China surpasses Japan to become second largest Economy

It was recently reported that China passed Japan to become the second largest economy in the world, right behind the USA. However, a better measure of the wealth of a nation is the per capita GDP. In terms of its per capita GDP, China ($6,600) is poorer than Poland ($14,000) and nowhere near Japan ($33,000). In fact, China is in about the same place as El Salvador, when its economy is considered in the light of per capita GDP.

Having lived there, the local citizens really do not care considering their lives have not really improved that much. Granted, the infrastructure is better than most countries especially in the large cities but the quality of life still is not very good. Because of the costs of living in cities such as Shanghai, many people spend their free time sleeping or watching tv, instead of pursuing other interests such as sports, photography, etc.

Birth rates dropping in many countries

In many countries like Korea, Taiwan, China, Singapore and the United States, the fertility rates have dropped. China had the one child policy but many couples in big cities have implemented their own no-child policy.  Governments in Taiwan, Korea and Singapore have been urging people to have more children. Singapore has passed legislation to rewards the Chinese to have kids. Many people point to the cost of having a baby for reasons not to have one. Nowadays, many couples have dual incomes and feel that they will decide to have a baby only when they earn enough to sustain their current living standards. The younger generation have grown accustomed to spending their money traveling to different countries, eating at fancy restaurants and buying fancy clothes. Unfortunately, the more one earns and/or saves, the higher living standards rise as well. In addition, some couples do not want to lose the freedoms of enjoying their life traveling and playing which may need to be sacrificed when raising children.

Parents in the past generation were able to raise two to three children while only on a single income. Has the cost of living increased so much that couples today are unable to raise the children? Granted things have become more expensive but its mostly because the parents have made things more expensive. Parents want to get the most expensive toys and newest things to raise their children. However, is it really necessary? Children before played with hula hoops and played tag in the park. Maybe babies are just that much expensive because the parents make it that way. Granted, it is probably extremely difficult not to want the best for your children.

Banks attempting to force Greece to default

Bets by some of the same banks that helped Greece shroud its mounting debts may actually now be pushing the nation closer to the brink of financial ruin.

Echoing the kind of trades that nearly toppled the American International Group, the increasingly popular insurance against the risk of a Greek default is making it harder for Athens to raise the money it needs to pay its bills, according to traders and money managers.These contracts, known as credit-default swaps, effectively let banks and hedge funds wager on the financial equivalent of a four-alarm fire: a default by a company or, in the case of Greece, an entire country. If Greece reneges on its debts, traders who own these swaps stand to profit.

As Greece’s financial condition has worsened, undermining the euro, the role of Goldman Sachs and other major banks in masking the true extent of the country’s problems has drawn criticism from European leaders. But even before that issue became apparent, a little-known company backed by Goldman, JP Morgan Chase

and about a dozen other banks had created an index that enabled market players to bet on whether Greece and other European nations would go bust. 

Its things like this that give bankers a bad reputation. It seems that they are attempting to force an entire country to go bankrupt in order to profit. With the global economy still struggling to recover, a country that defaults would delay any global recovery. It seems that the bankers are only looking out for themselves and trying to put bonuses into their pockets again. This time, at the expense of another country. 

I do not know what happened with the bailout since it seemed that 2 weeks ago, Germany agreed to help with. It seems that it is under question again.

China the place to go for opportunity?

Jim Rogers recently said, “In 1807, if you were smart you went to Paris. In 1907, if you were smart, you went to New York. And, in 2007, if you were smart you went to China.”

It used to be that the US was called the land of opportunity. However, with the US in such a huge deficit and still trying to recover after the financial wreck arrived, opportunities may be in China. However, I think before that happens, the income of the Chinese people needs to increase either through an increase in the valuation of the RMB or the actual salaries that they receive.

I only say that because many people from China still try to come to the United States in their hopes of striking it big. These people are able to live off a meager salary in the States and still have money leftover to send back to China. Many people here would think $200 USD to $300 USD is a drop in the bucket but in China that would be about 1400 to 2000 RMB which could be used to fully sustain an entire family in the 2nd tier cities of China. Also, the living standards are much higher in the United States since the laws to protect against dumping and ruining the air quality is much more stringent here which may be the reason why many Chinese citizens still want to migrate to the States.

I doubt that salaries in China would increase quickly enough since many companies would be unwilling to raise the salaries. This would affect the bottom lines of the companies. However, salaries in 1st tier cities (Beijing, Shanghai, Shenzhen and Guangzhou) will probably see increases in salaries more quickly as living standards are much high compared. Other cities would most likely have to wait much longer to see increases in salaries.

The Peterson Institute for International Economics in Washington has estimated that the yuan is undervalued by about 30 percent against all world currencies and about 40 percent against the dollar. I'm not sure when that would occur though since the Chinese government is trying to hold the existing exchange rates in order to A) allow China to have a price advantage in the manufacturing area B) recoup the loan that it provided to the US. It seems that if the Chinese government allowed the RMB to attain a value based on the predicted market rates of the Peterson Institute, China would lose the pricing advantage and it would lose a lot of money due to the money it lent to the United States. In doing so, this would cause internal issues for the billions of people in its country as many manufacturing plants would probably close causing hundreds of riots. Riots have already occurred due to the global recession which closed many plants in 2009.

Euro in trouble?

There have been rumors that the Euro was going to take over the US Dollar as the global currency. However, with the entire issues that Greece is going through, I'm not sure if it can be dependable as a global currency. I think this squashes any ideas of people wanting one world currency or even seeing an Asia currency.

Even though the euro is wondrously convenient for travelers and international businesses, there's one catch: Fiscal discipline is up to each participating country, and Greece has not been disciplined. It is running a deficit of nearly 13 percent of total output, more than four times the nominal limit for countries using the euro. Its national debt is almost double the permitted limit. With its credit rating sharply downgraded, Greece must pay a stiff premium to finance that deficit. Since the Euro is shared across countries, Greece does not have the control to print more currency as it wishes, which is what other countries such as what occurs in the U.S. and China. Also other countries such as Germany seem to be ignoring Greece and acting as if it is not their problem.

If there is one world currency or an Asian currency, we would most likely have many issues similar to what is mentioned. From a world economic standpoint, I hope that this all gets resolved since another economic fiasco would cause a huge effect on the world economy.

Banks and their responsibilities

Obama indicated that there should be a tax on the banks that benefited from the TARP program after the whole public outcry when it was announced that the employees would be receiving huge bonuses. This might not be a popular post for bankers since a lot of them have indicated that the help was paid back with interest and that they did not need the money in the first place. However, the country could not afford another collapse of another financial institution, especially after the falls of Bear Stearns and Lehman Brothers.

Obama in providing this TARP bailout (with minimal interest) to the banks was an attempt to trigger the U.S. economy. He was hoping for the banks to provide loans to smaller businesses and resuscitate the job market, creating a trickle down effect. In turn though, the banks took this money and loaned it to other big businesses who then repaid off their other loans which were at higher interest rate and gave it right back to the banks. The banks earned the difference in interest and not wanting to be restrained by the terms from TARP, paid it back to the government. Consequently, they earned the differences in the interest rates and it was a win-win situation for the banks and the big businesses who are able to show off their pretty financial statements now.

Who are the losers? Everyone else and small businesses who are unable to get any financing. What Obama said during the State of the Union address has some reasoning though and was very direct. Banks should help out the country if they are able to offer big bonuses. Let's hope that the banks do not get creative and start transferring their profits to other countries with lower tax rates in order to make their financial statements prettier. Some may say this looks like communism in the making but maybe in this economic recession, we all need to band together to help each other and improve the state of the country.

Smaller Appetite, Larger Portions

Since I've come back to the States, I feel my eating appetite has shrunk. I guess I am just used to the food portions in Asia now or the food is just better there. It could be a mix of both I suppose. Restaurant portions are huge in the States compared to Asia, mostly due to the cost of labor and the price of food.

In Asia, food is cheap but so is labor. As a result and incomes are generally lower, so prices are kept lower. In the States, food is cheap but labor is expensive. As a result, restaurant owners in a strategy to get more revenue charge a higher price for the dish but give a generous serving of food to give the illusion to the customer that they are getting a good deal. This could be contributing to the number of heavy set Americans that are around. That and the combination that many suburbs are tied to the car culture and have to drive around everywhere. Even if they decided to walk, the communities are not too friendly to pedestrians since sidewalks do not exist.

Still think people in China are poor?

Most people have the perception that things in China are cheap since the people there are poor. Well that is true for the majority of the land. However, they have the most number of millionaires (in US) in the world and seem to be buying property around the world, similar to when the Japanese started buying up real estate in the 80s.

I saw Avatar in 3D yesterday for $15 a ticket which many would consider to be a steep price already. However, ticket sales in Shanghai for the same show are going for 200 RMB (equivalent to almost $30 USD). In fact, it seems like it is impossible to get tickets as people have been waiting overnight to get tickets. Keep in mind that this is winter and that temperatures were hovering around 20 degrees F. Scalpers have been drooling with some tickets selling for 1000 RMB per ticket (thats almost $150 USD per ticket). Below is a screenshot of Taobao.com with 3 tickets for 3000 RMB.

Here's a video of the line just so that you can get a better idea.



It isn't just these tickets that are more expensive than what they would cost here. Nike sneakers, BMW/Porsche/Mercedes, Tiffany's and anything that is of luxury brand is usually up to two to three times the prices that would be sold if the prices were converted from RMB to USD. For example a Mercedes SLK would cost around $45K USD without any options, but same car would go for approximately $120K USD. No wonder so many people from China want to come to the United States.

Bank CEOs: Sorry for risky behavior, bad decisions

I love how the bank executives on Wall Street are claiming that regret their risky actions and bad decisions that put this country in the bad situation it is in but still defend that they should get their bonuses. It seems like just empty words to me. It is similar to when Bernard Madoff was sent to jail after tricking people out of billions of dollars but stated, "I cannot adequately express how sorry I am, I am here today to accept responsibility for my crimes." I bet he wasn't sorry when he was collecting all that money. I guess these people are only sorry after they get caught and causing the millions of other people much hardship.

Taken from Yahoo News - Sorry for risky behavior

Wall Street executives said Wednesday they underestimated the severity of the 2008 financial crisis and apologized for risky behavior and poor decisions. They also defended their bonus and compensation practices to a skeptical commission investigating what caused the collapse.

Maybe if they were really sorry, they'd give the bonuses to the government as a way of saying thanks for not going out of business like Lehman Brothers.

To be a Landlord or a Tenant

I find it strange that the United States laws protect the financially irresponsible. Look at the housing crisis and all the bailouts that the government is providing. Granted I understand that if they did not do this, the economy would go further into a tailspin but it seems that the financially responsible people get the short end of the stick. While we did not purchase the 2 bedroom apartment because we felt we could not afford it, others purchased homes that were beyond their financial means. Due to the crisis, the government has delayed foreclosures, etc.

I digress though and wanted to write about how the tenants in the United States seem to be able to get away with not paying rent. I have heard many of my friends who have had tenants who refuse to pay the rent for a couple of months. However, the law does not allow them to just get evicted. Instead, it requires that the landlord and the tenant go to court in order to get a date to evict them. Usually, this seems to be the customary practice and even so, the courts usually allow the tenants another 3-5 months to find a place, forcing the landlord to eat the years worth in rent.

China does the opposite in which the landlords get the preferential treatment. In fact, it is customary for them to receive 3 months of rent upfront plus the security deposit. In the event that the tenant is unable to pay, it is just a simple action of calling the police to evict them.

Being a landlord in the U.S., I would have to perform my due diligence on the tenant before renting it out. I am sure most landlords do this but unfortunately there is always the possibility of a tenant not paying and not much protection for the landlord.

Ways to Make Money

In the United States now, the biggest fad it seems is to make money from writing blogs. With the economic downturn, I see many links on the internet now that say, "Ways to Make Money" or "How to make money by Blogging." I'm still amazed by the occasional "Rags to Riches" stories that we hear about just from doing simple things on the internet, although the chances of that occurring are pretty slim.

In China where blogs are banned or at least restricted, the biggest fad seems to be selling things on their version of ebay called Taobao. Its become extremely popular that it seems that everyone is doing it. I've had friends quit their jobs just to sell things on Taobao. Other creative ways have been playing video games, especially those role playing games such as World of Warcraft. People would create a character and either develop it to be powerful or obtain weapons in order to sell the character online or sell the weapon. It really has become a phenomenon in China.

With the average income of a Chinese citizen at 3000 to 5000 RMB a month (that is around 450 USD to 700 USD), it seems that just selling things online or playing a game on behalf of someone makes a net income of more than that. Its pretty sad what the average income is there.

Regardless of where you are, the existing regulations and how developed the economy is, there are ways to earn money as long as the time and effort is put into it.