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Can we afford the rich, anymore?

As I keep saying, I know nothing about finance, and my teddy bear personality is reinforced by RGE Monitor's uber-bear-ish tendencies. So, can somebody who knows what they're talking about comment on this?

If Chinese foreign asset growth continues at its current pace, China’s government, the Bank of Russia, the Saudi Monetary Agency and a few Gulf sovereign funds will pretty much be the global financial system.

Say, we used to be a rich, industrialized country. I know that the industrialized part is gone -- that's why it's good to be in the "creative class" [cough] -- but what about the rich part?

Where'd all the money go, anyhow? All that "innovative," "complex" financial engineering? Cui bono, and whatever the Latin might be fr "before the shit hit the fan"?

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roblevinson's picture
Submitted by roblevinson on

I haven't read the RGE post, but i believe he's talking about the US external debt situation. due to the US public (federal since state and local gov'ts must balance their budgets) and private (negative savings rate) sector deficits foreigners must finance the gap. in other words, as a country and as individuals (taken collectively), americans spend more than they earn.

RGE seems to be turning the causality on its head a bit by suggesting that China's external surpluses are in a vacuum. (the gulf nations are awash in cash because of the price of oil.) China is running these surpluses (ie, high rates of savings -- in economics, this is a good thing and leads to increases in standards of living -- consumption is the opposite of saving) for many reasons.

anyway, those surpluses are being invested. some amount on oil exploration, some amount on US treasuries, etc.

what RGE does not cover (in this quote) is that these trends cannot continue ad infinitum. obviously, the current trajectory cannot continue (see: food prices, oil prices). at some point we will reach the tipping point. (i, for one, see energy conservation increasingly rapidly albeit from a low base, and increasing in many forms.)

oh, and all that innovative complex financial engineering was just smoke and mirrors. people thought that if you bundled poor credits together they would behave like a good credit in the whole.

sorry for the rambling post.