The Economy: Bill Bonner, "Mutual Manipulation"
By Bill Bonner
Well, who the heck are all these manufacturers making stuff for? Darned if we know. In theory, there are billions of ready consumers in Asia and Africa. Except they don’t have much money. And don’t have much credit. And don’t have shopping malls. And don’t have any way to get to the malls if they existed. In India, for example, half the population lives on less than $3 per day. You can do the math yourself…even if they spent every cent on “stuff,” it would mean total spending of $500 billion, more or less – which is less than the US trade deficit in 2007. Of course, they can’t spend their money on ’stuff’ – they need it just to eat.
On the other hand, India’s middle class is already as big as the middle class in America – and it’s growing fast. But how does it make its money? By producing, we assume. So as it gets wealthier, doesn’t it add to the world’s supply of stuff…as well as consuming it? And since Asia is more of a producer, in general, than a consumer…isn’t it adding to the world’s supply of stuff faster than it consumes stuff? And since labor costs are so low, doesn’t it add more cheap stuff?
In the meantime, who’s consuming more than he is producing? We don’t know. But someone must be doing so…otherwise all this extra manufacturing just adds to the world’s inventory of unsold merchandise. This is just a reminder about the way an economy actually works. The meddlers in China think they can stimulate production. The meddlers in America think they can stimulate consumption. Then they accuse each of “manipulation.”
We’ve seen at least four or five different arguments about what the value of the yuan ’should’ be. One hundred and thirty Congressmen think they know. Paul Krugman thinks he knows. Everyone seems to think he knows. But the truth is – none of them knows. Nobody can know. Only the market knows. And it isn’t talking. It can’t talk. Its lips have been sealed by government order. The yuan is supposed to be too low because it is linked to the dollar. There is no logical reason to say that the yuan is too low at all. You might just as well say the dollar is too high. But once you allow yourself the fantasy of silencing the markets and reorganizing the world’s commerce, the sky’s the limit. The next thing you know, you are taking over the auto industry…and health care…and fixing prices for breast implants."
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