Monday, March 14, 2016
Tale of two nations, difference between how the U.S. dealt with the 2008 financial crises and China deals with current over capacity crises. By Francis C W Fung, Ph.D.
Tale of two nations, difference between how the U.S. dealt with the 2008 financial crises and China deals with current over capacity crises. By Francis C W Fung, Ph.D. The 2008 Global financial was caused by the Wall Street toxic mortgage investment derivatives that spread worldwide. For details see Michael Lewis book "The Big Short". Emergency action to save the U.S. economy was launched by the U.S. Treasury Department to save the Wall Street investment banks to the tune of hundreds of billions of Tax dollars. The money was used to bail out the so called too big to fail U.S. investment banks, namely Wells Fargo Bank, Citigroup Inc., Bank of America, Morgan Stanley and Goldman Sachs etc. From Wikipedia: "The financial crisis of 2007–08, also known as the global financial crisis and 2008 financial crisis, is considered by many economists to have been the worst financial crisis since the Great Depression of the 1930s. It threatened the collapse of large financial institutions, which was prevented by the bailout of banks by national governments, but stock markets still dropped worldwide. In many areas, the housing market also suffered, resulting in evictions,foreclosures and prolonged unemployment. The crisis played a significant role in the failure of key businesses, declines in consumer wealth estimated in trillions of U.S. dollars, and a downturn in economic activity leading to the 2008–2012 global recession and contributing to the European sovereign-debt crisis. The active phase of the crisis, which manifested as a liquidity crisis, can be dated from August 9, 2007, when BNP Paribas terminated withdrawals from three hedge funds citing "a complete evaporation of liquidity". The bursting of the U.S. (United States) housing bubble, which peaked in 2004,caused the values of securities tied to U.S. real estate pricing to plummet, damaging financial institutions globally. The financial crisis was triggered by a complex interplay of policies that encouraged home ownership, providing easier access to loans for subprime borrowers, overvaluation of bundled subprime mortgages based on the theory that housing prices would continue to escalate, questionable trading practices on behalf of both buyers and sellers, compensation structures that prioritize short-term deal flow over long-term value creation, and a lack of adequate capital holdings from banks and insurance companies to back the financial commitments they were making. Questions regarding bank solvency, declines in credit availability and damaged investor confidence had an impact on global stock markets, where securities suffered large losses during 2008 and early 2009. Economies worldwide slowed during this period, as credit tightened and international trade declined. Governments and central banks responded with unprecedented fiscal stimulus, monetary policy expansion and institutional bailouts. In the U.S., Congress passed the American Recovery and Reinvestment Act of 2009." From above we can see the "American Recovery and Reinvestment Act of 2009." left the world public suffered unaccountable miseries and financial losses while Wall Street profited from the bail out. To this day the world has not recovered from this unprecedented world great recession. This is the main reason for the decline of world trade and trade in China that led to the current over capacity crises. See my publication "By 2020 the the U.S. led 20th Century Globalization will transition into the 21st Century China led globalization, U.S. left unaware". To dealt with the loss of exports and the over capacity crises caused by the U.S. 2008 financial Crises, the current China National Two Session Meetings (Chines Parliamentary Meetings), China launched the Supply Sides economics with Chinese characteristics to boost growth. This Supply Side economics is not at all like Reaganomics of corporate tax decrease to bring about trickle down economics. The growth policy include many faceted growth initiatives such as "One belt, One Road" ( See my many articles on " The Silk Road Economic Belt and the 21st Century Silk Road Marine Route"); the "Made in China 2025" industrial upgrade"; green energy growth and the innovation campaign for all. According to statistics, the last initiative has resulted in the movement of 7 new startups per hour in China today. All these and other growth initiatives are designed to keep the Chinese GDP growth at an annual growth of 6.5% this is comparing to the U.S.2.5% ,E.U. 1.7 % and Japanese negative growth rates so China will continue to be the global growth locomotive. The "One Belt One Road" initiative has already led to the launching of the Asian Infrastructure Investment Bank with over 60 worldwide leading nations participating and over 70 infrastructure projects signed along the new silk road, including the $46 billion China funded China Pakistan Economic Belt. As of now it is estimated that the contract signed will add 1.3% to China's annual GDP growth. All these initiatives are aimed to benefit the citizens of the whole world in the spirit of "Chinese diplomacy" of "community of common destiny", a Confucian concept initiated by President Xi Jingping. In contrast, the "American Recovery and Reinvestment Act of 2009." only benefited the world's top 1%!!!!! Francis C W Fung, Ph.D. Director General World Harmony Organization San Francisco, CA.