[smiley]

Imagine you have a shop. You have this regular customer.

One day he comes to you for an order. He says he's a little short on cash and asks you to finance 10% of the order. You want to keep him as a customer so you say OK. You have a profit margin of 20% so no matter what happens you'll be al right.

After a while he starts to ask for a 50% finance on the order. He promises to pay you back with interest. You concede, but you start to wonder. On paper your balance sheet is looking fine. Your sales are up, the value of your shop increases. Only when you open the cash drawer the amount of IOU's starts to catch the attention.

A while later the customer comes again, and is terribly short on cash. This time he asks you not only finance 100% of the item, but asks you to pay his medical bills as well.

Get the analogy?

The Chinese government is paying for the US imports. America loans the money from the Chinese central bank in order to be able to buy stuff from the Chinese manufacturers.

The real cashflow does not flow from the States to China, it flows from the Chinese Central bank to the Chinese manufacturers via the US. And economy 101 will tell you that a direct insertion of governmental money into the economy equals inflation.

The trade surplus has been very good to China. And security buying by the Chinese central bank acted like a permanent discount on Chinese articles. However now they are finding themselves at the wrong end of the bargain.

In other words, they cannot afford to do nothing.

[Trindelm]

A disturbing equation indeed.

[pup55]

A fine analogy, Smiley.

but the question is, if you are the shopkeeper, what to do?

For awhile, he was supporting you with his business, until this borrowing thing got out of hand.

Your choices are:

a. Do nothing. Continue to give the mooch the free goods, in the hope that at some point, he will come around and start to pay for stuff again.

b. Cut the mooch off, tell him to go elsewhere. If this is the case, maybe you have to find a new customer somewhere.

c. Try to get the mooch to pay at least something for his goods in the hope that he will get back in the black.

At the moment, it obviously suits the shopkeeper to be doing this business. maybe he has a big family out in the back room that he needs to keep working. Maybe he wants to impress other potential customers by making it seem like his shop is doing a lot of business. Maybe he thinks that the mooch will see the light, and eventually have to come back around to being a payer again.

Maybe the mooch is kind of a bully, and in fact likes to get into fights that the shopkeeper would normally have to fight himself. It might suit the shopkeeper to take care of the mooch if he does some of the dirty work for him.

Then again, maybe he will let things go on like they are, and at some point take the mortgage over on the mooch's house.