First of all, you know there is trouble in an economy when Bloomberg begins running articles in July 2013 explaining why the “debt bubble in China won’t burst.”?But here is a fact you can take to the bank: in the entire history of the world, there has never been a financial bubble that did not burst.
Somehow we continue believing that if we simply make each bubble bigger — and more dangerous — that somehow it won’t pop. ?And then they do. I have no idea when this bubble will pop. It may bang or it may deflate slowly. But it will pop. Here is why.
China’s government debt that they admit to is $17 trillion based on their $8 trillion-size economy which means their debt is 210 percent of GDP. To put that in perspective, the U.S. debt that President Obama and the Republican Party have used to avoid doing any meaningful jobs or infrastructure programs is a little over $16 trillion based on a $17 trillion dollar economy.
Most economists accept that the real size of our debt is about 75 percent of GDP, so if China does crack we are actually in better financial shape than they are. To put it in an easier to grasp perspective at the end of WWII our public debt was only 113 percent of GDP. Which means that somehow the Chinese have created more peace time debt than any nation on the face of the planet in history.
And this is not counting the Chinese corporate debt which is at 113 percent of GDP.
So all is not perfect in China. Business Insider actually ran an article called “Scary China Charts,” which breaks down some of the problems facing China. But let us get back to TED ?and its “Trust China” campaign.
Here is one of Mr. Li’s claims:
In just 30 years, China went from one of the poorest agricultural countries in the world to its second-largest economy. Six hundred fifty million people were lifted out of poverty. Eighty percent of the entire world’s poverty alleviation during that period happened in China. In other words, all the new and old democracies put together amounted to a mere fraction of what a single, one-party state did without voting.
That sounds great! I don’t mean to be a downer, but in making this statement, Mr. Li is either wrong or lying. Here is what the facts are: poverty by the U.N. is counted as living on $1.25 day (U.S. dollars). China says that poverty is 99 cents per day. So, if a Chinese worker makes even $1.00 per day, by Chinese standards that person is above the poverty line.
So no matter if you use the UN figure or the Chinese figure many of the millions who have been “lifted out of poverty” are still, by any humane standard, living with food insecurity and in real financial crisis.
The venture capitalist seems to want us to believe the “Chinese Miracle” happened purely by the brilliance of the party! And people at TED were applauding this man. Either they simply weren’t listening or they know nothing about trade and investment history.
There was no Chinese miracle.
About the time our government here in the U.S. started cutting taxes on the rich and driving up deficits, our job creators, since 1982, have invested about half of all the foreign investment dollars into China. Those dollars are the ones that Eric Li wants someone to hand him so that he can manage them. U.S. investors have put a little over one trillion of the two trillion invested by foreigners in China. ?Let me put this into perspective.
While we cut taxes to “stimulate our economy” (the Bush/Obama cuts alone come out to $1.25 trillion), the government borrowed $1.1 trillion from China. ?Yes, our job creators absolutely used those tax cuts to create jobs. But they made them somewhere else. So part of the Chinese miracle is due to bad tax policy here at home.
Furthermore, we are asked to believe that people working slave labor factory jobs are somehow better off than those living in absolute poverty? I’m not sure which hell is worse. I hope to never find out, but I do know if you are working at a job where they have to hang nets around the building to catch workers who are trying to kill themselves because the conditions are so intolerable inside, then it is fair to say the difference is marginal.
What Mr. Li actually means is that for a very few people things have gotten very good in China. The People’s Congress looks like a fashion show and its parking lot looks like an Audi A8 factory. But the majority of people in China have simply swapped one form of poverty for another. And that isn’t progress.
Pages could be written about the disastrous trade policy that keeps Chinese (and American) workers poor. It steals from us cutting-edge technology and the jobs the technology brings, and our tax dollars usually pay to develop it. When Ronald Reagan was elected, about 80 percent of all clothes sold in America were made in America. Today that figure is less than five percent. We do not have a jobs problem in this country; we have bad tax and trade policy problems.
But let’s get back to Eric.
