yelamdenu

So people finally found out there is a high cost to the low prices.
Some people say, “if we stop consuming the stuff they produce, they’ll be even worse off.”

That’s completely incorrect. That point of view originates in a total lack of understanding (quite understandable in itself, given the abysmal quality of economic education in the Western world) of the world economy as it works today.
China and other countries in Asia indeed produce lots of stuff for exports. A lot of those exports go to the United States, and in return a lot of dollars end up in the hands of the Chinese exporters. Those dollars in turn end up in the Chinese central bank.

The problem is that the trade deficit of the US as against China, against most of the world really, is so massive that these dollars are virtually worthless. The US does not allow foreign investors to own too much US corporate stock, and once the dollars are at the central banks of Asia, there’s little they can do except to buy US treasury notes. Those treasury notes have very low yields because of the low interest rates.

Thus the Asians who had been doing all the work are funding the deficit caused by American overspending, and are preventing the dollar from total collapse by funding the trade deficit (which under “normal” circumstances would indeed have led to the collapse of the dollar). Basically the US is getting a free ride thanks to the inability of the rest of the world to find an alternative.
One alternative is to not export anything to the US anymore, but due to the short term gain that most corporations are after, that doesn’t seem to happen. Another “alternative” is to wait for this system to collapse, which is when the dollar is finally falling prey to massive inflation, and that seems to be under way. A third alternative is to find another currency to fulfill the rol of world reserve currency. Let’s just say “they’re working on it”.

When the US as a market collapses, the Chinese are going to have to explore, among other things, their own domestic market. The oppressive government having crushed all labour union activity and human rights activism however, made for a relatively low purchasing power. This is where China’s government have been shooting themselves in the foot. A relatively small middle class and upper class will do most of the consuming and the rest will be serfs to the corporations. After the collapse of the dollar however, the yuan will rise and take up the purchasing power of all the Chinese simultaneously.

The article on the criticism in the human rights study: Der Spiegel