In watching the current election I get really tired of the blame Obama game played out by the GOP. In case those at Capitol Hill and the fools like Sarah Palin, Christine O'Donnell and Glen Beck have not learned in Macro Economics 101, we live in an age of Ripple Effect economics. So who is responsible? Actually 2 American administrations (Bill Clinton and GW Bush) and China. Here's why;
Let's go back a few years. In 1997 China military came up with a neat little idea. Let's destroy America's economy. The People's Liberation Army (PLA) Colonels Xiao Liang and Wang Xiangsui who created this plan for the Central Committee of the CCP(China Communist Party) stated; In order for China to become a dominant global power over the United States, "The Final War over Resources", must be won. The plan stated that the aggressor nation "must adjust its own financial strategy, use currency revaluation or devaluation as primary weapons, and combine means such as getting the upper hand in public opinion and changing the rules sufficiently to make financial turbulence and economic crisis appear in the targeted country or area, weakening its overall power, including its military strength. It worked for a while until September 2009 when global markets went down the toilet. Another factor is infrastructure. While China continues to improve its infrastructure like the three Gorges Dam, nationwide high speed rail systems that transport cheaply 800 million Chinese yearly, mandatory recycling programs in every major city ,America is working with an outdated infrastructure and a mass transportation system that is 20- 30 years behind China. America was more interested in weapons and defense contracting making big bucks for the wealthiest families while the rest of us got entertained with reality TV and Dancing with the Stars.
China earns its living by selling to the United States. In recent years, it has sold more and more: China's exports doubled in the 1990s thanks to Bill Clinton and the GOP controlled Congress in those years and America's need for cheap products and the American workers refusal to accept lower wages so American products could be competitive on the world stage. . In the 2000s, they doubled -- twice. And of course far and away the biggest market for Chinese goods was the United States. Just take trip to any Wal-Mart.
Economists would expect that China's huge trade surpluses with the U.S. must sooner or later cancel themselves out. It's basic supply and demand theory 101. .
1) China sells us more than it buys, except in raw resources. China wants everything in the world in that regard.
2) Therefore China accumulates dollars.
3) Therefore China spends the dollars. In reality China does not spend its dollars which is the big problem. It loaned them back to us through President Bush when China bought 48% of all the US Treasury Bonds in 2007 and 2008. China is currently holding U.S. currency and Treasury notes in $1 .9 trillion Treasury bonds.
4) Therefore the dollar declines relative to Chinese currency.
5) Therefore Chinese goods become more expensive.
6) Therefore Americans buy less from China and sell more.
To keep China's population working -- and to stop China's population from protesting -- the Chinese government must keep the exports moving. To keep the exports moving, China must keep the currency cheap. To keep the currency cheap, China manipulates its banking system so the accumulated surplus dollars never get spent. I lived in China. If you are working in China you're only allowed to change 25% of your income into dollars with a limit of $5,000 per person per year.
Instead, the Chinese lent the dollars back to us. And because the Chinese had so many dollars, they lent the dollars very, very cheaply which the Bush administration loved.
In return Americans got a fabulous deal on mortgages because China's workers were prevented from spending the money they had earned.
This process accelerated through the 2000s, but it went into hyper drive in 2005, when China's trade surplus abruptly spiked. Bigger surplus, more dollars, more lending. 2005 was the year the subprime
mortgage boom began in America.
China's lending spree translated into an American debt binge. The debt of the U.S. nongovernmental sector surged after 2005 to levels last seen in -- uh oh -- 1929. And from the top of the roller coaster, it's a long, scary straight downward ride back to Earth just like a dart hitting the ground or a jet without fuel. A flying brick.
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