The "Crossroads" Scenario
Beware a "reflated" sense of self worth
Editor's Note: Our goal in Minyanville is to remove intimidation from the financial markets and encourage an interactive dialogue among the Minyanship. We share this next discussion with that very intent.
Regarding "Crossroads," isn't this the scenario that started when Japan was doing so well and buying our real estate? Then the real estate market took a hit and they lost.
Seems to me that the greater threat is not that of buying the assets of an indebted nation, but that of using the indebted nation's dollars to generally buy the assets and means of production across the globe.
The result is the same, the Chinese become a dominant player in the world economy. We lose much control.
One eventuality might be that the Chinese try to control the assets and means of production of the world to their advantage only to find that the countries that have relied so long upon smart deal making and entrepreneurship gradually take that advantage away, e.g., alternative fuels, etc..
Of course that is after much damage has been done here at home and our standard of living has dipped down toward the world norm.
Just some thoughts.
I agree with your thoughts, although the danger is there for the Chinese. Remember, both the Japanese and Chinese have bought into the Fed's reflation plan, a risky one.
All major economies are now printing currency at a rapid rate as a result.
The Chinese buying US assets with their dollars is akin to what the Japanese did in the 80's. Look what happened to them. When the dollar fell and they could no longer sustain their investment, the prices of the assets fell in nominal terms as well and they lost big. This kept the US, which sold many assets to them, out of a depression while sending Japan into one. The Chinese risk the same.
There are no winners in this game of printing currencies, as you point out. Global growth is now merely a function of debt production, not productive assets. Globalization, by definition, will raise the standard of living in poorer countries relative to wealthy ones; the theory is that it should do so while at the same time not lowering the standard of living of wealthy ones (I use the terms "poor" and "wealthy" loosely).
But certain events have caused central banks (economic disruptions, lack of political will) to panic and print currency as a solution to slow growth and loose capacity. This will make things worse in the long run by financing unproductive assets and making capacity even looser.
The debt burden is forcing a situation where globalization, while doing its job of equalizing the standards of living among countries, will now likely do so by bringing down the standards of living in wealthy countries.
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