Sep

16

 If you look at it from the perspective of the Chinese this headline has got to be maddening. They are desperately driving millions of indigent citizens to work for next to nothing under extremely hazardous conditions to send real good to the US and elsewhere. The citizens are always ready to rebel due to this treatment, and the main goal of the Party in reality is to keep the citizens from rebelling. In return they are getting a heavier and heavier anchor that prevents them from their second goal, taking over Taiwan (the potential of repudiation of the US debt is pretty much the only thing that's keeping them from attacking) and military domination of everybody else around them. They can't stop this charade immediately, because then the citizens would rebel due to joblessness and thus it's being perpetuated. So they are shifting their debt into the Japanese government obligations and getting involved with the Japanese trade policy for a totally spurious reason. I'm sure if they knew how to make every citizen instantly rich and totally shift to domestic consumption with just some exports to nearby Asian countries they would. If all that wealth the government is sitting on could be distributed in a one-time deal, I bet they would go for it, but the logistics must be truly daunting.

Jeff Rollert writes:

I suggest you frame the point in a 100 year time frame, as China is doing now.

China has to look inwards for 20 years, or at least until this generation has trained enough world class managerial talent to run multiple multinationals, without foreigners.

By buying Jap debt, their are securing a flank. By buying our debt and acquiring the manufacturing through pollution/tax/labor cost arbitrage, they are industrializing quickly.

I look at their debt maturity in the same way a general looks at an opponents perceived strength and structure. Short term average suggests the need to protect is growing smaller. The size of the maturity buckets bought gives you an estimate of their timing for a reduction/increase in the perceived threat.

Debt weaponization…thrust (buy others debt) and parry (issue debt, then imply decline paying).

It's MAD all over again…we won't default to handle a Taiwan situation because it would remove our reserve currency yield advantage. China is not ready to assume anything near a reserve currency role….and they won't push us that way until they're ready to do so.

Stefan Jovanovich writes:

After the ruins of the Great War aka WW I, the negotiators at the Versailles Peace Conference spent days and weeks discussing the details of how the maps of Europe, the Middle East, Africa and the Western Pacific would be redrawn. No one did an accounting of the liabilities that had been incurred; they only discussed the real estate assets to be acquired. When– and if– the Chinese decide that they want the rewards of seignorage, I pray that the U.S. will follow the model of the Danish Department of Defense during the Cold War and have a recording that says "We surrender" in Chinese, Spanish and Arabic.

Also, take a look at this on the Gini Coefficient:

"The Gini coefficient of different sets of people cannot be averaged to obtain the Gini coefficient of all the people in the sets: if a Gini coefficient were to be calculated for each person it would always be zero. For a large, economically diverse country, a much higher coefficient will be calculated for the country as a whole than will be calculated for each of its regions. (The coefficient is usually applied to measurable nominal income rather than local purchasing power, tending to increase the calculated coefficient across larger areas.)

Gini coefficients do include investment income; however, the Gini coefficient based on net income does not accurately reflect differences in wealth-a possible source of misinterpretation. For example, Sweden has a low Gini coefficient for income distribution but a significantly higher Gini coefficient for wealth (for instance 77% of the share value owned by households is held by just 5% of Swedish shareholding households ).[10] In other words, the Gini income coefficient should not be interpreted as measuring effective egalitarianism.

Comparing income distributions among countries may be difficult because benefits systems may differ. For example, some countries give benefits in the form of money while others give food stamps, which might not be counted by some economists and researchers as income in the Lorenz curve and therefore not taken into account in the Gini coefficient. Income in the United States is counted before benefits, while in France it is counted after benefits, which may lead the United States to appear somewhat more unequal vis-a-vis France."

Rocky Humbert writes:

It would be interesting to see a Gini Coefficient for the major industrial companies of the world. (That is, income distribution within corporate enterprises … [i.e. the income dispersion between CEO's, staff and mail room clerks].It would be then be most interesting to see if there is a correlation between long term ROE/ROC/stock price performance and the Gini Coefficient…

Does anyone know of thorough study that has done this? I know of studies of CEO pay versus performance, but that's a different question. The study would have to analyze after-tax income of course…

Lars Van Dort comments:

Here is a paper from Belgium that addresses this question. Maybe not the major industrial companies of the world, but anyway.

PDF available for free download.

This paper examines the relationship between intra-firm wage dispersion and firm performance in large Belgian firms using a unique matched employer-employee data set. On the basis of the Winter-Ebmer and Zweimuller's (1999) methodology, we find a positive and significant relationship between intra-firm wage dispersion and profits per capita, even when controlling for individual and firm characteristics and addressing potential simultaneity problems. Results also suggest that the intensity of this relationship is stronger for blue-collar workers and within firms with a high degree of monitoring. These findings are more in line with the 'tournament' models than with the 'fairness, morale and cohesiveness' models.


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