The quiet before the storm
How does the US earn the quality of life their citizens enjoy?
Are they producing more value? Or printing more value?
Are they exporting high value goods out of the country? Or exporting paper bills?
If we accept that some deviation from reality exists in the consumption vs. production balance in the US, then how is allowed to exist?
Is it possible that all policy making parties benefit from this misalignment? The US politicians benefit because they are able to satisfy their consumption addicted constituents and will get re-elected for another term. The Asian politicians benefit because a lower standard of living for their population ensures low cost of production and continued industry growth. This "act" requires all parties to pretend together that the act is in fact reality.
So how does it all come tumbling down? In my opinion, the average Chinese individual will learn of this imbalance and demand fair compensation for the value he creates. On this day, he will recognize that for all the value they send to the US they only get paper in return. The U.S. will be hit by massive inflation and exports will drop dramatically from China.
Is this good for us Americans who enjoy the imbalance? In the short term no. But in the long term it is. Jobs that were outsourced to China will now be cost effective to do in the US. US based production will have to start up again, and instead of a nation of consumers we will change back into a nation of producers.
In my opinion, it is the tight control that the Chinese government exercises over the communication channels in China that have held back this storm. But I don't think any one would argue that this policy is long term sustainable (with all the new forms of communication emerging).
So let’s say that you partly agree with my reasoning, how do you prepare?
I am not exactly sure what the answer to this question is... But I think it's something like:
Own things you would normally rent or lease. (lock in low interest rates)
Invest in yourself (no one can take that from you)
Diversify your assets (have investment exposure across multiple sectors and countries)
Be a producer (learn job skills that allow you produce, not just shuffle paper)
Live within your means (don't develop a lifestyle that is inconsistent with reality)
Foodstorage (I have to say that since I am Mormon)
Outside of that I am unsure. I don't think the secret is in buying silver, or bullets, or learning wilderness skills or anything like that.
This has been something I have been wrestling with in the back of my mind for a few months now. I would appreciate any thoughts or criticism to my logic.