It is only a matter of time now before the US Economy takes a back seat to the Chinese economy.
The "Supply side" economic model promoted by Reagan and Bush actually works. Unfortunately it does not work for America.
The fact is a certain percentage of every dollar spent flows to the supplier, who ultimately becomes wealthy. The supplier is always the manufacturer of the products bought. That manufacturer as we all know is now the Chinese and not the US.
More and more Corporations simply profit from the markup on Chinese made products and as such they have become nothing more than a middle man or broker rather than the supplier even though they make claim to that title.
ECONOMY
The Rise of Chinese Banks
Will they outgrow American financial institutions?
PHOTOS
Hard Times
Think the current economic crisis is bad? Before you decide, take a look at the bubbles, panics and depressions of the past.
Jan 5, 2009 | Updated: 5:39 p.m. ET Jan 5, 2009
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The global economic contagion has spread to China, sending shudders around the world. Chinese leaders are worried about domestic social unrest, while U.S. leaders are worried about whether China will continue loading up on Treasury securities as our budget deficit explodes.
Yet one of the few bright spots is the surprising strength of China's banking system. Remember when that system seemed on the verge of collapse? That's where the banks stood until the reforms of the past 10 years.
But now the picture is completely different. As former World Bank official Pieter Bottelier, now a professor at Johns Hopkins, notes, "The irony is that 10 years ago, China's banks were among the weakest in the world and today they are among the strongest, however primitive their system."
How did they turn things around?
The short answer is that the Chinese government imposed many of the same market-based principles used in the West. (We'll get to why they seem to work better in China in a minute.) Officials improved regulations and supervision, introducing risk capital requirements and tightening nonperforming loan criteria and provision standards.
The government allowed banks to be listed on stock exchanges, which meant they had to report their earnings according to Western accounting standards. Now two of the world's three biggest banks by market capitalization are Chinese: Industrial & Commercial Bank of China, which is the biggest, and China Construction Bank, No. 3.
Beginning in 1998, the government recapitalized them. Several years later, the government used approximately $60 billion of its massive foreign currency reserves to help finish the job. And banks were able to dump their bad loans onto state entities created for the purpose of holding the waste, while the banks received safe Finance Ministry bonds in exchange. Income from these restructured assets accounted for 60 percent of ICBC's profit in 2006.
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