America's China Addiction: Time to Kick It?

Filed in archive News on October 4, 2008

Hats off to Richard Brubaker over at his blog, All Roads Lead to China, for pointing out this Financial Times article. If you enjoy understanding the big picture, the piece is insightful...

The author of the Financial Times article, David Piling, says that in a conversation about America's economic woes he asked a Chinese official recently if America hung itself "with Asian rope?" The Chinese official's response: "No. It drowned itself in Asian liquidity."

What do you call someone who makes $40,000 a year and spends $55,000 a year? Answer: an American. What do you call someone who makes $25,000 a year and still manages to save $8,500 each year? Answer: Chinese.

We may not be able to trust China's economic data. We may not be sure what we're getting when we buy Chinese stuff. But we do know this much for sure: China has money. Hard cash. It's just laying around, waiting to be invested in something. And (just like the Japanese) they've been loaning it to us under the Bush Administration. Brubaker's quote of the FT article sums it up well:

In one sense, this is a story of Asian prudence versus US recklessness. By accumulating vast savings - China and Japan alone boast 40 per cent of global central bank reserves - Asians have lived below their means so that Americans could live beyond theirs. Asia bankrolled US budget and trade deficits and provided the cash for banks and individuals to go on a spending spree and for Washington to fight wars in Afghanistan and Iraq.

Of course the problem is obvious (at least to Target and Wal-mart). If that guy making $40,000 a year in, say, Atlanta or Phoenix stops spending an extra $15,000 each year, sales go down at retailers. Then people get laid off and we start calling it a recession. But everybody knows we can't keep spending more than we make forever.

Bottom line: we're addicted to money. The Chinese and Japanese have been supplying us with it. We can't keep it up forever. But if we decide to wean ourselves off of it, withdrawal will probably be a bitch...


Photo courtesy of iStockphoto, David Joyner