NationStates Jolt Archive

http://www.ottawabusinessjournal.com/281416633901920.php
I have several thoughts on this, but I feel too lazy to type them right now. Okay, I will type one of my thoughts.
The deficit between the US and China is the world's widdest, right? Well, it is. But the US still gets more money from China than the Chinese get from the US. How? Well for one, many of the factories in China are US owned. The Chinese don't need much to live on, nor do they ask for much. Therefore, most of the profits go to the US, which the trade deficit numbers don't show. For another, however, the state-owned Chinese banks are the largest buyers of Treasury bonds, which offset the impact of the deficit. Sure, they need to be paid off, but those things have a thirty year maturity rate. Paying off a few hundred billion dollars over 30 years isn't hard. So factoring in all of that, the trade deficit is financed by the Chinese.
In fact, a big threat for our economy are those banks. While they are technically insolvent, they are known to loan money to anyone that asks, without even asking for a business plan. If they collapse, then we'll really start hemorrhaging money.

So, no one has the same interest in these numbers that I do?

bump

bump

Too busy to comment on this now, but please keep bumping it as necessary.

http://www.ottawabusinessjournal.com/281416633901920.php
I have several thoughts on this, but I feel too lazy to type them right now. Okay, I will type one of my thoughts.
The deficit between the US and China is the world's widdest, right? Well, it is. But the US still gets more money from China than the Chinese get from the US. How? Well for one, many of the factories in China are US owned. The Chinese don't need much to live on, nor do they ask for much. Therefore, most of the profits go to the US, which the trade deficit numbers don't show. For another, however, the state-owned Chinese banks are the largest buyers of Treasury bonds, which offset the impact of the deficit. Sure, they need to be paid off, but those things have a thirty year maturity rate. Paying off a few hundred billion dollars over 30 years isn't hard. So factoring in all of that, the trade deficit is financed by the Chinese.
In fact, a big threat for our economy are those banks. While they are technically insolvent, they are known to loan money to anyone that asks, without even asking for a business plan. If they collapse, then we'll really start hemorrhaging money.

And if the Chinese economy crashes because they were running at full steam for too long?

The pain will be seriously felt by the USA, and quite possibly, the world as a whole.

This really does not have much of an effect on anything. Fact is that China has about half of the gdp of the United States while it about four times the amount of workers. That means that China puts out about 1/8 of the United States' per capita gdp at this time. On top of that their gdp is growing more slowly than ours is. The united States ( like it or not) is the most powerful economy on the planet and will be for quiet some time. The narrowing of the trade defecit only enhances it.

Surely the U.S. deficit could survive such a hit?

don't confuse the trade defecit with the budget defecit ( although they both really don't matter very much).

All right let's assume China's banks crash. US Tbills get sold (unlikely actually, but possible) and China no longer is in the marlet for them, net effect US T-Bills have to pay a higher interest rate, US budget deficit becomes more expensive to finance. Factories in China cease operations as they are no longer able to borrow money to pay operating expenses (actually likely at some point in the next ten years without intervention by the government). US goods have to imported from more expensive places like Indonesia, US trade deficit grows - although this might be offset by US exports of industrial materials to set up factories in these higher cost countries. Costs in China are not just lower bacause of wages, the cost of money to opperate is kept artifically low by the banks (governemnt) and even if factories remain open a credit crunch will raise the cost of money in China, raising the cost of goods, resulting in an increase of the trade deficit.

Would either or both of these effects be diasterous to the US economy, no. But they are troublesome and would have a bad effect on the US economy.

And if the Chinese economy crashes because they were running at full steam for too long?
It's mostly due to China's banking policies. As the PRC control all of the major banks in China, they have most of the nation's wealth. However, they are giving it to every upstart entrepenuer who just asks for a pile of cash. Once they begin their factories, they, in turn, consume energy in the form of coal and oil. They need ports to ship their goods out. There are a lot of them, and they are growing faster than the infrastructure can keep up. You know this much. But they are spurred on by the easy money flowing from the banks. The only solution I can see is one steep interest rate hike, but that may not slow down China's rapid growth.

This really does not have much of an effect on anything. Fact is that China has about half of the gdp of the United States while it about four times the amount of workers. That means that China puts out about 1/8 of the United States' per capita gdp at this time. On top of that their gdp is growing more slowly than ours is. The united States ( like it or not) is the most powerful economy on the planet and will be for quiet some time. The narrowing of the trade defecit only enhances it.
As a percent, China's GDP is rapidly growing at 9% a year in the 1990s. It nearly quadrupled in twenty years, whereas the US economy merely doubled.

All right let's assume China's banks crash. US Tbills get sold (unlikely actually, but possible) and China no longer is in the marlet for them, net effect US T-Bills have to pay a higher interest rate, US budget deficit becomes more expensive to finance. Factories in China cease operations as they are no longer able to borrow money to pay operating expenses (actually likely at some point in the next ten years without intervention by the government). US goods have to imported from more expensive places like Indonesia, US trade deficit grows - although this might be offset by US exports of industrial materials to set up factories in these higher cost countries. Costs in China are not just lower bacause of wages, the cost of money to opperate is kept artifically low by the banks (governemnt) and even if factories remain open a credit crunch will raise the cost of money in China, raising the cost of goods, resulting in an increase of the trade deficit.

Would either or both of these effects be diasterous to the US economy, no. But they are troublesome and would have a bad effect on the US economy.
I'm actually beginning to think that a collapsed economy in China will have mixed effects for the world at large. China will undoubtedly suffer, and perhaps maybe enter into a depression. But in time, they will recover because of the massive infrastructure they have built in just twenty years.
As for the rest of the world, it may make the economy stronger. At first, many will suffer. Japan will especially, since they have a trade surplus with China. But it'll lead to lower prices for basic commodities. OPEC permitting (and I'm doubtful that they will), oil will skydive in price due to lack of demand. Most of the nation's concrete and steel is exported to China. This will glut the market with construction materials, and stimulate a building boom.
The country that stands to gain the most, however, is India. They are currently described as the "back office of the US economy". They have a large, educated, English speaking workforce, but at a very low cost. The US will have to depend on them more, and if the government permits it, factories will go up in India like mad, and it'll dramatically reform Indian society. However, I'm doubtful that Sonia Gandhi, a socialist and the power behind the Indian throne, will let this happen.

bump

bump

bump

I have another thought on the deficit with China. At some point, China should float their yuan. It is pegged to the dollar, keeping the yuan cheap, and making it impossible for American goods to compete. This is subtle protectionism, but protectionism, nevertheless.
I think, though, that if economic disaster hits China, floating their yuan might help. It'll certainly cripple their export sector, but it'll keep raw materials cheap for them. Right now, China has just raked up a trade deficit, as it buys so many raw materials. A strong yuan means that it'll turn back into a surplus.

bump

I would HOPE the trade deficit would narrow a bit, since it hit record numbers in July. As such, the narrowing of the trade gap is no great achievement, since it's not hard to back off from A RECORD HIGH.

Vote Kerry, before Bush tells you the trade deficit is good for the economy.

I would HOPE the trade deficit would narrow a bit, since it hit record numbers in July. As such, the narrowing of the trade gap is no great achievement, since it's not hard to back off from A RECORD HIGH.

Vote Kerry, before Bush tells you the trade deficit is good for the economy.
In many ways, it is. It makes the dollar slightly cheaper, meaning that more goods can be sold overseas. In fact, the manufacturing sector has grown in volume of production every month since March 2003. But hey, we don't loose money as a nation over our trade deficit. It's financed heavily by investments. We're really in one of the best trading situations on the planet, as we have the benefits of both a trade deficit, and a trade surplus.

"In 2001, for instance, the last year of available data, U.S. foreign affiliate sales topped nearly $3 trillion — roughly three times larger than U.S. exports of goods and services.

Because foreign affiliate sales are not included in U.S. exports, a great deal of global commerce is missing from the reported trade figures. "

http://www.theglobalist.com/DBWeb/StoryId.aspx?StoryId=4018

I would say, however, that companies who make profits overseas tend to keep their investment money there as well. Not that I care, so as long as I can buy cheap goods.

"In 2001, for instance, the last year of available data, U.S. foreign affiliate sales topped nearly $3 trillion — roughly three times larger than U.S. exports of goods and services.

Because foreign affiliate sales are not included in U.S. exports, a great deal of global commerce is missing from the reported trade figures. "

http://www.theglobalist.com/DBWeb/StoryId.aspx?StoryId=4018

I would say, however, that companies who make profits overseas tend to keep their investment money there as well. Not that I care, so as long as I can buy cheap goods.
Same with me. The trade deficit is still an important indicator of the health of the manufacturing/mining sectors, but it doesn't tell the whole story, now that we live in a globalized economy.

bump

bump