• Sprott Money
    05/06/2016 - 06:03
    The US, in its own decline, is showing this same self-destructive tendency. The worse things get, the greater the inclination of the citizenry to say, “Carry on, everything’s fine.”

The Ongoing Chinese Annexation Of The US Consumer

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Fri, 08/28/2009 - 10:30 | 51648 Hondo
Hondo's picture

China will have to commit more and more of it's pile of existing $$ to the US as the growth of its stockpile is slowing greatly.  In th end we sucker them in to committing all of the stock pile of $$ and then we say sorry...game...over....thanks...for....playing!

In the end low interest rate will not help.....you will need employment and income......china can't help there as it does not want to reduce it's 50% savings rate (or better yet it can't reduce it without rates moving dramatically higher at home killing the meager domestic consumer demand).

 

Fri, 08/28/2009 - 11:53 | 51776 Señor Tranche
Señor Tranche's picture

China knows the longer it waits, the worse the damage will be, so they might just pull the trigger at some point and take the hit.  Their government is a lot better equipped to handle civil unrest than the US (and their government is smart enough to know bubbles can't be inflated forever, something I don't think is true of the US congress), so I think there is a real possibility that China will stop funding.  The way I see it we are much more dependant on them than vice versa.  

Fri, 08/28/2009 - 13:36 | 51910 Anonymous
Anonymous's picture

One thing I don't get though. China has about 2.2 trillion is reserves right??? That would last us about a year and a half at current borrowing rate. So really, how much can they lend us??

Fri, 08/28/2009 - 23:10 | 52625 Econocataclysm
Econocataclysm's picture

Ummm, yeah. I think Tyler missed something here:

http://www.nytimes.com/2009/08/22/business/economy/22charts.html?_r=2&re...

From the New York Times article, 8/22/2009, quote:

"As the United States rolls up record budget deficits, Asian countries are showing a reduced willingness to finance the debt. Figures released by the Treasury Department this week indicated that China reduced its holdings of Treasury securities by $25 billion in June, the most China had ever sold in a month."

Looks to me like the selloff has already begun, if this story is to be believed. China looks to be selling them off a little at a time so as not to flood the market right away and drive down the price, therefore deriving maximum value from their stash of this crappy paper until the REAL run on Treasuries begins. Makes sense, that's what I'd do.

Or am I missing something here, and if so, can someone explain to me what it is?

Fri, 08/28/2009 - 10:31 | 51650 My cognitive di...
My cognitive dissonance's picture

Now if they could only get the Baltic Dry Index to go up.

LOL "Benmosche"

Fri, 08/28/2009 - 10:34 | 51654 asdf
asdf's picture

how can they have an average saving rate of 50%? I couldn't save that much even if I wanted.

Fri, 08/28/2009 - 10:47 | 51680 Veteran
Veteran's picture

'. . .even if i wanted.' 

the operative word being 'wanted'

Fri, 08/28/2009 - 12:58 | 51844 Anonymous
Anonymous's picture

I'm in the US but not a US Citizen. My husband and My saving combined is about 50%, too. It sucks that we used to get 5.5% interest rate from HSBC internet saving accout. Now it is ~1.4%.

Fri, 08/28/2009 - 14:27 | 52019 Anonymous
Anonymous's picture

Buy gold and/or silver instead, on the dips, or dollar averaged. Look at the long term trends in money creation and the gold price to see why. Interest rates on dollar denominated savings accounts, especially after you pay taxes on the interest, do not keep up with inflation. Gold and silver are true savings vehicles.

Fri, 08/28/2009 - 13:30 | 51903 MountainHawk
MountainHawk's picture

Live modestly w/o gucci, prada, bimmers and benzes... yes some people should own these things, not fuckin every hood rat.

(when i say hood rat, I include everyone, we've almost all become over indulgent)

Fri, 08/28/2009 - 10:35 | 51657 Hansel
Hansel's picture

Can China continue to fund our deficit even if they wanted to?  China's economic activity is down because ours is down, so in theory they have less money to fund debt.  At the same time the U.S. is running a record budget deficit this year, another $1+ trillion next year, and budget deficits for as far out as the government cares to project.  It seems only Ben's monetization is saving this system.

Fri, 08/28/2009 - 10:39 | 51663 SWRichmond
SWRichmond's picture

"However, this being simply another fiat-funded bubble, and due to its Ponzi nature, a much more vicious one, the second this symbiosis ends for whatever unforeseen reason, the impact on China, and by implication on the US, will reverberate throughout monetary and fiscal policies and likely result in civil unrest both in the US and China..."

Along with others, I am tempted to call the one in progress "the last bubble".  The previous one was built on lying (ratings), mostly hidden from common observation, and increased leverage using CDS (and my personal fav, "Interest Rate Swaps" which, as we all know, are "completely benign" as advocates claim their netting to be unity.  Ha fucking ha.)

In contrast, this bubble is built on printed stuff being called "money", and on an absolute tidal wave of overt lies: accounting that isn't any such thing, zombie banks, more than $20 Trillion of spending and backstopping, stocks that levitate...all well documented here at ZH and elsewhere.  Anyone grounded in reality finds this all to be very disorienting.

Fri, 08/28/2009 - 10:52 | 51695 Anonymous
Anonymous's picture

I would term it fraudulent misrepresentation rising to treason.

Fri, 08/28/2009 - 10:39 | 51665 aus_punter
aus_punter's picture

I broadly agree with this post but to view the world as China the producer and US the consumer is too simplistic.  Chinas biggest trading partner is the Eurozone and the rest of the world still buys Chinese goods.

I think a pertinent question is would you buy A shares on 30x earnings when the US consumer is going off a cliff ?

The idea of the Chinese consumer leading the world out of recession is a nice one but the numbers just do not add up.....and culturally they wouldn't consume even if they could.

Why has the PBOC opened up the Chinese market for IPOs again ?? So the state entities shareholders can enrich themselves at the expense of the market.  When the bubble bursts ..as it is now it will take a lot of wealth with it.

  

Fri, 08/28/2009 - 11:18 | 51734 Anonymous
Anonymous's picture

"and culturally they wouldn't consume even if they could."

Are you kidding me? The Chinese that I know are huge consumers when they have money. Much more flashy and ostentatious than most westerners. They are simply required to save more as they do not have the security of the social safety net that Americans do. (That last statement even amazes me...America has more social welfare structure than a communist county)

Personally, I think the powers that be want to enable the consumptive power of the Asian market because I believe they will be more all consuming than the west, which still has vestiges of frugality/spartanism/Puritanism (insert others at will)

Fri, 08/28/2009 - 11:24 | 51744 Anonymous
Anonymous's picture

"and culturally they wouldn't consume even if they could."

Are you kidding me? The Chinese that I know are huge consumers when they have money. Much more flashy and ostentatious than most westerners as "showing" status is hugely important to them culturally. They are simply required to save more as they do not have the security of the social safety net that Americans do. (That last statement even amazes me...America has more social welfare structure than a communist county)

Personally, I think the powers that be want to enable the consumptive power of the Asian market because I believe they will be more all consuming than the west, which still has vestiges of frugality/spartanism/Puritanism (insert others at will)

Fri, 08/28/2009 - 12:01 | 51787 Anonymous
Anonymous's picture

Of course Chinese will consume if they are allowed. Who wants to export the fruits of their labor and never be allowed to spend the profits? That is the definition of slavery.

Sun, 08/30/2009 - 04:24 | 53244 Anonymous
Anonymous's picture

YOU MAY BE RIGHT BUT IN MY 20 OR SO TRIPS I HAVE SEEN LITTLE EVIDENCE OF IT. PROFLIGATE SPENDING IS NOT PART OF THE CULTURE AND FRANKLY , BECAUSE YOU KNOW SOME CHINESE PEOPLE THAT ARE FLASHY DOESN'T PARTICULARLY CHIME WITH 2000 YEARS OF BEHAVIOUR.

THE NUMBERS DO NOT STACK UP

Fri, 08/28/2009 - 13:36 | 51912 MountainHawk
MountainHawk's picture

You are absolutley correct. Chinese/asians are super flashy, those that have it really like to flash it...

Fri, 08/28/2009 - 14:57 | 52000 greenbacks (not verified)
greenbacks's picture

The signs are it's water and air problems. As always the capital will flee to better opportunities elsewhere leaving China in shambles.

good articles; good articles 4 slow news day ..http://www..
hat tip: finance news & finance opinions

Fri, 08/28/2009 - 11:57 | 51780 Jim B
Jim B's picture

I am not a China Expert, but my understanding is that the social safety net in China is limited and that is a major reason for the high savings rate.  I think it folly for us to think they will not gradually increase their standard of living and we have them by the short hairs.

Fri, 08/28/2009 - 11:59 | 51783 Anonymous
Anonymous's picture

Good point about Europe.

I think China is done playing this game. Foreign asset flows have turned negative for the first time in decades. Our exports are rising and the trade deficit is shrinking. Shinking trade deficit means less USD being recycled.

Vendor financing deal is off: No net goods and services imports, no capital exports, no capital export financed jobs

Interest rates are being games by debt monetization, not China.

Fri, 08/28/2009 - 10:42 | 51668 aus_punter
aus_punter's picture

oh...and SHCOMP / AUD correlation has broken down......oops

Fri, 08/28/2009 - 10:48 | 51684 Anonymous
Anonymous's picture

Didn't Japan recently surpass the US in importing Chinese goods?

America's domestic economy is not as important for global trade as we think. World is spinning [i]ok[/i] even when US banks go bust and US consumers don't buy anything. Demand for Chinese goods from within China, Japan, Brazil, Eurozone, Russia and ME is pretty strong.

There's a seismic shift happening and the repeated calling to dethrone the rotten USD as lead currency is warranted given the shift.

Fri, 08/28/2009 - 11:23 | 51742 DiverCity
DiverCity's picture

Good point Anon #51684,, and it means, does it not, that China might stop purchasing Treasurys sooner rather than later?

Fri, 08/28/2009 - 11:28 | 51748 Anonymous
Anonymous's picture

"Demand for Chinese goods from within China, Japan, Brazil, Eurozone, Russia and ME is pretty strong"

Almost all of these countries/regions are in some form of recession with the exception of the ME which is too small to make up any demand.

Let me throw some stats at you (source:Global Trade Navigator):

Asia to Europe trade = $600 billion
Asia to US trade = $900 billion

Final Consumption of Goods & Services (UN stats):
US = 29% of world consumption
Japan = 8%
China = 4%
Brazil = 3%
Russia = 2%
All of Western Europe = 14%

There is no one to shift the demand to. If you want to keep the current levels of production... the US is the market, otherwise things will need to shrink "seismically" which could be extremely disruptive to all economies.

Fri, 08/28/2009 - 22:40 | 52596 Anonymous
Anonymous's picture

The US consumer is the only game in town for the time being, and I don't see it changing anytime soon. Therefore, even though China hates to admit it, they are gonna have to keep funding us, unless they want World War III, which they don't because technologically and militarily they are woefully behind and rely on tired old Soviet books of strategem, which we know inside and out.

Culturally China has a lax social safety net which causes people to save up tons of money. No social security there, no free medical for everyone with a heartbeat, no unemployment benefits, and virtually no monetary assistance to rural areas. This all equates to a population that is woefully divided into two worlds - the poor countryside and the middle class city folk, supported by a vast underclass of migrant workers. Further, the government for all it's Sino-centric views, doesn't give a rat's ass about their own citizens, further prompting their citizens to save, just in case and for retirement.

The rest of SE Asia is a basketcase of military regimes, shaky government, and a complacent populace.

The Japanese are not huge spenders, as culturally they want to save money to support their elders, and most remember the horrid contraction of their economy in the late 1980s and the lost decade of the 90s, which can be revised to the lost TWO decades.

Culturally, Europe is more like the US in the 1950s. Save a percentage of your income for retirement. And last I checked, Europeans will consume American goods, but they won't adopt our culture beyond rap & hip-hop. Pile on top of that the HUGE aging problem and cost of living, combined with overcrowded nations (we forget that Europe has less landmass than the USA combined, but 2.5 times the population). Therefore, using the European citizen as a consumer is out of the question.

South Asia, namely India, is even worse off than China.

The Middle East is just a nuthouse for defunct governments who are too busy Israel and US bashing to try and prop up their economies to be less dependent on energy exports. Same for Africa, and to a lesser extent, South America.

Fri, 08/28/2009 - 10:50 | 51685 Anonymous
Anonymous's picture

In other words, China has much bigger problems, which is saying one helluva lot.

Fri, 08/28/2009 - 10:51 | 51688 Anonymous
Anonymous's picture

The idea behind trade is that one party exchanges something of value to another party for something of equal value. The idea that China needs us to consume their products is ridiculous. Their is nothing inherently valuable in consuming the fruits of someone else's labor. The Chinese (and other creditor nations) are the ones doing the producing. Over the next few years they will realize that they are much better off consuming their own production rather than exchanging it for irredeemable IOUs.

Letting go of the idea that US consumption is the engine of world growth will no doubt cause some short-term problems for China, but they will be much better off in the long run.

Fri, 08/28/2009 - 11:23 | 51741 ED
ED's picture

Exactly. The perversion here is that the means of exchange has become a source of obssessive fascination, forgetting it's the things exchanged that are the real deal.

Fri, 08/28/2009 - 15:02 | 52056 Anonymous
Anonymous's picture

Well said. Eventually the "means of exchange" will adjust to reflect our real economic output.

Fri, 08/28/2009 - 11:33 | 51754 ghostfaceinvestah
ghostfaceinvestah's picture

Agree, they are constrained by us in the short term only, and are quickly breaking the ties.

The article has a good summary, but wrong conclusion.  One observation that I know is wrong:

"China can ill afford to push the US middle class into a greater savings mode, and thus will cooperate as much as it can with the Federal Reserve in keeping both mortgages (for the illusory net wealth effect) and interest rates as low as possible for as long as it can."

All FCBs have abandoned the agency MBS market, because it does not offer full faith and credit backing of the credit risk.  Without that, they will not be coming back.  They do not want exposure to Fannie and Freddie without EXPLICIT government backing.  It took them years to get comfortable buying even agency MBS, and will not start buying again with the mess the agencies are in.

As for USTs, it appears they are shortening their duration significantly.  Wonder why.

Fri, 08/28/2009 - 14:57 | 52003 greenbacks (not verified)
Fri, 08/28/2009 - 10:55 | 51689 PragmaticIdealist
PragmaticIdealist's picture

Do not underestimate China.

Sun Tzu:

"For to win one hundred victories in one hundred battles is not the acme of skill. To subdue the enemy without fighting is the acme of skill. "

China has been robbing us of our technology, jobs, manufacturing capacity for decades abetted by currency manipulation and American greed in the form of offshoring profits. They eagerly send us the fruits of their labor in anticipation of being able to continue this annexation of the means of production.

Assuredly, their reserves of US dollars arising out of this process have 0 intrinsic value. However, the world does not perceive this fact and they will continue to covertly exchange their dollar holdings for real assets.

Once a sufficient monopoly on the means of production has been attained, they will cut off the US consumer.

 

Fri, 08/28/2009 - 10:57 | 51704 Project Mayhem
Project Mayhem's picture

Yeah to me it's been pretty obvs what's been going on but I tend more towards tinfoil than most.   I'm sure our fearless corrupt leaders have cut all sorts of deals to keep the spigots open for a few more months.

 

Fri, 08/28/2009 - 10:57 | 51705 Anonymous
Anonymous's picture

If the JCS heeded Sun, would unemployment > 50% ?

zen ?

Fri, 08/28/2009 - 10:57 | 51708 Anonymous
Anonymous's picture

I agree...its how the US would do it...no wait..they prefer wars..

Fri, 08/28/2009 - 11:20 | 51737 mmlevine
mmlevine's picture

China has not robbed us of anything.  We gave it away with hardly a fight.

Production has been sent to China for one reason and one reason alone – it costs less.  Walk through any major retailer and I guarantee 70% of the stuff you pick up was made in China.

Why would you believe that China would want to cut off the US consumer?  What good is it to have the means of production when there is no one to buy the production?  China doesn’t want the ridiculous and impractical products they make – these products are for the silly Americans.   

Fri, 08/28/2009 - 13:42 | 51923 MountainHawk
MountainHawk's picture

Yup!!

Fri, 08/28/2009 - 15:13 | 52072 Jim_Rockford
Jim_Rockford's picture

mlevine - the same mlevine from GRMN Yahoo?  I am cheep.

Fri, 08/28/2009 - 11:43 | 51764 ghostfaceinvestah
ghostfaceinvestah's picture

Very well put.  As you say, they have been doing this for decades, and will continue to change their USD into real assets.  Check out the history of Minmetals, they have been acquiring plants and raw materials in the metals business for a while, and continue to acquire today.

http://www.chinadaily.com.cn/bizchina/2009-06/11/content_8273205.htm

http://www.chinamining.org/Investment/2008-01-24/1201154311d8851.html

 

 

Fri, 08/28/2009 - 12:42 | 51822 Anonymous
Anonymous's picture

On the contrary, I think we've been robbing them. They mfg'd and sent over tangible goods (i.e. childrens clothing) and in turn, we sent them back pieces of paper (or merely electronic entries representing pieces of paper) as an exchange. When China came in and wanted to exchange those pieces of paper for something tangible (think CNOOC trying to buy Union Oil) then we scream a blue streak. This is a batshit crazy relationship. Same thing happened to them in Australia.

I feel that the signals ending this are China's continuing efforts to acquire large amounts of gold and other commodities and that they've switched to very short-term treasuries and in much smaller quantity. There is evidence that strawman bids from China are really Fed agents making it look like 'foreign' purchases.

I do agree with your premise to not underestimate China. They have a much greater, patience, discipline and a much longer timeline and planning ingrained in their culture. I also think that they really want to continue to have a merchant relationship with the US, rather than attempting to take over (they know what a hassle that'd be). Right now it is the US which is acting like a gangster doing a "bust-out" of a usurped business.

Fri, 08/28/2009 - 10:53 | 51696 Oso
Oso's picture

http://www.ny.frb.org/markets/pomo/display/index.cfm?opertype=agny

 

agency purchases happening right now.  odds DXY gets arse-raped again...?

Fri, 08/28/2009 - 11:07 | 51719 chinaguy
chinaguy's picture

Discretionary income per capita (percent of total income) 62% US 48% China - Wrong!

Discretionary income per capita (percent of income) is much HIGHER in China than it is in the US. The vast majority of these folks live in hugely subsidized housing and their companies and factories pay for at least one, usually two meals a day. Making car payments; nope, health care; paid for.

Even reversing these numbers doesn't bring it into balance......What else is incorrect with these statics provided by BAC, the CIA et al?

Fri, 08/28/2009 - 11:29 | 51749 Yossarian
Yossarian's picture

Good points but health care is not paid for- an emergency room visit can eat up a whole years salary.  My question is, what sort of intellectual capital exists in China?  Low-grade steel?  The Japanese and Koreans are way ahead of them in steel.  Shipbuilding?  Ditto- their boats are crap.  Solar?  They put panels together, not sure they are the source of many advancements.  If you made a discovery in China would you choose to develop it their or, perhaps, go to Singapore, Switzerland, or Silicon Valley?  Construction?  OK, they build excellent roads/bridged/tunnels/ports and commercial skyscrapers and apartment buildings (that nobody lives/works in).  Oil?  China Oilfield Services is a joke. Name one global Chinese company that cannot be replicated...

Fri, 08/28/2009 - 11:38 | 51759 straightershooter
straightershooter's picture

It is more likely than not that the fact you can post your comments on the zero is that you are using parts/products produced in China.

Take a look inside your gadgets.....memory, boards, chips, battery,

 genius is found in every races at a ratio of 1 to 1 million. The higher the population, the higher the number of genius. It used to be US can attract genius from other regions. No longer the case. Overtime, China (india), with the highest population, will have advantage.

Fri, 08/28/2009 - 11:47 | 51768 ghostfaceinvestah
ghostfaceinvestah's picture

Not to mention China and India put their geniuses to work innovating and producing real products.  We put our geniuses to work manipulating our fiat currency.  Case in point was that dude from AIG who put his resignation letter in the NYTimes.  Guy had an engineering degree from MIT, but found the greatest rewards in the swaps business.

We are so screwed it isn't funny.

Fri, 08/28/2009 - 13:13 | 51868 Yossarian
Yossarian's picture

I am not a US bull- I think the country is moving in exactly the wrong direction.  But what made the US great was its social technology- property rights, legal system, oversight institutions which complemented the relativley low-tax free enterprise system.  As far as I can tell China lacks any sort of social technology- they are assumed to be a top-down well-oiled machine who can manage the economy to success but they are not.  They are a combination of overlapping bureaucracies with no respect for private property, liberty, intellectual property, and no legal system to speak of.  Hardly an environment that fosters innovation.  The benevolent dictatorship of Singapore and HK would be much more attractive destinations for innovation but, alas, they are merely city-states and thus financial centers.  I find India to be a much more attractive story than China, although the excessive bureaucracy has to be curbed.   

Fri, 08/28/2009 - 13:13 | 51869 Yossarian
Yossarian's picture

I am not a US bull- I think the country is moving in exactly the wrong direction.  But what made the US great was its social technology- property rights, legal system, oversight institutions which complemented the relativley low-tax free enterprise system.  As far as I can tell China lacks any sort of social technology- they are assumed to be a top-down well-oiled machine who can manage the economy to success but they are not.  They are a combination of overlapping bureaucracies with no respect for private property, liberty, intellectual property, and no legal system to speak of.  Hardly an environment that fosters innovation.  The benevolent dictatorship of Singapore and HK would be much more attractive destinations for innovation but, alas, they are merely city-states and thus financial centers.  I find India to be a much more attractive story than China, although the excessive bureaucracy has to be curbed.   

Fri, 08/28/2009 - 12:02 | 51788 chinaguy
chinaguy's picture

"health care is not paid for- an emergency room visit can eat up a whole years salary". It certainly could here, but, I'm not sure under what scenario that would occure in China because health care is also massively subsidized.

My friend's (Chinese) father is undergoing months of chemo in Hangzhou. It's not coming out of his pocket. I had ten acupuncture treatments in a Chinese hospital and it set me back $2.40 (total).

As to what intellectual capital exists in China...well...not much at all. I'm not defending China (sadly, they will probably end up devouring us). I'm only pointing out that the stats offered above are flawed.....based on my 25 years of business experience in China 

 

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