Most Popular
1. Dow Max Drawdown Bear Stock Market 2022 - Accumulating Deviations from the Highs - 21st Feb 22
2.Putin Starts WW3 in Ukraine, Will Use Tactical Nuclear Weapons, China Prepares Taiwan Blitzkrieg - 28th Feb 22
3.World War 3 Phase 1 - Putin WINS Ukraine War! - 25th Feb 22
4.INVESTORS SEDUCED by CNBC and the STOCK CHARTS COMPLETELY MISS the BIG PICTURE! - 10th Feb 22
5.Will There Be A 2024 US Presidential Election? - 3rd Mar 22
6.Gold and SIlver, Precious Metals Sector Is at a Terrific Buy Spot - 6th Feb 22
7.Why Putin Wants the WHOLE of Ukraine - World War 3 Untended Consequences - 6th Feb 22
8.Dow Stock Market Expected Max Drawdown 2022 - 19th Feb 22
9.Stock Market Calm In the Eye of the Inflation Storm - 4th Mar 22
10.M = F - Everything is Waving! Stock Market Forward Guidance - 7th Mar 22
Last 7 days
Why APPLE Could CRASH the Stock Market! - 21st May 22
Why Is Crude Oil Ignoring US Inventories? - 21st May 22
Here is Why I’m Still Bullish on Gold Mining Stocks - 21st May 22
THE INFLATION MEGA-TREND QE4EVER! - 20th May 22
US Real Estate Investors – Is There An End In Sight? - 20th May 22
How Technology Affected the Gaming Industry - 20th May 22
How To Set And Achieve Reasonable Goals For Your Company - 20th May 22
How Low Could the Amazon (AMZN) Stock Price Fall? - 19th May 22
Bitten by FANG? Clocked by Cryptos? -- 'Air Pockets' Everywhere - 19th May 22
Northern General Hospital Orthopedics Fractures and and Ankle Clinic Consultations Real Patient Experience - 19th May 22
Cathie Wood Goes All in on Teladoc, ARKK INSANE Noob Investing Strategy! - 17th May 22
This is Anything but Positive for US Housing Market - 17th May 22
What Should We Do If There Is No Fed Monetary Policy Pivot? - 17th May 22
All Possible Ways to Earn Free Litecoin - 17th May 22
How low Could the Amazon Stock Price Fall? - 16th May 22
Cathy Wood ARKK INSANITY There is NO Coming Back! - 16th May 22
NASDAQ 100 Stock Market LOWER LOWS & LOWER HIGH - 16th May 22
Sanctions, trade wars worsen US inflation - 16th May 22
AI Tech Stocks Earnings BloodBath Buying Opportunity - 14th May 22
Futures Contract – Trading Crude Oil With USO - 14th May 22
How to Get Kaspersky Internet Security for 80% Discount! Do not Pay Renewal Price! - 14th May 22
Sagittarius A* Super Massive Black Hole Monster at Centre of Our Galaxy REVEALED! - 14th May 22
UK Public Debt Smoking Inflation Gun - 13th May 22
What Happens When the Stock Market Dip Keeps Dipping? - 13th May 22
Biden Seeks Inflation Scapegoats; Gold Advocate Wins GOP Primary - 13th May 22
Apple and Microsoft Nuts Are About to CRACK and Send Stock Market Sharply Lower - 12th May 22
The War on Gold Ensures the Dollar’s Downfall - 12th May 22

Market Oracle FREE Newsletter

How to Protect your Wealth by Investing in AI Tech Stocks

China Gets it Right on Economic Stimulus Package 17 Times U.S. Effort

Economics / Government Intervention Nov 12, 2008 - 05:31 PM GMT

By: John_Browne

Economics

Best Financial Markets Analysis ArticleThe announcement of a massive stimulus package of almost $600 billion shows that China means business not just in reviving, but also in rejuvenating its economy.

As both America and China confront the prospect of a global depression, both countries have chosen to fend off potential unrest with liberal government spending. But the Chinese move is bolder and more likely to succeed.


The most remarkable aspect of the Chinese stimulus plan is its enormous size. Despite the massive publicity surrounding its formidable growth rate, the Chinese economy is still ‘only' one-fifth the size of America's. Relative to its economy, China's stimulus package would be the equivalent of a $3 trillion package in America.

The Bush-Greenspan asset booms were so extreme, and the resulting deleveraging so massive, that government actions in multiples of trillions of dollars are needed to make any meaningful impact in slowing the asset bust.

Based on this yardstick we can see that the differences in the Chinese and American approaches could not be more dramatic. The divergence bodes ill for the future.

The impact equivalent of China's package of $3 trillion is 17.4 times that of America's $172 billion. Of course, this does not include the $700 billion Bush TARP that was agreed to by Congress last month. But then, China did not have a financial system which needed a massive taxpayer bailout.

Although some Chinese investors may have been taken in by smart Wall Street salesmen peddling mortgage backed securities, the scale of these investments does not present systemic risk to China's financial markets.

China has announced that the lion's share of its stimulus spending will focus on modernizing the infrastructure of its country in preparation for challenging America as a super power in just a few more years.

In contrast, the focus of the Bush Administration plan is to boost consumer spending. America's decaying infrastructure has been virtually ignored. This will render America's economy ever less competitive in an increasingly competitive world.

Even the follow-up packages in America are likely to throw increasing amounts of taxpayer money at highly leveraged banks and failed corporations, like General Motors.

When the world recovers from the looming depression, China will emerge greatly strengthened and as a far more serious challenger for super power status.

Since the ancient times of Babylon, super power status also has been reflected in any ‘uber' nation's currency. While China's economy is dominated by roaring manufacturing and infrastructure development, America's economy is comprised of 72 percent by consumers. In reality, America is consuming more than it produces and is eroding its national wealth at an alarming rate.

In contrast, emerging nations like Brazil, Russia, India, and China (the so-called BRIC nations) are producing far more than they consume and are creating real wealth in the process. It follows that BRIC corporations and even their currencies should be attractive long-term investments, relative to those of the United States.

On November 15th, the G-20 leaders meet in Washington to discuss threats faced by the world economy. Today, there is decreasing faith in paper currency. The G-20 leaders must address this crucial problem. It may well be that they seize this opportunity to establish an international currency, under the auspices of the IMF, but linked to Gold.

Should they fail, a resurgent China can be expected to veto any subsequent attempts in an effort to replace the U.S. dollar with its own as the world's key ‘anchor' or reserve currency. Such a change in reserve status will confer on China a number of competitive advantages previously reserved for America.

Unlike America, China is unlikely to borrow to finance its stimulus package. Indeed, it is likely to spend its own national earnings rather than continue to invest in U.S. Treasuries.

Worse still, China might even begin to sell part of its massive holdings of some $1 Trillion of U.S. Treasuries. This will put upward pressure on U.S. interest rates, tending to drive a recession into a depression.

However it is financed, China's stimulus package is decidedly bad news for America.

For a more in depth analysis of our financial problems and the inherent dangers they pose for the U.S. economy and U.S. dollar denominated investments, read Peter Schiff's new book For an updated look at his investment strategy order a copy of his just released book " The Little Book of Bull Moves in Bear Markets ." Click here to order your copy now .

For a look back at how Peter predicted our current problems read the 2007 bestseller " Crash Proof: How to Profit from the Coming Economic Collapse ." Click here to order a copy today .

By John Browne
Euro Pacific Capital
http://www.europac.net/

More importantly make sure to protect your wealth and preserve your purchasing power before it's too late. Discover the best way to buy gold at www.goldyoucanfold.com , download my free research report on the powerful case for investing in foreign equities available at www.researchreportone.com , and subscribe to my free, on-line investment newsletter at http://www.europac.net/newsletter/newsletter.asp

John Browne is the Senior Market Strategist for Euro Pacific Capital, Inc.  Mr. Brown is a distinguished former member of Britain's Parliament who served on the Treasury Select Committee, as Chairman of the Conservative Small Business Committee, and as a close associate of then-Prime Minister Margaret Thatcher. Among his many notable assignments, John served as a principal advisor to Mrs. Thatcher's government on issues related to the Soviet Union, and was the first to convince Thatcher of the growing stature of then Agriculture Minister Mikhail Gorbachev. As a partial result of Brown's advocacy, Thatcher famously pronounced that Gorbachev was a man the West "could do business with."  A graduate of the Royal Military Academy Sandhurst, Britain's version of West Point and retired British army major, John served as a pilot, parachutist, and communications specialist in the elite Grenadiers of the Royal Guard.

John_Browne Archive

© 2005-2019 http://www.MarketOracle.co.uk - The Market Oracle is a FREE Daily Financial Markets Analysis & Forecasting online publication.


Post Comment

Only logged in users are allowed to post comments. Register/ Log in