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USA is still sitting at such a high power that we could just basically tell China we aren't paying them back and they can't really do anything about it.
Of course you can refuse to pay back. Any tiny country can. Argentina just did, but remember there is a credit issue associated with the trustworthiness of US bonds/USD. Default will have its consequences although no one will strike you for not paying back debt.
Don't forget defaulting on China debt automatically means defaulting on all debt, including those from Japan etc. And if that happens, the US stock market will collapse worse than 2008, US economy will sink into recession and it is no good for anyone.
It is silly to say "we are powerful so we can just choose to default without any consequences". Wall st doesn't work like that.
If we look at the latest Big Mac Index in the economist, the exchange rate in July was $1.346 to the Euro. But in order for the average price of Big Mac sandwich to be same price in Euro zone as the United States the exchange rate should be $1.303 to the Euro.
In China where exchange rates are controlled by the government in July the Yuan was trading at 6.20 Yuan to the dollar. But if you went traded in your dollars for Yuan a Big Mac would be much cheaper in China than in the United States. In order for the Big Mac to come out the same price, the Yuan would have to trade at 3.52 to the dollar. To calculate purchasing power parity you use a basked of goods and services instead of just a Big Mac
What happened at the last meeting of the International Monetary Fund, was they radically changed their estimate of the purchasing power of the Yuan. While the official exchange rate is from 6.22 to 6.26 Yuan to the dollar, the PPP exchange rate was changed from 4.293 to 3.655 Yuan to the dollar.
These exchange rates don't exist in real life commodity trading or in tourism. They represent a change in what the IMF thinks would give you the same purchasing power. It is a little closer to the Big Mac exchange rate of 3.52 Yuan to the Dollar.
But that radically increased the estimated value of the purchasing power of China's GDP.It put them ahead of the USA. Before this change, China was not supposed to pass the USA until 2017.
Of course you can refuse to pay back. Any tiny country can. Argentina just did, but remember there is a credit issue associated with the trustworthiness of US bonds/USD. Default will have its consequences although no one will strike you for not paying back debt.
1. I don't think U.S. will default, not anytime soon. Also, America still controls the money printing machine. As long as the world reserve currency remains the USD, default is not even possible.
2. China won't dump their treasuries either. It's too much money to waste, and most likely will hurt both sides because the two economies are too interdependent these days.
1. I don't think U.S. will default, not anytime soon. Also, America still controls the money printing machine. As long as the world reserve currency remains the USD, default is not even possible.
2. China won't dump their treasuries either. It's too much money to waste, and most likely will hurt both sides because the two economies are too interdependent these days.
The best way to make money is, well, "to make the money". It was a principal easily understood by the Romans, the bankers in Florence in the middle ages, and the Spanish empire with their "pieces of eight".
But "Quantitative Easing" is like running the printing presses at lightning speed. The 7 billion people may not stand for the antics of the 300 million.
It isn't necessary for China to dump their treasury bonds. It is sufficient simply for them to stop buying new ones. It will be more effective than a fleet of submarines when China decides to take back their island. Taiwan is a very valuable asset, certainly worth some short dips in the value of their treasury bonds.
The so-called Asean-5 – namely Malaysia, Indonesia, Thailand, Singapore and the Philippines are worth $5 trillion a year in GDP. China will certainly want more involvement in their economies.
It isn't necessary for China to dump their treasury bonds. It is sufficient simply for them to stop buying new ones. It will be more effective than a fleet of submarines when China decides to take back their island. Taiwan is a very valuable asset, certainly worth some short dips in the value of their treasury bonds.
Taking back Taiwan by force is political unfeasible right now. Maintaining status quo is the best solution going forward, as no one wants to rock the boat. Taiwan also offers a nice alternative to China, with its good preservation of traditional Chinese culture in contrast to the monolithic concrete forests on the mainland.
PPP is a tricky measure to use when comparing stats between developed and developing countries. It's really better off being used for per capita metrics and when comparing similarly developed countries. For example, GDP per capita at PPP among the developed world is much more accurate than comparing the GDP per capita PPP of a place like Equatorial Guinea and Denmark.
All that being said then, I do agree with some other posters that the nominal GDP is more important in comparing the overall size of economies. By this metric the 2014 estimates are US: $17.4 trillion & China: $10.4 trillion. The IMF estimates that in 2019 the US GDP will be at $22.1 trillion and China will be at $15.5 trillion. I think it was the CEBR that estimated that Chinese GDP will overtake the US sometime around 2028 -2030.
Anyone who has lived, worked, and/or has sound knowledge and understanding knows that China (the mainland) is still very much a developing country. It's far behind the US and the West in terms of development. Even Shanghai and Beijing (the two most developed Chinese regions) are only on par with the likes of Hungary and Poland respectively, according to the HDI. Not bad, obviously, but not as developed as say North America, Australia/NZ, Japan, and Western Europe. The average Chinese person is not as well off as his/her Western counterpart. Not to mention the fact that given the horrendous environmental quality, the traffic, the congestion, the dirtiness, the corruption, the lack of personal freedom, the extreme nationalism and xenophobia, and the lack of space everywhere, the QOL in China is nowhere near Western standards.
Even many of the wealthy plan/would like to leave China. In 2013, wealthy Chinese citizens overwhelmed the EB-5 investor visas in the US.
The most popular destination is the US with an estimated 40% of wealthy Chinese choosing it as their top destination. The other big destinations include Western Europe, Canada, Australia, and Singapore.
I'm not trying to paint a totally negative picture of China, however. I like visiting China a lot. Their history, culture, food, etc. etc. etc. is amazing. Furthermore, what they've accomplished over the past half century is truly remarkable. I'm no fan of the CCP and while we all know that they've done some pretty horrible things, they've also done a lot of good for China too. I'm just trying to put everything in perspective.
Last edited by CityLover9; 10-10-2014 at 03:11 PM..
China's future is bleak. It's people are starting to demand a living wage and less government control...Other countries are now able to offer Walmart, US citizens etc. better prices than the Chinese factories..We're already seeing some US factories that can match Chinese prices...Cancer causing pollution is beginning to hit critical levels.
A happy, healthy Chinese economy is no where near a reality, and probably won't be in our lifetime.
Why wouldn't it be? just because China is doing good doesn't mean other countries are doing bad.
You wouldn't think it would be if the US government was stupid, which is what I was disagreeing with. Making ISIS out to be the boogeyman, maybe, which I don't think is necessarily a stupid thing to do.
Even Shanghai and Beijing (the two most developed Chinese regions) are only on par with the likes of Hungary and Poland respectively, according to the HDI. Not bad, obviously, but not as developed as say North America, Australia/NZ, Japan, and Western Europe.
Agree with the rest, but if you really see Shanghai, you should know it is not on par with Hungary and Poland, and I am not just talking about the world class infrastructure that would put Los Angeles and Chicago in shame here.
If it were a country Shanghai and its nearby area (still a large population of about 30 million) is at least comparable to the average standard of Spain and Italy. Its standard of living surpassed that of Portugal years ago.
The easiest way to determine an areas (governments) long term viability is to follow the people.
It's been like that since the beginning of time.
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