You’re the guy who introduced me to Warren Mosler but based on this cartoon you don’t think much of his economics.

“Don’t vote for anyone who wants to balance the Federal Budget”

“Fact: Imports are real benefit, and exports
are real costs. Foreigners are dependent on
U.S. domestic credit expansion to fund their
desires to accumulate $US financial assets.”

http://www.moslereconomics.com/

1) A good bit of our manufacturing capacity has been geared towards construction. Construction is for all intents gone for a quite a while. The losses in manufacturing jobs have been staggering.

2) We cannot compete with lower cost mfg labor in a global market place. Eventually many of our autos will be made in China or Vietnam or India or who knows, it may eventually be Bangladesh.

3) At 8.5%, China’s economy will double every 8 1/2 years (rule of 72). Therefore in 17 years (assuming 8.5%), their economy will be 4 times larger than today.

4) Today China’s economy is actually about 2 times larger (PPP) than the reported dollar-based GDP because China’s currency in under valued. Once China revalues (yes it maybe many years from now) their GDP will double.

Thus if China grows at 8.5% and China revalues its currency to fair value some time forward, then the Chinese economy, in dollar terms,will be 8 times larger than it is today in less than 20 years.

With respect to “They can’t go on building idle factories and empty cities forever you know.”, as I wrote earlier this morning, I conceded to you that the risk that China’s economy is on fragile grounds is very high but also that China is taking steps to tamp down on their real estate bubble and they have options available to further stimulate their domestic economy.

I do not think any of us, or for that matter the Chinese themselves, know for certain whether or not China can maintain sustained economic growth at this point, or if a bubble collapse(s) in emerging market asset classes will lead to a global double dip recession/depression. Time will tell.

Last, enough of this hogwash about the US having no manufacturing capacity. Again, do yourself a favor and go find the statistics. See if you can find the numbers on who manufactures more goods per years. I’ll give you a hint, it’s not China.

They have been. Loans to Russian firms to be repaid with oil. Investments in a variety of commodity based companies through out the world. Stockpiling metals. They are not dummies over there.

In the case of China, we have a case of mutually assured financial destruction. China has some culpability in this, too. They could have dropped that peg any time they wanted. Now, a failed treasury auction here would be an ELE. A de facto default on our bonds would be an ELE for China’s economy.

They should wise up and start buying real resources with those dollars while they still can.

Thor, I will concede that whether of not China is presently on a path to achieve long term structural growth is at question. Risks are an excessive real estate bubble and insufficient domestic demand to take up the slack once this bubble is pricked. China’s Govt is aware of this and is taking actions to tamp down on real estate as well as to encourage domestic demand (appliance vouchers, etc.) On the positive front China does have additional weapons at their disposal through their banking system and capacity to add stimulus and they have the political system that allows rapid response (no need for “job summits” etc.).

The fragility of their recovery does explain why they are adamant about not revaluing the Yuan anytime soon. Too risky to do so until the domestic economy takes hold.

So we run the global gamut of scenarios. Anything from continued rapid growth in emerging markets pulling the global economy out of a deep recession to a collapse in new emerging market bubbles in places such as Chinese real estate leading to a global double dip with the second dip worse than the first, or something in between. Maybe I should put my money in my mattress…..

They are using up resources and will be using an increasing percentage of the world’s resources that we are going to need to maintain 1. growth 2. what we have not maintained.

There is going to be a fight. China has 1.8 trillion of US $ reserves and it can jerk the West around.

Yes, the US can default. But I can guarantee China would not sit back if that happened.

They can hurt us and we have willingly put ourselves at their mercy because we thought they were not a threat.

http://www.treas.gov/tic/mfh.txt