To Avoid A Crash -- China Must Screw Either Exporters, Banks, Or The Government

I am often asked, especially by my Peking University students, to list what I think is the sequence of steps China will take to address its economic imbalances. Remember that rebalancing, in the Chinese context, has a very specific definition. It means raising the consumption share of GDP. This is just a way of saying that consumption growth must outpace GDP growth, and over the next few years it inevitably will, if the rest of the world is unable to absorb a rising Chinese trade surplus.

But there are many ways this can happen. The good way is by a surge in consumption growth that allows GDP growth to remain strong. The bad way is for consumption growth to slow, and for GDP growth to slow much more rapidly.

So how will China rebalance? Unfortunately there is no obvious answer. I always tell my students that even if I were smart enough to know the optimal sequence, it would nonetheless be very difficult to make any reasonable prediction since the sequence is not likely to be subject to economic analysis. This is as much or more a political issue as it is economic, for at least two reasons:

1.The rebalancing process will cause short-term pain and perhaps a rise in unemployment. Postponing it will make both of those problems worse when the adjustment finally takes place. China has to choose when is the best time to begin that process, and this depends on a lot of social and political factors. Most obviously, the 2012 succession process is a key variable.

2.Because rebalancing mainly means increasing the household income share of national income and, with it, the household consumption share, it implicitly means redistributing income from businesses and governments to households, and exactly which businesses, governments, and households depend on which adjustment mechanism. There are several ways to rebalance, each with different implications for social policy, making it an issue that must be determined not by economists but by political leaders.

Read more: www.businessinsider.com...

reply to post by wonderworld


if chinas exports rise and it becomes more expensive to do business there then this is a good thing for americans

it means it will be too expensive to buy chinese goods and it will be too expensive to borrow from them

good for us them outsourcing will be mitigated good for ameircans to get more jobs good for americans no more borrowing because that means the higher py and more people that are working and the more corporations are making means everyone is PAYING MORE TAXES and that means the government has more cash but then agian with the stupid spending our goverment does its makes it all moot.


bad for china= good for us maybe unless i just missed the complete point of the article

America needs to look out for number one, and that is not the bankers or China, it's America.

Slap some tariffs on Chinese goods until they want to trade fairely, then we can talk. Back in America's early days we used tariffs to protect our nations jobs and wealth, and to collect revenue other than taxing income. People will complain that it's not fair for foreign nations when we do protectionism, I say that's not our problem.

The Neoliberals enforced this international Free Trade and Globalization crap down our throats and now we are paying for it, big time! If you even mention any form of protectionism they will be all over you to tear you apart, it really makes you wonder why they are so afraid of protectionism.

reply to post by neo96


Good point, lets just hope China doesnt decide to screw the US. We still arent buying and I suspect the next fiscal quarter will seem like doom to those in China. Hopefully they dont come to collect, especially their US Treasuries. That would be quite the bubble burst.

reply to post by Misoir


Yes and China already has talk of a trade war on the table, as we speak. Devaluing the currencey wont have a good outcome for any of us. The US is not the goose laying the golden eggs anymore and I think China is ready to cash in before going bust. They wont need us for long, I'm afraid.

China 's main goal is to monetize their USTreasuries...and not cause a run/dumping of these USA bonds & such

China has only to purchase real assets with the bond/notes it still holds (appox $800+ billion)

China is not in a precarious position...they have the cat-birds seat...
they do not have to screw exporters, banks, or governments as the thread suggests

They (Chinas' planner Class) alone can/should direct and manipulate the economic & financial side of the USA...
with their manipulations of the USA debt theet hold --- the fat-cat elites raking in billion$ might not get any bonuses & be required to reduce their exhorbinant salaries in this scenario ! Who can tell...


All in all... we are not talking of China versus the US Government---
We are speaking of China central planners versus the Corporate Oligarchs in the USA

reply to post by St Udio


God forbid there is a run on US Treasuries! The stock market is doing so well it reminds me of the 1930 recovery.

I just saw a new thread that states that America has declared a trade war on China... I didn't read it yet but it closely follows this threads topic.

reply to post by Heyyo_yoyo


Yes it appears Congress has lost whats left of their marbles and wants a trade war. Creepy!

For those of you that think a trade war is a good idea

You do realize that During the Great depression Tariffs where the highest ever in the USA

That was one of the causes of the great depression, the USA raised Tariffs to try and keep Jobs, all of Europe did the same as well as the countries in East Asia. Basically every country refused to trade with every other country.

The end result? you ended up with 50+ North Koreas

en.wikipedia.org...

The Smoot–Hawley Tariff or Hawley–Smoot Tariff (P.L. 71-361, officially named, the Tariff Act of 1930)[1] was an act signed into law on June 17, 1930, that raised U.S. tariffs on over 20,000 imported goods to record levels.[2]

The overall level tariffs under the Tariff were the second-highest in US history, exceeded only (by a small margin) by the Tariff of 1828[3] and the ensuing retaliatory tariffs by U.S. trading partners reduced American exports and imports by more than half.

Some economists have opined that the tariffs contributed to the severity of the Great Depression.

china will collapse and ww3 will ensue, and the world can thank kissinger and nixon for destroying the world after sticking their nose in other peoples business, instead of focusing on building our economy from within.

china got too big too fast with no one to buy their products

Originally posted by Returners
For those of you that think a trade war is a good idea

You do realize that During the Great depression Tariffs where the highest ever in the USA

That was one of the causes of the great depression, the USA raised Tariffs to try and keep Jobs, all of Europe did the same as well as the countries in East Asia. Basically every country refused to trade with every other country.

The end result? you ended up with 50+ North Koreas

en.wikipedia.org...

The Smoot–Hawley Tariff or Hawley–Smoot Tariff (P.L. 71-361, officially named, the Tariff Act of 1930)[1] was an act signed into law on June 17, 1930, that raised U.S. tariffs on over 20,000 imported goods to record levels.[2]

The overall level tariffs under the Tariff were the second-highest in US history, exceeded only (by a small margin) by the Tariff of 1828[3] and the ensuing retaliatory tariffs by U.S. trading partners reduced American exports and imports by more than half.

Some economists have opined that the tariffs contributed to the severity of the Great Depression.

The Smoot-Hawley Tariff is a perfect example. Thanks! Even though it didn’t necessarily cause the Great Depression, it helped its severity by provoking widespread retaliation. Cornering China's export subsidies risks a similar nightmareish cycle at a time when the global economic recovery is weak. This brings me back to my previous post comparing todays stock market with the 1930 false recovery. The Smoot-Hawley Tarrif orifinated in 1930, as well. It doesn’t look good for either of us and can have a disastrous global effect.

Originally posted by aliengenes
china will collapse and ww3 will ensue, and the world can thank kissinger and nixon for destroying the world after sticking their nose in other peoples business, instead of focusing on building our economy from within.

china got too big too fast with no one to buy their products

edit on 30-9-2010 by aliengenes because: edit

edit on 30-9-2010 by aliengenes because: none

I worry the US will collapse first. There has been a silent shift in Global power since we signed on with the G20 to supposedly solve the global financial problem. We are not the super power we were after the war. Most Countries blame us for the meltdown. People seem to think Russia and China like us. They never have and would like to see us blown off the map, especially if we are worth ZERO. They simply dont need us.

I think that the prices will be on the back of Americans, this will only serve to drive our inflation higher. It seems like most of our industries and agricultural hubs are serving china anyway, driving our prices higher and the natural products and natures seeds to the chemists pockets, but one good thing is that we will soon start to see the chinese fatten up on all the gmos. They have laughed at our size and girth for a long time, so what happens to one eventually happens to all!

reply to post by antar


Youre right! It isn’t a Great Depression I fear, our 100 bucks in the bank will still be worth 100 bucks. I fear hyperinflation where that 100 bucks buys only 1 loaf of bread. Weve seen it happen in Germany due to the exact same factors of printing worthless money. Inflation is inevitable but hopefully we get the jobs back on track to help the economy otherwise this will be worse than a double dip recession or Great Depression 2.