I recall being at the last Fed protest with WC and JDA and WC suggested that China probably doesn't give a crap about the debt we owe them. He suggested they've already planned to write it off because they've made so much elsewhere they just consider it the cost of doing business.
This video states the same argument...without all the slurring, swearing and spitting.
the creditor and the deadbeat broke-ass plastic duck junkie
UPDATE: W.C. here. Awesome video. My thoughts on this subject from October here.
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4 comments:
This doesn't make sense at all.
Effectively, us plastic duck junkies are still having to come up with $1.50 for a plastic duck. So, we have NON-BORROWED, free and clear cash money to buy plastic ducks. They certainly want to sell us plastic ducks. In fact, they're having to constantly lower the price of the ducks to get us to buy because ducks don't have much pricing power.
I don't know if you've seen the growth numbers for exports from Vietnam, but it looks like they're willing to sell us some of their plastic ducks for even less than China.
Plastic ducks are a commodity. There are very few plastic duck businesses with significant competitive advantages. Speaking non-poetically now, there are very few Chinese businesses with lasting competitive advantages.
walmart,
That's likely true in the long run, but it isn't true yet.
China is still the biggest exporter to the U.S. by far (Canada and Mexico behind and other Asian plastic duck manufacturers not even close).
If we eventually start getting our plastic ducks elsewhere, I don't think the Chinese will keep buying our debt.
Plus there's a multiplier effect because of what interest rates do to housing prices.
If they buy a trillion of Treasuries, they lower interest rates by a couple points, which creates a housing bubble and creates 2 or 3 trillion in home equity that we can suck out to keep our consumers running on fumes.
The multiplier effect is a valid point. Once you start getting into the derivative effects though you have to think about the positive deflationary effects of their low cost labor. My point is that we are still paying $1.50 of real, unborrowed cash for a duck.
Since we don't enslave labor here in the U.S. anymore, that duck would likely cost $3 to make domestically. Most of us are much happier dishing out $1.50 in cash and $.50 in debt to purchase a duck that would cost $3 to make over here.
Plastic ducks are nice but plastic ducks make up only 9% of our total expenditures. We can't eat plastic ducks, we can't read plastic ducks, we can't burn plastic ducks in our car, plastic ducks don't heal us when we get sick, etc.
Here's the Chinese strategy, not so different from our politicians strategy over here... keep the masses happy so they can keep their jobs.
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