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Strategies & Market Trends : The Epic American Credit and Bond Bubble Laboratory -- Ignore unavailable to you. Want to Upgrade?

To: Broken_Clock who wrote (104901)	9/8/2009 5:15:55 PM
From: Chispas	1 Recommendation Respond to of 110194

Bullion Bulls Canada - "China becoming a middle-class nation" (Maybe Tommaso will find this one more worthwhile) ....................................................................................................................................................... As China's economy rose to #3 in the world in 2008, the rising incomes of its residents have raised the standard of living in China from a “low-income” nation to a “lower middle-income” nation – according to data released by its National Bureau of Statistics. While the data comes from China, the classification of the living standard for Chinese residents is based upon criteria from the World Bank. An article from ChinaDaily recounts the meteoric rise of China's economy. Over the last 60 years, China's economy has averaged annual growth in GDP of 8.1%. In aggregate terms, the Chinese economy is now 77 times larger than in 1949. A companion article reports that the incomes of both urban and rural residents is rising even faster than GDP this year. The income of its urban residents has risen by 9.8% year-over-year, while the income of China's rural population rose by 8.1% - exceeding GDP growth of 7.1% over that same time period. This report is yet another set-back for the China-bashers, who continue to spread the myth that China “needs” the United States to buy its goods, making China's economy somehow more vulnerable than the bankrupt, U.S. economy, according to these critics. The reality is that along with the world's 3rd largest economy, China now has the world's 5th largest domestic market – including the world's largest market for automobiles. In the past, I have pointed to the enormous pool of savings in the Chinese economy as proof that these domestic trends were sustainable (given that the Chinese people have historically had a savings rate close to 30%). However with incomes rising faster than GDP, this suggests that the rise in domestic spending has taken place without tapping into those savings. This means that unlike the debt-burdened economies of Western industrialized nations, there are no limiting factors preventing many more years of similarly spectacular growth in GDP, incomes, and the domestic economy (which has been growing at more than double the rate of GDP growth). Suggesting, as the critics do, that this domestic economy cannot support China's manufacturing sector displays either willful blindness or the inability to perform basic arithmetic. Even if neighbouring Asian countries were not becoming larger and larger customers of China's manufactured goods (offsetting declines in Western demand for China's imports), China's rate of increase in domestic demand virtually negates lower Western demand, by itself. Indeed, it is a measure of the irrationality of China's critics that they are essentially evenly divided into two camps. The one group argues that the Chinese government is doing far too little to develop its domestic economy – which is why these critics argue that China “needs” the West. They dismiss China's economic growth as “statistical lies”, while omitting an explanation of how China's $2 TRILION surplus of foreign currency reserves was accumulated from an economy which is supposedly mostly “smoke and mirrors”. The other army of China's critics makes the exact opposite argument. They see “bubbles” everywhere! There's a “housing bubble”, a “stock market bubble”, and a general “bubble” in the domestic economy, which they argue means that China's financial system could see a U.S.-like meltdown of its own. Those critics ignore the fact that China's government raised the reserve requirements for Chinese banks five times – in 2007, alone. At the exact same time that most Western banking systems were hitting peak levels of their leverage-insanity (with the Canadian banking system being a notable exception), China's banks were sitting loaded with reserves. These critics also ignore the miniscule debt levels of both the Chinese government and its citizens. As I pointed out in “China's problem: too much money”, total debt among China's citizens amounts to only 3% of GDP – less than half that of Russian citizens, and only ¼ of the debt level of Brazil's citizens (two other “BRIC” nations). Yet there is no shrill clamor about “bubbles” in Brazil's economy. What separates an asset-bubble from merely an over-valued market are high levels of debt, since as a matter of arithmetic a market cannot have entered “bubble” territory without accompanying high levels of debt. Over-valued markets correct, while “bubbles” collapse – and the reason for the collapse, rather than an orderly correction are defaults on debt. Where there is little debt, there is obviously little potential for default – and without the disruption caused by defaults on debt, markets correct in an orderly fashion. China's fledgling status as a “middle-class” nation should finally to begin to quiet some of this nonsensical yammering. With most Western nations seeing their own “middle-classes” steadily shrinking, it's clearly time that these mindless critics focused their attention on problems in their own domestic economies – which, unlike the “problems” with China's economy are real, not fabricated. ............................................................................................................................................................... bullionbullscanada.com