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Stop Smokin The Import Crack…
Submitted by FinancialJuice - Financial News Tailored by You
Seriously folks, enough. We’ll start slow. Interventions are not as palatable as they once were
FACT: The size of the US consumer base is approximately 11 Trillion Dollars per annum. That is the equivalent to China’s and Japan’s GDP, combined minus a mere 2 Trillion. The size of the US Consumer is 1/3 of the Global Consumer Market. More than Japan, more than EU, more than China.
Let me say this before opinions start flying like the Luftwaffe over Poland: It Is our G-D given right to enjoy the products we purchase and use our reward based credit cards to buy them. Now that we have that out in the open. Let us move on.
So we know that we are a consumer based economy, right? Yes. $11 Trillion is about 70% of the overall economy. We love our products and we love to get new products. I don’t have the actual data, but the churn rate on new products must be in the range of 18 – 26 months. Think Iphone.
Scenario that is impossible to implement but interesting to consider: The US consumer stops buying anything outside of food, Water, and Gas. No new cars, no new technology, no new clothes. Never going to happen, right? Correct.
Our next point, if you had the opportunity to cater to an economy that is falling over itself in its attempt to get the latest and greatest, would you? No brainer category.
We told you we would start slow, so let’s step it up a bit.
The US economy is able to sustain itself from Aunt Janet and her predecessor uncle Ben. Don’t forget our long lost cousin Alan. The US, with one of the highest bond ratings in the known universe, is able to borrow $ at the lowest rates since the Great Depression. See chart.
We use the $ borrowed from the Treasury Auctions to supply the feeding frenzy provided by the Fed. Pretty straight forward, right? Kind of.
The treasury market is approximately $11.8 Trillion dollars. Foreign money holds approximately $6 Trillion on an annual basis. This is a mix of short term and long term securities. As of August 2014, China’s US Treasury holdings were at$ 1.269 Trillion. So no, China does not hold half of our Treasuries.
Treasuries are denominated in USD. In order for Foreign investors to buy T-Bills, T-Notes, T-Bonds, conversions into the USD would need to take place. Thereby, selling the foreign currency and purchasing the US dollar. Providing strength in the USD and, for the moment, weakness to the foreign currency. Selling the currency X, buying the USD. Multiply this by the steady stream of interest in the US Treasuries and you experience a rising tide in the US currency. US based consumers are able to purchase goods manufactured in international locations cheaper without sacrificing domestic purchasing power. Conversely, foreign based companies and consumers would experience more expensive goods when purchasing US products.
WIFC: What’s In It For China? This is where things get interesting. The common contention is that China is allowing the US to continue its spending spree until all-heck breaks loose. We feel a bit differently.
What if the Chinese would like to make sure that the Yuan fluctuation, which is seemingly regulated by the government, remains low for the benefit of the Chinese? The Chinese are merely looking for a pathway to keep the currency low to promote the goods produced in China as financially attractive as possible. With some esoteric currency plays and good ole fashioned financial engineering, it’s possible and already in play.
This turning out to be a more of a currency play than just a macroeconomic motif. China needs to stay relevant. This isn’t about the US and its consumers but about the Chinese desire to create a relevant economy and more relevant presence on the world economic stage.
If China does not purchase USD based securities the probability that the US $ will not continue its buoyancy will decrease. When USD buoyancy exists the picture, the purchasing power of the US consumer will decrease in relation to its foreign supplier. The Supplier and Manufacturer in China will immediately feel the impact in the decrease in demand for the product. In turn, more intervention will need to take place to keep the Yuan by the Chinese government.
We need to remember that the US need not be the focus of these discussion. The focus should be on the Chinese manufacturing and supply chain integrity. This bring to light the true implication of currency movements and asset purchases.
The reason the US is at the center of this discussion on a global scale is the fact that we refuse to stop spending. Perhaps this is more of a philosophical than a fiscal, monetary, or economic discussion.
For what it’s worth, I like my crack.
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It's because of US debt and demographics that China, Russia, and others are making de-dollarization deals. You've just essayed the problem.
I CHOOSE not to use the one big-bank credit card we have, and instead pay cash for what little we NEED. Starve the monkeys.
it all depends on which credit card you use, visa, master card, or ebt card.
when, (my tax-payer), ebt card balance is high i can't use my visa, or master card on my discrestionary spending, i'm stuck with with buying food, water, or gas.
Hey pivotfarm,is the CIA buying you off ?
Great time to be an exceptional American. The world loves our dollar and always will...right?
Yep. right up until it doesn't.....
I trade my crack for silver.
Trade your Silver for crack, its a poor mans' boating accident.
Being a crack addict is fine, as long as you aren't robbing your neighbors' homes regularly to afford it. Same goes with consumption. There's nothing wrong with being a cunsumption based economy, as long as you aren't a welfare society. Once you start down that road it is a trip to bankruptcyville...
"...I like my crack"
Now there's a provocative closing line.
6.6 / 16.8 trillion .... about 39% of ussa gdp is government spending...... forget about stop buying shit from china..... stop government waste and "bonuses" (about 40% of what it spends it totally useless), reduce corporate and personal taxes and that will ignite the economy...
Federal Gross Spending FY 2015 $3.9 trillion Intergovernmental $-0.6 trillion State Direct Spending $1.5 trillion Local Direct Spending $1.8 trillion Total Spending $6.6 trillionThat's what you know of. Lot's of "shadow spending" and pallets of money going to the middle east right now.
I've stopped buying new long ago ('ceptin' groceries an such)
[can you say CraigsList ...]
Mortgage only debt; saving as much as I can as fast as I can.
Terrarist maximus, I'm sure. (and the black coppter flies over my house every day)
Maybe I should get my pilot license. It seems that guy's job is going to be secure for a long time to come.
Scenario to consider: The US consumer is forced to stop buying anything outside of food, water, gas, and shelter plus transportation. This comes about as a result of revolving debt (credit cards, car leases etc) backing up and blocking the financial colon to where no amount of Fed ex-lax can get the economy flowing again (sorry for that image).
Even if new products keep being dumped out by the manufacturing regions and thrown across the consuming economies, at some point there is no more credit (pretending to be money) even with all the engineering of "don't pay a cent until..."; ultra-low interest rates (on credit cards? - maybe on seller-provided financing); and, "how much is the monthly payment? consumer-buying test".
The trouble with buying with debt is that it is a theft from one's future self. It is a promise to continue producing and to use some of that production in the future to allow the present self to acquire someone else's production now, instead of when one has earned it.
tick tock. tick tock.
living inside a broken clock.
We (the economy) are what we produce, not what we spend from the future. At some point, the dealer will sell no more crack and will come looking for fingers, toes, knee caps... to make a point about not being paid. How will the insolvent financial system survive the loss of addicted customers, and capital? By having the .gov steal from the remaining solvent muppets (bail-in anyone?) and giving it to them to pay for all the crack addicts past highs.
"If China does not purchase USD based securities the probability that the US $ will not continue its buoyancy will decrease. "
I think that this should say "... the probabiliity that the US$ will continue its buoyancy will decrease..." ie remove the 'not' before continue.
Then, it makes more sense.
Thanks for that, gmak.
I got stuck on that sentence to the point of paralysis...gave up....and decided the whole article wasn't worth it;-)
So no more discounts on mail order Chinese brides off ZH?