Deflating your Pessimism

Someone asked me about the current economic situation this weekend. They had seen the job report, and were wondering whether this meant things would unravel. The stock market was falling (they just saw their first quarter 401(k) statement) and they made the comment that "pretty soon the Chinese will own everything anyway". Then they asked me how soon this might happen.

Uh....never? Let's be realistic about the economic "threat" of China. If the Chinese were going to "own everything", what would that mean? Could they buy up the whole S&P 500? Well, to buy up all the stock issued by all the companies in the S&P 500 (which represents about 70% of total stock market value in the U.S) would require about $10.16 trillion dollars. China in 2006 had a total GDP of $2.6 trillion. So if China were to a) not eat, b) not wear clothes, c) not consume any resources whatsoever for FIVE YEARS, then they could buy up the S&P 500.

Of course, the S&P is only one portion of the total assets of the U.S. You'd have to think about the value of houses, bonds, bank accounts, cars, etc. etc.. The Fed estimates total U.S. assets in 2004 at about $62.5 trillion. So China (again without the eating and stuff) could buy the U.S. in about 20 years.

But don't the Chinese hold all our government debt? No. A lot of it, yes. In total, foreign countries hold about 25% of our government debt. Which means they can do what, exactly? Collect interest? Sure. Take over? Not so much. Also, recall that every time the dollar falls, the value of those bonds goes down for the Chinese.

Okay, last thing. Let's just keep in mind the scale of what we're working with in China. If you are so scared of China and their effect on the U.S. economy, consider that China has the economic resources of the Pac-10. That is, the combined economies of Washington, Oregon, California, and Arizona are about equal to the Chinese economy.

And seriously, when is the last time China made it to the Final Four?