china to buy the us

Amazing stats!!

China's dollar reserves, America's debt


...China's massive hoard is the result of its large current-account surplus, significant inward foreign direct investment, and big inflows of speculative capital over the past couple of years...
Bill Bonner - Other articles
Tue 07 Nov, 2006

$30 million and $80 million.

Two big numbers...and the end of the world as we have known it.

The first number is the rate at which China is adding to its reserves of foreign currencies – mostly dollars – every hour.

The second number is the rate at which America's capital – as measured by the current account – is being depleted, also by the hour.

Last week, China's pool of reserves passed the $1 trillion mark, making it the largest lake of money in the world.

The United States has a chain of great lakes too. But they are a different kind – vast sink-holes of debt that get bigger every day. The cost of the war in Iraq alone is $8 million per hour.

And another point of comparison: the third quarter showed China's GDP still going up at more than 10% per year. The same quarter in the US revealed a slowing economy – growing at only 1.6% per year.

The Economist describes China's growing pile:

"By the end of October China's foreign-exchange reserves are likely to top $1 trillion, twice their level two years ago and more than one-fifth of global reserves. This handsome sum would be enough to buy all the gold sitting in central banks' vaults (indeed, twice over) or almost all of London's residential property.

"China's massive hoard is the result of its large current-account surplus, significant inward foreign direct investment, and big inflows of speculative capital over the past couple of years. In theory, flows of foreign money into China should push up the yuan, but China has resisted this, forcing the central bank to buy up the surplus foreign currency. The growth in reserves has slowed in recent months, but it is still averaging a hefty $16 billion a month.

"China's official reserves already far exceed what is required to ensure financial stability. As a rule of thumb, a country needs enough foreign exchange to cover three months' imports or to settle its short-term foreign debt. China's reserves are equivalent to 15 months of imports and are six times bigger than its short-term debt. The explosion in reserves is also a headache for the central bank. It creates excess liquidity, which risks fuelling higher inflation, asset-price bubbles and imprudent bank lending."

What's more, experts guess that China might have $2 trillion in reserves before she figures out what to do with it.

Poor China. All that money sitting around. What can it do?

Money is a curse, of course. Just look at Paris Hilton. When too much of it piles up in one place, it begins to stink like old manure. Now, China will have to get out the excavating equipment and begin spreading the stuff around. Maybe it could buy a house from Donald Trump or a Picasso from Steve Wynn? No, that is for later in the cycle, when the Chinese become rich and degenerate. Now, China will just go on buying the things she needs to continue her expansion – mining companies, oil fields, farm products...or maybe farms themselves.

Let's see...hmmmm...an acre of farmland in Kansas, US sells from $550 to $1,265. We'll say $1,000, so we can do the math in our heads. With a trillion dollars in your pocket, you could buy a pretty big spread in the heartland – say, one billion acres, right? Kansas only has 52.36 million acres. So, the Chinese could buy the entire state and still have $947.64 billion left over – enough to buy all the farmland in Nebraska, Iowa, South Dakota, North Dakota, Missouri, Arkansas, Louisiana, Colorado, New Mexico, Montana, Wyoming, Oklahoma and probably Texas too.

"Well, isn't that special," American economists could say. "The foreigners know America has the most dynamic, most successful economy in the whole dang world. Yes, we spend more than we make. But the money comes back to us finally. It just shows what a great economy we have. The foreigners want a piece of it."

And day by day, at the rate of $80 million per hour, the foreigners get a few more pieces of it. And now China, if she chose, could trade her pieces of US paper for a piece of land the size of the Louisiana Purchase. Or she could buy stocks...or Treasury bonds. The total capitalization of the entire 30 Dow stocks is only about $3 trillion. So, she could buy a third of the Dow, or a controlling interest in every one of them.

Wouldn't that be nice! Eventually, we'll all be able to go to work in Chinese-owned factories...or sell our internal organs to Chinese doctors. What a great economy!

But here we would like to pause...draw breath...and vent our admiration for this great flim-flam. No doubt that Americans have a model of democratic capitalism that is the envy of the entire world. It functions beautifully – in theory. But in practice, it has reached a stage in its cycle where only the rich seem to make money, while the poor and middle classes actually lose it. Today, as Americans go to the polls, the money supply is soaring, Saddam has been condemned to death and the Dow rallied more than 100 points. Still, "middle class' cash woes cause election angst," reads the Houston paper.

Acting on their inclinations, but not in their interests, America's lumpen householders loaded themselves up with debt. They were all just trying to keep up with the Joneses – who were just trying to keep up with them! Besides, they were confident that democratic capitalism and republican politicians wouldn't fail them.

Meanwhile, China is still a communist country whose leaders and people remember a very different time – when the Gang of Four ruled and when people starved and when they tried to make steel in backyard furnaces. Then, the country seemed ready to implement any crackpot idea the party bosses came up with. And even now, it is still an economy that is partially centrally-planned by people whose ideas were partially formed by Mao's loopy Little Red Book. In theory, it should be a basket case. Instead, both the numbers and eyewitnesses tell us that it is booming.

What to make of it?