The Wall Street markets turned around today on the news that the communists have come to capitalism’s rescue again. China didn’t even need to do anything but merely deny the rumors in the corporate press that they were going to dump their Euro bond holdings. You can tell who is really the world super power (better quit putting off the Mandarin lessons).
Treasury Sec Tim Geithner just spent two days in Beijing planning to convince the twelve members of the senior party committee to sign off on revaluing the Yuan to favor the US. Instead he had to discuss the Euro crisis and that little matter of the Korean War II. Geithner quoted the proverb, feng yu tong Zhou - stand together regardless of the situation. China is saying the right things so maybe China has decided not to write off the west, for now.
China doesn’t do anything that isn’t in China’s long term interest, not what will pump up the next quarter’s bonus checks. (damn communists don’t understand how capitalism works) Really the rumor that they would dump their bonds wasn’t believable, Europe is a bigger market than the US and a much healthier economy overall than the US. China is going to sell Euro bonds in exchange for what? USD’s? They already have trillions of those that they don’t know what to do with.
China’s biggest concern is maintaining a stable internal economy. They have already stopped issuing permits for most new factories that would be making export goods but they can’t easily shift to more domestic consumption. The Chinese tend to save more if they make more money, their savings rate is 40% as opposed to the US where it has been in low single digits since Reagan and is not always above zero anymore. Even a hundred years ago, before any consumer credit, the US savings rate was only 25%.
Of course in China, the people are actually encouraged to put part of their savings into copper, silver and gold coins. If the Yuan were to tank, the average Chinese wouldn’t panic. Here we don’t even have paper to cultch anymore, Americans think we are rich if our plastic is gold colored. Plastic that is issued by the same handful of Wall Street banks that do nothing useful, banks that are making billions by churning our 401k’s and sucking the value out of them leaving us broke. We really can’t expect the Chinese cavalry to save us from the Wall Street outlaws next time. Circle the wagons. www.prairie2.com