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This is a relatively old story based on a paper posted by the Federal Reserve of St. Louis. But it’s certainly something to read and mull over on a slow Sunday afternoon. |
The only thing keeping the U.S. afloat right now is the temporary willingness of Asian countries to keep buying U.S. debt, thereby pumping up the U.S. economy with dollars earned on the backs of Chinese laborers.
But even the Chinese — known for their tolerance of hard times and manual labor — may eventually tire of lending money to a posh, arrogant Western nation that has all but abandoned the concept of saving money. Says Kotlikoff, “China is saving so much that it’s running a current account surplus. Not only is China supplying capital to the rest of the world, it’s increasingly doing so via direct investment. The question for the United States is whether China will tire of investing only indirectly in our country and begin to sell its dollar-denominated reserves. Doing so could have spectacularly bad implications for the value of the dollar and the level of U.S. interest rates.”
The American people, as usual, remain oblivious to the financial future that awaits them. Even as the housing bubble is now beginning to burst in the nation’s most overpriced real estate markets, most people don’t have a clue what “hard times” really means. To today’s debt-ridden yuppie spenders, “hard times” means shuffling six different credit card accounts to cover the payments on an overpriced house, two new SUVs in the driveway and a vacation to Paris, none of which the yuppie couple can afford.
The idea of ever having to pay back their debt and live within their means is as foreign to most Americans as it is their own government.
Perhaps if you hadn’t borrowed a trillion from the Chinese for your Iraq misadventure…
Very ironically, one reason that the USA may have stayed out of recession until now is the buying power of immigrants. They cross the border with nothing, so they have to buy everything. Only a small portion of their earnings is sent back to their country, the rest is spent in it’s entirety within the US economy.
Cars, houses, food, clothing… all purchased within the USA, and paying local sales taxes. And respectable studies of immigrant expenses show that they add much more to the economy than they cost in services.
The idea of ever having to pay back their debt and live within their means is as foreign to most Americans as it is their own government.
Longterm planning doesn’t get you elected… tax cuts on the other hand does. The real medicine is too bitter for people to take….
#1 – Don Coyote
Or perhaps outsourced the war to the Chinese?! Cheaper and Bush wouldn’t have much problems with the press writing about torture and casualties…
#2 – Awake
The illegal immigration is just a smokescreen for the real problems in the US, such as the war in Iraq, overpriced medicine, overpaid doctors, corruption (Halliburton anyone?) etc.
#3 You forgot a big one – Government waste. How much money is pissed away daily by our government.
I live next door in Canada and in my mid 40’s. It means some harsh realities for me. I expect that when I get to retirement age nothing will be left and I’ll have to keep working – which for me means another 25 years or more. I also think it will mean a huge shakeup for the world economy and I’m not sure how it will turn out but I know my kids will work overseas at some point in their career, probably Asia. Not a bright future in the long run but it’s one I’m going to have to work through.
I think people 30-50 will bear the brunt of this, I am more optimistic for my kids who are late teenagers since they are more adaptable and entrepreneurial than I ever was at their age.
BTW, this sober personal outlook comes from someone who lives in a country with government surpluses, a reasonably well funded old age pension scheme, and spends about 50% per capita on health care as the US does. If people around the world think that this is not going to affect their lives then they are naive.
#3 JAG
“overpaid doctors”
As usual you make some good points, but I tend to think that the problems of medical costs has less to do with the doctors and more to do with the incorporation of medicine. There are too many “members of the board” and “directors” making big bucks in medicine and not contributing a damn thing.
Chinese export companies are seriously looking at quoting in anything but USD. The export market is extremely tight and an unstable USD hits the bottom line hard.
IMHO modern companies handed over control to professional hired guns who only understand – maximize profit, reduce costs and know nothing about the products they produce.
Gone are the days where the top management comes from the industry the business is in. They are all hired guns chanting “maximize profit reduce costs, maximize profit reduce costs…
Now you are seeing the results.
All Chinese companies I deal with the top management have years of experience in the industry they are in. Most started the company from the very beginning.
When the export well starts to dry up China will seriously move to develop its own domestic market and not before. Why? Chinese employees will need to earn more money so they can afford the products they produce. That time hasn’t really come yet but its not far off either.
By 2010 you will see more Chinese domestic consumption and at the same time more Chinese companies moving offshore to produce it. India is on the horizon and I feel Indonesia is also in the picture with a population just below the US.
I see the US becoming more lax on immigration as Awake already mentioned that new immigrants need to set up house and this stimulates the market. But this is only a bandaid solution as the products they buy is imported.
Real economic growth comes from exporting more than you import otherwise its like deferring tax – it didn’t go away, you still have to pay it but not just now. It doesn’t take a rocket scientist to figure that one out.
Cheers
Nothing to see heere folks, move along; go watch another photo of Britney Spears’ shaved snatch because that’s more important than the Iraq war and there will be more of MTV’s “Super sweet sixteen” episodes so the girls won’t bother with Hillary Clinton.
#4 – gquaglia – You forgot a big one – Government waste.
Agree… it’s sort of the collective name for it all.
#6 – Sying Flaucer – …the problems of medical costs has less to do with the doctors and more to do with the incorporation of medicine. There are too many “members of the board” and “directors” making big bucks in medicine and not contributing a damn thing.
I agree with you on that these directors are just deadweight, but the salaries for doctors are also way too high…
#7 – TIHZ_HO – IMHO modern companies handed over control to professional hired guns who only understand – maximize profit, reduce costs and know nothing about the products they produce.
Yep, all too many professional MBAs…
Real economic growth comes from exporting more than you import otherwise its like deferring tax – it didn’t go away, you still have to pay it but not just now. It doesn’t take a rocket scientist to figure that one out.
But the chimp and his friends in the White House haven’t. 😉
Define morally bankrupt. Is it 1). issues with our culture or 2). US international policy?
variation on a theme from the 70s and 80s. as I recall it, back then the Japanese, Germans and Saudis were going to eat our lunch.
how can the sky finally fall if it is always falling?
#12 – doug – …the Japanese, Germans and Saudis were going to eat our lunch.
Only this time, they’re making sure you can afford the lunch. But you can always pretend that everything is okay and borrow a little bit more cash.
Far out scenario? We declare war against the evil Chinese who are intent on foreclosing and taking possession of all their US properties. Joss Whedon may have had it right when he made Chinese the dominant language in Serenity’s space.
As stupid as the Iraq war is, it doesn’t make sense to blame that mess on the U.S.A.’s finanial situation. See Graphs 1..
Wealth in the U.S.A. is concentrated in the holdings of rich folk.See Graphs 2 They have the money to buy stuff for cheap when por folk sell their MP3 collections on eBay, or however it is that they hope to weather any financial crisis.
Saw this article on Digg and had problems with it. Parts are correct, parts are not.
The Recession we are headed into is going to be a deflationary one, not hyperinflationary… at least in some things. Lets just say we are going to be spending more and more of our income on food and energy, which means that all discretionary expenditures will have to come down in price.
The situation with China is going to get worse. The primary reason gas prices are going up here is that the economic growth in China and India is increasing demand for fuel. World oil production has been stagnant at 84-85 mbpd now for 3 years and is not keeping up with growing demand. “Peak Oil” theory says it is more likely to go down soon rather than up.
That means transportation costs are going to be a growing factor in business decision making. Factories in China may move (back) to Mexico because it is cheaper to ship to US markets from there. Even higher transportation costs could mean the end of globalization.
Money is debt and debt is money. The housing crisis is going to take trillions of dollars out of the economy. Banks are going to be very hesitant to make loans to replace the defaulted loans.
I seriously doubt all of that federal government debt will ever be repaid. There is simply no way it can be.
We are more likely to see a collapse of the Federal Government and the individual states take over all government duties. Peak Oil + Housing Crisis + collapsing dollar value could be the 123 punch to actually do it.
#8 Pedro said – “The good news is that it’s also happening worldwide.”
Well almost worldwide…well not the entire world really…not China…
#14 OmarTheAlien – “Chinese the dominant language”
Just like Japanese is…? In the 80’s Australia got this brilliant idea to start teaching Japanese in schools so Australia has the edge in trading with Japan.
Well that didn’t work – any Japanese business person spreaks Engrish.
The same in China…almost… Its easier to get a ham sandwich in Israel than to find someone who spreaks Engrish well and is a professional in China. Usually a company hires a university English major and then tries to train them. Thats why there are many trading companies who export product from Chinese companies who could not.
It will take Chinese a very long time to understand foreigners speaking or trying to speak Chinese.
With Chinese the pronunciation has to be exact because the intonation changes the meaning of the word. To say Good Food and sound like Good Shit if the tone is off. While if a Chinese person says ‘Sank Que’ we hear Thank You.
Instead of language it would be much better to understand Chinese logic…that’s much harder though more important. 😉
Cheers
#16 – ArianeB – Even higher transportation costs could mean the end of globalization.
Don’t worry… I’m sure they’ll introduce nuclear powered cargo ships to counter that.
I seriously doubt all of that federal government debt will ever be repaid. There is simply no way it can be.
Yes, through raised taxes… but oops, it’s the USA, so forget about that.
#17 – TIHZ_HO – Well almost worldwide…well not the entire world really…not China…
Let’s not kid ourselves… The morals have been changing quite dramatically in China over the last 30 years.
#19 Jägermeister – Ah Morally bankrupt not financial. I just now saw what pedro was saying. You didn’t mention which way its changing dramatically…
So yes, China has been morally bankrupt in many areas for years!
Like social graces, tossing out girl babies in the woods, lying and cheating in business and so on…
However you are right these aforementioned moral bankruptcies are changing and getting better for the last 30 years – sort of like coming out of chapter 11. 😉
Cheers
Sounds like other people are finally realizing what Dr. Paul has known for nearly twenty years in Congress…we’ve been living beyond our means for far too long.
As a soon-to-be college grad in computer engineering, I’m scared as hell about the job prospects in this country. Luckily, last time I checked, Google still has a ton of cash, even adjusted for inflation.
17: Comparing 80’s Japan with todays China may not be an accurate comparison. Although Japan beat up the Chinese pre-WW2, in today’s world China is the proverbial sleeping giant, slowly but surely developing a giant hunger for industrial strength, western style glitz, and the energy to power it all. It is this hunger, this need, that will drive the Chinese not to military conquest, but to simply overwhelm by sheer numbers and energy the current world leaders.
The Mongols swept in off the Asian steppes, were knocked back by the Romans, the Germanics, then the British Isles and the Europeans, then the Americans went tear assing around the planet, so maybe it’s time for the focus of world power to return from whence it came: the Orient.
Chinese logic, with Caucasian nuances.
#23 OmarTheAlien
I was only comparing China to Japan regarding other countries learning the language such as Australian schools teaching Japanese. 😉
Cheers
On the China Morality thing. I have discovered it is somewhat like dealing with someone who has a split personality.
Let me start with a real story. On my first trip to China I was in a hotel in downtown Shanghai overlooking the old district where the Kuomintang headquarters were located. I got into the hotel about 2:00am (in the morning China time). Being from the US I was wide awake so to pass the time I took in some sights. While passing the time I saw an elderly couple in their 70’s walking down the street doing some shopping at the local 24 hr fish markets. They were totally unafraid. The thought that someone would mug them was not even in their minds. Shanghai has over 13 million people in it. I have lived all over the US and there is not one city in the US which has anything near the population of Shanghai with anything close to it’s practically nonexistent crime levels.
It’s not that China is a police state, nor that it has lots of prisons (the US has more of both), it’s that being socially criminal just isn’t in their bones.
But as for business, for some reason all morality and ethics goes right out the window except for a very few people. It’s not considered immoral or unethical for the most part to steal someone blind. It’s one huge cultural buyer beware.
This is one reason why it is such a horribly bad idea to borrow from China. As long as it’s a good investment then they will continue to buy our debt. But what they are really buying is a continued trade deficit in their favor. We try to restrict free trade and they call in their debt.
We are collectively screwed.
“to a arrogant Western nation that has all but abandoned the concept of saving money.”
My father was a saver, but he got real returns on his savings. usually getting at least 3% more then the inflation rate. with curant CD rates you are actually losing ground saving money. Unless you are willing to risk your capital in the stock market or bonds it makes no sence to save.
Two of my children are alreddy working overseas. One in China and one in Turkey. The lack of crime in China was a real relief to there mother and I. When my daughter moved from shanghi to Istanbul she was shocked at the differance in crime and general dishonesty of the people.
“Chinese the dominant language” No there is no dominate language in China. In the upper classes believe it or not it is English that is learned and spoken in business.
#25 Ah_Yea
Your correct – Shanghai is a very safe place as with Beijing and by far Chinese its not part of their makeup – except in business then all bets are off.
Chinese people expect this and there are countermeasures. Never pay the amount asked and if someone is doing work like a tradesman hold back at least 10-20% after the work is done and maybe never pay it.
About how safe Shanghai is be careful that is not to say it safe everywhere in China. Down south in Guangzhou it’s a vastly different story. There are many “criminal cities” where there is a lot of manufacturing with most workers from the country side. The wages and conditions are bad so they think nothing in augmenting their income.
In these criminal cities often there are no taxis as they have been robbed too many times, I have seen a McDonald’s with 4 armed security guards! One would never answer their mobile phone on the street as someone would run up and steal it. Purses are meant to be stolen – so women avoid them.
Wenzhou the synthetic leather capital is another area where is can be very dangerous in areas. Apartments look like jails with steel bars on all the windows and doors. One must be very careful to go out on your own.
Don’t think all of China is like Shanghai as you could find yourself getting robbed quick smart in any highly industrial Chinese city with a migrant work force.
Why is Shanghai so different? The people are more free and the workers treated better. In these industrial criminal cities workers are treated very poorly and are paid very low wages and sometimes even cheated out of that.
Its getting batter and this is one of the issues the government is striving to change however It is so wide spread that it takes a long time.
In the Chinese news there are many stories of corrupt government officials or business people with the idea to get Chinese people involved to help weed them out. Chinese by culture will tend to be silent and do nothing no matter what has been done to them or to others. Thank Mao and his cultural revolution for reinforcing that one.
You are correct in Chinese buying US debt as long as it is favorable to China – they want to keep selling to the US.
Chinese companies work with debt this way. Company A sells to B but has to give credit. B never fully pays off A so it is an overdraft. A then owes C who supplies materials to A in much the same way. This becomes triangle debt and around around it goes. 😉
If it seems I am posting a lot recently I have an unusual amount of free time temporally – sort of the calm before the storm. 🙂
Cheers
#26 oldwaterman said- “No there is no dominate language in China. In the upper classes believe it or not it is English that is learned and spoken in business.”
Sorry but that is not correct. There is a dominate language in China – Standard Chinese is Standard Mandarin (Putonghua) based on the Beijing dialect. One of the quickest ways to tell if a Chinese person is uneducated or not is their inability to speak Mandarin. Also one of the quickest ways for Chinese to be cheated by the locals is the inability to speak the local dialect say Shanghainese.
All educated people in China learn two languages – Mandarin and English – from primary school through to University.
To graduate from university one MUST pass an lower intermediate English level proficiency test, CET Band 4 which is written and spoken. Some graduates elect to go further to CET Band 6 which is an upper intermediate English level.
These diplomas and certificates are badges of honer to be displayed irregardless of actual ability. So much so in China a common phrase is “High Score Low Ability”.
You would think with everyone who goes to school and university graduates having to pass CET Band 4 there shouldn’t be any problem to communicate in English in China / Shanghai. HA! That’s a laugh! Finding a Chinese professional who is a competent English speaker is like finding a ham in Tehran, Iran.
While English ability er… certificates is a badge of honor it is not the preserve of the upper classes at all. In fact they tend to be the worst at speaking English as they are older.
Its only the few who may have been educated abroad that might be able to put a few words together.
In New Zealand Chinese can get their degree quite easily as all the classes are in Chinese. It doesn’t matter at all that they were in New Zealand for 4 years but never left China – they have a degree from another country to put on their resume! YooHoo!
Its quite certain that what ever Chinese company they work for the boss’ English is worse than theirs! Its a real riot!
I know of one Doctor who lived in the US for three years with their daughter who can hardly say anything more than a few phrases.
A China Bank vice president I know got almost a perfect GMAT score (all in English) for acceptance for post graduate study can barely stitch a few words together. He was never accepted for study in the US because of his appalling English during the interview and is bitter about it.
Many Chinese higher central government officials are also quite deficient in English – I met a few.
Why it seems then to you that only the Chinese upper classes are able to speak English? Perhaps they are the only ones you are your daughter happen to been able to communicate with and maybe have lived abroad for a longer time! Yes maybe? 😉
Cheers
The USA was sold.
People from other countries are buying up US assets squeezing out the ones that can’t afford.
TIHZ_HO, thank you very much for your excellent advice. I have always been able to count on you for the straight scoop and I am taking your advice to heart. I’ll make sure to watch myself. I have also run into the very same experiences with English as you have, although not to such a degree. Here’s an example which I’m sure you appreciate. One of the people I work with in China is educated with English experience yet cannot speak more than a couple of words, but his son works for an American software company with it’s local office in Beijing. He does a LOT of work in Korea and the only way he can communicate with his Korean clients is by using English! You know he has job security!
Once again, the thread misses the story.
The Federal Reserve of St. Louis puts out “shock” stories for the Fed, including past articles equating salary to all sorts of things. Hell, even the current Palestinian PM used to be part of the St. Louis Fed.
The question becomes if this story is meant to kick everyone in the ass, or is true. I’m guessing the former.
#30 Ah_Yea – Thanks for your kind words – been here for a while…when ever I think it was too long I have a trip back to the States with all the shit going on there and that straightens me right out! LOL!
Yes, your story is very typical and would not even surprise me to hear that guy’s son’s only qualification for his job was the English! 😆
Cheers