In the last week, we have learned that Chinese usage of electricity is down year over year, that Chinese reported industrial production is stagnant, that prices in the Chinese real estate market are falling quickly and that the Chinese central bank has pumped a major amount of cash into China's largest banks. For most people, these are events taking place many thousands of miles away which seem completely unrelated to life in America. Those people are wrong to view this news that way.
For the last five years, the biggest driver of the world economy has been the rapid growth of China. Europe is either in a recession or on the edge of one. The USA has had at best a stagnant economy, one that president Obama says is in "recovery" but which just continues to limp along producing fewer jobs than needed and no growth in income. Just this week we learned that the median income for an American household has declined substantially while Obama has been president, the first such long term decline in modern times. Japan is an economic basket case which has seen little growth for two decades now. The rest of the world has an economy too small to matter on a global scale. Even worse, countries like Brazil and Australia (which have done reasonably well) have achieved their successes mostly on the basis of demand from China. So that means that if China's economy collapses, everyone around the world will suffer.
On top of this, we have the additional problem that China also happens to be the largest single holder of American debt. If the Chinese need to raise cash when their economy slows, they might well decide to sell some of the US Treasury bonds. A move like that by China with only a quarter of its portfolio would send American interest rates up quickly, another event that would hurt the Obama "recovery".
It may well turn out that China is able to get through the current situation with nothing more than a temporary slowdown. The storm clouds on the horizon would then disperse and we could go back to our slow growth economy. On the other hand, if China really does tank, then it will be up to America to provide economic leadership. Washington would have to reverse its policies to pro-growth and pro-business orientation. That sort of change is not in the DNA of president Obama; he would be incapable of doing it. Hopefully, there will be a totally Republican Congress after November that will push in that direction nevertheless. The stakes for this are truly monumental.
For the last five years, the biggest driver of the world economy has been the rapid growth of China. Europe is either in a recession or on the edge of one. The USA has had at best a stagnant economy, one that president Obama says is in "recovery" but which just continues to limp along producing fewer jobs than needed and no growth in income. Just this week we learned that the median income for an American household has declined substantially while Obama has been president, the first such long term decline in modern times. Japan is an economic basket case which has seen little growth for two decades now. The rest of the world has an economy too small to matter on a global scale. Even worse, countries like Brazil and Australia (which have done reasonably well) have achieved their successes mostly on the basis of demand from China. So that means that if China's economy collapses, everyone around the world will suffer.
On top of this, we have the additional problem that China also happens to be the largest single holder of American debt. If the Chinese need to raise cash when their economy slows, they might well decide to sell some of the US Treasury bonds. A move like that by China with only a quarter of its portfolio would send American interest rates up quickly, another event that would hurt the Obama "recovery".
It may well turn out that China is able to get through the current situation with nothing more than a temporary slowdown. The storm clouds on the horizon would then disperse and we could go back to our slow growth economy. On the other hand, if China really does tank, then it will be up to America to provide economic leadership. Washington would have to reverse its policies to pro-growth and pro-business orientation. That sort of change is not in the DNA of president Obama; he would be incapable of doing it. Hopefully, there will be a totally Republican Congress after November that will push in that direction nevertheless. The stakes for this are truly monumental.
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