Sep 04, 2013

Much has been made of China’s economic slowdown in the past year. Some have even said the Chinese economy would “implode.”

What is interesting to watch is the difference between their approach to an economic slowdown, versus ours. The U.S. opens up the money spouts and gushes printed money all over the place, borrows money to stimulate the economy (pork lives!), and digs the hole deeper.

The Chinese did none of this. They just waited, and allowed the slowdown to adjust the problems in the economy instead of trying to stimulate them away. Now reports are surfacing that they’re considering using some of their cash horde to make investments in their infrastructure. Smart.

We used to do this. I remember when George Bush Sr. was running for re-election against Bill Clinton, and everyone was screaming about the recession. Compared to the borrowing and spending sprees we go on today, Bush did very little (in fact, he raised taxes – remember when he broke his “read my lips” promise?). Recessions are meant to cleanse economic impurities out of the system and strengthen the economy for the next growth phase. Regular people don’t go on a spending spree when times get tough, they find a way to survive on less and reduce their debts. Right about the time Clinton started to take office, the economy started growing again.

The Chinese did it right. They allowed their economy to slow a bit, and now there are signs it’s picking up again. (Their manufacturing index is up for the 2nd straight month.)
We, on the other hand, have continued to borrow and print money at will even as the economy has been growing (kind of… there are still a lot of people un or under-employed out there). What’s going to happen to the US economy when the next recession hits and we’re buried under an even larger mound of debt? Will they try to borrow and print at an even faster rate (will it even be an option at that point?), or will our leadership allow the next recession to take its course, at least, in a controlled manner?

Better to balance the budget now, while we can, before the next test comes.

The U.S. will hit the debt ceiling again next month. The next test may not be that far away… but I imagine they’ll cut a deal again so they can keep borrowing.