Basspig's Blog

Political and Scientific Opinions from a Rational Person

Archive for May 2009

What China’s Doing Right that the US Got Wrong

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While the US is hopelessly racing toward economic suicide, with continued spending, printing of fiat paper money and setting up the scenario for the mother of all defaults, China has been slowly introducing elements of free enterprise in its economic system and the results have been the creation of significant amounts of wealth. They’re accomplishing this by rewarding, financially, the producers of real wealth–engineers, producers, people who actually make things.

Case in point: An engineer who lived in the UK all his life, spent nearly two decades trying to achieve wealth in business in the UK, but remained a pauper because of the onerous taxation and laws that kept his business forever struggling. He moved to China four years ago, and today he’s well off, his business is making a generous amount of money, owns a large villa, a Mercedes and has a beautiful Chinese girlfriend. He’s an engineer. A profession that is looked upon with disdain in the UK, and even the US, but in China, engineers are highly-valued for their ability to create products and thus wealth. China’s culture values the product of work and thus work itself as the source of wealth.

According to this engineer, China’s economy is being completely restructured, to focus on domestic consumption and evidently it is working. The only issue of concern is that they are also moving in the direction of universal health care.

China’s leader ship says that China must develope strong brands and intellectual property for international consumption if China is to be taken seriously in the world. China understands wealth creation. Industry, manufacturing and construction create wealth. China may well (if only by default) be set to become the wealthiest nation by the end of the next decade.

Meanwhile, the US government is essentially bankrupt from the day it stopped redeeming its currency for gold. Meanwhile, foreigners are buying up physical assets in the US, such as farms, real estate, food supplies, financial institutions, hotels, factories, casinos, retail businesses and any other valuable assets located in the US with their hard-earned currency. If we stopped this exchange of title to US property (instead of gold) for foreign earned dollars, the buying power of the US dollar would decrease the the point that it may take a full days’ wages just to buy a loaf of bread.

We are selling our children’s legacy to foreign owners and the fed calls it “investing in America”. We’re racing to print paper currency and sell titled to everything on US soil in order to keep from doing any actual work. A nice analogy is that it’s like selling off our body parts to keep from working.

Economic value is created when you grow, build or manufacture something that is consumable and useful. Printing money to pay people for environmental cleanup, mortgage bailout, union retirements, TARP, business failures, etc., to stimulate the economy ujust makes the existing money have less buying power, yet does nothing to improve the economy in the long term.

If this situation, where we sell US gold, currency and assets to foreign nations, continues, we run the risk of becoming like post WWI Weimar Germany, economically. We need to produce and export a lot more than we do now, in order to balance this situation and reverse the flow of US property to foreign owners. These products would have to be cheaper, better in quality, technologically superior to those products made in foreign countries or the foreigners won’t buy them.

If foreign investors suddenly stop buying our printed US T-bills, bonds and securities at close to their face values and start buying these at equivalent of a few pennies on the dollar, the government checks, social security checks, government payroll checks and private paychecks will not buy very much food or anything else. One’s life savings might only sustain you for a month or two. The US is committing economic suicide. And that leads to the US becoming a “banana republic”.

China has a real GDP, whereas our thinking here is short-term, based on micro-political self-preservation which perpetrates an unending cycle of corruption. China doesn’t have rampant credit infiltration; the people live within their means and their consumption is real, not based on credit card or HELOC illusions of wealth.

On the current course, the US is headed into a hyper-inflationary depression, dollar collapse, federal, state and municipal debt default and the status of a banana republic. For a picture of what life in the US will be like, if this course is not changed, look closely at post-2001 Argentina.



Written by basspig

May 16, 2009 at 5:26 pm