Quote:
Originally Posted by Edman
The whole worlds depends on America buying stuff.
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This is a fallacy. Peter Schiff addresses it in his book.
His example is something like this.
Imagine an island with one American and a half dozen chinese. The Chinese catch fish, harvest coconuts, prepare meals and set and clear the table, do dishes so that the American can eat.
Now take the American out of the equation. The chinese catch fish, harvest coconuts and so on, but now for themselves. They begin to accumulate capital (excess supply they can use to keep themselves fed while they divert their energy to other tasks) and begin to raise their standard of living. Which is precisely what is happening. A lot of American consumption today, is actually paid for with Chinese debt. The chinese lend the money, to buy their goods, basically doubling down on every transaction.
Indians who stop answering American phones, will answer European phones. They will answer Indian phones. They will shift to other industries. They will create new industries.
The notion that the Chinese need to lend Americans the money to consume Chinese and Indian goods or the system will collapse is an absolute fallacy.
Imagine if you had a store, and your biggest customer came in, and said "Lend me the money to buy your stuff, or you are out of business".
What would you do? How long can you lend him the money he pays right back to you for the goods he consumes?
Now that's not to say that American consumption isn't very important. But it's fueled a production bubble, and what will happen if Americans stop buying, is that prices will fall to clear excess inventory (massive global deflation). Indian labor rates will fall as people get desperate for jobs. And suddenly, the Chinese and Indians will be able to afford their own goods and services.