[jluetjen]

For some reason people always seem to see currency flows in terms of their local cash economy. Thats kind of like discussing the intricacies of the Space shuttle based on a model that you built as a kid. Some things to consider...

1) Everyone b1tches about how devalued the dollar is, and how the Chinese are buying everything in sight. This is nothing new. In the past it was the Taiwanese and the Koreans, and before that (and in a much bigger way) the Japanese. Sure they came, bought a lot of stuff (land-mark buildings, companies, etc) and inevitably ended up sucking wind because they inevitably overpaid with their overvalued currencies. Meanwhile the previous (American) owners laughed all the way to the bank.

2) Isn't it curious that even with the exploding Chinese stock market, so many investors are still buying American stocks and bonds? Aren't these the same American companies that can't compete? Or is it that these companies really are worth something when compared to overseas companies?

3) Everyone laments the loss of jobs overseas. Welcome to the 21st century! It's not the jobs that are the value added, but the ability to create new jobs by developing new products and services which is where the value added exists. Most of the jobs which are being moved overseas are mature, routinized, comparatively easily repeated and copied jobs. To put it differently, they are boring, demanding and don't pay that well. I'd be surprised if anyone on this board would be happy doing them for the wage that's being paid, even in the local economy. While workers overseas may do better then their counterparts in the local economy overseas, the jobs only exist because they can be done there cheaper they can here. If they weren't being done in country C, they'd be done in country I, M or countless other places in the world. The reality is that it's comparatively easy to copy the job, and this is reflected in the very competitive and cheap wages associated with an exported job.

The key to American economy is that we export ideas and jobs. That is the biggest difference between the American economy and the "Asian tiger" economies. Aside from maybe Singapore, the rest of the Asian Tigers only wish that they could create as many new ideas in their economies as the US does. Why can't they? They often have the rigorous schooling, entrepreneurs and the "high tech" economy -- but somehow it just doesn't happen.

In my opinion it's because we have a culture and economy based on creativity. China and the other Asian Tigers don't have this because it would threaten the status quo, both culturally as well as politically.

At the end of the day, the cost of living in China is increasing as everyone makes some money and wants to buy big-screen TV's, expensive cars and other stuff. It's already happening along China's coast. When that happens, suddenly they don't have the wage advantage that they once had. Manufacturers then take the jobs and go to the next cheap economy. The smart companies aren't bothering to put more factories in Shanghai because it's not much cheaper the Malaysia, Taiwan or Korea. Instead they're looking further inland to provinces where there is more competition for each job. While the Chinese certainly have a vast labor pool, so this isn't going to happen as fast as it did in Taiwan, Korea and Singapore -- it will happen. Watch out for when that happens because there will be a huge "correction" to the Chinese economy that will make the Japanese "Bubble" bursting look mild. The drain on the world's economy will be huge when that happens.