USA : G D P (0.9%); Trade Balance ( -$833bn); Current Account Balance ( -$697bn); Industrial production ( -7.8%)

CHINA : GDP (9.1%) ; T B ( + $295BN); C A B ($371bn.)+ I P (5.7%)

These numbers highlight their mounting economic disparities. I must confess at this point that I am not sure that in the near future the abyss will ever be bridged Let us focus simply on the foreign trade sector. U S. imports are growing faster than its exports. The US capitalism is in a downward deflationary spiral that bears similarities with Japan ’s so-called ‘lost decade’ in the 1980s.. True, China ’s growth is adversely affected by the world slump, but it is growing several times faster than the US . Compound growth rates are at once constructive and destructive forces . This is a point you’ll recall that I noted in my discussion of the US balance of payments in my book on Cuba and I would suggest that you consult that section again. The ratio of its imports to its exports is about 1:5

That gap is unbridgeable.. Hence the USCO must borrow to finance its imports. Borrowing is debt. And debt must be repaid at compound interest rates or defaulted.. China recycles its trade surplus by buying US securities and Treasury bonds. This is a familiar story. Whether the Chinese political elite will continue to recycle their foreign exchange earnings to prop up US deficits remains problematical.

American capitalism has been the world’;/s biggest debtor for more than two decades. Its biggest lender is China . The size of the figures are important. China ’s almost $2,000 bn in foreign exchange reserves are the world’s largest. Much of these reserves are being directed to the purchase of U S Treasuries. ` According to the estimates of Brad Selser the real figure is nearer $2,300bn.. or equivalent to $1,600 for every Chinese citizen.

Of this sum about $1,700bn is invested in dollar assets, making China the biggest creditor of American capitalism and the single largest purchaser of US Treasury bonds. It is entirely addicted and dependent on Chinese money. Never in its history has the USCO been so dependent on any foreign creditor. The opposition within the leading echelons of China’s power elite are aware that such massive capital flows going to a stricken economy, that is in the throes of an ever deepening crisis and with low-yielding dollar assets, is perilous. China has already lost billions And this is so given the depreciating dollar stemming from its rising level of indebtedness, low savings, zero interest rates and a GDP that hovers around zero . Without this avalanche of Chinese money the USCO would not be able to pursue its militarist expansion abroad.

But what we can say is that the dollar’s status as the world’s reserve currency which has conferred extravagant power ( that was the designation of de Gaulle on US imperialism can obviously not endure. Chinese misgivings are present but they have made a pact with the devil and can do little to alter this state of affairs. “Except for US Treasuries what can you hold” asks Luo Ping, a director-general at the China Banking Regulatory Commission. “You don’t hold Japanese government bonds or UK bonds. US Treasuries are the safe haven. For everyone, including China , it is the only option”. This in my view is the tragedy of China ’s power elite presiding over a capitalist economy that has shed all pretences of being socialist.

It is deliberate policy choice that reveals its class and ideological alignments. They have already paid a terrible price for such a policy choice of being the savior and supreme benefactor of American capitalism. . With capitalism’s crisis now howling in its agony and the dollar’s continued slide the costs to the Chinese workers and peasants that the Chinese elite have long ceased to represent the losses to China rise to even greater heights. To put it in non-technical jargon the masters of China ’s money box has so much money that it does not know where to invest that money save in wretchedly low yielding US Treasuries.

The battle over exchange rates is fought on the killing fields of foreign exchange markets.

 

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