China and U.S. Inflation (January 4, 2006)
A Cantor Fitzgerald report dated 12/22/05 claims that China's political need for full employment (to stave off angry hordes of disenfranchised, unemployed workers) means inflationary pressures in the U.S. will be low:
"The ranks of domiciled U.S. producers are being greatly thinned out (witness the -2.353 million drop in U.S. domiciled production workers since 2000, and the weak growth in U.S. industrial capacity since the year 2000), and the rising core crude prices and core intermediate prices are increasingly being absorbed by the profit margins; productivity gains; and real wages of overseas producers, suppliers, middlemen and workers.There's one teeny little problem with this scenario: while 2/3 of the U.S. economy is consumer spending, not all of it is on goods, and not all of the goods (despite apparances to the contrary) come from China. So all the spending on transportation and shipping (read oil), heating and electricity (read natural gas) and services (read medical costs rising by 10% + year after year) is entirely exposed to inflationary pressures. China alone cannot suppress all the inflationary pressures because its products constitute only a small piece of the consumer-spending pie--roughly $180 billion in goods in an $11 trillion economy.
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