Jim O'Neill Suggests It May Be Time For The US To Give Up On Our Own Middle Class, And Focus On China's

Tyler Durden's picture

A floundering Jim O'Neill has never seen decoupling as wide as it is now, and the man is now openly hallucinating, seeing every non-developed country as a potential BRIC (see this Friday's FT OpEd: How Africa can become the next Bric). Well, of course, China needs its resources. Soon every open mine will be a "BRIC" to be exploited by Chinese interests, which come, see, and suck the place dry as they build yet more vacant cities, ghost towns, and highways to nowhere, hoping they can sustain the illusion of the world's greatest bubble for a few more months. Which is precisely all those who are betting on a collapse of China are playing it not with China CDS, but those of Australia: for when the worm turns, Bad in Beijing, will be nothing compared to the Massacre in Melbourne. Yet even Jim's nagging conscience is not allowing him to blindly continuine to ignore the other side of the coin, namely that he is once blatantly wrong, and decoupling never did, and never will occur: "What can emerge if Ben Bernanke and the Fed is wrong? What if this
slowdown is sustained, and we actually move into another recession? The
American Dream needs something new. In conventional terms, it needs
booming private investment and booming exports. And they might happen. I
find it hard to see how net exports were such a genuine real negative
contributor to Q2 GDP as reported today, and I strongly suspect this
will be reversed. But what if it isn’t? The scope for more conventional
fiscal stimulus is hardly available. So in this light, the US needs its
own BRIC equivalent. How about something real on the infrastructure
front ? ( a nice mode of transport downtown Manhattan from JFK would be a
sign). How about literally some forced measures to shift the auto user
on masse from conventional fuels ( combined with a major hike in
gasoline taxes)?" Jim's conclusion: now that China is actively moving to developing its own middle class, perhaps it is time for the US to finally roll over and admit its consumer are on longer the world economic dynamo. He asks whether it is time to "borrow a few hundred million BRIC consumers?" Surely China will be ecstatic that the US will now be funding the development of its own middle class. As for ours...Oh well.

The long holiday weekend arrives in the Europe with everyone praying that the weather takes a turn from the miserable August to date in many parts of it, as we come towards the finale of the summer in the US and Europe. What shall September bring us , more of the gloom that has generally prevailed on and off since May, or will September and the arrival of the St Legers race, allow the famous stock market saying to come really true this year, and we re-commence the rally that ended in April, having started in Spring 2009?  We shall see.

I write after the close of European markets today, and some time after the much awaited words of Fed Chairman Ben Bernanke, and following another week of pretty dismal US data, many were looking for some signs of hope for survival from him. As discussed by our US guys, in fact, Bernanke seems to have stuck to a pretty sober tone, suggesting that the recovery will continue into 2011, which  implies that the FOMC see recent weakness as not so persistent. He, perhaps more importantly made it even clearer-if there were any doubt- that in the event that things transpire differently from how the Fed see things, then they will undertake further measures to boost financial conditions, as we expected.

In that regard, I would like to reiterate what I wrote in my last note, and will go into in more detail in next Wednesday’s Global Economics Weekly ( GEW),  US financial conditions are more important for the rest of the world than the US economy. So for everyone else, the Fed’s policy response to more economic weakness is, in my judgement, more important than the economic weakness itself.

Anyhow, amongst other things that have struck me this week, just for a change, is how powerful my beloved BRICs are, and those either not a BRIC, not a potential BRIC, or not close to one, life is quite tough. In this regard;

1.    BRICs and style.
Did you see Tyler Brule last Saturday in the FT, giving his own most amusing take on the BRIC story? Not surprisingly, in his world of style, Brazil is the major winner!  While one can easily broadly concur, I suspect some slight selection bias there when it comes to the examples given. One can easily think of some choices from the others, or at least some. Some aspects of clothing fashion from India for example?  Anyhow a great read.

2.    Brazil news all over the place. Brazil isn’t just winning the BRIC style council, lots of other interesting bits and pieces. As Lula’s preferred candidate Dilma soars ahead in the polls, the media is full of stories of booming consumer confidence, declining unemployment.  Martin Sorrell of WPP made some interesting comments this week with his latest results ( always a good bell weather) saying his clients were undertaking a “ mad scramble” for acquisitions in Brazil ( and China). He also said that BRICs were having a disproportionate influence on clients’ thinking . in this general vein, I gather the proposed merger of LAN and TAM would create the biggest airline by market cap if it went through.

3.    BRICs  and Africa. I had an op-ed published in the FT today, where they rather naughtily chose a headline that implied I was adding Africa to the special four….subsequently, as you can imagine, I have received numerous emails offering my advice on this notion and all the various other candidates. I was merely trying to highlight, that IF African countries, especially the large ones got their act together, then they could be as big as the BRIC countries are going to be. I also pointed out that it is extremely difficult for the s in BRICs to become an S ( although they forgot the capital the second time). South Africa has too few people to become big. In any case, as I mentioned, if the ANC carries on down its recent proposed policy path, it won’t get close. Trying to muzzle the media is not what this country needs. We will be writing something more substantial on Africa in September.

4.    Germany, which appeared to be greatly influenced by the BRICs has been the economic “star” again this week.
It is starting to look more and more as though Germany has entered a period of self sustained domestic demand. This week’s IFO, its retail component, the latest consumer confidence numbers, all paint a rather rosy scenario. Now due to past disappointments a plenty, it is tough to really believe this is for real, but what a contrast to the US? Ask yourself this, dear grizzly. For all those years when Germany has struggled , often when the US was booming away, no-one ever said that Germany( and Europe, or Japan’s) weakness would negatively affect the US, so why should Germany suffer from the US? If you look at their export business, as I and Dirk Schumacher discuss endlessly, they are benefiting enormously from the BRICs.

Here is a silly anecdote that struck me as another sign of Germany doing well with its brands.. On one of my rare August days in London , I was driving in on the M4 flyover, and just before the end of the official motorway , you can see all these brand new auto showrooms appearing. The German ones have been smart enough to be up there in the sky, and so visible, with Audi and Mercedes showrooms really capturing the wavering eye. Japanese ones, are oddly below the flyover level………………

5.    The Yen-again- and Japanese politics.
I have to rub my eyes this am to really believe that I was reading a story in the FT about Ozawa possibly standing as the leader for the SDP of Japan. He sure doesn’t give up easily!  No doubt this means another series of twists on the whole consumption tax saga. Meanwhile, the Yen doesn’t like life stronger than Y85 –at least for now- with persistent talk of intervention as a coming tool. Not sure what there is new to say about it. the Yen is ridiculously overvalued, as we have talked about at length. But if the BOJ don’t do anything aggressive, especially given the style of the Bernanke Fed, then nothing changing too soon.

6.    The US and a BRIC like edge? 
What can emerge if Ben Bernanke and the Fed is wrong? What if this slowdown is sustained, and we actually move into another recession? The American Dream needs something new. In conventional terms, it needs booming private investment and booming exports. And they might happen. I find it hard to see how net exports were such a genuine real negative contributor to Q2 GDP as reported today, and I strongly suspect this will be reversed. But what if it isn’t? The scope for more conventional fiscal stimulus is hardly available. So in this light, the US needs its own BRIC equivalent. How about something real on the infrastructure front ? ( a nice mode of transport downtown Manhattan from JFK would be a sign). How about literally some forced measures to shift the auto user on masse from conventional fuels ( combined with a major hike in gasoline taxes)? Or maybe just borrow a few hundred million BRIC consumers?

Enjoy what’s left of “summer”

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bugs_'s picture

Just another rip-van-winkle open borders globalist who can't figure out why his open borders globalist fantasy smells so bad when its burning.

LoneStarHog's picture

I can only infer that this clown gets paid BY THE WORD and not for any intelligent analysis.

aint no fortunate son's picture

I blame it on the purple blotter acid

Azannoth's picture

I think China has enough reserve capital to build 1000 more ghost cities and keep thie 'illusion' going for years not months

dlmaniac's picture

... that is before big Ben prints their reserve into 2 trillion toilet papers.

knukles's picture

Myopic Twat.  We already have our own BRIC (emerging shithole) in southern Arizona.

Hear tell t'was a time in ancient S. American past whence soothsayers prognistactions proved wrong for long were tied to trees in the darkest bug infested jungle to be sucked dry by unmerciful hordes of ravished mosquitoes. 

Mark Noonan's picture

We lack the proper virtue for such direct action - once upon a time, remember, we used to tar and feather miscreants.

Frank Owen's picture

Where the hell is Marla?

I miss her dirty prose.

dark pools of soros's picture

the wicked witch of the jew is probably in a tizzy ever since Iran turned on the switch with narry a blow from her homeland

nmewn's picture

The continent of Africa is a BRIC?

Ok...bartender, I'll have what he's having.

knukles's picture

Yeah.  The Whole Continent.

You noticed that this "Continental Africa" crap is all of a sudden becoming the next new and wonderful undiscovered rat hole of an investment idea being pushed by......

...none other than....

....the Powers that Be, of sorts.  The flags are being raised by institutions well connected to the Centers of Government in the Anglo-Saxon World. 
Now, I am not a conspiracy theorist by any stretch of the imagination, but all of a sudden, "Shazzam-a-ram-a" here it is bright, noble, Satisfactory to the Altruist (you throw some money at it and I'll have done my part) in All of US.

I feel a big Public Turd coming on. 

three chord sloth's picture

The only way most nations of Africa today are going to play a big role in the world economy is as neo-colonies... this time for China, India, and maybe Japan. They've got too many decades of internal development to go through first before they can be at the level of the lowest BRIC.

hbjork1's picture

+10

Many decades.  But the colonies(excuse me), countries of Africa can be a source of cheap physical labor and raw materials while they are developing. 

There is no where else for the players to go.

iota's picture

But look, 'tis unclaimed!

http://en.wikipedia.org/wiki/File:1984_fictious_world_map_v2_quad.svg

...no, no, wait that's not reality, that's dystopian speculative fiction; somehow I confused the two.

nmewn's picture

"You noticed that this "Continental Africa" crap is all of a sudden becoming the next new and wonderful undiscovered rat hole of an investment"

Yeppers...all we need now is the patented Robo wildebeast pictorial demonstration to complete this brand new buying opportunity of a life time...LOL.

Failing that...I'm playing a find the pea game on-line.

grunk's picture

It must be true. I'm always getting e-mails from guys in Nigeria with money for me. All I need to do is give them my bank account number and a small fee.

No more honest place to do business.

Eally Ucked's picture

"Surely China will be ecstatic that the US will now be funding the development of its own middle class. As for ours...Oh well."

US hasn't been funding anything in China , as a matter of fact China is funding everything what US government is doing. Isn't it a fact that China and Japan is lending money to US? What are the odds that US will repay all that debt in not devalued money? I think that topic was covered here extensively.

So, Tyler, I think there is some strange note in that statement.

LoneStarHog's picture

Excuuuuuse me?  Americans have been funding China's growth.  It is called the Trade Deficit.  It has been funded through CONSUMPTION, and China owes us nothing for doing so.  China then lends us the money by purchasing U.S. Treasuries which funds the U.S. Government, and WE then OWE China for doing so.

 

nmewn's picture

The govmint owes...not us. And specifically, not me.

They can tale a ride on a flying dragon for all I care...they had a lot of choices in their decision making process.

To close the loop, as a somewhat interested third party, they chose poorly.

Eally Ucked's picture

You're right and that's what I said.

LoneStarHog's picture

Then what do you call this, "US hasn't been funding anything in China..."

Eally Ucked's picture

"China then lends us the money by purchasing U.S. Treasuries which funds the U.S. Government, and WE then OWE China for doing so."

cossack55's picture

There is a middle class in the US. When did that happen?

Moneygrove's picture

America had a middle class under clinton ! went bye bye under bush !

Real Estate Geek's picture

I'm certainly not a fan of Bush, but don't forget that it was your boy Clinton who signed NAFTA.

EDITED TO ADD:  But I didn't junk you.

SwapThis's picture

The giveaway that this guy is a complete globalist stooge is the way he slips in the 'swtich from conventional fuels' language, especially without mentioning expanding our energy development of known resources here.  The Picken's plan to use NatGas for all commercial trucks and public transport going forward, especially if it is also expanded an excellerated, will help in every meaningful way to grow jobs and help our energy dependence.  Combine this with a national effort to build 100 top of the line pebble bed reactor sites & and a national MagLev rail system and we would be going in the right direction.  We need to regain the American Spirit that put a man on the moon and harness it to put our future in our own hands and not that of egomaniacal globalist neocons. 

We need $trillions of $$ of infrastructure projects on the east coast alone with huge projects like the re-work of the NYC/Philly/ Boston water & transport systems just for a start.  We have the ability to do these things IF WE CAN FIND THE BALLS TO CLEAN HOUSE IN DC. 

Without real change real soon I would rather not think of what America will be forced to submit to by the likes of China, or anybody else.

 

Dirtt's picture

Huge projects led by Big Union?

That falls under the "estimated cost: $5 billion" and the "eventually cost: $50 billion + 5 year delayed opening + nightmare traffic)

I'm all for infrastructure with 100% transparency and 20% union 80% non-union ratio.  Otherwise blow those infrastructure projects off the table.

Ultranaut's picture

It's either union and the money flows to what was once the American middle class, or it's non-union and the money flows to Wall St. on the backs of undocumented economic refugees from Latin America. Either way you are getting fucked, but at least with the union guys you're not getting fucked by pricks from Wall St.    

Hulk's picture

The reality is that we can't even afford to maintain our existing infrastructure...A true stimulus would have nucs being built,LED lighting, massive effort in energy storage tech and a conversion of our vehicles to NG.

three chord sloth's picture

The fact that we are not developing a NatGas economy right now is the best proof that the decline of America is being purposefully engineered. We've got centuries-worth of the stuff, it's much less polluting than oil, yet the gov't always finds a way to stop its development.

We've got the brains and the spirit... its being squashed from DC. The CFR, neocons, globalist Ds and Rs... clean 'em all out!

 

ZeroPower's picture

 a nice mode of transport downtown Manhattan from JFK would be a sign

Um...how about EWK? (forget youre in NJ for a second..)

belogical's picture

He is fortunate I was not in his presents when he said that or he'd be looking for an acupuncture point to expel my foot out of his ass

Sudden Debt's picture

This is way overdone. I don't think people should only focus on the supernegatives and write stuff like this.

I amazes me that most of the Americans on this site actually would like to see a implosion of America instead of fighting for it and do what is best for it.

I guess that's why Europe is better off then America. People here are proud of our civilization.

nmewn's picture

Mkay.

If you could keep the world wars down to minimum of two per hundred years that would be helpful. And letting Islam overrun your "civilization" would also be helpful in avoiding another one. Just sayin.

Don't worry about us, we know exactly what we're doin.

We tried the whole Englishman John Keynes socialism thingy...it just didn't work out for us, so we're sending it back. We don't expect a refund cuz it's past it's expiration date, a little worn and has some rips in it. Maybe ya'll, being sooo superior, can work on it a little more and get the "multiple" bugs out. Maybe try it out on yourselves for twenty years again before you send the sales people back around ;-)

Cheers!

ZeroPower's picture

Spending a month so far here in France...and i would have to agree with the poster above regarding foreigners simply taking over everything here. I cant walk by without a shawarma shop on every street corner in Paris, and the smaller cities are much the same (in the South, the North is still quite isolated).

From what ive seen London, much the same. 

I agree however some people here would like to see the end of the USA (despite being American!) though i am not so crass... i do recognize all world orders come to a fall at some point. Would not think it happen in this generation or the next.

Hulk's picture

We want to see the fraud and corruption implode, not the country. Unfortunately, the two are inexorably intertwined...

huggy_in_london's picture

zzzzz....more bullshit from jim o'neill .... more patting himself on the back ... useless dribble.....

 

But you are right about massacre in melbourne ... when china pops or even if it just goes fizzzzzz, everything south of brisbane is going to hit the wall and how.  As it is, new south wales is broke, and with lower distributions coming from QLD and WA both Victoria and NSW are going to find themselves firmly in the shitter....

JR's picture

Resources—oil, corn, or iron ore—are inanimate objects.  It is man who invented steam; it is man who makes steel and circuit boards.  And it is man who makes politics and government.  It is man’s government, whether it is under a Saudi king, the Soviet politburo, the Chinese communists, or the Constitution of James Madison, that moves the inventions, the production and the resources.

For 6000 years, man struggled as a beast of burden to exist under despotic government.  It is time we realized that civilization’s progress rests on the foundation of a single principle: freedom! China dies as soon as its American corporations are withdrawn or taken over by a communist government. A tremendous volume of goods produced in China is produced by American corporations located there: those corporations are protected by American patents and American innovation which were developed under a free-enterprise system.

Everyone is so smart: they know how we got here after they look around and see all this stuff: “America, you got the ball rolling, it’s now time the Communists handle it.”  No matter that all past communist systems have failed, of course. It’s time to try it again.

Jim O’Neill is like a little kid who thinks milk comes from the grocery store.

A 1997 study of the inventors honored in the National Inventors Hall of Fame in Akron, Ohio, revealed that 91% of the world’s greatest inventors worked in America, under freedom and property rights, and only 9% in other countries.

As ZH Anonymous said: "The whole world worships China for its rapid economic growth, while we forget that their industrial revolution is very different in character than that of North America and Western Europe. The industrial revolution in the West was fueled by an endless stream of innovations starting with the steam engine. Chinese growth is fueled by cheap money, cheap labor and the drive of multinationals to enter a huge market. China has opened up to benefit from the innovations made in the West, but it isn´t contributing anything beyond cheap labor and the promise that companies can grow there for a long time to come. Capitalism without individual freedom is not capitalism, it is feudalism.”

O’Neill says “the US needs its own BRIC equivalent. How about something real on the infrastructure front?” Yeah, how about a Congress that won’t barter away our manufacturing base and our jobs to the highest Bill Gates-type lobbyist?  It’s time for the American people to take away the American punch bowl from The Globalist Dreamers and let the O’Neills and their developing nations emerge on their own.

RockyRacoon's picture

Whoa, now.  You silver-tongued devil.  That makes way too much sense.

Uncle Remus's picture

"Prudence, indeed, will dictate that governments long established should not be changed for light and transient causes; and accordingly all experience hath shown that mankind are more disposed to suffer, while evils are sufferable, than to right themselves by abolishing the forms to which they are accustomed. But when a long train of abuses and usurpations, pursuing invariably the same object evinces a design to reduce them under absolute despotism, it is their right, it is their duty, to throw off such government, and to provide new guards for their future security."

 

The train is quite long enough. We've been at this particular station before.

Ultranaut's picture

Stalin industrialized a nation of peasants into a global superpower in a matter of decades. China just figured out a way to do the same thing without pissing off the capitalist elite. I think most "American" corporations recognize that the Chinese model is far more profitable. In business, patriotism is just marketing. American business continues to import the new model of authoritarian capitalism they are pioneering in China, they don't care about anything beyond profit.

 

Vendetta's picture

Very well done.  I liken the growth of China as an artificial insemination of manufacturing sperm and hoping a mutant isn't formed ... but it has.

william the bastard's picture

It's time for you to make a guest post JR, as long as the developing nation you have in mind isn't Dallas.

Real Estate Geek's picture

As ZH Anonymous said: "The whole world worships China for its rapid economic growth, while we forget that their industrial revolution is very different in character than that of North America and Western Europe. The industrial revolution in the West was fueled by an endless stream of innovations starting with the steam engine. Chinese growth is fueled by cheap money, cheap labor and the drive of multinationals to enter a huge market. China has opened up to benefit from the innovations made in the West, but it isn´t contributing anything beyond cheap labor and the promise that companies can grow there for a long time to come.

I hope you're right, JR.  But China is a dynamic beast and the above viewpoint assumes that it's not.  Right now China is as described, but it may just be priming the pump. 

I get nervous when I read statistics showing that the number of engineering students in China is larger than the total number of engineers who have ever lived.  (Well, perhaps I exaggerate, but you get my drift.) 

Even if they're just a bunch of automatons, it’s a numbers game to some extent.  A million chimpanzees typing away, etc.