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Saturday, October 25, 2008

CHINA'S ECONOMY, ITS PROBLEMS, AND THE US "HEGEMONIC" DOLLAR GLOBAL-ROLE

Today's Bugged-Out Topic

Still on the current global and US financial and economic trouble, it shifts focus and looks at the recent hints in the official Chinese CP-news media that China, Japan, and the EU should join hands with Russia and others and undermine the alleged US hegemonic dollar role.  If achieved, an epochal reorientation of Chinese economic development would be required for the Chinese to substitute their currency --- with or without the Japanese and EU --- for the dollar as the world's major reserve currency.

A Ranging Analysis

The buggy commentary on these hints expanded to a long analysis of the huge dependence of the Chinese economy for two decades on export-led growth . . . and the multiple large-scale problems that would ensue if the Chinese government had to reorient growth toward the domestic economy.  Prof bug also questioned just how reliable officially reported Chinese stats are for GDP growth-rates; noted the tremendous excess capacity in export-oriented factories if, as has been happening for a year now, the decline in export-volume continues into the future . . . never mind an acceleration of this trend.  Then, too, China's 1.4 billion people are poor compared to the American people. 

In effect, the average US household spends about $41,000 a year; the average Chinese household 1/10 that.  Do the Chinese CP heads and top technocrats really expect that the domestic market could absorb all the goods produced by existing export-oriented factories . . . themselves, note, largely part of a global multi-level production chain, dominated (about 65% of the total value of Chinese exports) by foreign multinationals that use China's diligent work force and its low-wages as an assembly-platform for finishing products to be shipped abroad?

A Final Claim

Then, too, so prof bug asks at the end of his lengthy commentary, what would be the drawbacks for the US economy's long-term growth prospects if we did shake off the reserve-currency role.  To date, it has kept the $US largely overvalued compared to the Asian export-oriented countries, and the result has been to favor financial services and government deficit spending --- by attracting huge inflows of capital from abroad to balance the equivalent deficits in current account (trade in goods and services) --- at the expense of the goods-producing sectors of the US economy.

The lengthy buggy analysis can be found at The Naked Capitalist, a finance and economic-oriented web site that is ranked number two or three in popularity among econ blogs as measured by the number of daily visitors.  Click here for the link to the original post that started the thread and prof bug's and others' comments.  Note that generally there is a largely intelligent number of posters who visit that site.  Prof bug hopes to be among those regulars, starting today.