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China and America's trillion-dollar debt for equity swap

14:52, July 27, 2010

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By John Milligan-Whyte and Dai Min

The next stage of the globalization of America's economy must be "reciprocal economic globalization." It must be initiated in 2010 by a trillion dollar swap of American government debt and dollars held by China for equity and debt of American companies now owned by the U.S. government. Chinese policymakers need to help US policymakers to step back from the abyss of America's current crises. But, US policymakers need to accept the 21st century's economy's big picture. Business Week estimated in 2004 that America's percentage of global GDP of 28% would be 27% in 2025 and 26% in 2050 and China's would increase from 4% to 15% to 28%. America's economic crisis has dangerously accelerated what would have been a gradual trend. China's population is five times larger than America's. With so much more human capital and larger domestic market, China's economy may well become five times larger than America's.

The Reciprocal Economic Globalization Model introduced in this article is the only way to jump-start America's economic and employment recovery in 2010, accelerate America's GDP growth rate, strengthen US companies' global competitiveness, and create sustained employment growth in the US. To align America's continued economic success with China's, the two largest economies in the world's national security must also be aligned. As explained by Thomas Barnett's new book, Great Powers: America and the World After Bush, and by John and Doris Naisbitt's new book, China Megatrends: Eight Pillars in Building a New Society, US policymakers need to plan immediately for current and future realities instead of for the past.

China has become the major engine of global economic growth, as well as the world's largest importer. Its annual GDP growth rate now, even during the global economic crisis, is 11 percent. There cannot be a sustainable "V," "W," "U," or even "L" shaped curve of American economic and unemployment recovery until genuinely reciprocally beneficial new policies with China are proposed by President Obama. The economic losses in the US are already too large and growing relentlessly. What is worse, they are unquantifiable and therefore currently of an unmanageable magnitude. We are in the early stage of a collapse ("X") of confidence in the global financial and trade systems and many governments' ability to function. That impending collapse must be recognized because confidence can only be restored by "a massive jolt to the system," which Fareed Zakaria called for in Newsweek in January 2009. The new US reciprocal economic globalization policies that are essential now will astonish and then restore global capital market and American consumer and business confidence. The annual aggregate GDP of all 194 nations was about US $ 60 Trillion before Federal Reserve Chairman Bernanke and Treasury Secretary Paulson announced on September 16, 2008 that the American financial system would collapse without what to date is an emergency US $ 752 billion government intervention in the US and global economies. America's GDP was 70 percent based on consumer spending that relied on increasing home values. According to the Federal Reserve, real estate owned by US households peaked in value in 2006 at US $ 25 trillion. That was 200 percent of America's GDP and 50 percent of world GDP at that time. A February 23, 2010 Market Watch article reported that 11.3 million homeowners or 24 percent of all Americans with a mortgage, owe more on it than their homes market value. Estimates suggest that will increase to 50% of all US mortgages. Another 2.3 million US mortgages had less than 5% equity in their home that will be wiped out if home prices fall further. In the last three months of 2009, the number of mortgages larger than the market value of the houses that are security for them increased by about 620,000. The US is in a spiral of interacting financial, economic and unemployment crises. American unemployment nationally is officially recognized at 10% and is much higher in some states and will increase.

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The articles in this column represent the author's views only. They do not represent opinions of People's Daily or People's Daily Online.

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John Milligan-Whyte and Dai Min are the executive producers and co-hosts of the Collaboration of Civilizations television series adapted by the eight books they wrote in the America-China Partnership Book Series published in English and Mandarin in 2009-2010. They founded the America-China Partnership Foundation and Forum in 2008 and the Center for America-China Partnership in 2005. E-mail: [email protected]