From our perspective it appears that President Obama has been Mahjoned (麻將) by Hu Jintao. The Chinese have been playing this game for a long time. It is a very popular game. To have fun at it, one needs some money to gamble while playing. President Obama came to China with plenty of fiat money in the form of U.S. dollars. However, the Chinese have an affinity for gold rather than paper. This is one of the reasons why gold and the precious metal complex have been making new highs. No pun intended but it appears that the Chinese are holding all of the cards, sorry we mean chips.

Let us put this in perspective, China with 1.3 billion citizens, dwarfs the United States with 300 million. Be that as it may, we must recognize where we stand comparative to them. We in the United States are mostly the haves while China is mostly a country of have nots. Therefore it is necessary to turn our heads to the Far East for a clearer view of what we face. It is there that the major economic growth is taking place. The haves will become the have nots and the have nots will become the haves.

The demand from the Chinese consumer and manufacturer is far surpassing that of most nations. Why do we bring this to your attention? For example, take a look at what happened to the legacy steel companies, they became worthless overnight. The reason being, new technology surfaced, the old plants were deemed obsolete and needed to be demolished. But American companies did not have the funds to do this; most went bankrupt. (Bethlehem Steel etc.) The telecom sector faced a similar scenario as their old antiquated equipment had to be replaced because of new start ups with the most recent technological advances.

These new plants had the best technological innovations and were far superior in efficiency. When you look at China and their old industrial complex, it was very small.  They only had a minimal number of obsolete plants. Hence, the West was eager to sell them the newest in technology. Turnkey operations were sold with gusto. Worldwide competition watched this phenomenon take place. Those who could not refinance and purchase the new technologies saw a declining market share 1% at a time; call it Chinese water torture if you may.

One off topic, other economists have talked up the service economy. Get the record straight. Our economy has turned to the service sector for relief. The economist call the service sector our holy grail.  That's a joke! We have amassed budget deficits year after year. Money going to our trading partners and return we get their manufactured goods. The talking heads do not know how to address this conundrum. Unless the manufacturing sector regains its former status or some modicum of it, more and more of our wealth will be transferred to other nations. The United States, because of their regulatory environment and tax structure has literally forced our manufactures over seas. How do we say good buy in Japanese, Sayonara and in Chinese Zai Jian!

And the reason for our companies relocating to China, either in the form of joint ventures, starting from the ground up or purchasing existing Chinese companies is three fold. The lack of regulations, the accessibility of cheap labor and the demand from a fledging economy. There is only one way to go for China and that is straight up. The government does not have to listen to a bunch of bumbling politicians, they just do it. There is no bureaucracy to impede progress. To them, keeping the economy humming is more important than government reform. The manufacturing sector keeps putting out the merchandise for our consumer. For now this is the only game in town, but it will not last forever. The Chinese consumer will have to start consuming more or trade sanctions will eventually be on the table.  Remember, the typical Chinese happy camper does not care what way the wind is blowing as long as it does not blow in his face. So, here we are, bowing to the Chinese and bowing to the Japanese. Do we have any other choice? 

http://www.youtube.com/watch?v=5U6fL7Y4BZA&feature=player_embedded  Tell me, who is watching the store?  Next up is Chinese Checkers. Obama has already lost his Chess match with Czar Vladimir Putin.