May 27, 2009 | Ronda Jambe

China and the US – conjoined at the hippocket

Last night George Friedman, founder of the Stratfor forecasting company, spoke at the ANU. He was sceptical about claims of impending doom for the US economy, and not, he made clear, because he loves the culture there. Rather he pointed to vast size of the US megalith, which dwarfs the total of the next 3 or 4 economies. If the total net worth of the US is $329, as he stated, then he is probably correct in saying the odd few trillion in debt is neither here not there.
His approach, as I know from reading his analyses over the years, is one of geo-political strategy and constraints on options, long term patterns and pesty historic bugbears. It would be a mistake to think that international relations is free from grudges. Friedman emphasises the importance of tribalism, from the family to the nation state.
He forecasts that this century will be shaped by, among other things, a dramatic fall in the birthrate. This is clearly already happening in a few developed countries, but he says it is much more widespread and will soon affect basic economic assumptions. These include a believe that the value of land will always increase, as the need for food and housing expands inexorably. The corrolary is that the price of labor drops, as population grows. Both these assumptions fall apart when population shrinks, and thereby hangs an opportunity. We can see the problems of the superstates, and learn, or keep trying to build more houses. That seems to be what the ACT government is doing, and the Greens with the theoretical balance of power don’t seem to have slowed that.
As the excellent articles on this site by Tim Murray and George Gu reveal, population growth does not always bring prosperity growth, and China faces increasing disruption if they do not get their legal system working better. These issues come together when we consider how much China holds in US Treasury bonds, currently nearly $770 billion. As an online article on Al Jazeera pointed out, in this case the creditor is left holding the bag. The US is just too big to fail, and the Chinese may be their banker of last resort. Ironic, but clearly any dramatic moves by the Chinese to dump their US bonds would immediately rebound in the form of reduced Chinese imports, and where would they be then?
Friedman points out that the Chinese can’t just sell to themselves to make up for any drop in exports to the US, because of their 1.6 billion population, about 1.4 are quite poor.
Meanwhile, reforms to the Chinese legal system need to speed up before their own limits to growth and environmental collapse catches up with them. In Australia we have the rule of law (sort of) but not one good enough to keep us from plundering our ecosystems. Lazy politicians, even some of the Greens, balk at discussing population limits here.
It comes down to a game of who blinks first. But Obama understands this 3-legged race, and has wisely been brokering a deal with the Chinese over emission reductions. If both sides can pull that off, these two critically important countries might just hop along together to Copenhagen. Do I hear Rudderless snoring?

Posted by Ronda Jambe at 9:53 am | Comments (3) |
Filed under: Economics


  1. I’m quite impressed Rhonda.This is not your usual eco friendly article.Glad to see you are ambidextrous and can understand economic issues.
    I have but one issue with George Friedman about the US having a net worth of $329 trillion.[ie.$329,000,000,000,000.00]With a pop of 308 million this means that the net worth of every person is over $1 million.Why are the US people on average then so poor? Who owns all the wealth?
    Presently the US Govt debt is $11 trillion.This a debt is $35,000.00 for every person.

    Comment by Arjay — May 27, 2009 @ 8:35 pm

  2. The net worth of the US is hardly distributed evenly, but debt will fall on all shoulders.
    The graph of the changing distribution of wealth in the US (and to a lesser extent, Australia) is close to an exponential curve. This is one of my hobbyhorses: when curves go vertical, something breaks. Watch that space.

    Comment by Ronda Jambe — May 28, 2009 @ 6:55 am

  3. Ronda is right. The Inequality Trust has evidence that ‘on each of eleven different health and social problems: physical health, mental health, drug abuse, education, imprisonment, obesity, social mobility, trust and community life, violence, teenage births, and child well-being… outcomes are very substantially worse in more unequal societies.’ (
    Also, as Arjay implies, the USA’s supposed ‘total net worth’ of $329 trillion is way over the top. For someone who lives there and ‘loves the culture there,’ George Friedman is clearly going to be biased.
    If Friedman’s ‘total net worth’ is referring to total household net worth, then about 85% of this total is usually made up of estimated property values.
    Property values have long been a bubble, even before recent times. They are artificially inflated by social customs, hierarchy and politics. The inflated values are sustained for political reasons, otherwise social and household financial arrangements would become too chaotic. So the vast bulk of this ‘total net worth’ isn’t real – it’s a huge overestimate.
    As has been said before, people in countries such as the USA have been making most of their money by selling property to each other and borrowing money from overseas to pay for it. Hardly a convincing way to create wealth.
    If Friedman is including the wealth of such types as Gates and Buffett in his figure, then if they were to move overseas, the whole thing would be shot. So to claim that the USA has a ‘total net worth’ of $329 trillion is ludicrous.

    Comment by MB — May 28, 2009 @ 1:33 pm

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