weblog/wEssays	home
	Global Meltdown Watch: the U.S. and China   (June 2005) As mentioned earlier, the current issue of The Atlantic features a piece by James Fallows titled "Countdown to a Meltdown: America's Coming Economic Crisis." The premise is a bit of a conceit: the article professes to be a report from a senior advisor to the new president in 2016, outlining how the U.S. came to such dire straits. Where Fallows relies on actual financial data, he is on solid ground, and his summary of how the interconnected fiscal imbalances of the global and U.S. economies are bound to unravel is both succinct and compelling; but when he roots around for ironic pointers of U.S. decline he loses touch with reality and the work suffers. His main source of ironic twists is China; he suggests that by 2016 China's technological lead in maglev (magnetic levitation trains) technology is the envy of the world, as are Chinese universities, and indeed, Chinese infrastructure and commerce in general. While these fantasies are bitingly useful stilettos in the belly of American triumphalism, they are indeed fantasies. China's own maglev train reaches the astounding speed of 110 kilometers an hour, or about 68 miles per hour. Even more telling, the Chinese government has selected a Japanese Shinkansen design for high-speed long distance rail service over the maglev design currently in service at Shanghai Airport. Note to Fallows: physics matters, and so do costs. The maglev system does use considerably less energy than either wheeled trains or airlines, and it is very fast (430 KM/hour or 267 MPH as opposed to about 300 KM/hour or 190 MPH for the French TGV or the Japanese "Bullet Trains"), but its cars and tracks are more expensive. Operating costs of a maglev are currently double that of high-speed wheeled trains, which relegates maglev to the category of luxury travel or amusement park ride. Maglev is a typical "gee-whiz" technology that gets nothing but glowing press coverage but which is passed over time and again by the authorities responsible for making sound fiscal choices. Much like the Concorde jetliner, it simply can't pay for itself. (Note: The fancy Shanghai Airport maglev was built by German companies anxious to sell billion-dollar systems to China. It ends not in Shanghai but in the middle of nowhere, where you have to hump your luggage some distance to a subway station to actually get to Shanghai proper. not exactly what could be called great planning. I know, because I took the maglev pilgrimage myself on my last visit to Shanghai.) As for China's infrastructure, Fallows has clearly never observed China's current infrastructure being built and maintained. If you've visited China at any length, and observed the buildings and roadways closely, you know that's the problem: nothing is maintained. It's being built at slapdash speed, and then left as-is until it's torn down and replaced, perhaps in as few as 8 to 10 years. If infrastructure is poorly built and poorly maintained, it won't last long--and replacement costs will only get higher as energy, material and labor costs rise in China. As for Chinese universities, Fallows apparently knows little about how subjects and critical thinking are taught in China, or the many other cultural factors which affect education at the highest levels. Suffice it to say that U.S. universities are far from perfect, but the nexus of government funding, research excellence and collaboration with private enterprises cannot be re-created in China, at least in its current state, for a number of reasons. For some background, read this piece from Foreign Affairs magazine. Lastly, Fallows fails to account for the consequence of America's financial meltdown on China: it too will melt down. China's economy, intimately dependent on the U.S. currency and market, will necessarily crumble as the U.S. dollar falls and the U.S. economy spins into recession/depression. First off, China's vast holdings of dollars and U.S. bonds will decline along with the dollar; a $200 billion loss isn't chicken feed. More importantly, the decline in the U.S. will trigger a worldwide recession, as the U.S. remains everyone else's largest end-market. Even if China weathered the decline in the U.S. market--unlikely as that is--there won't be any other safe haven of insatiable buyers to replace U.S. consumers, as the enfeebled E.U. and Japan will quickly topple as their U.S. export market deteriorates. (They're both slipping towards recession even now, in "good times.") As I outline in "Asia Crises: China", China also has severe demographic, fiscal and environmental problems of its own to address, and the likelihood that they will be entirely resolved by 2016 is somewhat remote. World oil production will peak around 2010, and thereafter decline--not exactly a propitious development for energy hogs like China or the U.S. While it makes for nice fantasies, the sad truth is the coming meltdown of the U.S. economy--which after all has been actively aided and abetted by the central banks of China and Japan--will drag the rest of the world down with it. * * * copyright © 2005 Charles Hugh Smith. All rights reserved in all media. I would be honored if you linked this wEssay to your site, or printed a copy for your own use. * * *
	weblog/wEssays	home