HARD WORK AND THRIFT

China's accumulation of foreign currency is a hotly debated topic amongst economists who blame the ongoing economic instability in the world on this accumulation of foreign currency in China’s hands.  

Given the arrival of increasing numbers of Chinese people and enterprises in our rohe, this is an issue I have taken pains to consider and understand how it impacts on us.  What I have found is that it all pivots on two practices that New Zealanders embraced religiously in the past, but today, not so much; i.e. hard work combined with thrift.

This is not a popular message, but it is true nevertheless.  For decades New Zealanders have been living way beyond our means at a terrible cost to our future, and to do so we’ve been borrowing.  

In 2011, our borrowing hit $380 million per week, the highest rate ever recorded.  By June this year that was down to $200 million per week.  But that just includes government debt. Add in household and corporate debt and your eyes will begin to water.

Most of that borrowed money comes from the United States private banker, the Federal Reserve.  So, allowing for inflation, the $billion question is, where does the Federal Reserve get the money from originally? 

There are a range of mechanisms that explain how the Federal Reserve creates money.  But when you tease those mechanisms apart to see where the money we borrow comes from originally, whereas in the past you would have found a mix of sources, today you will find China.

Not less than a decade ago, China was an economic mess.  Now it’s the fastest growing economy in the world, and the United States third largest trading partner, behind Canada and Mexico.  

This turnaround was achieved on the back of two very Chinese practices; hard work and thrift.  It was also boosted by the west’s addiction to spending more than we earn. 

As a result China built a savings record and balance of payments which Winston Peters could only dream about, and it became the biggest lender to the United States.  

However, because the Federal Reserve continued printing money like it was going out of fashion, the value of the US greenback got more and more flakey. So in order to turn the rapidly devaluing American currency it held into things that would hold their value, the Chinese began buying solid assets wherever they could, including in our rohe. 

The current United States Secretary of Treasury Timothy Geithner, recently accused China of "currency manipulation."  Read Barry Ritzholt’s Bailout Nation and you’ll see what a hypocrite Mr Geithner is.  

From the 1980s onwards, western bankers like John Key and Timothy Geithner, shamelessly manipulated currencies around the world.

At the same time we happily spent trillions of dollars on cheap Chinese goods and services. 

This created employment in China, and the Chinese worked hard and saved.  Then they lent their savings to us so we could buy more goods and services.

As Charles Dickens may have put it, China ate a small cup of gruel in a cold dark room to save money. 

So, now that China is spending some of its foreign currency internationally, including in our rohe, will Chinese people continue to embrace hard work and thrift?  

More critically, for the sake of our future, will we again embrace those values ourselves?