Chinese Economy in Tectonic Shift

(8 am. – promoted by ek hornbeck)

Relatively unnoticed in the MSM has been a sudden, even startling, turnaround in Chinese economic strategy in recent days. The Chinese are making it clear that they must move toward satisfying their domestic market and away from their export-driven growth model.

Here is the op-ed piece in yesterday’s People’s Daily. Note especially the last two paragraphs of the article:

Owing to the sluggish global market, more input in China’s domestic production will also give rise to the glut of goods. Therefore, in order to enable the expanded domestic demand to achieve an anticipated result, it is essential and imperative to input more in such fields as social security, medicare and health work, and education.

In other words, the main purpose of imput is definitely not to turn out more goods or to build more high-rises or skyscrapers, but to bring about more and more consumers with substantial financial strength, so that ordinary citizens in the country are better able to resist and defend against risks. Such an imput will eventually effect the long-term benign growth of Chinese economy, and China will be capable of making even greater contributions to the development of the entire world.

The Chinese Government has also directed Chinese banks not to lend to U.S. financial institutions during this ongoing financial crisis.

The Chinese see that the financial crisis in the U.S. will spread and will make their heavily export-driven growth model unsustainable. Logically enough, they are planning to move quickly toward satisfying their own domestic demand, especially for services and for a better quality of life.

The Chinese must also be having their doubts about investing in distressed U.S. companies or showing up with open checkbook at coming U.S. T-bill auctions. The prospect of an accelerating decline in the U.S. dollar will impel them to look for better places to distribute portions of their Sovereign Wealth Fund or surprlus Yuan.

More below the break….

What does China’s abrupt new change of course mean for the U.S.? Well, we will obviously be buying less cheap stuff from China. What we buy from elsewhere will be more expensive because of the inevitable continuing decline in the dollar against many other currencies. We will have a harder time finding buyers for U.S. T-bills, so interest rates will have to rise substantially. Because of a tanking U.S. dollar, prices of U.S. imports will rise considerably. Although U.S. exports will be helped by the declining dollar, the financial crisis seems likely to lower the overall volume of U.S. trade.

Depending on exactly how long it takes for the imbalances of the Bush Era of Looting to be squeezed out of the U.S. economy, I would anticipate a fairly swift 20 to 30 percent decline in U.S. living standards and overall consumption over the next two to three years: in short, a deep recession amounting to a depression.

A Democratic Administration under Obama might be smart enough to set us on a path of sustainable growth based largely on investments in renewable energy and repairing the U.S. infrastructure. It would be a painful transition, but we may have no real choice, for we may well be approaching the long-awaited “limits of growth” and will simply have to adapt to a new economic equilibrium involving living more modestly. Every family would not need to own three gas-guzzling cars if we had adequate public transportation in every metropolitan area. Every family does not need a TV in every room. Every family does not need 1,000 square feet of floor space per person. Every person does not need to own three winter coats. Every person does not need to collect a whole closet full of rarely worn clothing. Every person does not need twenty pairs of shoes. Every person does not need to eat red meat twice a day. Every person does not need to go shopping at the mall every weekend. Every person does not need to spring for a designer cup of coffee every morning. Every person does not need to eat out at a restaurant twice every weekend.

We can draw lessons from successful societies/economies, such as Finland, Denmark, Sweden, Ireland, Australia, New Zealand, Brazil, and even Japan. Will we?

On the other hand, a Republican Administration under McCain would look for creative ways to preserve the current favorable ground rules for the looting class, while implementing a full-fledged Orwellian Surveillance State to preempt organized opposition and civil unrest by the working and middle classes. Bush and Cheney have already put in place the necessary instruments of control: warrantless wiretapping of all electronic communications (voice, text, e-mails), warrantless collecting and storing of phone records and personal commercial transactions, video surveillance of public areas, and sophisticated link analysis data mining techniques.

For a sense of that grim future, pull out of your bookshelf your old copy of Orwell’s Nineteen Eight-Four, which has served the Republican brain trust not as an instructive warning, but as an active blueprint.

Which path will we take?