Posted on 11/23/2006 1:02:44 AM PST by BlackJack
Here is a great article written by Bill Bonner the founder and president of Agora Publishing. The article appeared in the American Free Press (645 Pennsylvania Avenue SE, Suite 100 Washington, D.C. 20003)
CHINESE HAVE MOST MONEY ON PLANET
AMERICA NOW BIGGEST DEBTOR IN THE WORLD
On the Money with Bill Bonner
$30million and $80 million. Two big numbers, and the end of the world as we have known it. The first number is the rate at which China is adding to its reserves of foreign currencies—mostly dollars—every hour. The second number is the rate at which America’s capital—as measured by the current account—is being depleted, also by the hour.
In early November, China’s pool of reserves passed the $1 trillion mark, making it the largest lake of money in the world. The United States has a chain of great lakes too. But they are a different kind—vast sinkholes of debt that get bigger every day. The cost of the war in Iraq alone is $8 million per hour.
And another point of comparison: the third quarter in 2006 showed China’s gross domestic product still going up at more than 10% per year. The same quarter in the United States revealed a slowing economy—growing at only 1.6% per year.
The Economist magazine describes China’s growing pile: By the end of October China’s foreign-exchange reserves are likely to top $1 trillion, twice their level two years ago and more than one-fifth of global reserves.
This handsome sum would be enough to buy all the gold sitting in central banks’ vaults or almost all of London’s residential property. . . .
China’s official reserves already far exceed what is required to ensure financial stability. As a rule of thumb, a country needs enough foreign exchange to cover three months’ imports or to settle its short-term foreign debt. China’s reserves are equivalent to 15 months of imports and are six times bigger than its short-term debt. The explosion in reserves is also a headache for the central bank. It creates excess liquidity, which risks fuelling higher inflation, asset-price bubbles and imprudent bank lending.
What’s more, experts guess that China might have $2 trillion in reserves before she figures out what to do with it. Poor China. All that money sitting around. What can it do? Money is a curse, of course. Just look at Paris Hilton. When too much of it piles up in one place, it begins to stink like old socks. Now, China will have to get out the excavating equipment and begin spreading the stuff around. Maybe it could buy a house from Donald Trump or a Picasso from Steve Wynn?
No, that is for later in the cycle, when the Chinese become rich and degenerate. Now, China will just go on buying the things she needs to continue her expansion—mining companies, oil fields, farm products . . . or maybe farms themselves.
Let’s see: An acre of farmland in Kansas sells from $550 to $1,265. We’ll say $1,000, so we can do the math in our heads. With $1 trillion in your pocket, you could buy a pretty big spread in the heartland—say, one billion acres, right? Kansas only has 52.36 million acres. So, the Chinese could buy the entire state and still have $947.64 billion left over—enough to buy all the farmland in Nebraska, Iowa, South Dakota, North Dakota, Missouri, Arkansas, Louisiana, Colorado, New Mexico, Montana, Wyoming, Oklahoma and probably Texas too.
“Well, isn’t that special,” American economists could say. “The foreigners know America has the most dynamic, most successful economy in the whole dang world. Yes, we spend more than we make. But the money comes back to us finally. It just shows what a great economy we have. The foreigners want a piece of it.”
And day by day, at the rate of $80 million per hour, the foreigners get a few more pieces of it. And now China, if she chose, could trade her pieces of U.S. paper for a piece of land the size of the Louisiana Purchase. Or she could buy stocks or Treasury bonds. The total capitalization of the entire 30 Dow stocks is only about $3 trillion. So, she could buy a third of the Dow, or a controlling interest in every one of them.
Wouldn’t that be nice! Eventually, we’ll all be able to go to work in Chinese-owned factories or sell our internal organs to Chinese doctors. What a great economy.
But here we would like to pause, draw a breath, and vent our admiration for this great flim-flam. No doubt that Americans have a model of democratic capitalism that is the envy of the entire world. It functions beautifully—in theory. But in practice, it has reached a stage in its cycle where only the rich seem to make money, while the poor and middle classes actually lose it.
Today, as Americans go to the polls, the money supply is soaring, Saddam has been condemned to death and the Dow rallied more than 100 points. Still, “middle class cash woes cause election angst,” reads a Houston newspaper.
Acting on their inclinations, but not in their interests, America’s lumpen householders loaded themselves up with debt. They were all just trying to keep up with the Joneses, who were just trying to keep up with them. Besides, they were confident that democratic capitalism and Republican politicians wouldn’t fail them.
Meanwhile, China is still a communist country whose leaders and people remember a very different time, when the Gang of Four ruled and when people starved and when they tried to make steel in backyard furnaces. Then, the country seemed ready to implement any crackpot idea the party bosses came up with. Even now, it is still an economy that is partially centrally planned by people whose ideas were partially formed by Mao’s loopy “Little Red Book.” In theory, it should be a basket case. Instead, both the numbers and eyewitnesses tell us that it is booming.
Posted by John Mugarian at November 21, 2006 3:42 PM
I guess that's why there are so many Americans busting to get over there and start a new life in China and why there are no Chinese coming to the USA to live.
I wondered why that was.
This article clears that all up.
(It's amusing that this idiocy was written shortly after Milton Friedman died. He used to say, "what are all those other countries going to do with all those dollars they're accumulating? Eat them?")
There have been Americans going to China to do business and set up short term shop there since the 80s. I was one of them, in the 90s. But the quota of new citizens (non-ethnic-Chinese-new-citizens) is six per year. I was told that by a US State Dept employee. The actual number might not be exactly six but I bet the actual number of people actually applying for citizenship (again, not counting ethnic Chinese), is probably less than six. If the quota really is six, I bet they never met it.
So yeah, people go there to make money. But then they come back here to live. Including a whole hell of a lot of ethnic Chinese. With and without legal visas.
and how much of it is just paper? how much is backed by hard currency such as gold?
Thank you.
If China's growth can be sustained, there will be more and more foreigners living in China permanently (as permanent residents). It's a pretty natural course. The Taiwanese are already settling in Shanghai en masse (millions there). Many Taiwanese still have families in Taiwan, but many also are starting families in China and buying property with intention to stay. Taiwan of course has much higher cultural affinity with China, but the point remains, if you are successful in China and your success appears to be sustainable, then you will likely stay. If China's growth can be sustained to 2050, I can assure there will be a lot more foreigners living in China permanently than today.
I guess that's why there are so many Americans busting to get over there and start a new life in China and why there are no Chinese coming to the USA to live.
The big trend among high end parents now in NYC is teaching their kids Mandarin. It's also not uncommmon to see lawyers, accountants, and all manner of professionals taking Chinese.
<< .... not uncommmon to see lawyers, accountants, and all manner of (other non-productive parasites) taking Chinese. >>
While, meanwhile the entire creative, innovative, industrious and productive world is learning the world's Universal Language: American English!
China adding dollars to its reserves at such a high rate is why we are not feeling the effects of high inflation here. Our government has been inflating-printing excess money- at a prodigious rate since 2000. Normally that would be reflected in skyrocketing prices for just about everything as the production of money available to purchase goods exceeds the production of goods to be bought for money and prices get bid up across the board. But all those excess dollars are, instead, going into the Chinese and European central banks as reserves suggesting the nightmare scenario that China could Bring Down the American Economy just by switching its reserves to Eurinals or Sesterces or something. But if China did that the value of the dollars it holds would plummet and the value of its reserves would likewise plummet before it could get mucht of its reserves exchanged, i.e. instant national pauperization. Much as pundits discuss the possibility and China and France threaten it, it won't happen unless the countries are truly declaring bankruptcy and dropping out of the world economy altogether. In China that would bring rapid political upheaval and extreme disorder. They ain't gonna do it.
Chinese are coming over. If they can't get here legally they will pay up to $75,000 to be smuggled in.
<< Taiwanese are already settling in Shanghai en mass ... >>
Fewer than 300,000. Plus around another 200,000 at any given time.
And every one of them must be counted as a hostage.
That's changing. I talk to young professional people all the time who only expect to spend a small portion of their career in the U.S. What's more, they don't see overseas work as anything particularly exotic -- just a fact of their careers. They'll go where the work is.
There seems to be "nodes" of commerce developing -- NY, LA, London, Milan, Paris, Tokyo Shanghai, etc. -- where people with the right skill sets will rotate through.
Obviously Americans or Brits etc. won't give up their citizenships, but they will have little loyalty in regards to employer. Makes no difference to them if they work for a German bank or a Japanese electronics firm.
No. The Chinese will own the world's largest hoard of dollars but I believe China has reached the point that China cannot spend those dollars and they are a net liability. China's economy is based on the value of those dollars and the stash is so large that if China does spend them their value to China will decrease in a breathtaking fall. Likewise I think China is in a position of having to continue to add to its dollar reserves because the US is inflating its currency rapidly. If China does not add to its holdings the value of those holdings declines as the exchange value of the dollar declines due to the rapidly increasing number of those dollars in the market.China has to suck up those excess dollars to keep its economy afloat. China appears to be in a financial trap which if it allows the trap to spring will immediately suffer tremendous economic dislocations and an end to its own economic expansion. Incidentally it will also Carterize the US economy.
If my family keeps up with it's assimilation of other cultures, I expect to have Chinese "kin" shortly. That being said our languages emphasis for our children will include Mandarin. Just the same thinking that my father made me learn Spanish when I was a kid.
"Why, Dad? I want to learn French!"
"French is dead, son. You're going to learn Spanish. You'll actually use it some day".
I miss him, he was simply brilliant. Not because of the above exchange, but the man had a simply genius to him. On holidays we used to make a list of questions to ask him and listen to him answer them for hours.
I will miss him today especially. Sorry to go OT.
Today, as Americans go to the polls, the money supply is soaring, Saddam has been condemned to death and the Dow rallied more than 100 points. Still, “middle class cash woes cause election angst,” reads a Houston newspaper
<< I talk to young professional people all the time who only expect to spend a small portion of their career in the U.S. >>
You're presently 'talking' to one who is literate and fluent in Mandarin and speaks three Chinese Dialects and Arabic and several other languages; who is, today, sitting less than two hundred and fifty miles from China -- and who has spent three quarters of his adult life in Asia, Africa, North Africa and Arabia.
And who still stands by what I wrote.
English in 2006 is what Esperanto long ago strived and failed to be!
Best ones - B A
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