We're in a recession. The U.S. has a trillion-dollar deficit. The South Dakota state budget is toast (unless Gerry Lange can save it!). You're running out of room to throw the latest six inches of snow over the huge piles that have been there since December. Could things be any worse?
Well, yes. You could be China.
I've grumbled occasionally on our reliance on imports from China, wishing that America could keep manufacturing jobs here and make more of its own cheap plastic junk.
But now China is seeing the flip side of running a big trade surplus. For years China has counted on our seemingly boundless acquisitiveness to support its roaring double-digit growth and political stability. Now that the mortgage collapse, high energy prices, and other jitters have helped us rediscover frugality, the Chinese are left without buyers for all their exports.
As Michael Mandel of BusinessWeek points out, an American recession may trigger a Chinese depression. Mandel points out that in 1929, the U.S. ran a big trade surplus with Europe. When folks stopped buying, the U.S. took the biggest hit in industrial production and real GDP. The Depression was worse for us than the countries that had been buying our stuff. (But Germany ended up with Hitler... hmm....)
Do check out the comments to Mandel's post; they include lots of intelligent arguments in both directions, saying Mandel overstates and understates the impact our recession will have on China. With no ill will toward China (well, maybe to its dictators, but not to the other 1.3 billion folks), I incline toward Mandel's assessment. China has based its growth on America's overconsumption of resources. If we learn from this recession and stop buying so much unnecessary disposable junk, China will need to find a whole 'nother business model. it won't be easy, but it will be good for China and the rest of us.
Who is going to buy American debt if it isn't the Chinese?
ReplyDeleteOur huge future deficits have to be financed by someone.
Let's see: over one billion people that are hungry and oppressed...sounds like a problem to me.
We all could be screwed.
The government economists(?) bravely admitted the US was in recession 13 months after it began. How worthless a call and more worthless are those economists.
ReplyDeleteOne analyst with a spot-on record of warning of the economic crisis completed an analysis and determined the US is in a depression. No one refuted the analysis. One challenge is there is no official definition of a depression. Shedlock studied the First Great Depression and the stag-flation years to craft a definition of depression. Sadly he concluded the US entered a depression the fall of 2008. http://globaleconomicanalysis.blogspot.com/2009/01/jobs-contract-12th-straight-month.html
I hope Barack Obama will go to China, get together with their leaders, and try to work something out that will benefit all concerned.
ReplyDeleteThe alternative is a "whole 'nother business model" for China, all right: a reversion to state control of all capital -- that is, to hard-core socialism.
I like Ronald Reagan's definition of recession, depression and recovery in his debate with President Carter.
ReplyDeleteI bet Cory can't remember it.