You can search Pettis on this blog and find a several part section challenging his views on China. He's got it wrong again, not in his facts, but in his conclusions.
1. Not as bad off. The debt per Chinese, is no where near the debt per American. Since China is on its way up, when the system fails worldwide, they will have less far to fall and in any event still be growth-oriented. In USA we'll have rioting over EBT card refills.
2. Not as far away form poverty. Some 1/2 of Americans depend on entitlements, and have no other concept of life except entitlement. I personally met Chinese back in the day who had on pair of pants between the three of them. Each would wear the pair to work, come home and lend the pair to the next, so he could go work, and then so with the third. Those people are my age, and can take getting knocked back 1/2 way, because they remember what it once was.
3. Can play the game longer. No matter how long the FED drags out this dreadful grinding poverty on behalf of the banks, China can play the game longer. China needs only wait until USA fails, and then comes the cascading cross defaults, which ends up with China as the best investment bet left standing. A mess, but best relative to everywhere else.
USA can beat anyone in the world economically, because we have the right stuff theoretically. But we have elected to enslave ourselves to a military industrial complex that guarantees that our best means are literally outlawed, and our worst excesses are the law of the land.
We lose, and you can thank a veteran for that.
Update:
Feel free to forward this by email to three of your friends.
Debt always matters because it must always be paid for by someone –even if the borrower defaults, of course, the debt is simply “paid” by the lender. This is why the fact that debt in China seems to be growing much faster than debt-servicing capacity implies slower growth in the future. If the debt cannot be fully serviced by the increase in productivity created by the investment that the debt funded, unless it is funded by liquidating state sector assets it must cause a reduction in demand elsewhere, most probably in household consumption. This reduction in demand implies slower growth in the future and, of course, a more difficult rebalancing process.And here are his facts:
The reason is because in any case debt must either be serviced or the borrower must default. If the assets which were funded by the debt do not create enough wealth with which to service the debt, and if the borrower does not default, then by definition there must have been a transfer from some other entity to cover the difference between the debt servicing cost and the returns on the asset.Why his academic analysis fails is for the simple reason is the players know both points perfectly well. But China is competing against the USA, and there are three factors by which China will come out ahead:
1. Not as bad off. The debt per Chinese, is no where near the debt per American. Since China is on its way up, when the system fails worldwide, they will have less far to fall and in any event still be growth-oriented. In USA we'll have rioting over EBT card refills.
2. Not as far away form poverty. Some 1/2 of Americans depend on entitlements, and have no other concept of life except entitlement. I personally met Chinese back in the day who had on pair of pants between the three of them. Each would wear the pair to work, come home and lend the pair to the next, so he could go work, and then so with the third. Those people are my age, and can take getting knocked back 1/2 way, because they remember what it once was.
3. Can play the game longer. No matter how long the FED drags out this dreadful grinding poverty on behalf of the banks, China can play the game longer. China needs only wait until USA fails, and then comes the cascading cross defaults, which ends up with China as the best investment bet left standing. A mess, but best relative to everywhere else.
USA can beat anyone in the world economically, because we have the right stuff theoretically. But we have elected to enslave ourselves to a military industrial complex that guarantees that our best means are literally outlawed, and our worst excesses are the law of the land.
We lose, and you can thank a veteran for that.
Update:
Another difference: Every over 30 years old in China knows what it means to depend on the government. They know they are on their own when it comes to support. No one is depending on, or looking forward to, social security China. In USA, we look forward to what is not there..
Everybody should be calling the CBO and asking why they’re doing this. This is a pattern, you know. The Clinton administration—we put out the fiscal gap studies for a couple of years on the President’s budget. The Clinton administration then censored it. The guys who’s now head of the National Economic Council, the Chief Economic Advisor to President Obama, was the one who did the censorship back in 1994. President Bush’s Treasury Secretary O’Neil wanted us to do a fiscal gap accounting for the President’s budget in 2003 and he was fired in December 7, 2002, and that study was censored two days after he was fired. So, this is not accidental. This is more or less a conspiracy to hide the truth to keep ourselves and our kids in the dark about what the politicians are really doing, which is trying to garner the votes of older people and then get reelected and leave a bigger mess for our kids to handle.
Feel free to forward this by email to three of your friends.
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