Monday, June 21, 2010


Down the road, Chinese consumers could be the salvation of American corporations, but what about the rest of us?

by Larry Geller

Regular readers will know my theory that the US corporate economy has found a way to shed workers and their pesky pensions and health care costs, and will be looking next to overseas for consumers. They’ll have to, because Americans without jobs can’t buy very much. We’re not there yet, but could be headed in that direction.

China is readjusting the value of the yuan against the dollar. It’s interesting to read the financial websites on this. For example:

Allowing the yuan to decline in value would also mean Chinese authorities have less need to buy U.S. debt, Sorrentino pointed out.

"They're already easing away, gradually, from a heavy reliance on rolling into U.S. paper," Sorrentino said. "We could easily see interest rates in the U.S. coming up."


Still, anything that increases the ability of Chinese businesses and consumers to buy U.S. made products represents a boon to U.S. businesses, executives said.

"China now has more purchasing power, their consumers have more purchasing power, so it cheapens their imports at the expense of their exports," said David Weaver, president of U.S. money manager Adams Express Co, of Baltimore, Maryland, which holds shares of companies including General Electric Co, and United Technologies Corp.   [Reuters, Analysis: Corporate America has reason to be wary on yuan, 6/21/2010]

Ok, let’s see… higher interest rates in the US would be bad for recovery, bad for American consumers and for small businesses.

But notice that Chinese businesses and consumers are predicted to be better able to purchase US-made products. This fits into my macro-economic theory.

So what will become of the American worker, no longer needed in auto or steel factories, and less needed to purchase products as the Chinese become stronger consumers?  Sweatshops maybe. Apparently a prosperous China will be gradually giving them up: Andy Xie: Chinese Manufacturing Was Built On Squeezing People Hard, It Will Now Unravel (Business Insider, 6/22/2010).

Don’t think so? Job applicants are already hiding their Masters degrees because they’d be overqualified. Down the road could be some very poorly paying jobs. Part of this outcome is self-fulfilling—with so many people competing for few placements, lower-wage employment becomes a possibility. Lower even than flipping burgers (those jobs are already hard to get right now). What pays less than flipping burgers? Sweatshops, just as an example, but also other high-risk work. Or no jobs at all. Who says Wall Street owes us jobs?

What about the mid-level jobs for which a Masters degree or a PhD has been a prerequisite? They’ll go to Taiwan, Malaysia, Indonesia, etc.

Meanwhile, China will be gradually moving up in pay and buying power.

The US economy has been crippled. Recent graduates with high tuition debt are often unable to land the jobs that were supposed to allow them to pay it off.

We’ll need some major structural adjustment to bring recovery to Main Street since Wall Street is planning a new world order that may not include us.



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