The Chinese are watching

Advice from one of China's top bankers.

Some prime quotes:

• "People, especially Americans, started believing that they can live on other people’s money. And more and more so. First other people’s money in your own country. And then the savings rate comes down, and you start living on other people’s money from outside. At first it was the Japanese. Now the Chinese and the Middle Easterners. We—the Chinese, the Middle Easterners, the Japanese—we can see this too. Okay, we’d love to support you guys—if it’s sustainable. But if it’s not, why should we be doing this? After we are gone, you cannot just go to the moon to get more money. So, forget it. Let’s change the way of living. [By which he meant: less debt, lower rewards for financial wizardry, more attention to the “real economy,” etc.]"
• "How do I explain derivatives?, and I used the model of mirrors. When I told the State Council about the mirrors, they all started laughing. “How can you sell a mirror image! Won’t there be distortion?” But this is what happened with the American economy, and it will be a long and painful process to come down."
• "And then tell your people that you need to save, and come out with a long-term, sustainable financial policy. "
• "Be nice to the people that lend you money."
• "The current conditions can’t go on. It is time for the new government, under Obama or even McCain, to really tell people: “Look, this is wartime, this is about the survival of our nation. It’s not about our supremacy in the world. Let’s not even talk about that any more. Let’s get down to the very basics of our livelihood.” "I have great admiration of American people. Creative, hard-working, trusting, and freedom-loving. But you have to have someone to tell you the truth. And then, start realizing it. And if you do it, just like what you did in the Second World War, then you’ll be great again! If that happens, then of course—American power would still be there for at least as long as I am living. But many people are betting on the other side. "

The Chinese are watching. What they see is a country that survives on borrowed money with a decaying infrastructure, decaying educational system, decaying health care system, collapsing industrial base, a nation whose economy for the past couple of decades has been a giant Ponzi scheme epitomized by Bernie Madoff. They watch as they see the same sort of arrogance that sunk the Japanese starting in 1941, the arrogance of a people who believe they are superior to everybody else in the world, who treat everybody else in the world like cr*p, and who refuse to admit reality even as the nation slides to ruin. The Chinese have been there a long time, and have a long memory. They've been studying hard from the sidelines and have distilled down the recipe that made America great -- hard-working frugality, industrial power, etc. -- and have a long-term plan to put themselves in that place. And now they're pretty much laughing because just as with the Japanese in 1941, who were warned by the Americans that their plans for a "Greater East Asian Prosperity Sphere" under Japanese rule would result in disaster, they know they can warn Americans all they want and Americans will no more change the direction they're going than the Japanese did in 1941. But warn they will, just for the sheer pleasure of being able to say "I told you so" when the lemmings follow their leaders right off the cliff.

-- Badtux the Economics Penguin