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Emerging Market Mania:CHINA, “Thanks for the Jobs Uncle Sam, But We’ll Pass On the Inflation”

Submitted by Phoenix Capital Research on 11/11/2010 15:26 -0400

The US
re-opened formal trade with China in 1971.

This, in
turn, kicked off two major trends:

1. The
US’s economic shift from manufacturing to services (mainly financial)

2. The
dramatic rise in Chinese quality of life

In plain
terms, the US began shifting manufacturing jobs offshore. Charting the full
impact of this trend on US employment is difficult. However, Robert Scott, an
economist at the Economic Policy Institute, estimates that between 2001 and
2008 2.4 million American jobs were lost as a result of increased trade with
China alone. Bear in mind, this doesn’t account for the jobs lost in the 30
years from 1971 to 2001.

As for our
shift to a financial services economy, consider that from 1970 until 2003,
financials’ market capitalizations as a percentage of the S&P 500 rose from
less than 5% to 22%. Over the same period, financials’ earnings as a percentage
of the S&P 500’s total earnings rose from less than 10% to 31%.

Put another
way, by 2003 nearly one in every three dollars of corporate profits came from
the financial sector.

Meanwhile,
China was experiencing an unprecedented level of growth thanks to our renewed
trade: Chinese per-capita income doubled from 1978 to 1987 and again from 1987
to 1996.

In those 20
years, more than 300 million Chinese ascended out of poverty with accompanying
dramatic changes in lifestyle, professions, and diet: between 1985 and 2008,
average Chinese meat consumption more than doubled from 44 pounds to 110 per
annum.

So here were
are in 2010 and the US and China are now butting heads in a major way. The US
(debtor, consumer, declining empire) wants to devalue the Dollar and export
inflation to China. China (creditor, producer, rising empire) doesn’t care for
this arrangement as its hurts profit margins at Chinese companies, increases
food inflation (food is a higher percentage of income for the average China
compared to the average American), which in turn means civil unrest.

How this
situation plays out will determine the monetary and financial trends for 2011. Already
we’ve begun seeing financial warning shots between the two super powers. Have a
look at the timeline:

§ April-October
17: Geithner vilifies China, calls it a currency manipulator

§ October
17: China issues surprise interest rate hike

§ October
20: Geithner says world currencies are in “alignment.”

§ November
3: Bernanke announced QE 2

§ November
8-9: China says QE 2 “imperils” emerging economies and calls US Dollar as
reserve currency “absurd”

§ November
8: Geithner backtracks from former call for balanced trade

§ November
10: Fed announces QE 2 details

§ November
10: China hikes bank reserve requirements

This dynamic is the, and I mean THE, key
issue for ALL financial markets moving forward. The US Fed wants Dollar
devaluation. China doesn’t. How this conflict is resolved will determine the fate
of stocks, commodities, bonds, even the US dollar.

Some analysts
believe China will opt for the “nuclear option” and dump US Treasuries
outright. China HAS proven its more than willing to play hardball in
international relations (it cut rare earth exports to Japan after the latter
arrested the Chinese fishing crew that crashed into a Japanese coast guard).

However, in
the case of Treasuries, China cannot play the “Trump” card without it losing a
TON of money in the process: if China dumped Treasuries outright, the whole
world would follow suit, resulting in China’s holdings losing hundreds of
billions of Dollars and a full-scale financial system collapse.

So, we’re
likely to see China engage in numerous other ploys to get what it wants before
it opts for the “nuclear” option. What
those ploys are and how they’ll play out remains to be seen. But be sure to keep
your eyes on this situation, as it will determine financial seismic shifts in
the coming months.

Good
Investing!

Graham
Summers

PS. If
you’re worried about the future of the stock market and have yet to take steps
to prepare for the Second Round of the Financial Crisis… I highly suggest you
download my FREE Special Report specifying exactly how to prepare for what’s to
come.

I call it The Financial Crisis “Round Two” Survival
Kit. And its 17 pages contain a wealth of information about portfolio
protection, which investments to own and how to take out Catastrophe Insurance
on the stock market (this “insurance” paid out triple digit gains in the Autumn
of 2008).

Again, this
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Fri, 11/12/2010 - 12:32 | 722236 Diogenes

The only thing we have to fear is Obama and the Seven Geeks getting another bright idea.

Fri, 11/12/2010 - 00:17 | 721257 sub Z

America went full retard. Everyone knows you never go full retard. We are the ones getting stuff for less than it's worth. Everything the Fed and the government is doing is making things worse.

China is also packed full of American companies. I'm not buying the government blame game. http://jiesworld.com/international_corporations_in_china.htm

Some foreigners with full bellies and nothing better to do engage in finger-pointing at us… First, China does not export revolution; second it does not export famine and poverty; and third, it does not mess around with you. So what else is there to say?

Geithner and all the bumblers belong in jail.

Thu, 11/11/2010 - 22:47 | 721025 RoRoTrader

What does Wal Mart know about China and America's commercial relationship?

http://www.youtube.com/watch?v=sBQ7IA2RI2c

Big Ship - Emma Maersk, Wal-Mart gets its stuff from China

What a ship....no wonder 'Made in China ' is displacing North American made goods big time.
          This monster transports goods across the Pacific in just 5 days!! This is one of three ships presently in service, with another two ships commissioned to be completed in 2012.




     These ships were commissioned by Wal-Mart to get all their goods and stuff from China . They hold
       an incredible 15,000 cartons and have a 207 foot deck beam!! The full crew is just 13 people on a
       ship longer than a US Aircraft Carrier (which has a crew of 5,000)
       With it's 207' beam it is too big to fit through the Panama or Suez Canals ...

Thu, 11/11/2010 - 18:41 | 720531 Diogenes

This year there have been many stories about China buying mines and oil properties in Canada, farm land in Africa and so forth.

Maybe that is their strategy. Exchange the bonds for valuable properties around the world and let the dollar go to hell. Then clean up when ag, oil and mineral products go through the roof.

Thu, 11/11/2010 - 19:55 | 720697 Ahmeexnal

That strategy will backfire.

When the Chinese finally dump the cocaine backed USD and TSHTF, the countries where China bought assets will nationalize such assets and China will be compensated with...the same cocaine backed USD they paid with.

Fri, 11/12/2010 - 05:27 | 721517 ThreeTrees

Haha. Yeah right. Here in Canada, if we don't have buyers for the shit we chop down or suck out of the tar sands we're fucked. Resource Exports make the Western provinces and the Eastern ones that ride their coattails tick. If the US defaults and the Chinese want to buy they're more than welcome to. In Canada, they who provide the gravy steer the train.

Thu, 11/11/2010 - 18:09 | 720460 greenewave

Watch the YouTube video Global Riots, Currency War, Fed Bubbles at (http://youtu.be/PieHhMepVb0) for more information on the global economic collapse.

perfectscotty

"The only thing we have to fear is fear itself, and? being completely fucking destitute due to great deppression II."

Thu, 11/11/2010 - 18:10 | 720451 Bartanist

I suppose this friendly competition might also involve China and the US competing for global resources as well:

China makes a deal with the Stans for an oil pipeline to the Caspian area, while the US gets bogged down in a war in Afghanistan (well at least we got the opium flowing again!!). So why does China need those increasing number of troops in Kashmir?

China invests in Australian and Bolivian mining, making far reaching deals with both countries, while the US Congress uses political pressure to stop minerals labeled as "conflict" (because the wrong people collect the taxes) from being mined and exported from the eastern region of he DRC.

China cuts exports of rare earth minerals by 80% and leaves the US hanging for metals used in many military applications.

No wonder Barry is bopping around Asia, like a prince on holiday, informing the servants how to act more appropriately.

(Was that a Chinese air craft carrier detroying EMP missile I just sa go overhead?)

Thu, 11/11/2010 - 17:47 | 720418 Djirk

I think their strategy is already in play. They are still dependent on US consumption so the nuclear would be too painful short term.

They are (dumping) spending the dollars to buy resources and build infrastructure in other "emerging" markets. Thereby helping create new trading partners and build economies. Also they are strengthening ties with the EU zone. (the largest economy in the universe)

That said, face and honor can only be pushed so far. So nuclear is probably a contingency plan for them. US has more to lose.

Thu, 11/11/2010 - 17:00 | 720325 tunaman4u2