Follow The Bottom Violation
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Feb
3
Chinese to U.S.: You Want How Much?
Let’s start this article with a somewhat scaled-down description of current account balance:
“[If the current account balance is] positive, it measures the portion of a country’s saving invested abroad; if negative, the portion of domestic investment financed by foreigners’ savings.”
Now let’s move on to a link a reader sent me today of current account balances around the globe (thanks Mano):
https://www.cia.gov/library/publications/the-world-factbook/rankorder/2187rank.html
Note the first country on the list. Now note the last country on the list. Now ask yourself this: do you really believe the U.S. is going to be able to continue to fund operations by borrowing money?
Fine. Let’s look at it another way. Do you really think the Chinese are so stupid and gullible that they’re going to continue to lend the U.S. money, despite its syphiloid current account balance?
Listen to me. I took the first level Chartered Financial Analyst exam, and I passed it. But I don’t really know to this day how I passed it. I sat in an Auditorium in San Francisco, California, sweating like a hot goat for six hours. I punched numbers into my calculator and the screen returned “Hahahahahahahaha!”
No. Really. That’s what it said.
Do you know what else happened in that auditorium? I’ll tell you. Between hot flashes, bouts of nausea, and general moments during which I no longer knew my own name, I looked around. A lot. And do you know what I noticed? Chinese people don’t sweat during CFA exams. They don’t get hot flashes. They don’t forget their identities. They don’t look around at stupid Americans. No. Do you know what they do? Math. Real good math. And then they finish the exam — like, 45 minutes early — and they leave. That’s what they do.
You need to listen to me. Chinese people are decidedly not stupid. They’re curve-killers. They make it (nearly) impossible for dumb white people (like me) to sneak past 70. So don’t sit there and try to tell me the Chinese are going to keep lending the U.S. money. Because they aren’t. They invented market capitalism, and they do it better than anyone else — even when they’re claiming to be communists.
Still not convinced? Okay. How about this: are you one of those people who believes a person can finance a $2 million dollar house with no money down, no job, and no tax returns? Well, I’ve got news for you. You can’t. Things have changed. And that rock you’re living under? Yeah. That one. Well it requires 20% down too. And you can’t finance it without tax returns either.
[Author leans forehead on hand, supported by elbow on table, purses his lips, and stares at computer monitor. He gently shakes his head and rolls his eyes in anticipation of deluge of negative responses from dollar-loyalists, flag-waivers, and apple-pie-eaters tomorrow. Author then sighs audibly and begins to type again.]
Guess what everybody? Sound economics and finance are back. And they’re real mad at the United States. Real mad.
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Disclosures: Paco is long TBT, UCO, and gold. He also holds U.S. dollars by necessity, pending the advent of private gold-backed currencies.
You can buy his novel Discipline wherever books are sold.
3 Comments so far
Partners
If you really think inflation is going to come on strong, what do you think about fertilizer stocks like Mosaic or Potash? Inflation should hit hardest at essential items like food; farmers would want to maximize their output, and fertilizer profitability would increase anyway with rising prices. Their stock went through the roof last summer due to the increased price of fertilizer.
to anonymous:
i read peter schiff’s book recently. he said profitability is about margins. margins remain constant as cost and price rise together (through inflation, rather than rising demand)
to mr ahlgren:
thanks for you many posts. i think the lack of comments is due to the uncertainty – a massive fog is obscuring our view of the future. most of us don’t really know what to predict much less to rebut you.
will the chinese still keep their currency cheap (thereby subsidizing american consumption)? i feel that they will still do it before they can have a sustained rise in domestic consumption… the chinese are huge savers and the cost of healthcare is a biggest reason why they are so
Yes, the Chinese will keep their currency cheap, because it makes their exports more valuable. But it’s going to be a difficult game once the dollar starts falling apart. Seeing how the Chinese deal with that will be very interesting, indeed…