How China's slowdown could crimp our bailout plans

Off course dont be silly we need jobs this will definitely add more pressure for us to come down further to offset their drop. We dont have more left to come down. They have the advantage strong banks and good growth predictions. That growth comes from where America buying more.

China will have massive problems from the loss of jobs in the manufacturing cities. These cities were filled with millions of Chinese from rural areas.They left their affordable living conditions to produce the exorbitant goods for the USA. Now China will have protests and riots to deal with because of inflated housing and food costs that have been imposed upon the working masses in each city. Watch and take note of the brutal measures instituted by the Communist Government to keep control.

One of the major reasons for the global recession is what happenned to commodities. Commodity prices shot up into one of the biggest market bubbles in history.

Because the base cost of producing anything skyrocketed many comapnies lost the ability to produce product at competative levels.

Steel never should have traded at $768 a ton. Gold should never have traded above $1000 an ounce. Oil never should have been worth $147 a barrel. Copper and other metals never should have trader where they were as well. Base commodity prices rose far past the level for finished goods to be profitable at realistic prices.

We can talk the mortage meltdown all we want but that meltdown was only a single part of the overall problem. The root cause of the problem is the speculative commodity trader that used to be banned from playing in the market. Once we let Wall Street run the commodity trade with no regulation we got the biggest price runup in history.

A closed sign needs to put up on every stock exchange in the world. It is the only way to prevent a total worldwide collapse. The exchange can reopen once all of the regulations taken out are put back in place.

We also need to require all CEOs and board members to hold at least 75% of thier net worth in company stock that cannot be sold while they work for the company. If they leave the company they can not sell off the holdings until five years have passed. If they are fired from thier position they lose all rights to the stock and have to take a hit of 75% of thier net worth.

The market is broken because it is no longer free, if it ever truly was. Every economic downturn is due to greedy traders overextending the mass makret to run up false profits. A few people manipulate the makret to enrich themselves at the expense of the population. The great depression was caused by market manipulation in the same way our current crisis was created.

Peter, are you trying to say that producers are hurting because prices have fallen from thier insane levels? That due to this the world economy is in trouble.

Peter the global economy is in trouble because steel sold for $768 a ton. Suppliers built thier business models based on unrealisitc commodity proces.

The world was making an engine run at 40% past its redline expecting it not to fail.

The best thing for the world economy is a massive freefall of commodity prices. Suppliers made huge profits and were solvent when commodities traded at half the levels they sell for currently. They will still make plenty of profit, just not as much as when the prices were inflated to unrealistic levels.

I know that Wall Street brokers had the worlds largest hardon for skyrocketing commodity prices because they were making a killing buying and selling contracts, but Wall Street idiots were destroying the viability of the world economy at the same time.

If you try to say that steel at $768 a ton is the only way for the Chinese economy to remain in its growth mode then you are saying that th eglobal economy is not viable. Steel should be closer to $300 a ton. Then you will see a massive increase in profit to almost every company that makes product from steel. Including the automakers.

America fell apart because of rampant consumerism and the role of cheap credit.

Consumers spent beyond their means on everything from cars to houses to holidays to teeth whitening, and EVERYONE built their business plans as if it would never end.

Now that the banks have ceased up and are no longer loaning money to themselves, to corporate borrowers, or to Mr. and Mrs Overconsumer, the need to produce things for the consumer and industrial markets have come off.

China is not holding back America's recovery. America's recovery is being held back by the fact that the American economy has been fueled by consumerism and those consumers have 1% savings rate, have maxed out their credit cards, and no one is going to give them more money.

The is rippling back to China, and as the poster above mentioned, Chinese labor is returning home in large numbers now as their factories are closing.. and people are not happy about that. Their return home is coming two months early, tuitions are going to go unpaid, and there is uncertainty rippling throughout the system.

for those who ask when the corner will be turned, it is simple. When consumers come back into the market.

They need to save some money, pay some bills, and grow a safety stock. Like getting into a car accident, it is going to take a while for consumers to get back in the drivers seat.. and until they d the manufacturing sector is going to be off, commodities across the board (except perhaps steel and cement) are going to be off their highs, and unemployment is going to be high.

Don't fool yourself. This is not about 700 billion into bad assets. This is a consumer issue, and if you think it is going to get easier, just remember that people pay their mortgage first and their credit cards second... and with up to 25% of mortgages under water, my guess is senior executives at Visa, M/C, & Amex are watching their pools inflate at an alarming rate.

So.. stop blaming China for issues that are clearly US based. You cannot run on consumerism and services alone, and eventually someone has to pay the tab.

Let's just hope the next economic team is able to negotiate a group discount.

r
www.allroadsleadtochina.com

If China is cashing in their treasury notes with us to shore up their own economy, then what recourse is there but to print money by increasing M1 and eventually M2 money supply. Inflation kicks in of course, but is that such a bad thing as an intermediate measure to correct our sagging economy which the Fed is reluctant to consider? They may have no choice now. I equate money supply as gasoline in your gas tank to make the car run, if I can use that grade-school analogy. As inflation takes effect, the car still can run on its fumes for a while to reach the next gas station for the rescue. I fear stagflation or deflation is worse between the two evils unless you already hoarded a good deal of cash on hand. What our new administration needs to do is to find an agreement with our two largest indebtor trading partners (Japan and China) to avoid panic selling our treasury notes but do so in a way that it doesn't upset the applecart in the interests of all parties concerned.

If anything the author is understating the danger. The US trade deficit was fueled by the flow of goods from China to the US and the flow of US dollars back to China. China used these US dollars to buy US debt in order to keep the Yuan depressed compared to the US dollar. It was a positive feedback cycle that kept China booming. This was a sore point with Washington. No longer though, since the US is now relying on China buying debt to finance it's deficit spending in a desperate attempt to keep consumers spending on Chinese imports. To do that consumers need to borrow and therefore banks to borrow from; hence the bailouts of the financial sector and the Fed's insistence the banks LEND. Here is possible chain of events that could turn the current market unpleasantness downright ugly:
1)Recession in the US slows consumer spending on China imports, spreading the recession to China.
2)The Yuan and the dollar start falling. The US and China both start spending to stimulate their economies. China uses reserves to do it while the US uses debt. China spends on infrastructure and job creation while the US spends on the financial system.
3)China's economy picks up steam as new government funded jobs bring more people into the economy expanding domestic markets just as the US market is shrinking. Meanwhile US Federal and consumer debt continues to power a weakening US economic engine.
4)China is spending US currency and purchasing less US debt, being careful not to panic the markets by spending too much US currency and buying to little US debt. Still markets take this into account and move towards shorter terms and higher yields as confidence in the US economy erodes.
5)The dollar declines against the yuan causing a further decline in Chinese exports to the US and more motivation to spend US dollars and buy fewer treasuries. Shorter terms and higher yields on US treasuries are demanded by the market.
6)Higher treasury yields make the growing US debt more burdensome. There are now two feedback loops slowing the US economy: the debt->interest rate increase->lower confidence->debt dynamic and the lower US dollar->China selling US debt and buying less debt->lower US dollar dynamic.
7)The result is a Chinese economy that is holding it's own or growing modestly and a RAPIDLY declining US economy. China has a vast domestic market it can develop while the US has a mature developed market that is burdened by debt.
8)When the correction in the US dollar comes it will be sudden, violent and mostly unexpected. It will be a collapse of globalization because globalization is built on the US dollar. Many economies that are heavily invested in US debt will be badly hurt and a long time recovering as these assets devalue. The US on the other hand will recover a lot more quickly than everyone expects.

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Love to hear what folks think about this…

This scenario if was possible would have tanked our economy a lot earlier than now or in the future. Let's not forget the only collateral on own our debt is our government guarantee or a gentleman's handshake. Paper, electronic transfers, bonds, t-bills, nothing of really any value but words agains. Don't you remember Reaganomics, we dropped the gold standard.