I have heard many statements about China, and the Chinese leaders recently. The talk has been from both sides of the aisle, and not much of it has been friendly. So, naturally, I choose to defend China. First off, it is not China’s fault that we have acted so irresponsibly with our national finances for the past 80 years. All China has done, is to accept the role of one of our creditors, at our request.
Vilifying a creditor is nothing new, it is a terrific tradition which traces its cowardly roots to the middle ages. dating back to medieval times, the nobility class, when in a snit would seek to attack the neighboring kingdoms over various disputes. Waging warfare costs money. That money would sometimes have to be borrowed, failing a sufficient revenue stream resulting from taxation. When the war was waged, if a kingdom was successful, money could be stolen, to repay the creditors. This is where the term, “to the victor goes the spoils,” came from. This system worked out fine for the kings who won, but what about those who lost? Well, they had blown all of the currency needed to wage the war, and were now in a tough spot, as they needed to repay their creditors. That is when these same kings declared the creditors to be enemies of the kingdom, and edicted laws making usury illegal. Creditors were rounded up and beheaded. Who’s fault was it really? It did not take long before people with wealth did not want to be creditors, most especially if the military prowess of a particular king was in question. In any event, once in that position, creditors were quite literally invested in the success of those they loaned money to. China, is in this position today.
Much has been said publicly about our loss of manufacturing base in this country. A lot has been said about the growth of manufacturing in China. It would probably surprise you to discover that we still manufacture quite a bit in the U.S. Maybe our manufacturing is not the percentage of world manufacturing that it once was, but that is the fault of overbearing regulation, and not a result of American economic decay. Cause and effect have been reversed for the purposes of political narrative. We have made it virtually impossible to produce energy sufficient to keep up with our demand within our own borders. We have passed many regulations designed to make our workplaces safe, but many more designed only to promote the well being of someone politically connected. (DOTIPCC is the perfect example of this. There are many Americans who own trucking companies in America who do not operate a single truck. They merely own IPCC numbers and lease them out to trucking companies who do own trucks. This adds billions of dollars each year to transportation costs, which helps to reduce a companies incentive to manufacture within our borders.) It may interest everyone to know that trucking regulation was lobbied for by the rail industry. Does that sound familiar?
Yes, China has been gaining traction on us in terms of manufacturing. They have done this by adopting, at least in part, our own economic system. China is still a long ways away from our GDP. At our current rate of decline, and China’s current rate of growth, it will take them about a hundred years to reach about half of our GDP. China has also not adopted our system completely. They still do not have individual property rights. Capital investment will never reach its full potential in that part of the world. Simply because no one with money to invest will see China as a risk free proposition. It will be front of every one’s mind that China has the legal authority to confiscate any investment when it suits them to do so.
China needs us to pay them back. China is not so wealthy, as not very many are, that they can keep loaning us money and not have a care in the world as to whether we pay it back or not. When any nation floats us a loan, they do so with the intention of being repaid with interest. If we don’t pay, they lose a lot of money. China is as much afraid of our default as we are. This is one reason why they continue to loan us money. It is not because they wish us to be continuing forever as their subordinate, it is because they fear the repercussions to their own wealth and self interests if our paper becomes the value overnight of bird cage liners. That means that they lose a lot of money. Many of our wealthiest companies were destroyed by the collapse of Bear Sterns. China is more afraid of this than we are.
There will still be a point in time when they will see us as chasing good money after bad.
Crossposted at Musings of a Mad Conservative.
Tags: China
