The US has been taking it on the chin of late, first in the Capital, next on Wall Street, now comes this:

 

China, a Big Creditor, Says U.S. Must Live Within Its Means

DAVID BARBOZA (NY Times)

China, the largest foreign holder of United States debt, said Saturday that Washington needed to “cure its addiction to debts” and “live within its means,” just hours after the rating agency Standard & Poor’s downgraded America’s long-term debt.

The harshly worded commentary, which was released by China’s official Xinhua news agency, was Beijing’s latest attempt to express its displeasure with Washington.

Though Beijing has few options other than to continue to purchase United States Treasury bonds, Chinese officials are clearly concerned that China’s substantial holdings of American debt, worth at least $1.1 trillion, is being devalued.

“The U.S. government has to come to terms with the painful fact that the good old days when it could just borrow its way out of messes of its own making are finally gone,” read the commentary, which was published in Chinese newspapers.

 

Pretty strong language coming from Beijing, carrying back to the days when the Chinese referred to US as ‘capitalist running dogs’, now the dogs are running all over China and the dismay is palpable:

If the US cannot make the world’s pre-eminent waste-based economy work after all these years of practice how can the Chinese do it with their recycled cardboard version?

The Chinese look around and wonder if they’ve been had. Could it be that everything China has spent, labored, bled and died for since Deng Xioping … is worthless, the ‘Greatest Leap Backward’? Baying noises coming from China are strikingly out of proportion to the mechanical wind-down of current accounts management. They seem existential, the dawning realization of a calamitous error on the Chinese’ part.

The realization that perhaps modernity isn’t a fantastic utopian ‘progress paradise’ of easy sex, money and belly flab as seen on TV but a gigantic bankruptcy machine ‘Born In The USA’!

 

Our suburbs will prove to be a huge liability.
They represent the greatest misallocation of resources in the history of the world.
— James Howard Kunstler

 

Um… not! China is, perhaps not today or tomorrow but certainly soon! China burns three billion tons of coal per year. When did the US suburbs ever do that? What happens thirty years from now? What are the consequences of burning a hundred or so billion tons of coal across a few decades? Can the Chinese burn that much coal for thirty more years? Can they burn three billion tons next year? How about next week?

These are the questions that are starting to etch across China Management Inc’s fevered brains like bolts of greased lightning!

What for … is the burning of all the coal, oil and gas in the first place? Is it a number on a piece of paper? What is to show for the billions of tons and money and good, solid Chinese capital burned up in ‘breakaway’ Chinese furnaces? Is it the sixty-four million empty apartments in bleak towers like ‘Blade Runner’ versions of Easter Island’s great stone heads?

Is it bad Chinese TV?

Where do the one-hundred and twenty million due to live in these empty towers live now? What will these people all do for drinking water in thirty years, or ten years … or tomorrow?

 

 

Interestingly, if the US was to live within its means, China would go broke. The US’ hated deficit represents China’s surplus, but logic or common sense do not belong anywhere in our rapidly rotting post-modern world. Michael Pettis:

 

Current Account Dilemma

Creditors nations are worried. Their obligors seem determined to take steps, they claim, to undermine or erode the value of their obligations – at the expense, of course, of the creditors.

Over the past two years we have become pretty used to the spectacle of Chinese government officials warning the US about its responsibility to maintain the value of the huge amount of US treasury bonds the PBoC has accumulated. More recently we have been hearing complaints in Germany about the possibility that defaults in peripheral Europe will lead to losses among the many German banks that hold Greek, Portuguese, Irish, Spanish and other European government obligations.

In both cases (and many others) there seems to be an aggrieved sense on the part of creditors that after providing so much helpful funding to undisciplined debtors, the creditors are going to be left with losses. There is, they claim, something terribly unfair about the whole thing.

To me this whole argument is pretty surreal. Not only have the creditors totally mixed up the causality of the process, and confused discretionary foreign lending with domestic employment policies, but an erosion in the value of the liabilities owed to them is an almost certain consequence of their own continuing domestic policies. It is largely policies in the creditor countries, in other words, that will determine whether or not the value of those obligations must erode in real terms.

Before I explain why I make the second point, let me address the first point. As I have argued many times before, the accumulation of US government bonds by the PBoC and the surging Greek, Portuguese, and Spanish loan portfolios among German banks were not the acts of disinterested lenders. They were simply the automatic consequence of policies in the surplus countries that may very well have been opposed to the best interests of the deficit countries.

Take the US-China case, for example. The US has been arguing for years that China had to raise the value of the currency sharply in order to rebalance the global economy and bring down China’s current account surplus and, with it, the US deficit.

China responded that it could not do so without causing tremendous damage to its economy and that anyway the problem lay with the US propensity to consume. For that reason China continued to accumulate US dollar assets. As it bought US government bonds it was able to generate higher domestic employment by running large trade surpluses, with corresponding deficits in the US. Remember that net capital exports are simply the obverse of trade surpluses (or, more correctly, current account surpluses), and one requires the other. If China buys huge amounts of dollars, the US must run a trade deficit.

Whichever argument you think is the more just – that the imbalances are mainly the fault of the US or the fault of China – since the Chinese accumulation of US Treasury bonds was the automatic consequence of Chinese policies that the US opposed, it seems a little strange that the US should feel any strong obligation to maintain the value of the PBoC’s portfolio. That is not to say that the US should not be concerned about inflation and the value of the dollar – only that the reasons for its concern should be wholly domestic.

Likewise with Germany. The strength of the German economy in recent years has largely to do with its export success. But for Germany to run a large current account surplus – the consequence I would argue of domestic policies aimed at suppressing consumption and subsidizing production – Spain and the other peripheral countries of Europe had to run large current account deficits. If they didn’t, the euro would have undoubtedly surged, and with it Germany’s export performance would have collapsed. Very low interest rates in the euro area (set largely by Germany) ensured that the peripheral countries would, indeed, run large trade deficits.

 

Following the breathless Chinese, the moronic right hand of the US establishment ‘downgrades’ the left. Waves of fear ripple across world’s finance markets. If the US debt is worth less, what about all the other debt? What will markets be worth when US debt is downgraded further? The United States is broke yet stuck with over fifty trillion dollars in debt, most of it private. How is that ever going to work?

Reality in the post-peak oil world is a lot uglier the than the fairy stories of ‘recovery’ promoted by the big stone television heads. Americans sigh with relief as energy constraints manifest themselves without the gas lines and the hated ‘double nickel’. The same people fail to realize that what is rationed in a fiat world is not energy at the pump but access to credit. The stresses emerge in credit markets in the form of downgrades, unresolvable budget battles and defaults.

The US rockets past downgraded all the way to degraded. How tragic: the Disney- version of American modernity was always a fake and now the establishment is finally waking up to a system not invented by benign, paternal innovators: Thomas Edison or Henry Ford or John Maynard Keynes … but by Lou Reed. Now what do we do?

The tail fins were the give-away: America, an ‘idea’ lifted from a comic book. There never has been a ‘there, there’ only more and more empty promises from an ad man on the idiot box. Tomorrow was always going to be the utopia, always tomorrow always utopia. Then tomorrow after that, then next week, next month, next year. All that is ever needed is one more innovation. One more (empty) promise, one more sucker born in one more minute.

In the meantime, let’s let Big Business do everything it wants, let it remove the surface of West Virginia. We don’t need West Virginia, there are plenty of other states! Removing the entire surface and dumping the remains onto Ohio is ‘efficient’. By giving business everything it wants perhaps it will come down a chimney somewhere like Santa Claus and give some lucky winner a job.

This why the Chinese are wailing. They want America to be more like China, for America to swallow the Tea Party Kool Aid of unlimited big business rapaciousness just like the Chinese have. As the Chinese bailed out American businesses over the years by accepting their unwanted labor force, the Chinese are now waiting with hand-wringing anxiety for the American neo-liberals to return the favor! The cavalry must ride to the rescue and make the Chinese foreign exchange ‘investment’ worth something.

Instead of the much-desired bailout is the giant ‘other shoe’ arriving to drop on China, just like it dropped on Japan and is dropping on the European so-called Union.

America has always been expendable and now it’s expended. How does one abandon something that long ago vanished into some maw or other? What is left to abandon? ‘Made in USA’ meth labs? How about ‘tuner’ cars or the Kansas City Chiefs? Disposable: how about Las Vegas? How about Steve Wynn? Can we remove the surface of Wall Street?

Good grief! It’s not just America, its the entire world; everyone with a TV, all following the self- referential American lifestyle scams like lobotomized monkeys. There are the green lawns of Dubai, the Indonesian Snooki’s and Belarussian boob jobs, the Argentinian (and Middle Eastern and North African and South Asian) ‘business’ monopolies. Everywhere are the wannabe inflatable Jay Gould – Scarface – Snoop Doggs out there who have absolutely nothing to offer anyone but their ‘ruthlessness models’ …

Where does one escape to? There is no way off-planet.

Forget China: it’s as American as (poisoned) apple pie, a new- and instantly rotten/cheap imitation of all America’s faults. Whatever is cruel, ugly, brash, stupid, ruthless, brutish and hypocritical about America has been ‘improved upon’ in China. The Chinese strip the skins off their dogs while alive, at least we Yanks have the decency to run over our dogs with a car, first.

Business is a form of culture that arose around energy waste. Now the energy is constrained and business staggers around vomiting. The idea ‘America’ is obsolete … the Andy Warhol version where every idiot whether Ronald Reagan or Ronald McDonald is famous for fifteen hundred-thousandths of a second, Bruce Springsteen’s “Chrome wheeled fuel injected stepping out over the line,” down the street, around the corner, over a dog and into a wall is finished. Everywhere, not just in America.