It’s Easier to “Print” Money to Make Refrigerators, by Bill Bonner

Who needs refrigerator manufacturers and other real businesses when you’ve got a central bank? From Bill Bonner at rogueeconomics.com:

What we are wondering today is what’s ahead for the U.S. economy – inflation or deflation? Maybe the Evergrande story will give us a clue.

To fully understand the Evergrande story, you almost have to understand the whole story…

…of how, in 1971, the U.S. switched to a “flexible” dollar that it could print at will…

…and how the switch created a boom in China… and a bust in U.S. manufacturing (it’s easier to “print” money than to make refrigerators).

In an honest economy, pre-1971, the U.S. had to repatriate its dollars by offering equivalent quantities of goods and services to the Chinese…

…or risk having to settle up in gold.

Concrete River

But with the new system… it could just print up more dollars… which the Chinese, bless their hearts, used to buy U.S. bonds…

All this money created a boom in China… which quickly got out its cement trucks. The concrete flowed like the Yangtze.

We saw the construction boom on our trip to China in 2014 – a breathtaking display of human industry and material progress.

The highways were new. The buildings were new. The trains… docks… factories – all new. You could scarcely find a house more than 18 months old.

Never in the history of the world had so many people gone from being so poor to so rich in so short a time. Per capita income rose from $318 in 1990 to $10,500 in 2020.

And never in history had so much money been borrowed to make it happen. From $1.7 trillion of total debt in 2000, China now owes nearly $50 trillion. Its debt-to-GDP ratio now stands at 335%.

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