Comparing Economy Management – China versus the United States

April 28, 2012

Over at CNN World, Stephen S. Roach wrote a post about America’s renminbi fixation.  Many of the comments that responded to the post were obviously from Internet Trolls that lack the skills for an intellectually reasoned response. Instead, the trolls resort to logical fallacies to divert attention away from Roach’s message (I left a comment and a few replies too).

While many in the West have predicted for about three decades that China is going to have a hard landing after an economic bubble of some sort bursts, it hasn’t happened yet.

I Reblogged Roach’s piece and you may reach it by scrolling down or clicking on this iLook China link.

To research this post I Googled “financial crisis in China since 1980” and found no results that answered what I was looking for.

However, I found this at Princeton.edu, which said, “It is now just over twenty years after China initiated its economic reform in 1978. Since then the average rate of growth of GDP has been a phenomenal 9.5 percent per year. This essay reviews the reform process, discusses the impact of the current Asian financial crisis and attempts to assess the prospects of China’s economy in the future…

“In summary China’s reform process has been an experimental and gradual process. It was to be continued before the Asian financial crisis (1997). State-enterprise reform, financial reform and the opening of the Chinese economy have all been affected by the crisis, but there is no question that as soon as conditions allow the reform process will continue, incorporating the lessons learned from the crisis…

“In conclusion, economic reforms in China are likely to continue in the manner and directions as described above. Because of the strong fundamentals of China’s economy as demonstrated by its good performance during the financial crisis substantial growth will continue perhaps for another decade after the current crisis.”

In addition, in an April 2008 economic study from Harvard, we discover, This Time is Different: A Panoramic View of Eight Centuries of Financial Crises.

The Harvard study said, “As the first paper employing this data, our aim is to illustrate some of the broad insights that can be gleaned from such a sweeping historical database.  We find that serial default is a nearly universal phenomenon as countries struggle to transform themselves from emerging markets to advanced economies.  Major default episodes are typically spaced some years (or decades) apart, creating an illusion that “this time is different” among policymakers and investors.  A recent example of the “this time is different” syndrome is the false belief that domestic debt is a novel feature of the modern financial landscape.  We also confirm that crises frequently emanate from the financial centers with transmission through interest rate shocks and commodity price collapses…

“The ability of governments and investors to delude themselves, giving rise to periodic bouts of euphoria that usually end in tears, seems to have remained a constant.”

Since not much time has passed since China’s economic reforms in 1978, we will look at the United States for examples.

The current total US deficit (national debt) as of today is more than $15.5 trillion and the average credit card debt per household based on 609.8 million credit cards held by US consumers is almost $16,000.

However, “Chinese households save a large share of their disposable incomes and their average saving rate has increased over the last decade and a half. This pattern is particularly pronounced for urban households, which account for about two-thirds of national income. After remaining relatively flat during the early 1990s, the average saving rate of urban households relative to their disposable incomes rose from 18% in 1995 to nearly 29% in 2009.”

In addition, if we study “Panics, Depressions and Economic Crisis Prior to 1930 in the United States”, we discover that “Those most disastrous have usually followed general injudicious speculation in lands or inflated securities. The crisis of 1816-1819 in the United States, it is claimed was due to the speculation and disorder following the War of 1812. The next occurred in 1825. A very memorable panic was that of 1837.” Source: The History Box.com

Akorra.com lists the Top 10 Worst Financial Crisis in U.S. History starting with the Crash of 1929/Great Depression; our current and continuing Mortgage Crisis of 2007; the Panic of 1893; The Banker’s Panic of 1907; the Panic of 1873; the Panic of 1819; the 2001-2002 Recession (known as the dotcom bubble that wiped out $5 trillion in market value of technology companies);  the Kennedy Slide in 1962 which caused a 22.5% drop in the S&P 500; the Panic of 1837, and The Oil Crises of 1973.

In addition, there have also been recessions in 1937, which followed the Great Depression (1929 – 1933); 1945, 1949, 1953, 1958, 1960-61, 1969-70, and 1973-75.

As for China, the predictions of an economic crises/crash keep coming as if they were being manufactured on an assembly line — but one hasn’t arrived yet and it has been 34 years since China’s 1978 economic reforms, while for the same period in the US there have been several economic recessions running from January – July 1980; July 1981 – November 1982; July 1990 – 1991; March -November 2001, and December 2007 – June 2009.

When an economic crises does appear in China (the odds favor that it will), it may be part of a global universal phenomenon as the Princeton and Harvard studies reveal, so it is a good bet that sooner or later China’s economic critics will be able to step up on their soap boxes and crow, “I told you so (a hundred times over the last several decades that it would happen one day)!”

I suggest watching the two videos with this post to learn about manufactured financial panics in the United States, which leads to a question: Is the American fixation on China’s currency manufactured too?

______________

Lloyd Lofthouse is the award-winning author of The Concubine Saga. When you love a Chinese woman, you marry her family and culture too. This is the love story Sir Robert Hart did not want the world to discover.

Subscribe to “iLook China”!
Sign up for an E-mail Subscription at the top of this page, or click on the “Following” tab in the WordPress toolbar at the top of the screen.

About iLook China


Opposites Attract

November 1, 2010

If the old saying that opposites attract is true, China and the US are perfect for each other.

The Huffington Post’s Robert Lenzner writes that China Needs to Hit the Brakes; US Needs to Step on the Gas.

Lenzner explains that China’s economic goals are to avoid what happened in the US when subprime mortgages burst the real estate bubble and almost brought down the West’s house of cards.

To succeed, China is attempting to slow its economic growth and smother inflation.

However, in the US, the opposite it happening as the US wants to add to the national debt to avoid deflation and stimulate the economy at the same time.

Lenzner points out why China has everything to lose if this doesn’t work. China’s current 12th five-year economic plan is concentrating on the rural poor, and it is about time.

In fact, smaller cities are being built for some of the rural poor while extending electricity to remote villages across China.

At the same time, China is expanding the rail system and building more roads to reach people that haven’t been touched by China’s economic progress.

To avoid unrest, China’s future depends on improving the lifestyles of about 700 million rural Chinese.

Learn more at Volting all of China into the 21st Century

______________

Lloyd Lofthouse is the award-winning author of the concubine saga, My Splendid Concubine & Our Hart. When you love a Chinese woman, you marry her family and culture too. 

If you want to subscribe to iLook China, there is a “Subscribe” button at the top of the screen in the menu bar.


Nothing Lasts Forever

August 27, 2010

An interesting piece from Forbes scored solid points for pointing out why China is Winning the Economic War.

Of course, there will be some Americans who will disagree. They will say that the U.S. is still the greatest nation on earth, the land of the free, and that it always will be.

I’m sure these misguided patriots would point out China’s flaws like exploiting workers with low pay and long hours.

However, Forbes deals with that flawed logic by pointing out that the U.S. once exploited its workers too and forced children to work 14-hour days.

In fact, the young American Republic once had slaves and women were chattel, who couldn’t vote or own property.

The Forbes piece says, “The U.S. was winning (the economic war against Communism) hands down for a long time, but not so much anymore due to a number of countries surpassing the U.S. in recent years in a number of specific areas.”  

Using a quote from Sam Houston in 1850, Forbes explains why the US is losing. Houston said, “A nation divided against itself cannot stand,” and, for sure, Sun Tzu would agree.

In fact, the U.S. has been divided for the last 15 years in “increasingly bitter time and energy consuming political arguments: the morals of President Clinton, whether or not war should be waged to remove Saddam Hussein from power in Iraq, whether the country’s current problems are due to the depth of the economic hole dug during the last (G.W. Bush) administration, or ineptness of the current administration in pulling the economy out of that (very deep) hole (the Republicans dug).” Source: Forbes Blog

_______________

Lloyd Lofthouse is the award-winning author of the concubine saga, My Splendid Concubine & Our Hart. When you love a Chinese woman, you marry her family and culture too. 

Sign up for an RSS Feed for iLook China