China and Wall Street in Bed
It really perplexed me, who could be benefiting from the huge trade deficit we have with China. The trade deficit with China is so lopsided that anyone could see it, even non-economists. But, what really bugged me was why George Bush did nothing about it. I knew China was buying dollars, but that doesn’t quite answer the question of, why there is such a gross trade deficit. Finally the whole “China buys dollars”, was explained in detail.
China doesn’t buy dollars. China circumvents their own economic growth rate with the purchase of dollars. This way they can have upwards of a 15% productivity rate annually, and still maintain a 6% currency value of the dollar. With the dollar dropping precipitously last year, China made the unprecedented move to purchase $462 billion dollars. Mind you, these aren’t investments, they are hedges for the devaluation of their own currency. China is not doing this out of the goodness of their heart.
Ben Bernanke plays his role by continuously devaluing the dollar. China, in turn, responds by purchasing more “dollars”. China tries to keep a 6% value of the dollar, if the dollar goes down, the Yuan has to go down too, hence the continuous purchase. Now this tit for tat is more of a tango dance than anything else. Ben Bernanke screws over our country, and China buys it up billion by billion.
Why There Was a Crisis
Now this love affair America has with China would be great if only China and America existed. Oh, and throw the Saudis in that mix too. Keep in mind, everything I’m saying about China, goes double for the Saudis. But, the world doesn’t just exist for only China, the Saudis and America. Obviously the Federal Reserve is making money hand over fist off of China. However, China is dumping the dollars back on the stupid consumers, who purchase cheap Chinese goods, who are literally buying back their own dollars. So the true escape goat in all this is the U.S. citizen.
Chinese citizens are completely protected by their government. And, trade with the U.S. is one way street. In China there is a universal 25% tariff on all U.S. imports. There are restrictive quotas on all U.S. goods as well. So Chinese citizens are not even affected by anything the U.S. does.
The U.S. citizen buys all of these Chinese goods, which are all of horrible quality and have to be repurchased. This is by design. All Chinese products are made substandard, so that you have to continuously consume, over and over. The reality is, you are simply buying back your own dollars. The U.S. citizen is screwed both ways.
- Ben Bernanke devalues the dollar and inflation robs the U.S. citizen of all of their savings and investments.
- China purchases dollars which you would think would take away the inflation, but …
- China turns around and sells their substandard goods that U.S. consumers are forced to buy, by the big corporate importers.
- dollars flow back to China.
- Ben Bernanke devalues the dollar and inflation robs the U.S. citizen of all of their savings and investments
Now, the title of this story is: Why does Wall Street love China. China makes so much money off of stupid U.S. consumers, that they have to literally park their cash somewhere. They park their cash by:
- buying U.S. treasuries [in limited quantities]
- buying U.S. bonds [in limited quantities]
- buying securities [in massive quantities]
The last part is the icing on the cake. Securities! What securities? What is the return on those securities? Are the securities a sound investment for China? Are the securities from reputable companies? Does the SEC protect China from potential losses and shady sellers?
I’m sure you can tell by the questions what the answers will be. China doesn’t care! Nor, does Saudi Arabia. At $100 / barrel oil, Saudis can’t spend their dollars fast enough. They don’t care where they park their dollars.
Hence the crisis. The name of the game on Wall Street was CDOs and CDSs and the worse the asset, the better. China was buying it in droves and so that’s all the firms were putting together for them. The more the idiot consumers were buying houses with – no money down, no job, no income, the better. Because, Wall Street was selling the securities bundled with bad mortgages like hot cakes. Stupid American consumers were consuming 105% of what was being produced in this country. They were borrowing on their homes to make up the difference. These bad loans were being placed in securities. Moodies was giving triple A rating to trash. And, the SEC was being paid to look the other way. Heck, the SEC was so clueless because they don’t require an economics degree to join them. The SEC does not require any knowledge of trading or trade laws to be on board. China was the game and Wall Street was dreaming of ways to get them dollars. They were literally acting as their surrogates to purchase more dollars.
There was only a crisis when someone wasn’t China or Saudi Arabia. These “other people” actually looked at their returns; they looked at their investments; they looked at the value of the rating and knew something was up. They were getting wiped out left and right. And, while Wall Street was playing the China game, the rest of the world was crumbling around them. Finally, there were a whole lot more “other people” than there was Chinese and Saudis. This is why the crisis happened.
The Jig is Up
Now that everyone knows the jig is up, Ben Bernanke, and Wall Street [Goldman Sachs], are trying all they can to restore the cash cow, that is China. It is very hard to resist Goldman Sachs in congress. Goldman Sachs rules Washington. What Goldman Sachs wants it gets. However, in all of this mess, the one straw that everyone didn’t count on breaking the camel’s back, was the American citizen. They cannot restore the cash cow with unemployment upwards of 25%. [the real unemployment rate] They cannot restore the cash cow when U.S. citizens cannot buy Chinese made cheap crap. They cannot restore the charade when citizens are not buying dollars back from China.
The only hope that we have in this recession is that people will wake up:
- save their money
- don’t buy new cars
- don’t buy new homes
- don’t buy major appliances
- don’t go on expensive vacations
- don’t go shopping every week, month, season
This is the only hope U.S. citizens have to get out of this farce. It will force the hand of Washington. It will force the hand of the Federal Reserve. It will Force the hand of Wall Street.
This is why everyone is rushing to say that the recession is over, the recession is over, like Chicken Little. They want to return to the cash cow. They want you to buy stupid crap and like an idiot not see what’s plainly around you. Luckily unemployment is so high, otherwise I fear we’d be right smack dab in the same boat already. They are really trying to sell you this recession is over business.
The reality is, we are in the midst of a depression, and it’s going to get worse next year and the year after that. I guarantee you no one on Wall Street nor Washington will tell you this. Heck Washington won’t report the correct unemployment rate. Washington won’t report the real GDP. Do you honestly think they would tell you, we’re in a depression?
Now you know. Don’t buy anything but produce and buy a water filter, stop buying water out of bottle for God’s sake.