Everyone wants to make money. They’ll support any form of govt. Also it’s not a true market economy. Domestically their economy is still very much centrally planned.
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With China, it’s hard to know. While Shanghai is a very “western” city… you cannot EVER criticize the government. They monitor all communications. If you criticize the government they will come after you. Have to use a VPN with my friend, which they manage to find after a few minutes and then sever the VPN.
With market economy, I mean you don’t get “rations”. You buy your food, electronics, pay rent, pay bills and everything yourself. They have restaurants and night clubs, and bed and breakfasts, taxis and so on that you pay for as you use them. They have lots of American franchises too: Starbucks, Orange Theory, McDonalds, etc. You apply for jobs just like in America, and you can quit your job and get another one… at least in Shanghai that’s the way it is.
To the larger point though they 100% control the media, and everything there is always “rosy” and just fine in their news, unless it’s another country.
Somewhat off topic but can someone explain the deficit to me? When the government buys bonds who are the sellers? Who is holding the the trillions in IOUs?
I also heard people say the government can just print money. How does that work?
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I too would like to understand this.
Basically govt bonds are traded on the market. The govt usually holds auctions and bonds are usually purchased by institutional investors and retirement funds. The public can also buy US treasuries from banks or directly from the treasury, but public holding are tiny.
However for US bonds the biggest buyers are foreign governments. This is because the US$ is the currency of global reserve. Almost 80% of international trade is carried out in US$. Commodities like wheat, oil, gold etc, even shipping rates, and internet bandwidth rates are all priced in US$. Hence nations need reserves of US$ (usually in the form of actual green backs and US Treasuries). China has recently tried to move away from the US$ in some of its trade deals, and use its own currency the renminbi. Their Belt Road Initiative (BRI) is using the renminbi as much as possible, using the US$ only where absolutely necessary.
The other reason why countries buy US treasuries is that it allows these countries to keep their own currencies pegged at a certain level relative to the US$. China, UAE, Saudi Arabia do this. It’s called a currency peg.
The simplest way to look at how a US bond works is to consider a bond offering. Suppose the US govt issues a trillion $ bond offering and China buys the whole lot. This allows the US govt to print $1 trillion and put them in the market. Essentially China has loaned the US a trillion $. The US is able to increase its money supply (or make up losses in money supply because of asset destruction) because of the Chinese loan. Of course it’s not so simple as China buying a trillion $ of US debt is going to have foreign exchange rates implications, but that’s a whole other matter.
So what’s the benefit to the US? Well because of the global demand for US$, the US can run massive deficits without risk of inflation. You can finance deficits by printing money (very bad idea!), but if no one wants your money your currency will depreciate in value leading to inflation.
Any debt US issues is immediately snapped up. US deficits are financed by those who buy US govt bonds! Also it keeps the US$ stable. Unlike say for Argentina where currency value can depreciate (and cause inflation) depending on the market demand for their currency.
Everything I have said above is also true to a much smaller extent for the € and £.
Every govt can print all the money it wants, but that only works if there is large demand for your currency. Now central banks (like the Fed, Bank of England, European Central Bank), which control their respective money supply, have another tool at their disposal. It’s called Quantitive Easing (QE). That’s when central banks buy their own bonds (from the market) to inject cash into the economy without increasing the actual amount of their liabilities (a greenback is just another form of debt, and any debt is a liability).
US bonds are considered safest in the world. All nations and even corporate bonds are priced (I.e. interest rates) on their relative risk compared to the US bond. It’s why a 3rd world country bond may be offering 40% interest while the US rate is only 1%.
So that’s a very simple explanation of how govt debt works.
One more thing to consider. The risk now is that market for debt is likely to be very weak as a lot of liquidity (ie available cash) has been destroyed. The other risk is that there are likely to be many debt offerings. Almost every G8 country except maybe China is likely to doing large bond offerings. Even though the US bond offerings are likely to be the most attractive, because of all the bond offerings hitting the market all at once, the interest rates are going to have be higher than they are now. That means the govt will have to pay more to service the debt.
Usually govts just keep rolling over their bonds. When one bond is reaching its end, govts usually just issue another bond to take its place, that way (as long as the market is willing to pay for the new bond), the US govt rarely has to repay the principle, it just pays the interest.
Currently, the Chinese and Japanese govts are the largest holders of US bonds. So basically the US govt is paying them billions of $ a year on interest payments. In return China and Japan (and other debt holders) are financing massive US military expenditures and operations.
Default is always an option, but it’s a nuclear option. While it will destroy the trillions of $ in liabilities for the govt, it will also kill the market for US bonds. Or at least kill the market where the US can issue debt as cheap as it does now. High interest rates on debt create their own problems, just ask any 3rd world country.
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One of the things that people ignore is obesity. According to a Chinese research paper, people with obesity and cancer are the two most vulnerable groups. LINK
As far as I know, Italy is the slimmest country(~10%) in Europe. In China, malnutrition(12%) is a bigger issue than obesity(5%~6%). But here in the US, it’s around 35%! I guess that’s why one-fifth of infected people ages 20-44 have been hospitalized in America.
Thx, P5! That was informative and scary. This can’t and probably won’t go on forever or pretty soon it will all be a joke.
My wife is still a citizen of the PRC. Though China’s economy appears to be outwardly capitalistic, the Chinese Communist Party still largely controls it though the use of “State Owned Enterprises,” businesses that look like firms and private companies on the outside, but which, at the highest levels, are still largely Communist controlled and government owned.
My wife worked as an architect for several years at a state owned design firm in Guangzhou that was that very type of organization. Millions of other Chinese are employed by similar SOEs throughout the country, and even work for them abroad.
The media in China is COMPLETELY Communist controlled. As such, take any news coming out of China from any “official” Chinese media source with a HUGE grain of salt.
Regarding Shanghai, the Chinese government has built it to look like a showcase city.
The standard of living there, and in other large Chinese cities, appears to be as high as any place on Earth.
But step outside the big cities and go to a remote area like Guizhou province, and you will still see lots of Chinese living in third world conditions.
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Wikipedia actually has a good list of Chinese SOEs.
Look it up!
I meant to say this… my friend in Shanghai says the same thing.
Portland,
My wife got her Bachelor’s degree in Architecture from Tongji University in Shanghai. She lived there for five years while in school.
She and I went there in 2014 for a visit.
Truly an amazing city!!!
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Here is a really good look at infection trajectories.
Sam - my point with the Chinese numbers is that most don’t believe them. They demonstrate ultra sensitivity to almost anything negative towards China. See how they reacted just to Daryl Morey’s comments about HK. The entire NBA outside of Daryl Morey know how sensitive they are and responded to shut down any criticism from NBA members knowing how hard the Chinese will hit them and their pocket book. They hid the world from the virus, destroyed samples, failed to inform the world, failed to share information about the virus, used a very heavy hand against their own citizens. This isn’t anything knew from China. Remember 1989 Tiananmen Square Massacre? All of that over their fear of democracy that was rising around the globe. This is who they are. They blamed the virus on the US military to avoid taking responsibility for their own actions. They are just not trustable.
Now, if you want to trust their numbers so be it, then you must be willing to trust their current story that they no longer have infections or deaths due to this virus. I am just highly skeptical of whatever they tell the world. Its who they are.
Who knows, their numbers could be 3, 4, 5 times what they have reported. We’ll never know.
Regarding the USA, right now NY state has more than 50% of our infections across all 50 states, DC, and 4 terroritories. Our greatest hot spot is NY by significant numbers as Gov Cuomo pointed out again this morning. But the good news with NY with all the bad that has come their way is a death rate of 0.7%. China’s biggest hit is Hubei province with their 68K infections and a death rate of almost 5%, considering those may understated.
Ok, assume the numbers are worse then if they’re cheating.
My insurance PA has a client in East Texas whose daughter was doing missionary work in Wuhan. All the missionaries fled in early January when the daughter said they were burning “thousands, not hundreds” of bodies
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NY has fewer than 50% of US cases now (26348/54823). Their death rate climbed to 1%. They have the most hospital beds per capita in the country I think. They just on the edge of the sword and are running out of critical care space now, that’s when the deaths rise above 1%.
Texas up to 1048
Atlanta announced their ICU beds are full.
The population density in New York City is way more than any city in Texas and that has a lot to do with the higher rates. If you ever took a ride on a New York subway you could easily understand how one guy could infect a whole lot of people who would then infect many more, and so on, and so on. I think our love of using our own cars instead of mass transit is a blessing in times like this.
I thought I clearly expressed that I didn’t know how accurate China’s numbers are, and then you post, “If you want to trust their numbers, so be it.” 
Regardless, they had at least reported the highest rate, but forget them. We’ll look at every other country. We’ve passed them all with flying colors. I’d rather see us on par with Germany or UK or some such country anyway, not lagging far behind them. Sure, China, a country of one and half billion people and the place where the virus originated, may have a higher rate of infection than us. Who cares? Would that really be something to pat ourselves on the back about? Bottom line is we’ve screwed it up badly, and we’re going to pay a steep price for our feckless, dithering response.
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Can anyone give me some glimmer of hope that we are doing anything right? All I have been seeing is how awful we’ve handled the situation. And after reading even more I noticed that chloroquine might not be as promising as the president first thought.
From the get go Sam, I never thought China was a good comparison for anything because I never trusted their numbers and probably never will. I thought you felt China was a good comparison for us.
I am fine with making comparisons all around the world and I have been doing that myself constantly, but they should be meaningful. NY vs Swizterland or Austria looks like a good fit except for the population density of NYC. But we already know NY is our significant hot spot. It is a great concern. Possibly NYC and the surrounding area ought to be locked down and then supported and favored for medical supplies from masks to ventalators to all other equiipment. That is what Cuomo was arguiing for this morning and I am sure he’ll be doing the same tomorrow morning.