Chapter 29 2. Throw American credit cards to the Chinese

Thomas Friedman put forward the term "CHIMERICA" in his article. He said that it is precisely because China is willing to use its export income to the United States to continue to hold US dollars and short-term US treasury bonds that the United States can always implement low interest rate policy.In this way, Americans will have the funds they need to continue to buy goods from China and buy real estate in the United States.Then, Americans use their houses as collateral to borrow from banks so that they can further consume.This is one of the reasons why Americans' wealth continues to climb without seeing significant increases in income.

However, after the financial crisis, the unemployment rate in the United States continued to rise, and Americans became "the most indebted consumers in the history of the world", and they no longer had the ability to buy so many Chinese goods.To get out of the current crisis, Americans need to save and invest more, spend less, and ditch most of their credit card holdings. The article also said that when Americans do this, China needs to accept these abandoned credit cards and distribute them to its own people.Only in this way can the Chinese be able to buy more Chinese goods and import more goods from other countries.It can be said that this article describes the current economic difficulties of China and the United States, and closely links the Chinese and American economies together. Credit cards represent the consumption pattern of the United States. So should the Chinese accept American credit cards and use American credit cards? consumption patterns to increase consumption?

I still remember that when our government proposed a 4 trillion yuan plan to stimulate domestic demand in November 2008, major media around the world reported it extensively and gave very positive comments.But I think we should not get carried away at this time. Of course, others' good comments make us very happy, but we also need to be very humbly accepting other people's different opinions.I think we should think more deeply about the various evaluations. Let me give you an example, I saw a very good article.This article was published in the "New York Times" on December 28, 2019. The author is a columnist named Thomas Friedman. Do you know what the title of this article is?The headline is - "Is China the savior? No, it's not".What I think is the cutest thing about this article is that it has a very inspiring sentence at the beginning.That is, he called on Americans to throw away their credit cards, and who would they give them to?For the Chinese to consume, I think this sentence is too level.Why call on Americans to throw away their credit cards, and the result of throwing away is for Chinese consumption?

Because China and the United States have been closely linked in the past few years of development, how can they be closely linked?He used an English word to represent it, called CHIMERICA, the first three letters mean China, and the back means America. CHIMERICA means "Sino-American Community".He said that American consumption and Chinese consumption have been closely linked.He believes that what China's economy really needs today is what Zhou Xiaochuan said to drive Chinese people's consumption.rather than simple infrastructure.This kind of consumption is closely related to Americans. Friedman made a joke, but I don’t think it’s a joke. I think it’s a very correct sentence.That is Americans should throw their credit cards to the Chinese.

This sentence completely, profoundly, and specifically describes the plight of China and the United States. This article is so well written.I want to say what he said first.Then I tell the reader.How do I interpret this statement.He said, do you know how Americans consume?look.China exports a large number of commodities every year and earns a large amount of foreign exchange in dollars. Then the Chinese use so much foreign exchange, for example, 2 trillion U.S. dollars to buy American bonds and U.S. treasury bonds.The funds in the US bond market are very abundant, and because of the abundance of funds, the interest rate has become very low as a result.As a result of low interest rates in the United States, Americans began to buy houses.

How to buy a house?It is to buy a house when the interest rate is low, and then mortgage the house after the house price continues to rise, and then use the money to spend.So how do Chinese people consume?For example, how do we buy a car in China?To buy a car in China, you don't use a credit card, but pay cash.It is very difficult to get a loan from a bank.So what does the United States do?The United States is a 110% loan, and even the insurance premium will be loaned to you.And because of the low interest rates, Americans buy refrigerators, air conditioners, washing machines, and computers with 100% loans. This is the consumption pattern of Americans; and each American has 6 credit cards on average (he said so, I think it is a bit exaggerated) .Swipe your credit card when you go to eat, use your credit card when you go to the supermarket, and use your credit card everywhere you go. This is the United States.

So in his view, the Americans and the Chinese rely on this link to make the two sides closely connected. When the Chinese buy U.S. treasury bonds, we earn dollars and return them to the U.S., making the U.S. financial market very abundant. So interest rates in the U.S. are low.Due to low interest rates, Americans are more willing to buy a house, and then wait for the price of the house to rise and use it as a mortgage, and then spend the borrowed money.Because of low interest rates, Americans like to borrow 110% to buy a car, and because of low interest rates, Americans like to use 100% loans to buy refrigerators, computers, and washing machines.At the same time, due to the low interest rate, Americans especially want to use credit cards. Individuals have several credit cards, which is the consumption of Americans.

This consumption is particularly interesting, Thomas?What does Friedman criticize in his article?He said a word.I will tell you.He said that American consumption, especially what former President Bush Jr. said, you can have cannons and butter at the same time.That is to say, the U.S. government spent so much money on fighting Iraq and Afghanistan. It doesn’t matter. The military is linked to the economy.This is what the Bush administration said. But readers please pay attention, this is not real wealth, and all of this, I gave it a name - bubble consumption, that is, the prosperity of the American economy that you have seen in the past few years is all brought about by bubble consumption .What is bubble consumption?Borrowing money to consume is bubble consumption. If you ask Americans to cash out, I can tell that the average American can neither afford a car nor afford refrigerators, air conditioners, washing machines, and computers.Call him cash, he can't afford it, he has to rely on debt, and why are they willing to borrow money?Because interest rates are low.

Why interest rates are low, because China has spent trillions of dollars in foreign exchange to buy U.S. treasury bonds, thus making the U.S. financial market abundant. Redman's point of view.Although I don't agree with his point of view, he pointed out the reason for the false prosperity of the United States - bubble consumption. That said, he believes China has helped Americans take on so much debt due to low interest rates.Of course, when he said that, he felt a little cheap and good-looking.A consumption method in which a person does not consume cash but uses debt to consume is called bubble consumption, because it cannot be bought with cash.That is to say, Americans borrow money from the future and spend it today, creating an unprecedented prosperity.But let me tell readers that the wealth of Americans has not increased, but Americans are more willing to borrow money for consumption, which has caused this bubble consumption.But according to Friedman's original words, this bubble consumption has come to an end.In this financial crisis, the brakes have already been stepped on.Since consumption fell by 3.4%, please guess how much the GDP of the United States fell in the fourth quarter due to this decline in consumption?I can tell you that in the fourth quarter, because consumption fell by about 3.4%, the US GDP fell by 0.5%.Consumption fell even more sharply in the fourth quarter, pushing U.S. GDP down 3.8%.Can you imagine how serious the situation is?That is to say, what we talked about earlier, the consumption bubble that created this kind of prosperity, has now begun to collapse in an all-round way, and it all started in November 2008.