Effect of US depression on China

I’ve seen a number of theories that US depression would damage Chinese economy. Given the inferior good status of most of the imports, wouldn’t China and other makers of budget products win at the expense of Germany, Japan and other makers of superior or boutique goods?

Independently of that, how does the rate of inflation correlate to the share of barter out of all business done? At 5% it would be quite little, at 2000% probably considerable…but what’s the relation between the loss of fiat money value and the willingness of Farmer Frank to trader four chickens to Gunsmith George for a bayonet and ten cartridges, bypassing the cash market entirely?

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7 Responses to Effect of US depression on China

  1. Farm.Dad says:

    IMO boutique goods will be among the least effected from here on out . They have already taken the hit and lost the marginal income buyers. I don’t know about Farmer Frank but for us barter has been on the table for a while . Anyone who has paid attention at the grocery store , or gas station should be able to see what is coming . We already see less variety of goods , smaller stock depth and more store brands . This is even before we discuss packaging tricks to get the same $ for slightly less product. Tangible assets and to a lessor degree some skill-sets are holding value fine though . Almost anything you can buy now will be a real savings over buying it later as the intentional destruction of our economy proceeds .

  2. > …bypassing the cash market entirely?

    such things don’t happen in modern economy. people simply start using harder (e.g. foregin) currency in place of crappy one.

  3. Baker M. Romeo says:

    Currencies exist to reduce the cost of conducting transactions. Presumably, people will stop using a currency once the cost of using or holding it (due to inflation or whatever other problem) exceeds the cost-savings they see by using it. It’s probably tough to specify a particular point on a graph of currency use and inflation that shows “this is where people start using dollars as sushi wrappers and start trading directly”, but I have to imagine it’d have to be an absolutely ruinous level of inflation before people would start spending the necessarily large amounts of time accumulating and exchanging trade goods.

  4. Keystone says:

    China gets hurt by a weak dollar, which is why their currency is artificially pegged to the dollar and considered undervalued. If the Chinese Yuan grows stronger vs. the dollar then Chinese workers will be paid more in USD terms than they were, without an actual increase in wages. This means that the inputs to Chinese goods are more expensive in USD, which makes the products more expensive and less affordable to US consumers, who would turn to similarly priced but higher quality Japanese, Korean, or (gasp) even make a domestically produced option economically feasible.

    As the US is still the major export market for Chinese consumer goods, the result is that China receives even fewer of less valuable dollars and are stuck with a lot of production capacity and not enough demand (as it can’t even be tooled up to produce quality goods and go for a more upscale market that still has money).

  5. The luxury goods market is booming, because we’ve been channeling all the money to the top end; there are more rich people than ever before.

    And the Chinese goods include a lot of premium brands — lots of electronics including most of the Apple products that are doing so well, Nike shoes, and so forth.

    And the lower-end market is booming as people in the middle are shoved down. Basically, the top and bottom markets are active, it’s the middle, which used to be the big deal, that’s getting badly crushed.

    I don’t see barter going anywhere much, short of an actual breakdown of government.

  6. neutrino_cannon says:

    I disagree that barter is improbable. There were reports of barter in Zimbabwe as far back as 2005-2006 when the inflation was merely in the hundreds of percent as well as video documentation of people buying goods with gold:


    Any US economic crisis ruinous enough to require such business practices would probably hurt China, but by then Hu Jintao will be retired and the man at the helm by then may not emphasize import and economic strength to the extent that he does.

  7. China is in a catch-22. First of all, they are subsidizing their credit markets just like here in the US with interest rates that are held too low by the central bank. They have a credit bubble ready to burst, especially in Real Estate. They literally have build cities that are standing empty. That should sound familiar to us all.

    The other issue is that China is directly loaning money to the United States Government. Current estimates are about $2 Trillion (http://www.heritage.org/research/reports/2011/02/chinese-investment-in-the-us-$2-trillion-and-counting). At the same time, the US is borrowing all this money, it is also devaluing it’s currency by “printing” more of it (quantitative easing). So, China continually loans money to the US under the Keynesian assumption that they will be able to stimulate US consumption, allowing the US to continue to purchase Chinese goods, and also allowing China to earn a return on its investment. However, devaluing the dollar not only causes a problem for standards of living in the United States, it also destroys the principal of investments made in this country.

    Any move by the Chinese government to divest its investments in the US, or undermining the strength of the dollar causes the Chinese to lose money on their investment. The question becomes, who will do it faster? Can the US government really pay back the money it owes? Currently, it’s not possible, even with substantial tax increases. The US and China are joined at the hip financially, and their central bank policies are similar.

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