China Calls Out the US for Reverting to a "Planned Economy"

You knew the day would come, Fellow Reckoner …but did you think you’d see it so soon?

“China tees up G20 showdown with US” reads a headline in The Financial Times.

Apparently the Chinese aren’t too thrilled over Chairman Bernanke’s plan to destroy the value of the US currency. And why would they be? Next to retiring Americans – who remain, for the most part, vaguely hopeful they’ll see some of their Social Security confiscations paid back in kind – China is the largest holder of dollar-denominated debt in the world.

“Many countries are worried about the impact of the policy on their economies,” commented the Middle Kingdom’s Vice Foreign Minister Cui Tiankai on Friday, before going on to say that the US “owes us some explanation on their decision on quantitative easing.”

Mr. Tiankai, who will be one of China’s lead negotiators at next week’s G20 meeting, also remarked that the US plan for limiting nations’ current account surpluses and deficits to 4% of gross domestic product harked back “to the days of planned economies.”

Ha! Did you read that? The Chinese are accusing the Americans of economic devolution, of reverting to “planned economies.” And it’s not as if the Chinese don’t know what a planned economy looks like, having, along with her Ruskie comrades to the north, suffered the disastrous experiment for the better part of last century. By some estimates, Mao’s reds starved, killed, purged or otherwise “lost” 70 million citizens during such unmitigated disasters as the Great Leap Forward and the Cultural Revolution. And still his all-seeing portrait festoons the gates of Tiananmen Square.

The truth, of course, is that all world economies suffer, to some extent, under the blunt hand and dead weight of their own central planners…including “Chi-merica.” A pot here, a kettle there, in other words. Once upon a time, Americans would look with disdain at those “pinkos” overseas. Their ludicrous economic policies and matching grey jumpsuits were the fodder of spy movies and Get Smart episodes. Once, Americans laughed at them. Now, if she is honest with herself, the best she can muster is a half-hearted, “It takes one to know one.”

Behind the bread and circuses in the political arena, the markets are on the march…the march away from dollars and toward “tangible” assets – things like precious and non-precious metals, energy and agricultural products. Gold looks poised to crack $1,400 per ounce any day now. Meanwhile, silver is tickling $27 and, last Friday, copper rallied to a 27-month high. Some analysts are calling for $12,000 per tonne, based on strong demand from emerging markets and, no doubt, further dollar devaluation. And, as if they needed another reason to rally, China is betting on “stuff” over “paper.”

Reports Barron’s: “This year, for the first time ever, China has been investing more overseas in assets like iron, oil and copper than it puts into US government bonds.

“China in this year’s first half spent $31 billion on hard assets,” the journal continues, “compared with $23 billion on Treasuries and other US government bonds. Experts say China’s investments in each of these asset classes will total about $55 billion for the full year. But even a tie marks a major turnaround from China’s previous practices. For many years, the mainland spent next to nothing on hard assets abroad, while its purchases of US government debt ranged as high as $100 billion a year.”

Joel Bowman
for The Daily Reckoning