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Add China to your list of vulnerable societies

nersesianroy032111_optBY ROY NERSESIAN

We have covered in previous articles the non-sustainability of the U.S. and European economies. In fact, the end is in sight now that buyers of U.S. and euro debt realize that there is a good chance (shall we say guarantee?) that the debt cannot be repaid. Without the ability to borrow, the governments have two choices: print money or balance the budget. Forget about the latter, taxing the people at 100% of their income can’t balance the budget. To balance a budget, entitlement programs, making up somewhere around 70% of government expenditures, have to be cut. In the U.S., no one has the guts to cut Social Security, Medicare, Medicaid, Food Stamps, the military, and a host of other semi-entitlement programs. We can’t even cut programs clearly not needed such as subsidies to farmers in times of record breaking crop prices and to oil companies surfeit with money from high oil prices. In Europe, entitlements are even worse with free medical care, free education, 35 hour work weeks, guaranteed income if you don’t have a job, and if the government bureaucrats had their way, a two week paid vacation for everyone, and I mean everyone. In the U.S., there are trillion dollar deficits reaching out as far as the eye can see. Republicans in the House are powerless to bring the budget deficit under control. It is painfully clear that nothing will change. The U.S. and Europe are destined to print dollars and euros by the ton load. All we can do is watch helplessly when the financial house of debt burns to the ground.

It is also clear that political stability, for lack of a better word, is also collapsing. The turmoil in North Africa is clearly a prelude to an uprising throughout the Middle East, which may include Saudi Arabia and Iran. Lest we forget, days of rage are occurring in several Midwest state capitals. Union members are protesting cuts in benefit and pay packages that they thought were guaranteed in perpetuity. These demonstrations will backfire as taxpayers, the ultimate funders of governments, realize that the government unions are in cahoots with state legislators to extract generous concessions from state coffers in return for generous contributions for their reelection. What the state workers do not realize is that the state coffers are not a font of infinite wealth, but draws its entire sustenance from taxpayers who outnumber government workers. The taxpayers are the ones who’ve been losing their jobs and their homes. Yet their tax payments (what’s left of them) are supposed to insulate a privileged few from sharing in the financial misery of all. It may only be a matter of time when millions of dispossessed, unemployed individuals who have nothing left to lose will descend on Washington. I wonder if Obama will follow the same advice of gently stepping aside as he gave to Mubarak of Egypt.

Now to China – here are four facts to keep in mind. Fact 1: China is developing a middle class. It numbers five percent of the population and consists of managers, technocrats, bureaucrats, and entrepreneurs responsible for China’s amazing economic progress. This marks the beginning of domestic consumption made up of about 60 million people, the population of a major European nation. That’s the good news – now for the bad. Fact 2: 95% of the people, numbering over a billion, live in abject poverty. Half make a few dollars a day as factory workers and the other half less than a dollar or two down on the farm. China actually has a huge unemployment problem despite wiping out the world’s capacity to produce consumer goods. Fact 3: the factory workers are inwardly fuming over the fact that they can’t buy what they make. Their output is exported via Walmart and others so that unemployed Americans can buy cheap Chinese made goods while making Sam Walton, when he was alive, the richest man on earth. Fact 4: the government of China is getting rich by the trillion-truckloads of U.S. dollars, which they’re beginning to wonder about in terms of its future purchasing power. The communist government embodies the 19th century capitalist-pig robber barons who enriched themselves by the sweat of their impoverished workers.

Chinese workers are already taking to the streets, but face very stiff government opposition as in Saudi Arabia and Iran. This does not mean that the government can keep the people downtrodden forever. If everyone takes to the streets, exactly what will the government do? Order the security forces to shoot everyone? I’ll tell you this: the security forces will find it much easier to shoot those in power than shoot the people. This is the only way that the security forces can avoid retribution from the government and from the people.

Add China to your list of vulnerable societies. Keep an eye on Saudi Arabia and Iran, and don’t take your eyes off what happens here.

Roy Nersesian, a resident of Maplewood, teaches at the Leon Hess School of Business at Monmouth University in West Long Branch and also at the Center for Energy and Marine Transportation at Columbia University. He has authored several books, the last on Energy for the 21st Century published by M.E. Sharpe.


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