People’s Bank of China Creates Chinese Digital Currency To Hedge Against Upcoming Collapses of Fiat Currencies

According to various news sources and Simon Dixon, People’s Bank of China has announced China’s own digital currency.  According to Mr. Simon Dixon, China is buying up gold and announcing digital currency to hedge against the upcoming biggest collapse of most fiat currencies in the world.  Near the end of his video, Mr.  Simon Dixon says people may adopt China’s digital currency, but this will encourage many more people to use Bitcoin.  Mr.  Simon Dixon thinks that Bitcoin is more attractive to people since it got no governments’ censures.

In my opinion, any government has the ability to outlaw Bitcoin.  I think Bitcoin might not have such a bright future when China herself is creating a brand new digital currency.  If China is going to be successful in convincing her own people and other peoples to use her digital currency, she can totally outlaw Bitcoin.  Once Bitcoin is being outlawed in China, China’s own digital currency will continue on to be one of the future, central crypto currencies.

Of course, any other government besides Chinese government can follow China’s playbook and come up with another government’s digital currency.  Thus, I don’t think China will be the only country that would create a government sanction digital currency.  I guess it would be fun to see a government sanctions another with outlawing another government digital currency within one’s own territory.

In the video, Mr.  Simon Dixon suggests that China may use the brand new digital currency to implement quantitative easing.  Instead of printing more fiat currency, China may as well create the second tier monetary system such as digital currency to help ease the many debt related bubbles that fiat currency has been creating.  It’s an interesting idea for sure, but I think only China would know what she will do with her brand new digital currency.  I guess time will tell.

Check out Mr.  Simon Dixon’s video on People’s Bank of China creates a Chinese digital currency in the video right after the break.  Enjoy!

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Cashless Society Encourages Monopoly Money

I’m not an economist, because I’m a nobody.  Thus, my experience in trained economics is a zero.  As a human being, I do have opinions.  By staying informed with everyday experiences, I do form opinions on facts that, I think, are real.  From these opinions and ideas, I can draw some non-expert conclusions.  In fact, right now I like to talk about one or two conclusions I have on cashless society.

I think cashless society is wonderful for governments, bankers, and whatever associations that have control over a society, because electronic traces are available 24/7.  What is scarier is that anybody in the position of power or any hacker who has enough knowledge can just shut you out of a cashless society by changing your electronic numbers.  This is very real, because without any cash on hand, your only option is to rely on the credit system and other electronic monetary forms.  When such a system cuts you out, you are basically helpless and powerless and cashless.  In such a situation, surviving becomes impossible!

Cashless society can also be wonderful for you, but as long the illusion of real efforts and real transactions are actually taking place.  I think bankers can just enter any number of money into a bank account for just about anybody, and the money will form instantly by the electronic means.  You could say money seem to be appearing out of thin air!  Growing on tree, or however you want to phrase this illusion.  I think cashless society will enhance this ability by an infinite time more.  What do I meant by an infinite time more?  Cashless society won’t use cash, because cash cannot be legal.  Thus, cashless society is all about the electronic, monetary numbers, and anybody who has the authorization to form these numbers can just make them out of nothing.  Or they can just delete these numbers whenever!

What makes cashless society humming brilliantly is the illusion of convincing people that real efforts and transactions are actually taking place.  Let’s say, if a doctor who got paid very well by treating his patients in exemplary manner would probably quit his job if the bank could instantly form any amount of money, into the infinity, without any effort.  Why even bother to go to work when you can just go to the bank for an easy loan, and the bank won’t care if you can pay the money back or not since the bank can form infinite amount of credits.  In the cashless society, if the bank isn’t going to lend you any credit, you have to acquire these credits by working for a job or doing whatever to acquire more credits.  But will you be working with a happy smile on your face knowing the bank can form any amount of credits out of thin air?  Demand and supply formula won’t be a good gauge anymore in cashless society, because unlimited amount of credits can flood the system forever.

Even better, why don’t you just form a bank where you, yourself, can electronically form infinite amount of credits?  Wouldn’t this make you an infinite-air?  Why would you bother with taking out someone else’s trashes and problems for a wage/fee when you can just hallucinating yourself with infinite credits of your own bank?  If everyone is into this, then the system got a problem.  The problem is not lacking of credits or money, but the problem is about — nothing will ever get done.  Because nobody will give any real effort in any exchange since credit is created out of thin air without any real effort.  This means the producers see no reason to produce products, because the infinite bank is giving out easy credits freely.  Basically, why produce when you can obtain free credits, right?  Without producers in the equation, the consumers won’t have anything real to consume.  The whole economic system would become meaningless, and so the system collapses.

I guess, the only real demand for cashless society is the demand for more credits, and the easy credits are plentiful available so the demand for more credits could be fulfilled.  Of course, the government and the powerful bankers can just create laws that make the illusion works for awhile.  An example would be you have to pay back the loan you want to borrow, or else you may suffer a consequence of being shutout of the cashless society system.   Knowing being shut out, it means you are not going to be able to buy the most necessities such as foods, and so you know you’re doom for good.

Nonetheless, in a cashless society — a shutout mandate or whatever rules a cashless society wants to impose on the people — the atmosphere can become very toxic for the powerful people.  How come?  If a society can only get poorer while the banks have unlimited amount of credits, the poor people will see this as the greatest injustice of all time.  This means if there is large amount of poor people who are thinking this way will have a king’s head rolls.  Thus, a cashless society needs to uphold not only the illusion of real efforts and transactions, but it also needs to uphold the income equality for the whole society.  As long the majority (e.g., 65%, or 75%, or 80% of the general population) is wealthier than a small percentage of the whole population, then nobody would be able to form a big enough movement to have a king’s head rolls.

If you’ve read thus far, I think you would probably have a notion that cashless society is the same thing as a credit society we’re living in today.  I would agree, but cashless society is more draconian since it outlaws the tangible cash.  With cash in the equation, people can still feel that transactions are real, because something gets sold something gets paid with hard, cold cash (i.e., it’s real).  Even with cash in the system, it’s all about maintaining the illusion that credits are properly distributed.  Taking the cash out of the current credit system to make a complete cashless society, the illusion of proper distribution and exchange will be harder to uphold when the going gets really tough.  Few good examples would be unemployment goes skyrocket, income inequality goes skyrocket, debts go skyrocket and so forth.

Of course, you can argue, when the going gets really tough, with cash in the economic system or not, the whole bubble is going to pop and a king’s head rolls anyway.  Nonetheless, with cash in the system, at least new problems of cashless society won’t be introduced to the general population.  Once cashless society is in place, some traditional problems plus new problems are going to continuously rain down on the whole society, especially when people can be cut off from the system altogether since only credit-like means are acceptable and real.

Cashless society would definitely help the controllers to see the nuts and bolts of the whole system more clearly, because electronic transactions are going to leave electronic traces behind.  Nonetheless, in bad time, this would aggravate people rather easily, because they feel their privacy are being invaded all the time.  When it comes to money, privacy matters!

I think people won’t mind sharing who they’re having sex with, but when it comes down to money people are not that willing to share.  Thus, money is rather private!  So, cashless society is going to have a problem of allowing people to have some privacy with their money.  For an example, if everything is so connected in the cashless society, everyone would know how much credits you have available.  This would mean your local pizza parlor would refuse you a slice of pizza for they know your whole worth is zero or negative credit.  In a cash society, you can just hand over the cash, the local pizza parlor would careless if you have any credit, and off you go with a delicious slice of pizza.  In a cashless society, your shame would be revealed instantly.  Even worse, you will not be able to fill up your stomach when nobody is going to accept cash.  After all, it’s a cashless society!

In summary, I think cashless society can make bad economics worse, because new problems would be introduced to the general population.  These problems may become apparent rather quickly when the economy goes bad.  An example would be people may become less cooperative in making a living, because there are less incentives to encourage people to earn money the hardy way.  People may try to scheme the infinite credit/cashless society to make money the easy way, and economic bubbles would form into gigantic ones till they burst and collapse the economic system altogether.  Instead of really solving the problems of society such as poverty and whatnot, cashless society can only enhance the paranoia of lacking privacy.  Money is a very private matter to many people, and so these people are not going to be very happy about having to live in a cashless society when every known businesses and services out there know how much you are worth 24/7.  At least with cash, people can hide their shame of having less worth.  Basically, any society with a lot of insecurity can collapse, and so the same goes with cashless society.

 

War and Politics Are Money Making Machines

When core commodity prices such as oil are going down, logically, anything else that depends and adjusts to these commodities would become cheaper too.  Let’s say oil prices are going down big time, and so the gasoline prices should be plummeting too.  Let’s say oil prices are going down big time, foods and transportation costs should also plummet too.  With lower oil prices, companies that produce products should see cost reliefs (e.g., transportation, commodity prices, etc…).  Basically, any price of core commodities plummets should bring the prices of the related products and services down.

As we speak, world politics and agenda have pushed the prices of oil way down.  Not too long ago, I remember oil prices were near $100 price range.  Nowadays we are seeing oil prices go under $40.  I don’t think we are seeing the natural cycle of supply and demand is at work for oil here, because world politics is dictating the terms.  Sure, many countries are pumping more oil out of the oil wells even though the oil prices are being suppressed at a super low level, but these countries are doing so to manipulate the world’s oil market in an artificial supply and demand way.  Normally, the world market should be the factor that influences the supply and the demand curves.

Since oil prices are plummeting way low in unnatural manner, any small positive news could really affect the oil prices.  Oil prices are also being stressed out by the advances of green energy technologies.  As the present keeps on pushing for a greener future, oil will have to compete with various green energies for market share.  If the politics stays away and the world market gets to decide, prices for oil and other energies should balance out according to the supply and demand curves.

It’s worrisome to see that countries are not on best of terms with each other nowadays.  Middle East is still experiencing great violences.  Europe’s economic might is in further decline.  Elsewhere is not doing too good as the whole world is experiencing a recession or depression, depending on who you would raise the topic with.  Cheaper oil could also mean oil is more accessible for stockpiling.  Great oil stockpile means instigating war or prepare for one is rather convenient.

If war breaks out now, prices of most services and commodities will shoot up.  This too isn’t natural since war conditions would push the natural market forces aside.  Both politics and war would be the major factors in manipulating the market prices, and I surmise that people who can easily wield these factors will be able to make a lot of money.  This is why we keep hearing someone would say something along this line, war is money.  Well, politics is also money!  I think war and politics are money making machines.

Sharing A Currency Means Giving Up One’s Own Sovereignty

I’m no expert in economics, but this doesn’t stop me from having my own thoughts on all things economics.  Thus, if my thoughts on economics are skew somehow, you have to forgive me for having a weak forte in economics.  Hmm…, weak forte is an oxymoron?  Anyhow, in this blog post, I like to persuade you why holding on to sovereignty is bad for a country which shares a currency with other countries.  Beyond the scope of currency matters, the good and the bad consequences for a country to give up one’s sovereignty is entirely another topic in which I don’t want to delve into in this blog post.

There are 19 European countries that are using Euro currency.  These countries are Austria, Belgium, Cyprus, Estonia, Finland, France, Germany, Greece, Ireland, Italy, Latvia, Lithuania, Luxembourg, Malta, the Netherlands, Portugal, Slovakia, Slovenia, and Spain.  Certainly, you can think these 19 countries that are using Euro as a region in the West, westward of Russia and China.  To simplify things in this blog post, I like to say the West whenever I refer to these 19 European countries.  Contemporary economic troubles that are stirring unrests and provoking new economic fault lines in the West can be argued that one currency Euro is the source of troubles of the economic crisis in Greece and several other Euro’s member countries.

In my opinion, the U.S. Dollar or the China Yuan or Japan Yen and so on has always been more flexible than Euro, because Euro is not a currency for a coherent country but for 19 countries with incoherent economic policies.  Instead of seeing economic progress for all countries within one currency system, we are seeing some Euro countries do really well and others are either bankrupted or on the verge of defaulting.  Incoherent interests among these currency sharing countries have divided these countries from forming up a coherent economic plan.  Without a coherent economic plan, these currency sharing countries are failing to execute economic policies that would work for most if not all member states (i.e., countries that are using the same currency).

For an example, Greece of today may be a very good country for tourism and several other service industries, but this country does not have a strong foundation of manufacturing high value products.  Taking this narrow point of view on Greece’s economic structure, we can see that Greece has to import a lot stuffs for internal consumption.  What would happen when service sector and several other sectors fail to produce net profit for Greece?  Greece has to spend less on internal consumption of course.  Unfortunately, Greece’s economic crisis evolves with how Greece is spending more than Greece can make, thus the whole country is now bankrupted.  In this situation, we can see that Euro currency isn’t able to dictate the economic policy to Greece in a way that Greece won’t have to go bankrupted.  In this situation, Greece cannot print more Euro since it has no power to do so.  If Greece can print more Euro, it may be able to attain more Euro to pay off the debts at the cost of devaluing the Euro.  Without being able to print a country’s own money to get out of debts (i.e., work for short term at the expense of the purchasing power of the next generations), Greece may have to find other means of bringing home the bacons.

The example of Greece shows that country without one’s own currency can prevent a country from having a second chance of righting the sinking ship.  Without being able to repair a sinking ship, how one can expect Greece to be able to get out of the economic crisis?  Foreign countries can continue to lend money to Greece — increasing Greece debts without knowing for sure that Greece would be able to pay back — to help Greece sustains the sinking ship from sinking.  Nonetheless, without repairing the hole from the sinking ship, no amount of extra lending would be able to suddenly make the hole whole.  It’s like you keep on scooping the water out of the sinking ship while the hole keeps on letting in more water into the sinking ship.

Without having one’s own currency, a country may experience the devaluation of a currency without having any choice in the first place.  For an example, Germany’s economy got most things right, thus Germany doesn’t need to weaken the Euro for generating an attractive export industry, but Greece and other European countries need to have Euro to be weakened for various economic benefits.  If European countries are banding together to devalue the Euro for economic benefits, this means Germany will have to be a reluctant party to the devaluation of the Euro.  If the Euro is being devalued, Germans will see their wealth being stealthily taxed away by other Europeans, because currency inflation weakens the overall health of the wealth holding of every German.  Basically, Germans don’t have a choice if Germany wants to see Euro’s member countries devalue Euro for economic benefits.

In the long run, the disparity of the rich and poor members within a single currency system will become ever more so apparent.  The disparity of such a scale within single currency system will be the force that can eventually break the system apart.  Once the system breaks down, the rich members will go on, hopefully, with a better currency system.  The aftermath of a broken single currency system will make things a lot harder for the poor members.  The poor members will have to fight an uphill battle, because they lack the economic prowess.

A single currency system can work only if all member countries become one country!  As each member country gives up the sovereignty, each member country has to act as a state and not as a country.  This means the states need to listen to a centralized power.  This centralized power will execute general, coherent economic policies.  Sure, each state can have its own economic policies, but these economic policies would be localized and limited in scope and scale.  Since each member country gives up sovereignty to become a state, it’s pointless to spend the money that they don’t have to upkeep big military as if a country would do.  Thus the implication of truly giving up one country’s sovereignty for sharing a currency can go beyond the scope of economic matters.

Basically, a true country needs to be efficient in resource allocation.  Nonetheless, a true country also needs to be able to generate needed resources in the moment of need, thus the power of printing money comes in handy.  Perhaps, the power of mobilizing many states’ resources in a coherent manner in the time of need can also be very effective in stabilizing the crisis moment.  As long a true country has a clear, efficient picture of the resource allocation, it can figure out which resource needs to be generated in extra for strategic purpose.  The redundancy of a strategic resource can later bail out a country from a resource lack crisis.

If 19 European countries in Euro currency zone can become one true country, then the Euro may become more flexible.  Nonetheless, one’s own currency doesn’t necessarily translate into healthy economy for a country.  We had seen countries devalued one’s own currency to the point of the currency became worthless.

Quote from Wikipedia:

By late 1923, the Weimar Republic of Germany was issuing two-trillion mark banknotes and postage stamps with a face value of fifty billion mark. The highest value banknote issued by the Weimar government’s Reichsbank had a face value of 100 trillion mark (100,000,000,000,000; 100 million million).[15][16] At the height of the inflation, one US dollar was worth 4 trillion German marks. One of the firms printing these notes submitted an invoice for the work to the Reichsbank for 32,776,899,763,734,490,417.05 (3.28 × 1019, or 33 quintillion) marks.[17]  (Source: https://en.wikipedia.org/wiki/Hyperinflation)

To conclude this blog post, in my opinion, one’s own currency allows the possibility of currency manipulation.  Usually, a country manipulates its own currency to gain trade, tourism, and other advantages.  Nonetheless, if not careful, currency manipulation can drive one’s own currency into a currency hyperinflation, leading to a worthless currency in which nobody wants to have anything to do with such a currency.  Worthless currency won’t be able to support trade and so on.  Sharing a currency is not the same as having one’s own currency, and the disadvantages of sharing a currency are many.  The lack of the ability to freely manipulate one’s own currency, currency sharing country will have to rely on self-discipline in nation spending.  If a currency sharing country cannot produce anything of values to bring in a net profit, a currency sharing country must cut spending even more since money printing isn’t possible, leading to apparent austerity and poverty.

Should Minimum Wage Be Raised Or Not?

For pure intellectual reason, I got interested in the debate of should we raise or not raise the minimum wage.  After watching Walter Block and Bill Quigley debate on minimum wage, my interest in this topic can only be enhanced.  The video of this debate is right after the break.

In my opinion, minimum wage is good when you apply it in good time.  The key is good time.  What is good time?  Good time is when the economy is doing good, low inflation on basic need prices (e.g., food, clothes, education, etc…), strong purchasing power at home and abroad (i.e., high living standard in term of strong currency value without the need of devaluing the currency for strong export market), and whatnot.  Minimum wage is effective in good time as it can apply some justice on punishing greedy corporations that just only want to maximize profitability rather than pay livable wage to their employees; punishing them to pay appropriate wage for their employees.  In good time, higher minimum wage encourages poor people to save less and spend more, but this is a redundant effort since good time doesn’t need the spending of the poor to elevate the economy.

In my opinion, minimum wage is bad when you apply it in bad time.  The key is bad time.  What is bad time?  Bad time is when high inflation prices into everything to raise the prices of foods, everyday needs, rents, housing, and whatnot.  Even high inflation in currency would be a bad thing too as it devalues the currency power (i.e., purchasing power), leading to a lower standard of living, comparing to a normal standard living of course.  As the weaker the currency the more you have to slave away for money to just get what you need.  An example would be high inflation of $1 would require $2 or $3 to buy one lollipop instead of $1 a lollipop.  You probably think I have digressed with the inflation talk, but I just want to emphasize that raising minimum wage in bad time can encourage the inflation to go on steroid.

Why raising minimum wage in bad time could supersize inflation?  Let’s assume that you are an employer of a small shop.  You cannot really afford to hire too many workers.  Thus, you want to make sure each worker you hire does have high productivity rate even though you may not be able to measure such a thing in real number.  Nonetheless, you want to have a feeling that a specific worker you hire is doing a good job for your business.  You know each worker would cost you a lot in term of wage if you have to pay the worker a higher minimum wage.  When a government mandates that you need to pay higher minimum wage, it makes the choice of firing a worker easier for you since you have to think about sustaining the profitability, minimizing the cost of doing business and whatnot.  Furthermore, you would probably include the cost of higher minimum wage for an employee in the products that you are producing, servicing, selling, and trading.  The employees who work for you got higher minimum wage, but they don’t have more money since the purchasing power of their wage hasn’t changed much for the prices of the products they may buy would go up.  Not only the employees but the employers themselves are customers, thus the costs of doing business such as buying materials for business would go up.  Simply put, raising minimum wage in bad time invites inflation to become hyper inflated.  It would be bad for the whole economy.

Big corporations love to have a good public relation image, because they think good public relation image will popularize their brand even more.  Furthermore, corporations believe that the more popular a brand is in image, the better the brand would perform in selling whatever.  It’s common sense really!  Thus in bad time, big corporations won’t mind raising minimum wage for their employees, because their profit margin is already high.  At the same time, their brand’s image gets a boost by paying higher wage for their employees in bad time.  Smaller businesses will have harder time in playing the PR game of raising wage, because their profit margin isn’t high enough to comfortably raise wage for their employees.  Thus, minimum wage encourages big corporations play PR game without taking the inflationary effect into the account.

Should we abandon minimum wage altogether?  Once minimum wage got raised, it’s really hard to undo the minimum wage’s level.  Don’t you think it’s really ugly for a government to tell her people to work for less than yesterday minimum wage?  Lowering the minimum wage isn’t going to be popular at all.  Abandoning it isn’t the solution either.  I think many things are relative, and minimum wage is definitely relative to changing time (i.e., good or bad time).  This is why I think raising minimum wage in good time would look good, and lowering the minimum wage in bad time invites protests.  I think since minimum wage is already in effect, the best thing to do is to not messing with it at all.  This means you better have a really good reason to raise the minimum wage.  Instead of messing with minimum wage to help the poor out, why not aiming for low inflation prices of foods, clothes, and whatnot.  Lower inflation would help out the poor in term of purchasing power as long the currency of a country isn’t already devalued to the point of near worthless.  After all, cheaper foods and whatnot would be a good thing for the poor and everybody else!

In conclusion, I don’t think minimum wage is the same thing as high productive wage.  I think individual company can do good by paying high productive wage (i.e., paying more) for employee who has done a stellar job in his/her role, because retaining a good employee from leaving the company for a competitor would be a good thing, in the consideration of having good, long term, business prospect.  When raising minimum wage without thinking about the consequence in having inflation on steroid would be extremely irresponsible thing to do.  In my opinion, instead of messing with the minimum wage, the government should worry about controlling the high inflation in everyday needs for the poor.  I don’t think the argument of minimum wage encourages productivity makes any sense, because productivity is a self-fulfilling-prophecy kind of thing.  Higher productivity will always be in demand in the business world, thus the competition for higher productivity will be abundant.  Higher minimum wage may encourage employers to fire employees easier and hire employees with better productivity rate.  Without raising minimum wage, the employers may give the employees with low productivity rate a second chance in retaining their jobs.  After all, retraining new employees would disrupt the flow of productivity anyway!  In general, the less poor people out there on the street, the better the economy and the society will be more stable.  If raising minimum wage can make inflation goes on steroid, then raising minimum wage is just an illusion for having done something good.

Middle Income Trap Theory Is Not Perfect

Obviously, I’m nowhere near of anywhere to consider myself a knowledgeable person on the topic of economics, and to have myself even consider of dabbling with the topic of world economy is just ludicrous.  Nonetheless, I’m just like any other human who has imperfections, and so let me indulgently dabble with what I want to write next.  I have seen people talk of middle income trap this and that, but the uneducated me think the middle income trap is overrated.

When people talk of middle income trap pertains to a country, they tend to assume that such a country has uncompetitive edge in export market and (has) yet to be able to raise the per capita income level which can break out of the middle income status.  This idea/theory does have some merits (but must include the inflationary rates in the formula).  If a country is losing in export competition around the world and yet the per capita is still hovering around the middle income status, it’s true that such a country can be in for a struggle of improving the country’s economic status and people’s happiness.  Nonetheless, this theory doesn’t work for a country such as China or similar country to China.  Why?

China has 1.3 billion people, and their economy is still the fastest growing economy in the world which hovers around 7% of GDP growth.  When people think in term of percentage for GDP growth, they tend to over-rate the growth percentage.  When China’s economy was way way smaller than Italy, China’s GDP growth was hovering in double digits of GDP percentage growth, but now China economy is the biggest in Asia and way way more bigger than Italy — the GDP growth of China slows down to 7%.  This fact alone can argue that with bigger economic base and foundation, even at 7% GDP growth China can still bring in more revenues as a whole country than Italy can ever achieve even if we see Italy grows at 7% in GDP.  In reality though, if I’m not wrong, in 2013, Italy has around 2.1 trillion dollar GDP economy in nominal term, but the GDP growth is at -1.9% (negative 1.9%).  To sum this idea up, at 7% of GDP growth, China is still growing like she was around 10% or higher, because her whole economy is so much more powerful and bigger.

As China is slowing down in term of nominal GDP percentage growth, the world is fixated with the percentage growth in GDP and wondering if China may stuck in the middle income trap.  Some people, out of ignorance, are definitely loving to use the slowing down of nominal GDP growth percentage for China to make their point that China is going to stuck in the middle income trap if she doesn’t transform herself into a domestic consumption led economy.  I don’t like to delude myself and agree with such nonsense.  Not because I dare to think I’m smart and taking the road that less people walk and say that China doesn’t need to transform herself into domestic consumption led economy, but the facts on the ground are that China is getting richer — meaning when the Chinese average citizens have more money they automatically spend the extra money they have even though they are going to save a lot still.

I think China knows this, and this is why we are seeing China encourages the world to support her in building new land and maritime silk roads.  Instead of implementing policies that would transform herself into domestic consumption led market, China wants to have her cake and eat it too.  In China case, I have a feeling that she may achieve this objective.  Why?  The facts on the ground tell me that China is now the largest trading partner for most countries around the world, and so it’s logical for China not to be stupid and thinking that by letting go the export market and just ramping up the import market will make China richer.  It’s just common sense that I sense China knows this, and so this is why we are seeing China promotes more trades around the world.  The argument that China must transform herself into domestic consumption led is nonsense.  China takes 35 years to build up herself as the largest export trading partner with the world, why would she want to give all that up and get herself into debts by going the hyper-importing route?  The truth is that China is going to import more anyway since she is richer and wealthier, but she is going to do this in a natural manner.  Natural manner?  When her citizens get richer and wealthier, her citizens are going to demand for more import goods naturally with or without the intervention of her government’s import preset models.  One example would be China now has the largest automobile market in the world.

I’m writing this article to argue why people should not think the middle income trap theory is always going to be correct.  To think so would be a delusion.  Who would want to be delusional?  In the end the facts on the ground will always going to be freely available for people to understand.  As long China has the export competitive edge, she is going to be fine even if her per capita income isn’t higher than the middle income status.  Only when China loses her export competitive edge, that is when she finds middle income trap is troublesome.  Nonetheless, China is too smart to fix something that isn’t broken.  The proposal of the new land and maritime silk roads is one of the logical methods of how China is going to build a stronger export foundation to ramp up her future export market.  China is seeing weakness in her export market as the world experiences a big recession.  Europe and America and many other countries around the world are poorer now, thus the export market for China is naturally weaker.  As China is seeing this, she proposes the silk roads and establishes AIIB (Asian Infrastructure Investment Bank) so she can ramp up her export market and maintain her manufacturing hubs and capabilities.  If China is going to achieve this, even if China is still a middle income country for the next ten years, I think China is going to be just fine and her economy is going to grow even bigger than ever before.

China is also a special case in term of her foreign exchange reserve.  China has a surplus of around 4 to 5 trillion dollar foreign exchange reserve, and so she can use this to preemptively stopping weaknesses in her economy.  One example would be funding the AIIB that she is in process of establishing.  Furthermore, China is still pegging her Yuan to the Dollar, and so she can just tweak her currency the way she wants.  By being able to tweak her currency the way she wants, China can effectively control how she wants to get herself out of the middle income trap at the pace that she decides.  How?  By being able to increase or decrease the strength of Yuan according to the Dollar peg, China can dictate how much more stuffs her citizen can afford from import.  Rising Yuan would make her export weakened, but she can afford more from import.  Weakening Yuan would boost her export but weaken her import.  Instead of raising the wages of her people’s per capita income, China can just tweak her dollar currency peg to have the same effects as countries that have already escaped the middle income trap.

As long the United States’ Dollar is still the reserve currency of the world, I don’t think China will unpeg her Yuan against the Dollar.  Only when China can establish her own currency as the reserve currency of the world, this is when China will unpeg the Yuan from the Dollar.  Of course, if this to happen, I think China will be more careful in tweaking her currency and will consider of implementing policies that encourage higher wages/incomes for her people.  Nonetheless, if China’s Yuan becomes a reserve currency, she will have a lot of tools to get herself out of middle income trap easily.  Why?  Because world reserve currency has a lot of power!  The power to affect trade and world policies are two examples of a country that has her currency as a reserve currency for the world.  With huge export capability and manufacturing power, a Yuan currency reserve for the world will make China unchallenged for decades to come.  Nonetheless, it’s not that easy for just any country to turn her own currency into a world reserve currency, and the United States is going to challenge such a country for sure if that is going to happen.  I think we are going to see China and United States compete in currency arena for some time to come, because I think China is challenging the United States’ world currency reserve status as we speak.