Posted 2:32 PM by Robert

The Most Important Export Of The United States III

The Man Without Qualities has noted (here and here) that political risk appears to be vastly underplayed as a determining element in the continuing US trade deficit, and in the corresponding continuing willingness of foreigners (especially in China, recently ) to finance those deficits. The situation has, in my opinion, reached the point where the main export of the United States should be properly considered to be political risk insurance.

The interested reader may wish to consider a thought experiment and imagine that he or she is a very wealthy Chinese businessman considering whether to keep more wealth in China, or whether to acquire additional American securities or currency. While holding that exotic thought, the reader may also wish to peruse this item from Agence France-Presse,brought to our attention by James Taranto:

China's rapidly widening income gap has reached dangerous levels, risking social instability by 2010 if the present trend continues, a government report warns. "China's growing income gap is likely to trigger social instability after 2010 if the government finds no effective solutions to end the disparity," the Ministry of Labour and Social Security warned in the China Daily. Su Hainan, president of the ministry's income research institute, found income disparity in China had reached the crucial "yellow" stage--the second most serious in a scale of four defined by the institute. The situation would deteriorate to the most dangerous "red" stage in 2010 if no effective measures were taken within the next five years, he said.

After reading this article, does the reader fell a strong inclination to obtain and hold more (1) Chinese assets or (2) American currency and securities?

Think hard and fast now. The clock is ticking.