BREAKING

Editorial

Buy America Or Die!

Article By: Paul Wideman – Bare Knuckle Choppers – www.bareknucklechoppers.com

Originally Published In The July 2012 Issue Of Cycle Source Magazine

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A little more than a year ago, if your sentiments on China’s economy were less than optimistic, you may have been called crazy. The country with the highest GDP growth for the last few decades was on a rocket ship to the top, and had its sights on America’s spot as the world’s largest economy. How could it be derailed? You have a captive workforce that will add more new city-dwellers than the entire US population by 2030. Seemingly, every ounce of profit is reinvested in real estate and city building. You have a stubborn, communist government that manipulates currency valuation to benefit exporting. All of these indicators point toward continued growth and economic power. But now, many are not so sure. Nouriel Roubini, the New York economist best known for predicting the U.S. housing meltdown, has been sounding the alarm for better than two years now. At first, he was ridiculed for being overly pessimistic, but now many are listening and understand his reasoning. As China reinvests much of its profits in infrastructure and new cities, these cities are crumbling and the roads are deteriorating. Two-year-old apartment buildings are being ravaged by water leaks. Bridges and interchanges built for the 2008 Olympics are unstable and unusable. Dams that are only a year old are cracking and giving those down river much reason to worry. The liability this lays on the government could be crushing.

To assist the real estate and growth boom, Beijing instituted measures that mirror the housing finance problems that plagued the U.S. just a few short years ago. Loose financing requirements and low rates enticed home buyers to the point where many were camping out, waiting their turn in line to buy a home. Home prices skyrocketed. But, as China’s machine carried forth, building and developing for buyers that never arrived, a vacuum was created. Now, developers are selling homes and developments at a fraction of the price they may have gotten three years ago. Of the 35 largest cities in China, 29 are experiencing a decline in home sales from a year ago. Beijing? Down 50%! As properties pile up and the buyers dry up, who will be left holding the bag? The CCP (Chinese Communist Party) is working at measures to ensure growth is sustained, but these measures may add up to disaster. The People’s Bank of China recently cut its required reserve ratio for co-operative banks to 16.0%. This is only a fraction of a point, but it is a decrease many thought would never come. While finance officials declare that this move is not a hint of problems, detractors insist that this indicates a coming cut in reserve requirements, leading to more spending with even less cash in the bank.

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Annual growth in monthly exports has slowed from 34 percent a year ago, to just 16 percent now. Albert Edwards, head of strategy at Société Générale in London, notes that China’s financial growth had slowed to an annual rate of 1.5% in the second and third quarters of 2011, below the “stall speed” that historically led to recession. Edwards feels that given China’s compounding social and infrastructure problems coupled with the current declining economic indicators, she will have great trouble “muddling” through another downturn. There is a monthly report, known as the Flash China Purchasing Managers’ Index that tracks industrial activity within China. In November of last year, the index dipped below 50 percent, to 48.1, indicating contraction, rather than expansion. In recent months, the FCPMI has inched back into expansion territory, but smaller factories still show many signs of struggle. This is not good news for the rest of the world by any means. If China should collapse, much of Asia might go with her. Many countries depend on China for much of their respective exports. South Korea, for example, exports roughly 40 percent of its machinery and transport vehicles to China. It is estimated that fully one fifth of Asia’s exports to China are destined for trade on the global markets. Essentially, if China fails, or even has a major hiccup, it will affect Asia greatly, and the world as a whole.

But the possible coming crisis in China does pose a great opportunity for the U.S. and our manufacturing sector. All of those holes that could be left from a weakened China will need to be filled, and the U.S. has the manpower, technology, and infrastructure to fill those needs. All that may be missing is the actual fortitude and determination. While much of the U.S. and other industrialized nations cry foul regarding China’s trade policies, it is our own respective responsibility for the state we are in. The U.S. and others can shift the trade imbalance and bring jobs and wealth back to our homelands, and a misstep in China could prove to be the springboard we need. But I beg that we do not wait for this, nor bank on it. The Chinese are shrewd businessmen, and their people are hard workers. We can combat them with just the same: hard work and innovation. Let’s take the fight to them by working a little harder every day, saving a few more bucks from every paycheck, and Buying American.

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