Another Drink? Sure. China Is Paying.(poor nations finance US consumption)

[DeepModem Mom]

New York Times:
Another Drink? Sure. China Is Paying.
By EDUARDO PORTER
Published: June 5, 2005


GUESS who's paying for America's spending binge - for the ballooning credit card bills, the scramble for homes, the country's gaping budgetary hole? Poor countries have become the financiers of the United States, fueling one of the most extravagant consumption drives in world history.

From 1996 to 2004, the American current account deficit - which includes the trade deficit as well as net interest and dividend payments - grew to $666 billion from $120 billion, swelling the nation's demand for foreign financing by $546 billion.

The cash has come mostly from what the International Monetary Fund defines as emerging markets or developing countries - nations that have piled up mountains of cash even though most of their citizens are poor. High on the list is China, whose per-capita gross domestic product of $1,300 last year was a thirtieth that of the United States. Others are Russia, where G.D.P. per head was $4,100, and India, where it barely topped $600.

The current accounts of developing countries swung from a deficit of $88 billion in 1996 to a surplus of $336 billion last year - a $424 billion change that has covered some four-fifths of the increase in the deficit of the United States....

***

The poor-country money, (Ben S. Bernanke, the Federal Reserve governor nominated by President Bush to be chief economic adviser) said, pushed the current account of the United States deeper into the red. As the money arrived, it first lifted stock prices, encouraging both consumption and investment. When stocks tanked, it moved to the bond market, fueling the housing boom and yet more spending....Conventional economic thought suggests that funds should flow the other way. Capital-rich industrial nations like the United States, where workers already have a large stock of capital goods to work with - like high-tech factories and advanced information technology networks - should be sending money to places rich in labor but with a meager capital stock....


http://www.nytimes.com/2005/06/05/business/yourmoney/05view.html

[Inland]

1. Excellent article. nt

[cire4]

2. This deserves a kick....

[DeepModem Mom]

6. Another for Monday morning financial folks --

[slay]

3. Slave labor

The only reason the rich are rich is because the poor are their slaves. Poor people, especially in other countries, but more and more here in the US too, have to take any crappy low paying job they can get just to survive! The balance of money between the rich and the poor (who often don't even have healthcare!) is so out of balance it's unreal.

[idlisambar]

4. article doesn't quite get it

"For the developing world to be lending large sums on net to the mature industrial economies is quite undesirable as a long-run proposition," Mr. Bernanke said.

The developing world is not lending to large industrial economies, it is lending to the United States, a nation with much less industry than it once had. Many other industrial economies don't need to borrow like the United States does, the problem is really restricted mostly to Anglo-American nations (UK, US, Australia). Japan, a real industrial economy, had a record current account surplus last year.

[Lisa]

5. "like a blood transfusion from the ailing to the healthy"

I seem to recall Robert McNamara saying something like this, a while back.

Unfortunately, there are a lot of ways in which we are taking advantage of poorer countries -- debt servicing, tied aid, import tariffs, even valuing their labor less than our own. I was ashamed to learn that we actually get back more from them more than we pay out in foreign aid (Canada as well as the US). This has been going on for more than 20 years.