In this part of my discussion I will briefly touch on the development of the credit markets of the US and China. In capitalism credit/debt is essential in capitalist production in order to keep the engines of industry rolling i.e. the valorization of capital as a social force. The US credit market is vastly superior to China’s and this is due to its developed capitalist mode of production.
China is growing at high rates which reflect the high levels
of investment from its earnings however in terms of available credit/debt to
drive industry it is not as high as the US. This is because China has not been
able to thoroughly exploit its resources and develop significant private
enterprises which depend heavily on credit. The US is dominated largely by
private enterprise and high consumption rates because of the high per capita
incomes in that country. With China some of its major companies, such as
Sinopec, are still under the umbrella of the government and the government has
been a major stimulant of the Chinese economy since the recession in the world
market. This high level of stimulation
has seen the growth of ghost cities because incomes have not risen significantly
for the mass of the population to benefit from this remarkable boom in
production. This would explain why consumption rates are so low and the
investment rates are high. The high investment rates would also suggest that
the savings rate is high and this will serve the Chinese well when the world
market recovers from its slump. In America the consumption rate is high, 70% of
the economy according to various statistics, and this also implies a lot of
debt: credit card debt, mortgages, car loans etc. With a lot of the capital in
China stored in the state banks it is unlikely that they are, or will, be able to
increase consumption to such an extent by opening the credit markets which
would facilitate such an expansion. This
would erode the high levels of investment which are the main sources of growth
in the economy. China will have to open
its credit markets in order to expand its domestic market and the process has
already begun. Opening the markets would mean the inclusion of private
interests from external and internal sources. They will participate in the
credit markets primarily to make a profit and not to maintain social cohesion
as the Government is doing now. This is why China has to proceed with caution
in allowing private interests to become involved too extensively because the
liberalization of the capital market will erode the possibility of nationals accumulating
capital and stimulating the economy when another slump in trade occurs. China
is still undergoing its nationalist revolution and only when this is through
will there be a significant opening of its capital markets. It must first
encourage its own people to invest and take control by accumulating sufficient
capital. Eventually it will reach there
once the Chinese currency becomes viable in world trade and the markets become
more open to foreign direct investment. Chinese national debt is around $2.3
trillion as of this year but this is largely due to the large role played by
the government in economic activity since 2008.
The credit markets in the US are highly developed because of
the high development of the capitalist economy on the basis of private
property. Private individuals require credit in a developed capitalist economy
especially if they cannot pay down immediately. When a capitalist economy such
as what occurs in the US reaches its developed form capital itself becomes a
commodity freely traded primarily in the form of money capital as opposed to
commodity and productive capital which include elements related to the production
and the circulation of commodities in the market. Money capital has a price called the interest
rate. The money lender gives you the money now and you pay them back over time
with interest. Until you repay that money outstanding, including the interest, it is considered debt. It can be both private and public. The national debt is
that which is used, supposedly, by the Government on behalf of its citizens in a capitalist
democracy such as the US so as to create social institutions that can help to
provide safeguards and security or to boost productivity and to maintain the
government machinery. Private debt revolves around private productive
enterprise geared towards making a profit and those consumers, particularly from
the working class, and the petty bourgeois society that use credit to increase their
consumption rate simply because they are unable to spend their own money at the
moment. The US debt, inclusive of private and public, according to the US debt
clock is $59.4 trillion. This is a massive figure and it can be both positive
and negative for the US. It can be positive because this debt remains a claim
on future earnings and it can be negative because if the debt cannot be repaid
then a lot of money will be removed from the system sending systems crashing. There
are a lot of systems that rely on debt particularly if they are earning
regularly. From this perspective debt is a good thing. When the rate of profit
or the rate of profit in the capitalist sphere slows however then the
likelihood that the debt will not be repaid increases because private
individuals might go bankrupt or workers will be thrown out into the streets. The
high levels of consumption in the US economy suggests that credit/debt is essential
particularly if you are a middle income individual purchasing a house or buying a car. Wall Street clearly
represents this capital fetish in its developed form for this is where the massive
amounts of private capital are concentrated in the US. The Federal Reserve in
stimulating the economy issues a lot of cheap money for investment purposes: $85
billion a month when it buys government debt. The only reason the US could call
on this massive amount of credit is due to its position as the largest
capitalist nation empire that has ever existed. This creates some measure of
confidence in the system and encourages people to invest in treasury bonds or
in the stock market. The US owes foreigners $5.6 trillion, with China and Japan
being the largest holders of US foreign debt. The vast amounts of revenues
accrued on the basis of taxation in the world’s largest economy would encourage
these countries to invest. As the world’s largest capitalist nation empire the
US is the world’s largest trading nation and this has contributed to the US
dollar being the largest reserve currency (62% of the world’s reserves are in US dollars
for trading purposes) because its private enterprises have been able to
penetrate all four corners of the globe. On this basis its credit markets
become superior to China at the moment. China is on a different path however
based on its history but eventually it will open its credit markets. The US
itself in order to push even further will also open its markets further as the
world economy becomes more integrated in around 50 years and nationalist
boundaries become minimal. This would imply that the productive forces in the
world economy will reach tremendous levels and also that crises will be more
destructive.
Lastly let me look at the extent of the reserves in each nation
or the amount of savings and this will determine the extent by which the credit
markets of the US and China differ. There is a vast difference in the amount of
reserves. China has reserves amounting to $3.3 trillion whereas the reserves in
the US are only $136.2 billion. The more reserves suggests that China has a lot
of room for investment although the high investment rate has to be cooled
somewhat in order to boost consumption levels whereas the US with its developed
capitalist economy and its high
consumption rate has been able to keep its reserves to a minimum thereby
ensuring that it keeps its money productive. China on the other hand will have
to wait until its domestic market expands i.e. increased consumption rates
associated with an increase in per capita incomes. This would balance the high
rates of investment by increasing the credit opportunities for its citizens.
Pt 3 is to follow.
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