The poor of the earth, China’s $2 a day workers, are subsidizing lifestyle of rich Americans: easily explained
EconomicPopulist easily explains the shocking horror of $2 a day workers in China subsidizing America’s ‘lifestyle’…
If China were to decide to suddenly start selling their massive pile of dollar assets the value of the unsold pile would plummet. To put it another way, there simply isn’t enough dollar demand out there to buy up all those dollars. If China only wanted to sell, say, 20% of their stockpile, it would overwhelm market demand and the value of their remaining 80% would plummet by more than they would save from selling the 20%.
Therefore, China and the rest of our 3rd-world Asian creditors must continue to prop up the wasteful American lifestyle by buying our overvalued debt (i.e. vendor financing) if they want to protect the value their nation’s savings. They are prisoners of a currency system that resembles a confidence game.
As a first step to extracting themselves from these shackles, Asian creditor nations have created Sovereign Wealth Funds. Using these funds, the governments of the world are buying up companies all around the world, rather than just keep recycling their funds into treasuries that earn less than the rate of inflation.
Let’s take a step back and consider just how sick and twisted of a relationship that is.
Here you have the nations of billions of people that struggle to make about $2 a day lending $2 Billion a day, 365 days a year, to one of the wealthiest nations on earth so that it can continue to spend it on imported electronics, textiles, and speculating on stocks and real estate.
To put it more simply: the poorest of the earth are subsidizing the lifestyles of the richest of the earth.
And if that isn’t sick enough, the enormous amount of money that America borrows each day doesn’t go to building factories, or upgrading infrastructure, or mining and oil production, or anything that would enable America to pay back all the money it borrows. Instead we get more strip malls, track housing and smart bombs.
When you consider that 85% of all the world’s savings gets redirected into these non-productive ways, this era will be remembered as the biggest malinvestment in human history.
How can a situation like this continue?
The answer is that it can’t. Eventually it must break.
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Higher wages won’t just become the norm because workers feel exploited. China will have no choice but to advocate big increases in compensation to keep the peace among its 1.3 billion people. Labor net unrest is bubbling up as rarely before.