This headline from William Peck of Bloomberg, "China's Reserves Increasing by $1 Million a Minute," should stun everyone in America, especially our political leaders.
Retained earnings of $1 million a minute are vast. But they also represent an even greater shock. China's average growth in reserves of some $20 billion a month, have apparently more that doubled to an average of some $50 billion a month in the first quarter of this year!
This should have us really concerned and focused. For, some 70 percent of this gigantic sum is our American wealth.
Worse still, our Democrat dominated Congress clearly feels it is all the fault of an undervalued yuan, against the fast depreciating dollar.
Sure an undervalued yuan is certainly a help to China's exports, but it is not the key to their massive trade surplus with the United States.
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Our greatest concern is that our leaders are clearly barking up the wrong tree. And that is sad - very sad for all of us. For, while America bleeds its wealth, our leaders are focused on the wrong target.
Only last Thursday, we referred to this exact and most worrying point.
We quoted the internationally acclaimed chief economist, Stephen Roach, of Morgan Stanley, who has long warned that our chronic adverse trade balance with China is "… the relative savings rate, stupid, not the currency."
As Roach points out, the Chinese save most of their income, leaving little spare cash to spend upon luxury (non-domestic) imports.
On the other hand, Americans tend to spend all we earn and then some, as we raise massive debts on our inflated house prices. We have plenty of cash to spare on buying masses of even relatively cheap imports, especially from China.
Strange as it may seem to some, it is not necessarily the fault of our individual fellow citizens. Like many of such economic ills, it is not the poor individual citizen who is basically to blame. As through most of history, it is a leadership problem.
Our leaders have long geared our economy to growth and big business. (As the legendary J.P. Morgan said in testimony to Congress shortly after World War One, "In America, politics is big business.")
Recently, especially since 9/11, the American consumer has been encouraged, big time (with massive injections of liquidity) to keep our growth economy going.
Some people may wonder why such continued growth has given rise to such low inflation. They will see reality when they realize that, for the past several decades, our government has "cooked" our CPI to the downside for political reasons.
In addition, our political leaders, even Republicans, have set an example to the rest of us, of spend-spend-spend, even if you have to borrow to do so. Better still, if it is future generations who will be left holding the debts.
In addition, the government tax regime is based upon taxation of gains, both income and capital, on "nominal" income and capital gains. This is confiscation. A morally fair tax would tax only "real" gains, after inflation.
In short, our government causes inflation, but makes the individual tax payer finance it.
This confiscation, so reduces the "real" return on savings, that our people are actively encouraged not to save, but to spend-spend-spend, now!
Our spending used to go mainly into our own economy. Today, thanks to globalization, it goes overseas.
In the old days, of low inflation, we used to save. Now, we spend-spend-spend, just like our government.
The result of our bizarre, grossly complex and confiscatory taxation system is that we are bleeding our hard won wealth to other nations, most notably to China.
The shocking fact is that, thanks to our leaders, not China's exchange rate, we are bleeding our wealth to China alone at the rate of some $1.4 million (70 percent of China's earnings) every two minutes of every day that passes.
This should shock all our readers. It is why we see gold as an essential part of any conservative portfolio
Editor's note:
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