I.e. The CP leadership knows that to make their threat to the dollar creditable, they must be able to sell the production of all the new factories to some one. Part of the solution is to their own people (this will require some sharing of the "good life") and part of the replacement for US demand/ consumption will come for Brazil, Russian, etc. (In Brazil's case this has started - much to the anger of some local manufactures of textiles etc. but to the pleasure of Brazilian farmers and iron ore exporters etc.)

I think the CP leadership is obsessed with the eventual return of Taiwan, and hoping it can be done peacefully, but at least does not want it impeded by the US, if some force is required. IMHO the CP leadership is accumulating dollars reserves, far beyond their economic needs, for these political reasons. They want the US to know they can destroy the dollar (just by buying oil at $150 / barrel should do it). For same reason, they will soon be helping Iran start selling oil for Euros by casting a UN veto against any actions against Iran etc.

Nonsense, Chinese consumption is growing every day, as you yourself have mentioned repeatedly in this thread. ...Man, the days of Chairman Mao squeezing the people to death in the name of crash superpower programs are long over. China wants to be like any other developed country, with a high standard of living, modern infrastructure and, hence, a consumption-based economy. Like every other developing nation in history, they will get there by pumping up production capacity via an export-driven economy, and then transition more towards consumption. In the process, the value of the yuan will rise, ending the massive trade gaps and inflows of FDI, and allowing China to ease the strains on its ecology via imports. In another ten or twenty years, China's investment and consumption rates will resemble those of Japan, Europe and America. To suggest that China will somehow continue on a mercantilist policy long after it has developed a modern infrastructure that is proportional to its population is ridiculous, primarily because there would be no benefit to China.

You are basically correct here also, but perhaps more for the reasons I suggested in (1) and (2) above, but China is not "Like every other developing nation in history." I think the CP leadership will be able to limit the aspirations of the masses with propaganda, etc. and thus be able to continue China's high growth rates - sustained by high invest rates in productive infrastructure (factories, power plants, ports etc.) I.e. continue production for export, not for local consumption, until they have need to replace US and other markets, as discussed above.
You have distorted my comments, which clearly stated that they refer to the masses, not to those that are "more equal" than others. Yes, I have stated I that believe that only the top 2.5% of the Chinese population will soon (less than a decade) have the purchasing power equal to ALL Americans, so the "nonsense" is in your failure to read correctly that I was speaking of the masses, not the elite which is "more equal." (I am assuming that the distortion was not intentional, only a reading error.)
_____________________________________
*Much of it dated now and/or very boring, but I do think the old English bonds, where the last survivor of the purchasing group collects it all, may have some merit in the modern world. They certainly do command the premium Smith discusses, as it is true that almost all in the purchasing group think they will be the last survivor, so the interest cost of government debts is significantly reduced compared to modern federal bonds. If you are not the grand winner, because you are dead, then you do not really care about anything and this may also add to the premium paid by the purchasing group. (I.e. provide very low cost financing of government debt. Perhaps the state lotteries now have this same role, advantage.)

 

[quadraphonics]

What China has done new is to use propaganda, information control (even Google etc.) to "guide" the aspirations of the masses, so that they do not make the normal pressure to share in the wealth that is being created.

That's ludicrous. There is every indication that the Chinese population is exerting normal socioeconomic pressures. The middle class in China has emerged and is growing:

http://www.chinadaily.com.cn/english/doc/2004-10/27/content_386060.htm

The rate at which China is upgrading poor people into the good life is astonishing. What's more, there's no need for draconian propaganda conspiracies to prevent the supply of cheap labor from running out: they've got hundreds of millions more rural poor sitting right there! Obviously the rich elite will defend their position and privilege, like they do anywhere else, but the characterization of China as 1% elite ruling absolutely over 99% poor masses is way off base, and belongs in a history book about the 1950's.

(1) The rural life is difficult, even compared to the masses in the cities, so almost 2 million are migrating to the cities each month. The CP leadership wants some of this flux as it helps restrain demands of the urban masses for more of the "good life," but 2 million/ month is too much - more than required for that suppression of the urban masses and causing problems as many of the new urbanites cannot find work in the cities.

It would be more correct to say "wage growth" instead of "the good life," but the point is the same: the weight of China's rural poor is more than sufficient to keep labor cheap, obviating the need for far-fetched propaganda conspiracies.

This is why the first increment of wealth sharing will be (and is) going to the farmers, as your reference noted. Also China with fewer farmers now needs to import food from Brazil etc. -

You're half right. It's not that China's running out of farmers (again, labor is cheap), but that they're out of farm land. What's going to happen is that as the yuan appreciates, it will be cheaper to import food than to further tax the already maxed-out internal infrastructure. This will be good for the majority of China, since food will remain affordable, and the environment can get cleaned up, allowing for higher living standards. However, the rural poor, who live and work on China's farms, are not going to like this, since it will keep down the prices they can charge for their products. So they're basically going to get left behind, at least as far as the market forces are concerned. Thus, it is a political imperative for the leadership to appease them via government overtures and spending so that they don't rebel in the next 10 or 20 years. The CP leadership is certainly not as idealistic as it sometimes presents itself to be, but it's also not as sinister as you make it out to be.

Part of the solution is to their own people (this will require some sharing of the "good life")

So then you agree that the political and economic incentives for China to transition to a consumption-based economy are overwhelming.

(In Brazil's case this has started - much to the anger of some local manufactures of textiles etc. but to the pleasure of Brazilian farmers and iron ore exporters etc.)

Dude, that example demonstrates exactly the opposite of what you were arguing. China buys things from Brazil, and the more the yuan appreciates, the more they will buy stuff from Brazil, and the less they will buy it from Chinese producers. This adds up to less demand for Chinese producers, and less point in investing in Chinese production infrastructure. Thus, in the long run, Chinese production investment levels off, and consumption spending goes up. This completes China's transition from a developing to a developed country, and it happened in exactly the same way as every other country ever. What a surprise.

Some interesting material on China's long-term workforce issues (the one-child policy will have crazy effects on demographics):

http://www.slate.com/id/2137680/

 

[Billy T]

That's ludicrous. There is every indication that the Chinese population is exerting normal socioeconomic pressures. The middle class in China has emerged and is growing...

Good reference, again; but I think "ludicrous" a little strong. None the less I am enjoying our debate and will conceed that there is a growing middle class in China now; however in view of what has recently happened with Google etc, you need to conceed that the CP is in fact controlling the information reaching it, or as I say: "guiding" the aspirations of the middle class to restrain or bias the investment sector of the economy heavily towards non consummer goods. I think, but do not know, that the cultura of the Chinese also tends to help in this "country before person" behavior. In any case we seem to agree that China is making much greater percent of GDP in investments that provide products for export and national development than US is where the consumer's wants, and willingness to go as deep in debt as lenders will permit, favor investments for production of "consumables." I was not suggesting there is any "draconian propaganda conspiracies" in the CP leadership. Like my view of GWB, they are not cynics, but "true believers" in what they are doing

...It would be more correct to say "wage growth" instead of "the good life," but the point is the same: the weight of China's rural poor is more than sufficient to keep labor cheap, obviating the need for far-fetched propaganda conspiracies.

Again we agree, except I never call anyone's "faith based preachings", not even the disdain for birth control in poor countries (where it is badly need), put forth by GWB and the C. Church etc. self-serving "propaganda conspiracies." I do not know about Hilter (He probably was dislusional, not a "true believer"), but think propaganda conspiracies have not been much in evidence since WWII, when "Japs" and "Jews" were falsely described by governmental "propaganda conspiracies" cynically designed to strengthen their war efforts.

Racism just ain't what it used to be and definietly not PC any more, even for the CP, although what Japan did in Asia in WWII is far from forgotten.

I must go now- So just note that we are now mainly in agreement but slanting our choice of terms to favor our different expectations of what will happen. (As neither of us knows, we must just wait to see which slant is more valid.) I will stick with my expectation that answer to thread's question is "Yes" and even predict it will only take about two decades before that is obviously correct answer.

 

[Billy T]

Back briely for a PS:

China may not have much more land it can develop for agriculture. but the practice of agriculture in China (as I understand it - could be wrong) is much like the US 100 years ago - I.e. many animals pulling plows, little chemical fertilizer and chemical control of pests etc. I do not think China ever fell into the State farm disaster that nearly starved the Russians. If this is true, and The CP wishes to spend money on fertilizer, tractors, rural education out reach/training programs, etc. then yield per acre could easily double. For some crops in US it is four times greater now than in 1900.

I think it is a judgment call by CP, not to spend money on this, but buy food form Brazil etc. This is because I believe the CP leadership recognizes that in a military conflict their manpower is no match for US technology. I.e. they know that the only war they can win is an economic one and to win it will require collapsing the US economy. (Dollars buying oil at $150/ barrel should do it because of the nature of the US infrastructure, but China will not escape the global pain the collapse of the US will bring if it happens in next year or so.) They must wait to destroy the dollar until oil production is clearly past the peak and they have developed trade with Brazil etc. enough to absorb the production that is now filling the shelves of Wal Mart etc.

 

[quadraphonics]

China may not have much more land it can develop for agriculture. but the practice of agriculture in China (as I understand it - could be wrong) is much like the US 100 years ago - I.e. many animals pulling plows, little chemical fertilizer and chemical control of pests etc.

Nah, the agricultural sector was one of the first to be de-centralized, back in the early 1980's, and has been modernizing ever since. Although it's still probably less industrialized than the US industry (again, labor is cheap...), it's hardly pre-modern. See for example:

http://www.chinadaily.com.cn/english/doc/2004-08/30/content_370128.htm

I think it is a judgment call by CP, not to spend money on this, but buy food form Brazil etc.

It's not even a judgement call: it will simply be cheaper to import food. You can always throw money at more technology and fertilizer to increase agricultural production, but there is a diminishing return in doing so, as the cost and environmental impact goes higher and higher. Given how hard China's existing land is already worked, and how much arable land countries in North and South America have, China would have to impose huge tarriffs on food imports in order to further increase domestic production. This would run afoul of the WTO, and so lead to massive retaliatory tariffs on Chinese exports. And these pressures will only intensify as the yuan appreciates.

This is all normal: every country comes to rely less on its agricultural sector as it transitions from developing status to developed status. To try to thwart this phenomenon would amount to thwarting China's emergence as a developed country, which is clearly not in China's interest. Thus, the imperative for the Chinese government is to craft a social contract with the rural, agricultural sector of the country that keeps them on board. Their sector of the economy is not going to grow as fast as the total economy (nor has it been for the past decade), and so it is crucial that they feel the government is responsive to their condition and concerns.

 

[Billy T]

I do not think China buying food from Brazil is only a a question of costs.

I see a pattern to Chinese decisions that implies they are more complex and envolve many factors; However, IMHO underlying almost all of the CP leadership's decisions is the need to regain control of Taiwan. In a nation where honor, "facesaving," or whatever you wish to call it, is so important it is an unbearable humiliation that the "renigade province" is still, 60 years later, effectively independent.

The US has blocked the mainland's Taiwan aspirations far too long (from their POV). Only if the US can be persuaded to allow the re-integration (peacefully if possible) or destroyed, can they avenge this continuing insult to national dignity. Obviously, they can not destroy the US militarily, so an economic destruction plan is in progress (and doing rather well I might add.)

They do not actually want to destroy the dollar. Much of the world would suffer, including China itself, to some extent. They want to be in a position to make an entirely creditable threat to destroy the US economically IF the US continues to thwart their Tiawan re-unification aspirations.

Destroying the US economy, (Weaker dollar not able to buy needed oil.) will also destroy one of their best export markets, so unless other markets can be developed, the threat to destroy the dollar is not creditable. It is more for this reason, than Brazil's cheap food, that they are anxious to buy from and sell to Brazil, and many others they ignored until recently.

They have signed a 25 year contract to buy iron ore from Brazil and will build major land transport cargo facilities (rail lines, storage depots, etc) and build new ports etc. for the growing bilateral trade. In addition to a complete airplane factory from Embaraer, now building planes in Harbin, China is in final negotions (some opposition here as jobs will be lost) to buy several factories, disasembling them, ship them to China, and reassemble them. (All this puts Yuan in Brazilian hands to buy China's production.) These exports of whole factories are not mentioned in the extract from Forbes below, which shows what mainly Chinese demand has done for Brazil in the last few years.

"Brazil recorded significant trade surpluses in 2004 and 2005, with exports for the last 12 months hitting a record $120 billion. Exports of oil, soybeans, copper, steel, autos, sugar and coffee are surging, even in the face of a strengthening currency. The Brazilian real is up 52% against the U.S. dollar* since May 2004 and was up 22% during 2005. Brazil is almost energy independent and foreign exchange reserves now total $58 billion, even after paying off the nettlesome IMF debt." --- from:
www.forbes.com/newsletter/2006/03/02/brazil-boom-etf-in_cd_0301soapbox_inl.html


In another thread, I recently noted that US has just lost at least 50 billion dollars of trade in coming decade as Brazil selected the Japanese digital TV sytem over the US one. (All of S. American has agreed to follow Brazil's lead on this.) Bank of Brazil is switching to Linux, etc. US is falling behind Asia in technology, with comercial potential. Soon US will have much greater trade balance problems, and foreign lenders will revolt etc. even if China does not start paying $150/barrel of oil to collapse the US economy, which is completely dependent on customers driving to Wal Mart etc. (Wal Mart will have empty shelves anyway as Chinese production will be going to the new trade partners China is developing.)

As I said, it is more complex than simple fact that Brazil can produce food cheaply. To the thread's question: YES, but perhaps US going down will be as important as China going up.
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* Note that for an American, like me living in Brazil is concerned, the dollar has already collapsed - lost more than half its value in less than two years. Thus, it is easy for me to see the general collapse of the dollar is just a matter of time as US continues to pile on the debt and China begins to trade more with non-developed nations instead of US et. al. I.e. Who needs the US and for what, five years hence?

 

[quadraphonics]

Destroying the US economy, (Weaker dollar not able to buy needed oil.) will also destroy one of their best export markets, so unless other markets can be developed, the threat to destroy the dollar is not creditable. It is more for this reason, than Brazil's cheap food, that they are anxious to buy from and sell to Brazil, and many others they ignored until recently.

The big hole in your Chinese conspiracy theory is that China doesn't sell much to Brazil. They BUY lots of stuff from Brazil, but Brazil doesn't consume that much in the way of Chinese products: this results in a $2 Billion annual bilateral trade surplus for Brazil. Moreover, the total trade between the two countries totals only $5 Billion annually. More here:

http://www.economist.com/world/la/displayStory.cfm?story_id=4249937

Compare this to the $285 Billion trade between the US and China, and it's hard to see how Brazil could replace the US as a market for Chinese products. The US-China bilateral trade *deficit* runs $16 Billion per *month*: more than three times the *total annual trade* between China and Brazil which, again, consists of China importing things from Brazil, not the other way around.

Brazil is a developing country, and so does not have the total wealth, nor consumption-based economy to provide an appreciable market for Chinese exports. The very idea of one developing country relying on another less developed country as an export market is pretty much laughable. If China wants to continue an export-driven economy, it must rely on developed, consumption-driven economies to do so. This is just basic economics. That means the options are: Japan, Europe and the USA. More likely, China will choose to rely on their own internal market, just like every other developing nation in history. This will have the added benefits of enriching the Chinese people, improving their standard of living, and raising the value of the yuan, allowing them to *widen* their trade deficit with Brazil.

 

[quadraphonics]

Note that for an American, like me living in Brazil is concerned, the dollar has already collapsed - lost more than half its value in less than two years.

I'm assuming that you're referring to the exchange rate between the US Dollar and the Brazilian real? It's true that the Real has been up with respect to the dollar lately, but that's only because it was in the toilet a couple of years ago. See here:

http://www.latin-focus.com/latinfocus/countries/brazil/braexchg.htm

Brazil had a fiscal crisis in the years leading up to 2003, which caused their currency to tank: it still has not recovered to the levels it was at prior to the crisis. Which is to say that one dollar buys MORE Brazilian Reals than it did 5 years ago. It isn't that the dollar has collapsed, but rather that the real collapsed, and is now recovering. Note that the dollar has been pretty stable with respect to other major currencies (Pound, Euro, Yen, Yuan) throughout this period. It's lost a bit of value, but not all that much considering the huge trade deficits the US runs.

Which brings up another point: if the exchange value of the US dollar drops suddenly, it will create a huge market for US-produced goods, since they'll be cheaper for foreigners, and Chinese goods will be unaffordable for Americans. Since American assets will then be grossly undervalued, it would also spur a wave of FDI into America. All of which will combine to ramp up production in America, and undermine production in China, since they'll have lost the American market for their products, and be forced to compete with cheap American exports. Moreover, no country on earth is going to want to trade with China after they launch a blatant assault on the currency of their biggest trading partner. Thus, for China to pursue a strategy of undermining the US dollar is inconsistent with your thesis about production capacity being paramount. Such a strategy would torpedo Chinese production while pumping up American production. It's hard to see why the CP would ever want to do that; even if they managed to get ahold of Taiwan in the process, the resulting economic backlash in China would probably spell the end of the Communist Party.

 

[Michael]

* Note that for an American, like me living in Brazil is concerned, the dollar has already collapsed - lost more than half its value in less than two years. Thus, it is easy for me to see the general collapse of the dollar is just a matter of time as US continues to pile on the debt and China begins to trade more with non-developed nations instead of US et. al. I.e. Who needs the US and for what, five years hence?

The Real may have increased in value relative to the dollar but that doesnt mean that the USD is dropping in vaLue! The USD has remained pretty steady here in AU and also with Japan.

If China wants to put presure on Taiwan they can stop trading with Taiwan. But that isn`t going to happen because then southern China (within which Taiwan has about 1 trillion dollars invested) would rise up and over throw the CCP. China is going to become a democracy and then will/may intigrate with Taiwan.

Also this notion that China must want to crush the US is a Western approach, or rather an American approach.

I say watch for the US to continue to plunder its own people (one reason I moved to AU) and when things get bad enough then Americans will do something.　But really that has little to do with China.

 

[Billy T]

...Brazil had a fiscal crisis in the years leading up to 2003, which caused their currency to tank: it still has not recovered to the levels it was at prior to the crisis. Which is to say that one dollar buys MORE Brazilian Reals than it did 5 years ago. It isn't that the dollar has collapsed, but rather that the real collapsed, and is now recovering. Note that the dollar has been pretty stable with respect to other major currencies (Pound, Euro, Yen, Yuan) throughout this period. It's lost a bit of value, but not all that much considering the huge trade deficits the US runs.

You are completely correct on this. I should have noted this fact. However, it should also be noted that the drop in the Real's value a few years ago was caused by politics, not economic fundamentals, such as FDI and trade balance. - Brazil’s current president, Lula, had tried for election 4 times previously. He is very smart, but poorly educated. (Neither of his parents can even read, his first pair of shoes were his 12th birthday present, etc. - a very remarkable man and natural orator*.)

The workers party Lula founded, PT, had for more than 20 years promised to repudiate all international debts etc. if elected, so on his fifth try for the presidency, when it became obvious that he might win, everyone tried to get their wealth into dollars. Well, what he repudiated, very quickly after election, was the PT program. - In fact, he has paid off much of the foreign debt. Brazil now owes nothing to the IMF!

Fortunately for me, who had most of my assets in dollars - a steady stream of them as Social Security and annuities etc, I got all out of US dollars I could and bought Real, when everyone else was selling them and invested them in Brazil debt. - I can easily live on a fraction of the interest I am now earning on this investment as Brazil has by far the highest real interest rate in the world (about 12% return over inflation from bank applications.) I knew Lula was too smart to do what he had promised for years and foresaw all this, just as I foresee the collapse of the dollar. (I moved all dollar assets I could into ADRs about three years ago to protect/ profit from the fall of the dollar. - the portfolio has already more than doubled as many others are now doing the same.)

On your second point: Yes a drastic drop in dollar value will give rise to economic forces that tend to increase US exports and surely will cause US to import much less, including the oil required to run an economy with infrastructure built on the private car. Thus again, it is more complex than your simple economics (dollar down = exports up = US economic growth).

The policies of GWB have made much of the world hate the US. My Brazilian wife will not buy anything made in USA, She loved coke, and it was hard for her to give that up, but she did about two years ago. Even if US digital TV system were as good as the Japanese one and cheaper, it would be very hard for any politician to select it. Thus, a devalued dollar may not make a great rise in US exports. The profit margins of US companies may not rise. - I think they may even drop if the price of oil, in less valuable dollars, is $150/barrel and people cannot afford to drive to Wal Mart etc.

The US economy is vastly more dependent upon domestic sales than sales to foreigners. I do not know the numbers (and you seem to be good at finding them, so try) but I bet even a doubling of exports would not compensate for a 10% decrease in domestic consumption. I.e. it is much more complex than your simple ideas. If what I am trying to say is even half-correct, FDI will drastically drop, not increase, with the drop of the dollar. Just like GM's car sales are now dropping - who wants to invest in a collapsing car company or a collapsing economy?

Why not try to check this POV with some reasonable numbers and guesses in an analysis? - I.e. if oil is $150/ barrel, in weaker dollars, what do you think will be net economic effect on US economy's domestic sales and export sales? On DFI? Be a little more sophisticated in your analysis. It is not so simple. I may be wrong, but show me, why.
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* a couple of days ago, Lula departed from his prepared speech at state banquette in London, in response to the prior speakers comments, to ask England to return to the strong bilateral trade it had will Brazil more than a century ago, before England "Turned to the ocean on the other side" (Pacific instead of Atlantic, "opium wars", "boxer rebellion" India, etc.) and continued to note that the "the Atlantic has not grown any bigger!" - he has a natural gift in extraneous speeches, could be a demagogue, but is not. He is a man of the people and five minutes into any speech, he has the audience in the palm of his hand. Etc.

PS You are well informed, so probably already know the US set new trade deficit record in January; 68.5 billion dollars, 17.9 of which was with China. I know where this all will end. Protect your self from dollar collapse, as I have.

 

[Billy T]

...If China wants to put presure on Taiwan they can stop trading with Taiwan. But that isn`t going to happen because then southern China (within which Taiwan has about 1 trillion dollars invested) would rise up and over throw the CCP. China is going to become a democracy and then will/may intigrate with Taiwan.

I hope your last sentence is correct, but doubt if I can live long enought to see it. I agree China will "put pressure on Taiwan" - that is a "no brainer". However, China wants Tiawan back at the lowest cost possible, I.e. a peaceful reunion. That is why China is facilitating economic ties with Tiawan. Even paying for Taiwan busness men to visit mainland trade fairs, now allowing direct flights after 50 years of prohibition, etc.

China is making some progress, in developing a significant component of the Taiwan society, especially the business community, that now want to reunite. The last election was very close between these two forces. I expect the next one will tilt to the "reunite peacefully" side rather than "lets declare independance" side of this internal debate now taking place in Tiawan. (Part of reason for this may be the recognization by some in Tiawan that the US is not longer able to come to their defense - too busy elsewhere, etc. and/or the great increase in mainland's military expenditures, for the invasion, if needed.)

On your other point: Of course Dollar is still strong and it is the Real that has become stronger. I am speaking of the dollar's future. It will collapse - see more in post below as to why.


PS on a personnal note since you live in AU: Do you know what is happening with Novogen Ltd.? That AU biocompany (ADR symbal NVGN in US) is the only one in my portfoilo that is showing any loss. It makes a profit on red clover isoflavin extracts it sells, but is losing money (naturally) as it creats more products and must test them to get marketing approved. What is happening? I still think it has good future, as isoflavins do, and they have good patent protection in several countries on their extraction processes etc.

 

[Billy T]

to Quadraphonics:

Your side of debate is put forth in:
www.forbes.com/2006/03/09/us-export-growth_cx_0310oxford.html?partner=daily_newsletter
(Ref. provided in the interest of fairness and facts.)

Forbes notes that much of the problem is lack of foreign demand for US products. (I did not know that my wife's refusal to drink Coke, or "buy US" was such a big deal. - I will talk to her about changing her POV. :bugeye: )

 

[quadraphonics]

Forbes notes that much of the problem is lack of foreign demand for US products. (I did not know that my wife's refusal to drink Coke, or "buy US" was such a big deal.)

It's not a lack of foreign demand for US products; it's a lack of foreign demand, period. Consumers outside the US just aren't buying enough stuff to stimulate large export markets. This has nothing to do with preferences for/against American goods, but rather with low levels of consumer spending growth worldwide.

This also reinforces my earlier point that China has no alternative to the US when it comes to markets for exports. I'll try to write a longer response to your previous post at some point, but I'm kind of busy at the moment...

 

[Billy T]

....Consumers outside the US just aren't buying enough stuff to stimulate large export markets....

Yes. They need to learn how to print green pieces of paper with that picture of George Washington on them to spend without any corresponding earnings, as US does.

This also reinforces my earlier point that China has no alternative to the US when it comes to markets for exports.

True at present. China and many lessor countries, including Brazil, working hard to make it false soon.

I'll try to write a longer response to your previous post at some point, but I'm kind of busy at the moment...

I look forward to it. I am learning some things from you and you support you side well. (For example, My view of China's middle class has changed somewhat.)

 

[quadraphonics]

Yes. They need to learn how to print green pieces of paper with that picture of George Washington on them to spend without any corresponding earnings, as US does.

Well, increased consumption doesn't have to be done in an irresponsible or unsustainable manner. The fact is that Europe's economies have been growing at an anemic rate, and they have high unemployment and tarriffs to prevent imports. Government expenditures are really high there as well, which leaves the people that do work with that many less Euros in their pocket to spend on consumption. As described in the link you posted, analysts had been hoping Germany in particular would see enough economic growth to spur some consumption growth, but it didn't turn out that way... although Japan's economy is turning around now, so perhaps they'll start spending a bit more.

True at present. China and many lessor countries, including Brazil, working hard to make it false soon.

Well, in the near future, the only real hope for the emergence of a significant consumer market is China. Obviously, this doesn't help China's exports, though.... I'd add that the biggest thing holding back Chinese consumption is the lack of availability of personal credit there. This means that people have to save for a long time to make large purchases, instead of just getting a loan and buying stuff now. The result is that the savings rate gets inflated. However, many banks, in particular from the US, are making inroads in the creation of a Chinese consumer credit market... the next 5 or 10 years should be interesting in that regard.

 

[Michael]

On your other point: Of course Dollar is still strong and it is the Real that has become stronger. I am speaking of the dollar's future. It will collapse - see more in post below as to why..

I`m sure that over time the USD will decrease in value but I really can’t see a "collapse" in value. The US is still in a pretty good position. It has lots of natural recourse, the largest fresh water supply, the largest arable land, access to both the Pacific and Atlantic, large fisheries, both a highly educated populous and a large working class of uneducated people, strong work ethic in both classes, no problems with its neighbors, a good governmental structure, separation of religion from the State, etc…

I’m not an economist but it seems that over time money collects in the hands of a few no matter what. The resulting poor class can be appeased by war and war booty for awhile but finally a revolution and redistribution of money is needed. It seems that the tipping point doesn’t happen until the poor can no longer purchase private lands. I think the US still has land available for most people? Also the US can vote the money back into their hands?

PS on a personnal note since you live in AU: Do you know what is happening with Novogen Ltd?

I have heard of Novogen but unfortunately that’s about it I’ll email a friend of mine when I return to Sydney.

Right now I’m on vacation in Japan for a few months looking for work at Biotech, Pharmaceutical and Universities, any suggestions?


Cheers,
Michael

 

[Billy T]

Well, increased consumption doesn't have to be done in an irresponsible or unsustainable manner. The fact is that Europe's economies have been growing at an anemic rate, and they have high unemployment and tarriffs to prevent imports.

Yes, real investment is generally good, regardless if made privately or by Gov (like the GI education bill at end of WWII, etc. &
Perhaps there is a connection on facts in second sentence - I think so.

Government expenditures are really high there as well, which leaves the people that do work with that many less Euros in their pocket to spend on consumption.

Often gov expenditures are not as wise as private ones (politicos usually want results before the next election, etc.) but not always true, In general, Scandinavian govs do a good job managing about half of GDP. (highest standards of living, longest life expectancies, education, etc.)

As described in the link you posted, analysts had been hoping Germany in particular would see enough economic growth to spur some consumption growth, but it didn't turn out that way... although Japan's economy is turning around now, so perhaps they'll start spending a bit more.

I doubt it. The old believe in saving and many of the young still respect the old - entirely different culture. Especially as he BoJ just announced the end of zero interest rates (or actually slightly negative ones as the inflation was greater than the nominal return on bank accounts.) -I.e. soon you may be able to earn a safe 0.5% real annual return in BoJ !

Well, in the near future, the only real hope for the emergence of a significant consumer market is China. Obviously, this doesn't help China's exports, though.... I'd add that the biggest thing holding back Chinese consumption is the lack of availability of personal credit there. This means that people have to save for a long time to make large purchases, instead of just getting a loan and buying stuff now. The result is that the savings rate gets inflated. However, many banks, in particular from the US, are making inroads in the creation of a Chinese consumer credit market... the next 5 or 10 years should be interesting in that regard.

I agree will almost all of this, excepting only the "obviously...not help China " part. - In my view China would like to have any additional markets, even their own people (but that is dangerous to CP if they get time to think instead of only eat, work and sleep.) If China could sell its entire output to Brazil etc, I think they would prefer that to the US market (assuming the money and or products they get of same current value.) Reasons: (1) they know the dollar is fiat money that may collapse, leaving them holding a bag of green paper. (2)They know that if they do not fill the shelves of Wal Mart, US manufactures may be able to stop closing plants and the US industrial decline would slow. (3) They do not like the US dollar being the dominate currency of trade. They want the profit* of printing paper they can exchange for goods and most of it never coming back to buy any products. Most dollars are under foreign mattresses etc. not in US.
--------------------------------------
*Called "seniorage", but not spelled right, I think.

 

[Billy T]

....Right now I’m on vacation in Japan for a few months looking for work at Biotech, Pharmaceutical and Universities, any suggestions?...Cheers,
Michael

Sorry I can't help you. I like to really understand the companies I invest in. This means I even read the fine print in their reports, listen to their conference calls etc (never to a broker's ideas etc.) Hence most of my ARDs are in English or Portuguese speaking lands.

I have really become impressed and facinated by some of the new bio tech approaches: especially the "magic cancer bullets" that are completley non toxic like RNA interference molecules; VEGF interfernce; small-molecule inhibitors of Aurora-kinase activity;Phenoxodiol (that is NGVN's drug) and other signal transduction inhibitors; etc. - If I were young I would be studing this field for my career, but hope to live long enought to benfit from it. Bio tech will be to this century what physics was to the last. Go for it and good luck.

 

[Billy T]

.... it seems that over time money collects in the hands of a few no matter what.

This reminds me of old joke, (I strip out the usual ethnic slurs):

Running Bear & Trader Jack are being briefed on Heaven's rules, procedures etc:

St Peter: "Running Bear you always were fair and stood for peace. Here is your 10 million dollar reward"

St Peter: "Trader Jack you were a good man, but not always fair. Here is your $10 thousand dollars reward."

Trader Jack: "Thanks, but I will not be needing that. Just give me a card table, a few trinkets and 15 minutes alone with Running Bear."