The US and China’s Economic and Political Conundrum

Stand beside any highway in the US, and you will see a non-stop whirl of activity. Six or seven lanes, heading in every direction.

Pick-up trucks and sports cars, semi-trailers and family sedans. Millions of vehicles heading every which way…day or night.

In one car, a uni student is setting off to start a new course and career. In another, a family is moving across the country to start new jobs and a new life. There are some runaways on a Greyhound bus, heading to…well, anywhere but here.

Some stoned kids sit in the back of a van. They are on their way to LA in the hope of landing a recording contract. A fresh-faced kid is driving their beat-up car to Hollywood. Another is heading to Silicon Valley, ready to pitch their grand idea.

It’s simply impossible to get a handle on all that activity. Where are they all going? What are they all doing?

330 million souls clawing their way in the most pure, and harshest, capitalist system of all.

Americans often cop it for being ignorant to the world’s geography. But maybe we’re all being a bit harsh.

I’m sure most know that Washington DC is the capital of the USA. But could you point to any of the other 87 towns or cities called Washington on a map of the USA?

Or for that matter, the 41 Springfields, 26 Salems or 23 Georgetowns.

No wonder, if you ask an American where they are from, they will often tack the state name on as well.

The US government recognizes 35,000 towns and cities across the US…home to these 330 million people.

The wealthy and most privileged at the top of the heap. Yet, over 40 million living in absolute poverty.

By comparison, the World Bank estimates that China has lifted 500 million out of poverty since 1981. Given the size of its population, this has strongly reduced the rate of poverty worldwide.

Not all as it seems

Because of its decades of growth, the view of China is of a country inexorably on the up. There is its growing economy and expanding middle class. All of which helps fund its expanding military footprint and influence.

The flipside of this, or so those of the left argue, is that this must mean the US is on the wane. That China’s sheer size and growth will ultimately surpass the US.

But like any other country, China is not immune to economics. So far, a centralised economy has performed a miraculous feat. Surely lifting so many out of poverty has to be one of the greatest achievements of modern times. 

The side shot of that, though, is expectations. Having attained middle-class, these hundreds of millions will not want to give it up. Not for them to spend their later years living in poverty.

In an article in the Weekend Australian, Professor, and Lowy Institute visiting fellow, Dr Alan Dupont wrote about the upcoming threats facing China.

Not only the incredible debt pile. That includes both official lending and the vast shadow bank network.  Nor is it only the trade war. Though, this is adding to the problem.

China’s biggest challenge could be its population. He writes:

Chinese fertility rates fell below replacement levels 20 years ago and the ageing of the population is accelerating.

In the early 1980s, only 5 per cent of the (Chinese) population was over 65. Today, that figure is 10 per cent, putting the country on track to become the world’s most aged society by 2030.

Thus, China’s once vaunted demographic dividend becomes a demographic impost, exacerbated by the one-child policy, as the supply of cheap labour dries up.

Much like Japan, China’s population is ageing and shrinking. It’s the same story in other parts of the world. That means consumer demand will decrease, all the while debt continues to ratchet higher.

As the article continues:

The key difference is that Japan became rich before getting old, whereas China’s per capita income won’t get to Japanese levels before demographic decline reduces economic vitality.’

How will the younger Chinese generation maintain the growing older population? Especially in the way to which they have become accustomed.

Who will pay for the ever-growing debt pile? And who will work for next to nothing in the factories?

If you want to protect your family wealth, you need to know why this financial expert is predicting economic collapse. Find out more.

The debt bomb

It was Ronald Reagan who was credited for the downfall of the old USSR. The theory being that he outspent them. In the end, they simply went broke.

Perhaps it was all part of Reagan’s plan…or maybe it was just a coincidence. His announcement in 1983 that the US would commence work on the Strategic Defense Initiative, nicknamed ‘Star Wars’, became a tipping point. It was the US’ most expensive program ever up to that point.

In the end, the Soviets could not keep up.

Perhaps the current President has an eye to history. Although, my guess is he doesn’t.

Last month, Business Insider ran a story about China. It predicted that China could run a budget deficit in 2019 — the first deficit in 24 years. Meaning that massive Chinese surpluses could now be a thing of the past.

Welcome to deficits and the ways of the modern world!

The current US President is pushing back hard on China. Not just because he wants to. And not purely for political gain. But because it is at its most vulnerable in 30 years.

Forget man-made islands in the South China Sea. Or, the creep of international soft-diplomacy. If Trump shakes things hard enough, the whole lot might come crashing down. As the US knows from its own history, there is no quick recovery from that.

And in doing so, could put China’s economy back decades.

Matt Hibbard

Editor, Options Trader

While many investors chase quick fire gains, Matt takes a different view. He is focused on two very clear goals. First: How to generate reliable and consistent income in a low-interest rate world. And second, how you can invest today to build wealth over the next 10–15 years. Matt researches income investments. You can find more of Matt’s work over at Total Income, where he is hunting down the next generation of dividend-paying companies for the future. He is also the editor of Options Trader, where he uses basic options strategies to generate additional streams of income beyond the regular dividend payments. Having worked for himself and with global firms for almost three decades, Matt has traded nearly every asset in existence. But now he is on a very different mission — to help investors generate income irrespective of what the market is doing. It’s about getting companies to pay you a steady, stable income, with minimal stress and the least risk possible. Matt doesn’t believe you have the luxury of being a bull or a bear in the market right now. You have to earn an income from it, regardless of whether stocks are going up or down. By getting the financial markets to pay you an income, you can get to focus on more important things than just money.

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