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| Timothy Plett Vice President |
“China is buying America’s Debt and Will Someday Own the US”
“Brazil, One of the Fastest Growing Economies”
“India Becoming the Home to Outsourcing, Sucking the Life out of American Employment”
“The IMF is on the verge of popping a bubble that will even put the American credit swaps to shame”
“Japan plans on spending over $100 billion on rebuilding it’s natural disaster fallout”
In 1929, America saw its first economic stumble on Black Thursday. When a single country such as the US goes into a depression or even a recession, the global economy is affected usually in a negative way. With America tipping the debt ceiling, the world itself is tipping on the scale of depression.
How is this possible you might ask?
Responding to the quotes listed above, in their respective order, China’s growth has been so massive, it is hard to listen to the news without hearing their name. The $2.2 trillion that China has loaned to the US now pulls them into the same boat as us. What does this mean? Who is China’s biggest customer…? America. Where does America outsource corporate business to mostly…? China.
As American spending and demand decreases, a direct reflection is seen in the Chinese economy.
A New York Times article reads:
After the fall in American consumer demand, China is stimulating its domestic economy by sheer Communist fiat to keep its restive masses happy. To continue doing so, it badly needs to tap the $2.2 trillion it has lent to the United States by buying Treasury securities. “But if it were to sell dollar-denominated treasuries, several bad things would happen,”
Kats nelson writes:
“Its currency would skyrocket — meaning the loss of its competitive low-cost-producer edge. Or, U.S. interest rates would go up dramatically — not good for its biggest customer, and therefore not good for China.”
Withdrawing China’s funds from the dollar without driving it down would be hard enough without America printing money and borrowing more at the same time — which is precisely what it’s doing (the Treasury Secretary asked Congress to raise the $12.1 trillion debt ceiling last week.)
If America defaults on its debt, China can expect to see dramatic economic results as well. If China is in an economic bubble, then when it bursts America will see terrible economic consequences. This seems to be a lose-lose situation for both economies.
As India grows at a tremendous rate, America continues to outsource positions that will no longer host Americans. Telecommunications and the even larger business, web design has taken American jobs away and corporate America may now be regretting the move from American employment to foreign countries. This is bad news for America in regards to the sky-rocketing unemployment but does India provide a sound infrastructure?
India’s poor standards of living have certainly been known for some time. What does this have to do with America and a global depression? Well, when an economy does not create a sound standard of living foundation, the large gap between household incomes shows inconsistent financial growth. India is prospering but the level of debt accumulation is also becoming overwhelming.
An article reads:
Buoyed by a property boom the amount of lending in India has grown by 30% in the past year. However there are concerns about the risk of such loans. If they are dependent on rising property prices it could be problematic. Furthermore if inflation increases further it may force the RBI to increase interest rates. If interest rates rise substantially it will leave those indebted facing rising interest payments and potentially reducing consumer spending in the future India has one of the largest budget deficits in the developing world. Excluding subsidies it amounts to nearly 8% of GDP. Although it is fallen a little in the past year. It still allows little scope for increasing investment in public services like health and education. – Economicshelp.org
Real-Estate spending may reflect the American bubble in 2008. The illiteracy in the economy does not provide promising growth. Remember, the key to any countries’ growth is a solid foundation!
When the real-estate bubble burst in 2008, a shadow was casted over the world economies as if it was written in a book by Stephen King. The IMF may be the largest contributor to what will happen in the near future. Comparing the American default to Europe’s would be like comparing the German to the Roman Empire, both have fallen but one was much greater.
A Bloomberg article reads, “IMF chief economist Olivier Blanchard at a press conference in Sao Paulo said today that a failure to agree on measures or funding for countries at the “periphery” of the euro region could lead to a sovereign defaults and derail the world recovery.”
This is not only possible but it is guaranteed that America along with the rest of the world will be so greatly affected; we could see a world depression. Why? Imagine trying to use cotton balls to stop an open flesh wound, the size of a half dollar? The world is still moving at an extremely fast pace and with technology moving faster than we have ever seen it before it is as if we are running and trying to take care of this wound at the same time.
The contagion will create a great domino effect that may start with Greece and end with Brazil. The world is in a very un-easy position right now with too many countries in a vulnerable spot. America is trying to clean up its own mess along with Europe, China and India trying to make a quick move and not keep their feet underneath the top portion of their bodies.
And while all of this is going on, one of the world’s largest exporters is spending almost $200 billion to recover from a natural disaster.
Right now the world is juggling knives and if the next few months are not played out very carefully and serious reform is considered, it will be more than just a downward spiral. This perspective is extremely pessimistic but the thought needs to be raised in the event something similar does happen. In any great debate or order of business, the one who looks to the downside of everything is never really liked but much needed.
The solution:
America needs to recognize the debt ceiling will need to be lifted, foreign trade and import/exports must be balanced. China needs to be careful with the purchase of treasury securities and economic growth factors. India needs to focus on building a sound infrastructure, reduce: the income gap, poverty, and budget deficits. Brazil needs to offer financial assistance to foreign nations. Japan needs to quickly repair its manufacturing economy and begin exporting again.
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