In Defense Of China

I have noticed a disturbing trend of rhetoric lately that seeks to place blame for America’s financial woes on the Chinese.

This is a grave and dangerous mistake. The Chinese have essentially been acting against the better interests of their own people. They have been lending us huge sums of money while knowing all the while they face an enormous risk of default on that debt. They have absorbed a huge amount of our inflation buy purchasing our bonds.

The Chinese have supplied us with vast sums of cheap, if somewhat shoddy, products that have enriched the daily lives of countless Americans. Without Chinese industry, Wal Mart prices would look like Neiman Marcus. The Chinese have provided us these products while we have provided them next to nothing in return.

We bought those products with debt.

In a normal sane rational economy, our huge amount of hard-good purchases from China would have to be repaid in kind. The Chinese deserve to be paid back in real goods and services, instead we are paying them back with worthless paper currency.

We must understand what causes trade imbalances before we assign any blame to the Chinese. As far as I am concerned, the Chinese are basically faultless.

When our government began expanding the money supply through issuing debt, Americans ultimately did not have to produce their own consumer goods. America basically had a massive collective credit card with the world, and we used all that funny money to buy cheap foreign products without having to actually produce any ourselves.

Printing money to buy products is far easier than having to actually produce them yourself, and the trade imbalances with China are a direct result of this money printing. America is a welfare case hooked on cheap credit to fund our lifestyles without having to work for it. The effect of our debt issuing is no different than a bum who uses a credit card to fund his lifestyle while living in a McMansion that he can’t afford!

When China purchases our bonds, they get an IOU, while at the same time Americans basically get free money to purchase goods with from around the globe since, as of right now, the dollar is accepted practically everywhere. At the same time the amount of Renminbi in circulation decreases, causing the value of their currency to rise and their interest rates to fall.

In a normal sane rational economy, this massive increase in debt would cause US interest rates to rise. The rise in rates would force us to stop buying foreign consumer products and domestic houses with debt and shift the structure of production back to domestic consumer goods production and away from long term goods like housing.

Further, the massive increase in debt (which equates to a massive increase in the money supply), means the value of the Dollar should fall in comparison to the Renminbi. This means American products would become cheaper for the Chinese to purchase from us, while their products would become relatively more expensive for us to purchase from them. Obviously this would encourage US exports.

But guess who is not allowing those rates to rise by running the printing press? Here’s a hint – it’s not China. Further, blaming the Chinese for buying our bonds is like blaming the bank for issuing a credit card. Ultimately, the blame falls on the bum for racking up the debt, not the bank for issuing the credit. Irresponsible borrowers are to blame for their own downfall, not the lenders who were dumb enough to give him the credit.

So we must consider this from the stance of the Chinese. They are currently in the position of getting paid back by the bum in counterfeit money! If they weren’t so gracious, this is the kind of thing wars get started over. When the Fed buys our own bonds, we are simply running a printing press.

Now some might say that China is intentionally devaluing their currency to keep the exports flowing , if they are, this is only damaging to the Chinese people, not to the Americans! They would be effectively preventing their own people from being able to buy their own goods!

We get to reap the continued rewards of having a stronger currency if this is the case. It is the US interest rates that determine what OUR structure of production is. It is entirely possible for the US to have a strong currency AND have a strong manufacturing economy. America’s industrial revolution should make this abundantly clear.

The trade in types of goods is governed by comparative advantage, not the value of a currency!

When countries trade good for good, comparative advantage is all that matters. China gives us goods that they are great at producing, while in return, we give China goods that we are great at producing. The value of the currency is simply a measure of how much of a country’s currency is in circulation! The thing is, we aren’t giving China jack-squat except funny money!

It is the INTEREST RATES (along with taxes, government spending, and obscene regulations) that alter the types of goods an economy produces and the types of goods they import/export.

Low interest rates cause all manner of speculation, especially in real estate and equities, and are what direct investors into building homes or inflating the markets. Since an economy can only do so many things at one time, consumer goods production decreases as resources are diverted into the production of long term goods like houses or stock speculation due to the low interest rates.

Since we dumped our collective wad on real estate and stock speculation, we were basically forced into buying everything else we consume from abroad. I would also like to point out that government spending, which amounts to 40% of our GDP, took up the rest of our productive capacity building tanks, planes, bombs, bullets, and other crap that has no value to consumers. All of this means we threw our manufacturing capacity for consumers goods into the trash bin.

ALL OF THIS IS OUR OWN GOVERNMENT’S FAULT

Click through to my blog in order to see a video of Ron Paul commenting on China.
fascistsoup.com...

I agree with some of what you say.

The dollar is not a worthless paper currency yet..... and hopefully won't be ever.

The trade imbalances aren't a result of money printing necessarily, they are a product of individual wealth(avg. income) and the the value of foreign currencies. And other factors.

How does massive increase in debt lead to massive money supply?

China devaluing their currency is our problem too. The rest of the world plays on the same field, China does not.

Your missing the point when it comes to Comparative advantage..... Thats why they have dumping laws etc because government controlled economies can cause unfair disadvantages.

I agree Ron Paul has some great ideas.......

What is your experience in economics?

Originally posted by 11PB11
I agree with some of what you say.

The dollar is not a worthless paper currency yet..... and hopefully won't be ever.

The trade imbalances aren't a result of money printing necessarily, they are a product of individual wealth(avg. income) and the the value of foreign currencies. And other factors.

no, they are not.

How does massive increase in debt lead to massive money supply?

In a fractional reserve banking system, money is debt. The two terms are basically interchangeable. If all debt was eliminated from the US economy, there would be no money in circulation.

China devaluing their currency is our problem too. The rest of the world plays on the same field, China does not.

It only creates problems for the Chinese, not us.

Your missing the point when it comes to Comparative advantage..... Thats why they have dumping laws etc because government controlled economies can cause unfair disadvantages.

I don't think I'm the one missing any points here.

I agree Ron Paul has some great ideas.......

What is your experience in economics?

I study it religiously and I have been published by several times by financial publications.

I also operate a blog that focuses on Austrian economics.

reply to post by mnemeth1


Ok, well maybe you'd do a better job if you explained what you were talking about instead of saying something without backing it up.....

Without sources, without explaining, youre just ranting.

Lets use a physical example to explain how the value of a currency works in terms of real goods.


Lets say a one ounce silver bar is worth 30.00 American Dollars, and it is also worth 195.00 Renminbi.

If an American wants to buy a silver bar from a Chinese seller, he must first convert his dollars into Renminbi.

Lets say the current rate is 6.5 Renminbi to 1 Dollar.

So he trades his dollars in and gets 195 Renminbi and purchases the silver bar.

Now lets say China devalues their currency by increasing its money supply.

Now the conversion rate is 8 to 1.

The silver bar is still worth the exact same value in American dollars, but its cost in Renminbi is now 240 instead of 195 because the Chinese devalued their currency.

So the American still has to hand over 30 dollars to be converted into 240 Renminbi to purchase one silver bar.

Nothing changed from the American perspective.

However, from the Chinese perspective, they have to work much harder and earn 240 Renminbi before they can afford to purchase a bar.

Originally posted by 11PB11
reply to post by mnemeth1

 

Ok, well maybe you'd do a better job if you explained what you were talking about instead of saying something without backing it up.....

Without sources, without explaining, youre just ranting.

Because I didn't include links in the post that discuss specifically the points I'm making.

reply to post by mnemeth1


You just explained something that is very very fundamental in economics........most average people know what you just explained.

How about explaining the more difficult subjects you addressed. Your example, what is your point?

Originally posted by 11PB11
reply to post by mnemeth1

 

You just explained something that is very very fundamental in economics........most average people know what you just explained.

How about explaining the more difficult subjects you addressed. Your example, what is your point?

What would you like me to address?

The structure of production?

Comparative advantage?

Where money comes from?

What has not been adequately addressed to your liking?

If you don't like my explanations, I can certainly provide you links to economics lectures and papers that cover everything in far more detail than a simple forum post.

reply to post by mnemeth1


The same people who allow us to prosper , also are responsible for economic failures world wide.....


Just have patience until things work themselves out.

Originally posted by LucidDreamer85
reply to post by mnemeth1

 

The same people who allow us to prosper , also are responsible for economic failures world wide.....


Just have patience until things work themselves out.

Things will work out after the federal government is destroyed in a currency collapse.

Then we will see some semblance of normalcy return.

reply to post by mnemeth1


Well you took the time to quote each of my statements and say "nope" "not true" etc..... so address those things with how they work rather than "nope."

And don't give me economics 101 answers, thanks.

reply to post by mnemeth1


What up, Comrade?

Stop.

The Chinese DO NOT risk default buying U.S. debt, period. Why? Because, like what led the U.S. into the mortgage crisis, they can SELL THAT DEBT to other countries. Those countries, most countries, would sell their souls to own U.S. debt.

The Chinese are not Angels, Comrade. Trust your soul.

For those of you who think China will become the next Superpower, they won't. In 1870, China was the second greatest country in the world. Today, China is the second greatest country in the world and that is debatable. Over the centuries, they always wind up shooting themselves in the foot with the way they deal with the world economy, their own currency and their so-called strategy, they will do so again.

BTW, why is it this thread surfaces only when China has become a U.S. media darling? Why? Because sheep only speak when they THINK they know what it is they're talking about. They only speak when they can rest on the laurels of those with a voice, even if that voice is biased and brainwashing the public.

reply to post by 11PB11


I did address them, if you come in here making random claims it is YOU that has to back them up, it is not my job to give a detailed explanation of why your claims are totally baseless.

I explained specifically what causes trade imbalances, if you want to challenge me, then it is YOU that must provide the proof.

If you were to claim that the sky is green, what am I supposed to do? Waste my time posting pictures of a blue sky to prove you wrong?

reply to post by Nutella


Blaming the Chinese for buying US treasuries is taking the argument and flipping it on its head.

If the US didn't issue the debt in the first place, China couldn't buy it.

Most countries need to purchase some US debt because we force them into it by forcing oil to be priced in dollars.

If China were to dump our bonds, our currency would blow up overnight.

reply to post by mnemeth1


If you want to win, yes.

reply to post by mnemeth1


And if you didn't feel that your opinion was so important, we wouldn't be posting back-and-forth.

Let's both take our ego's and ignore each other from now on.

Thanks.

reply to post by mnemeth1


And BTW, I didn't blame China for anything.

Originally posted by mnemeth1
reply to post by 11PB11

 

I did address them, if you come in here making random claims it is YOU that has to back them up, it is not my job to give a detailed explanation of why your claims are totally baseless.

I explained specifically what causes trade imbalances, if you want to challenge me, then it is YOU that must provide the proof.

If you were to claim that the sky is green, what am I supposed to do? Waste my time posting pictures of a blue sky to prove you wrong?

LOL, ok man, I actually thought you had substance in your opinion or theories but it appears youre just someone who read something and believes it TO BE! I figured by your rant you were just that and that's why I asked for specifics to see if you could back what you said. You failed, claiming that it's the money supply that is causing the trade balance and yes I know about economics and yes my questions were loaded to see if you knew what you were talking about, and yes you failed to convince me or anyone that reads it that your ideas have merit. Rather they are just someones rant without evidence.

But hey good luck trying to convince intelligent ppl about your ideas.... maybe sheeple.

reply to post by 11PB11


I gave substance.

If you want to challenge my claims, then demonstrate how they are wrong.

Claiming I am wrong and denouncing my conclusions doesn't amount to a hill of beans.

I can't help it anymore. I can't stop myself. I have to tell you...i love you OP.