Wednesday, May 22, 2013

The New Chinese Investment Approach - What Are The Implications?

For decades, the Chinese were the largest and ever growing buyer of US Federal Treasury Notes - the way in which the federal government overspent without printing money (excessively). In October 2010, on the heels of chinese reassessment of american government operations, and the economy it oversees, they almost abruptly ended their funding of the current U.S. administration's spending hegemony - presumably to do a 'George Soros' to the american economy, while they sat back to watch it crash, and buy up all the assets for pennies on the dollar. Its the same model that made the hungarian viper - Soros, a billionaire, and it had always worked in the past.

But the combination of this administration's freedom to print new US dollars - which no other country has had the freedom to do before, combined with the Obama administration's ability to control the press with a blindly loving mothering main stream media, created an environment that the ultra secret federal treasury was able to fix with an immediate upsurge in money printing - offsetting the lack of Chinese investment.

And while the chinese shifted their funds from the purchase of US Treasuries to their own spending slush fund they were planning to set aside to purchase the choicest american assets, a few things happened they apparently didn't really see coming.

One - the American economy really didn't crash. Instead, the fed and the administration found the new freedom of printing money limitlessly. After all, why be limited to the amount of money the chinese want to pump into the american economy? Why not just try to (pretend to) set a little bit of self discipline - managed in the dark of privacy - and simply ramp up spending disguised as the publicly innocuous and almost  completely misunderstood title of Quantitative Easing, or QE. (and QE2, and now QE3) - all of which are MORE spending freedom over and above the never formally disclosed cash printing made necessary to repay and replace the chinese positions already held in American obligations.

The second chinese insight was that over and above the american economy continuing to float - on its own no less, the chinese economy now needed all available domestic chinese capital poured into its own countries growth. China has rocketed forward as the largest growing free(?) enterprise economy in the world in each year since the responsible approach to managing the Hong Kong transition to chinese control took place in 1997 - creating a world wide confidence in chinese economic leadership it had no hope of prior to that era.

But now we are seeing a new type of chinese investment in america. This time it is not the chinese government investing in the american government; it is the chinese companies investing in american companies - building the growth of the american private sector off of the success of the chinese 'private' sector. This is a much more welcome approach to chinese investment that brings their strength to the american economy in a way that can actually help both parties, and make the long term approach to getting along as two partners much more beneficial to both sides. The net effect is that the US economy is a beneficiary.

The fear mongers would have us believe that the chinese investment is going to cost us our autonomy. In reality the relationship of an american government debt owner should have been far more intimidating to the american people, than the role of business partners that choose to buy american companies, compete against our companies, and even export their own companies products back to the chinese economy - where they will be received in China more eagerly when chinese interests own the companies they are importing from.

The net effect is more american jobs in chinese owned companies when the american government hasn't enough leadership skill to inspire confidence in an economy they have killed. Surely they will suggest that this was all their idea, but the reality is that the last generation of fully american opportunity has passed, and we exported the vision, freedom, and best ideas to our largest creditor, China. And now, it is the inspiration of the newer chinese entrepreneurial mindset that is wisely choosing america's educated and structured labor force that is relatively and attractively stagnant in pricing, and inflation compared to the rapidly growing chinese economy with all of the inflation in labor and material pricing that is accompanying their rapid growth. This is what is motivating this new type of Chinese - American investment, and making them choose to manufacture their goods in the relatively more stable - and hence more cost effective option when measured  in the longer term; a wise diversification, and a positive vote for the american people. Thanks is due to Richard M. Nixon after building Sino-American relations all those years ago.

So what does America really have to lose in all of this change? Ownership of american industry? What we aren't giving to the american government, we have been letting die anyway. The truth is we have little to lose compared to what we have to gain. And perhaps a side benefit will be a new chinese element of the american business sector that can help bring some increased common sense pressure against such an incompetent Congress, and administration. The chinese are demonstrating more common sense these days.

I support this approach to Chinese intervention. We need all the help we can get.

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