Deflation leaves China on the brink of financial crisis

[godden]

Every thing is going down so i'm going to be a pimp.

[Robert24]

@Anthony5: low inflation is good and not bad. Deflation (say -1% to -3%) over prolonged period is bad as we have seen in Japan. It will reduce consumption and reduce capex.

But to come back to China. China is not facing deflation, it's just that inflation is coming down to mlre healthier levels in the long run

[pattayasnowman]

"Pundits say that China's real debt is about 250% of GDP while the UK's is 100% and the US has about 90%."

The figures for UK and US apply only to Goverment Debt.

Overall Debt ( Government, Household, Financial and non Financial ) the UK is 2nd only to Japan with a Overal Debt of 490% of GDP

The US 290% of GDP These are 2012 figures

Source: McKinsey

In 2012 the overall Debt for China was 190% but this figure has grown considerable since then and may well be in excess of 300%

The fact is that the worlds economies are awash with debt . That there is deflationary presure in the face of all this debt runs contary to economic theory. The major world currencies should have collapsed by now with runaway hyperinflation.

[Robert24]

@spidermike007: re ghost cities: remember when they talked about Pudong as ghost city?

The urbanisation trend in China will continue and will be one of.the main growth drivers for a long time.

[Kasset Tak]

The day China withdraws its investments outside China then US, UK and many many more countries will feel it! Just the Chinese government have investments for over $850Billion. Add to that all Chinese companies that have invest abroad, they will focus on their production and infrastructure in China not in Thailand or Nigeria!

[JohnDodd]

The yank financial experts are already announcing the end of China and Russia. They must still believe that the gold is still in fort knox.5555555

[Shiver]

I'm not a complete noob in financial matters, but after all those years I still don't understand why a low inflation is so bad.

I don't think low inflation in and of itself is bad. It's what causes the low inflation that differentiates it. After all, one feature of inflation is it being a stealth tax. It's a bit of an issue when there's lots of money being created and still the inflation rate isn't going up. That's a 'canary in the mine' signal of what's coming down the pike whenever an empire crashes (around about quarter past eight I think! - or maybe a century from now, who knows).

It's an incredibly contentious debate though, that has been going on for a long long time. I'm Austrian school (or is that Australian these days) rather than Keynesian, but at the end of the day there's always a common fly in the ointment - that there is always a 3rd party (Gov't related in one way or another), that tries to buffer the market to keep the right amount of money sloshing around to steer the economy. That operation has it's own costs, thus ensuring the need for more inflation.

As prices go up, the incentives to dodge the system increase as it passes different peoples threshold or comfort zone, and markets go underground, which means more Gov't rules to capture that, and so increasing their own costs and pushing the need for more taxes and inflation, until the weight of governance becomes a significant parasite (a 'good' parasite is one that can feed off the host without being noticed). Eventually the system collapses under its own weight. If you look back over many generations, it can be seen that there's a maximum load that will be tolerated (usually swinging around the 25-30% mark) no matter what measures taken.

I'll stop there as I'll get enough flak for what's written above already, and don't want to put lots of hours into a debate that isn't going to change anyones opinion.

[kimamey]

I asked Mr Google why low inflation is bad, and he showed me an article that said this for instance.

When prices don’t rise very much, neither do company sales or salaries. That is, workers won’t receive higher pay if their employers’ profits aren’t expanding.

Well the part in red says it all, don't you think. Why do their profits always have to expand?

Answer because they are not satisfied with 3 Ferrari's anymore, they need 5.

I don't think low inflation itself is bad and is fairly normal during times like these. Inflation in the UK has been low for quite a while and can be good or bad depending on your personal situation in the same way as low interest rates can be depending on whether you're saving or borrowing.

The problem comes not so much with steady low inflation but inflation that is falling and continues to fall as that can lead to deflation. When that happens although many items will still have to be bought some won't. People making those items will delay buying non essentials and may cut back on necessary items which will have an effect on those as well.

All this revolves around the interconnection between different groups of people and different countries. The financial crisis stayed in the USA but spread due to the global nature of finance and trade. The UK and USA were badly affected due to their high involvement in financial markets and investment in products connected to the US sub prime mortgage. That also affected other nations less but as a side effect slowed trade which caused problems for them and in particular places like China who sell to the west. China tried to boost domestic trade but deflation will dampen that. The UK at the moment is suffering due to it's strong trading links with the Euro zone which is in trouble in part because of the original problems arising from the situation on the US.

That one issue in the US, which possibly wouldn't have got to the stage it did without outside support can't be resolved without steady job and sustained growth around the globe.

[bitcoinbob]

Chinese oil companies are in the same trick bag as the Russians. Chinese oil companies debt is dollars based, why because dollars was cheap for so long and RMB was strong and back by Chinese government petro china alone has over 100 billion in dollar debt outstanding and other Chinese companies have invested funds aboard for oil exploration all dollars based borrowings . they were all banking on higher and higher oil prices , not happening to the Saudi say so. this is how it starts defaulting on there debts Chinese government having to cover them . weak RMB more companies default on there dollars debt government having to clean up they have 3 trillion in reserves outstanding Chinese company dollar debt is at 12 trillion that is why the Chinese are trying to stop all this they are saying it is anti corruption but it is about getting companies to stop borrowing . and paying down debt. but no borrowing and all growth stops. 75% of all Chinese millionaires have gotten there money out of the country they can even smell what is coming. EB 5 Visa program is overwhelmed by Chinese 2013 7000 2014 8.000 Chinese it cost 500,000 a visa. if everything is so golden why are they leave in masses

[anon022]

Welcome to the family!

[ggt]

Deflation worldwide has been predicted by many economist...China has one of...if not the largest...economy in the world...as China goes...so goes the rest of the world...standby for chaos in the financial and banking communities...

[InvestingIsMyLife]

This article is none sense. China IS the banker of the US. The US, UK, and several other countries have debt that far out weighs what China is experiencing. China's GBP is also exponentially higher than the US and the UK. If the OP wants to predict a financial crisis, a better country to focus on would be Japan. Japan has the 3rd largest economy in the world, by nominal GDP standards.

[robertson468]

I asked Mr Google why low inflation is bad, and he showed me an article that said this for instance.

When prices don’t rise very much, neither do company sales or salaries. That is, workers won’t receive higher pay if their employers’ profits aren’t expanding.

Well the part in red says it all, don't you think. Why do their profits always have to expand?

Answer because they are not satisfied with 3 Ferrari's anymore, they need 5.

How about; if there are no profits Companies are unable to develop further or expand their research and development programmes therefore restricting further development. Why do people have to be so cynical on this forum? Maybe they think they are being clever and witty

[petedk]

I can remember when I was young in Europe and inflation was high (Maybe 7 or 8 % per year).

The whole idea was to borrow money because after one or two years the repayment was virtually nothing compared with the increase in salary. Suddenly inflation fell to a very low rate and those that borrowed a lot of money had serious problems paying back. Houses were repossessed and there was a general recesssion.

[F430murci]

With China and Russia cooperating closely, what affect will China's economic problems have on Russia?

What affect will it have on S.E.Asia, particularly Thailand?

A lot.

Both Russia and Thailand have seen China as an economic powerhouse and have aligned themselves with China's future.

Look how Thai leadership is getting into bed with China, almost appearing to shun the West due to criticism and sanctions. It's been agreeing on currency swaps, signing rail deals, concentrating on tourism and exports... If China goes down now, Thailand is in a mess.

Putin has known the West won't play ball with him including imposing sanctions and has increasingly turned to China. Putin and China have believed that together they can be a world unto themselves but both are failing in front of our eyes.

I have no clue why so many have believed that China is a rising star when in fact it is a communist dictatorship with a hidden banking system (Shadow banking) and debt up the ying yang. Pundits say that China's real debt is about 250% of GDP while the UK's is 100% and the US has about 90%.

The EU and the US actually invent and produce things. China either makes cheap copies or manufactures for the West where Western companies make the big bucks and the Chinese pick up the scraps with cheap labor. Think of what Nike shoes sell for in the West after having been made in China for peanuts.

I will feel vindicated after the Chinese collapse after soooo many people have predicted that it will rise above the West. It can't rise above capitalism which spurs innovation for profit by individuals while its leaders try to fake it.

You may be right as to Thailand. Thailand also gets in trouble when Yuan appreciates and

Chinese exports are no longer cheap. Thailand is trying to participate in global markets and needs a better hedge due to its exposure and reliance on global markets.

Russian on the other hand is fully capable of going isolationist again and simply maintain ties with China and perhaps India for oil exports. Both systems can go to or remain closed currencies.

If the baht keeps appreciating along with the SET exports will be in trouble. The government should be talking the baht down like most other countries.

The Baht, unlike the Yuan, has a freely floating exchange rate that is determined by market forces.

[thailiketoo]

This article is none sense. China IS the banker of the US. The US, UK, and several other countries have debt that far out weighs what China is experiencing. China's GBP is also exponentially higher than the US and the UK. If the OP wants to predict a financial crisis, a better country to focus on would be Japan. Japan has the 3rd largest economy in the world, by nominal GDP standards.

What is a GBP? Who holds US debt? China owns about 8 percent of publicly held U.S. debt; the bulk of the $14.3 trillion U.S. debt - $9.8 trillion in all - is owned by the American people and its government.

GDP, current pricesU.S. dollars (Billions)

1

United States

17,416

2

China

10,355

http://knoema.com/nwnfkne/world-gdp-ranking-2014-data-and-charts

[Publicus]

The PRChinese people have finally thrown in the towel on the government. When the massive housing bubble began to burst last March the CCP Boyz in Beijing assured everyone they had it and the entire economy under control and that they would manage it down safely. People accepted that and they wanted to believe Beijing.

Now the PRChinese know that whether the government was lying then or not doesn't matter. What does matter is that people can see in one another's faces that the mood has changed.

People across China now recognize that the bubbles across the economy and financial sector are out of the government's control. The awareness is being measured in the increasing number of people who have significantly reduced the amount of money they will spend.

It's like when you know a storm is coming so you do your best to prepare and then you wait.

[Robert24]

@Publicus: where you get this from that Chinese have "thrown in the towel on the government"? Where you get this from that "increasing number of.people who have significantly reduced the amount of money they spend"?

I do not see any evidence of this. GDP.growth last year was 7.5%, this year probably around 7%, overall consumption is growing, maybe not as much as the government would like, but it's growing.

The government is well aware of the housing bubble and has been cooling the market now for 1.5-2 yrs. You say the bubble burat last March? Did you see a crash? I didn't. It's more a soft landing or taking some pressure out of the market.

[Thai at Heart]

This article is none sense. China IS the banker of the US. The US, UK, and several other countries have debt that far out weighs what China is experiencing. China's GBP is also exponentially higher than the US and the UK. If the OP wants to predict a financial crisis, a better country to focus on would be Japan. Japan has the 3rd largest economy in the world, by nominal GDP standards.

What has that got to do with asset depreciation inside China? U think it can't happen? Ask the Japanese.

[losworld]

I'm not a complete noob in financial matters, but after all those years I still don't understand why a low inflation is so bad.

Low inflation=No money in the market to drive up prices!! (very simplified)

If they got rid of the privately held Federal Reserve in the U.S. for instance (this is not a govt entitiy) that receive a commission in the form of interest on money printed by the govt Treasury they would have little inflation to worry about. Bankers love inflation.

Edited January 11, 2015 by losworld

[redandyellow]

Nothing short of WW 3 seems to be able to make an impact on the POG

[Publicus]

@Publicus: where you get this from that Chinese have "thrown in the towel on the government"? Where you get this from that "increasing number of.people who have significantly reduced the amount of money they spend"?

I do not see any evidence of this. GDP.growth last year was 7.5%, this year probably around 7%, overall consumption is growing, maybe not as much as the government would like, but it's growing.

The government is well aware of the housing bubble and has been cooling the market now for 1.5-2 yrs. You say the bubble burat last March? Did you see a crash? I didn't. It's more a soft landing or taking some pressure out of the market.

There's actually still someone talking about a "soft landing" which is language about the PRChina economy that went out when the real estate bubble began to burst last March.

Your questions seem to indicate you might want to re-read the OP so for additional but more exact reading I also enclose a small part of the current PNB Paribas report on the state of the CCP's economy and its Ponzi finances........

China’s deflationary chickens continue to come home to roost. The biggest investment bubble in history, financed by one of the biggest credit bubbles in history1

is producing serial overcapacity across swathes of the economy, especially basic industries and real estate. The logic of China’s wildly unbalanced growth is steadily intensifying deflationary pressure, a fading ability to generate cashflow and a slow, grinding march towards unsustainable debt dynamics.

With system-wide leverage already well over 2x the size of the economy and the average interest rate paid by corporates around 7%, nominal GDP growth needs to run well in double-digit territory for debt to be sustainable. Q3 GDP data could show nominal growth slowing to 6-7% with the deflator close to zero or even negative in y/y terms (China: Stumbling & mumbling).

These pressures are, of course, not new and China’s state-controlled financial system ensures that its capacity to sustain the Ponzi finance dynamics that artificially elongate the credit cycle remains considerable. The asset-management companies (AMCs), aka China’s ‘bad banks’, have increasingly emerged as credit-risk absorbers and liquidity providers of last resort. Clear evidence of growing deflationary pressure on an economy-wide basis, however, is accruing as growth fades and the diminishing return from stimulus worsens.

Developments in the housing market are even more disturbing, with over-supply already producing house-price declines at an annualised pace of 10-12%.

http://rss-globalmar...887&stream=true

The PRChinese have now begun to face the realities pointed out in the report, not because they have read the report, which they have not done, but because they are living it and they know the CCP Boyz have run out of tricks and gadgets, and that the bubbles are bigger than life and beyond the government's control. The PRChinese themselves know 100 yuan doesn't buy 100 yuan's worth of goods or services any more, if it ever did.

Did you read about the New Long March described in the BNP Paribas analysis....

Edited January 11, 2015 by Publicus

[NeverSure]

@Publicus: where you get this from that Chinese have "thrown in the towel on the government"? Where you get this from that "increasing number of.people who have significantly reduced the amount of money they spend"?

I do not see any evidence of this. GDP.growth last year was 7.5%, this year probably around 7%, overall consumption is growing, maybe not as much as the government would like, but it's growing.

The government is well aware of the housing bubble and has been cooling the market now for 1.5-2 yrs. You say the bubble burat last March? Did you see a crash? I didn't. It's more a soft landing or taking some pressure out of the market.

There's actually still someone talking about a "soft landing" which is language about the PRChina economy that went out when the real estate bubble began to burst last March.

Your questions seem to indicate you might want to re-read the OP so for additional but more exact reading I also enclose a small part of the current PNB Paribas report on the state of the CCP's economy and its Ponzi finances........

China’s deflationary chickens continue to come home to roost. The biggest investment bubble in history, financed by one of the biggest credit bubbles in history1

is producing serial overcapacity across swathes of the economy, especially basic industries and real estate. The logic of China’s wildly unbalanced growth is steadily intensifying deflationary pressure, a fading ability to generate cashflow and a slow, grinding march towards unsustainable debt dynamics.

With system-wide leverage already well over 2x the size of the economy and the average interest rate paid by corporates around 7%, nominal GDP growth needs to run well in double-digit territory for debt to be sustainable. Q3 GDP data could show nominal growth slowing to 6-7% with the deflator close to zero or even negative in y/y terms (China: Stumbling & mumbling).

These pressures are, of course, not new and China’s state-controlled financial system ensures that its capacity to sustain the Ponzi finance dynamics that artificially elongate the credit cycle remains considerable. The asset-management companies (AMCs), aka China’s ‘bad banks’, have increasingly emerged as credit-risk absorbers and liquidity providers of last resort. Clear evidence of growing deflationary pressure on an economy-wide basis, however, is accruing as growth fades and the diminishing return from stimulus worsens.

Developments in the housing market are even more disturbing, with over-supply already producing house-price declines at an annualised pace of 10-12%.

http://rss-globalmar...887&stream=true

The PRChinese have now begun to face the realities pointed out in the report, not because they have read the report, which they have not done, but because they are living it and they know the CCP Boyz have run out of tricks and gadgets, and that the bubbles are bigger than life and beyond the government's control. The PRChinese themselves know 100 yuan doesn't buy 100 yuan's worth of goods or services any more, if it ever did.

Did you read about the New Long March described in the BNP Paribas analysis....

So good it needs to be repeated.

[NeverSure]

There are been a number of comments about why deflation is bad. There have been some good answers.

But if deflation is system wide, it endangers lenders. Look what happened in the US not long ago when the housing bubble burst. Lenders foreclosed houses that weren't worth what was owed on them. Banks needed bailouts or to be merged with healthy banks. People lost confidence and stopped buying cars and the auto makers needed bailouts.

Most of the bailout money has been paid back, the US economy is booming, but there were a tough few years caused IMHO by over exuberance.

China has been over exuberant and piling up debt in the public and private sectors. Now they have excess capacity driven by borrowed money.

The difference between China and the UK, Germany, US, etc. is that China alone is the one who either makes cheap copies of what's invented in the West, or they provide cheap labor for the West and pick up the scraps.

China has been living off the West, and borrowing far beyond it's abilities, betting on the future which hasn't worked the way they thought it would.

China's system can't work long term because they are copiers rather than innovators. They have been working at cheap rates for their Masters which are the Western countries.

[45slap]

August marked the turning point of no return for the CCP's China economy.

The PRChina is going down, as expected for several years now. It is anticipated the China economy and financial system will crash completely during H2, 2016. The crash during 2016 has been expected and anticipated by Western investors, Wall Street especially and in particular, since the effects of the 2008 bursting of the US housing bubble became fully analyzed.

The CCP's development model provided by Deng Xiao Peng has however always been known to be unsustainable. By the time of the US crash of 2008 the trend line had become more definable to the West.

The complete drying up of bank liquidity for both the official state banking system and the off the books shadow banking system caused the Boyz in Beijing in August to throw $700 billion into the official state banking system. The shadow banking system, which is off the books and not included in GDP, remains an additional wild card that is on its own, making it the free radical of the financial system.

The $700 billion is a drop of water in a desert.

Bank of America Merrill Lynch is quoted in the OP and is accurate, but I like the similar account as follows that is provided by BNP Paribas, which couches its analysis but all the same pulls no punches.....

China’s deflationary chickens continue to come home to roost. The biggest investment bubble in history, financed by one of the biggest credit bubbles in history1

is producing serial overcapacity across swathes of the economy, especially basic industries and real estate. The logic of China’s wildly unbalanced growth is steadily intensifying deflationary pressure, a fading ability to generate cashflow and a slow, grinding march towards unsustainable debt dynamics.

With system-wide leverage already well over 2x the size of the economy and the average interest rate paid by corporates around 7%, nominal GDP growth needs to run well in double-digit territory for debt to be sustainable. Q3 GDP data could show nominal growth slowing to 6-7% with the deflator close to zero or even negative in y/y terms (China: Stumbling & mumbling).

These pressures are, of course, not new and China’s state-controlled financial system ensures that its capacity to sustain the Ponzi finance dynamics that artificially elongate the credit cycle remains considerable. The asset-management companies (AMCs), aka China’s ‘bad banks’, have increasingly emerged as credit-risk absorbers and liquidity providers of last resort. Clear evidence of growing deflationary pressure on an economy-wide basis, however, is accruing as growth fades and the diminishing return from stimulus worsens.

Developments in the housing market are even more disturbing, with over-supply already producing house-price declines at an annualised pace of 10-12%.

http://rss-globalmarkets.bnpparibas.com/r/20141017_China.pdf?t=AiKoAjNfPl5-V9v0TO887&stream=true

So Uncle Sam will keep its place as número uno in Billy Boards Top 100.

[NeverSure]

-snip-

Developments in the housing market are even more disturbing, with over-supply already producing house-price declines at an annualised pace of 10-12%.

http://rss-globalmarkets.bnpparibas.com/r/20141017_China.pdf?t=AiKoAjNfPl5-V9v0TO887&stream=true

So Uncle Sam will keep its place as número uno in Billy Boards Top 100.

As already said, China doesn't have the economic engine to pull out of this. China picks up the scraps of the West by providing cheap labor.

As China's labor costs have increased, the US has begun to bring many of those Chinese jobs home. It costs too much money to ship raw materials to China, have them manufactured into products, and then ship them back. Those costs plus the Chinese labor add up enough to pay for US labor.

The US is also innovating with robotics. It can now make clothing without human intervention. Robots don't want employee benefits and will work 24/7 without extra pay. In the beginning of the Chinese expansion clothing was a large part of production. Also, countries with cheaper labor such as Cambodia and Vietnam are picking up clothing manufacturing contracts.

With rapid depreciation in housing and other financed items, and a shrinking manufacturing sector, China is going down.

The West provides the world with technology and makes a bundle from it be it big international websites, commercial aircraft, the internet, computers, smartphones, and on and on, and China picks up the scraps.

[Publicus]

It's not just foreign capital that is exiting the PRChina. It is Chinese capital that is out already or getting out in an ongoing stream. The outflow of native Chinese-created capital and of the entrepreneurs that created the capital is what is killing optimism and hope. Everyone sees this outflow and is depressed by it.

The root problem is that the PRChinese don't know yet that no bubble ever ends well, so they believed the CCP Boyz in Beijing last March when the Boyz assured everyone they had everything under control.

Now the Chinese people have seen what the situation is with their bank and their in-laws bank, which is that the banks have no cash and no money at all to lend. No one has started a run on the banks as of yet and the Boyz are keeping their fingers crossed no one does because that would start to bring down the whole of the system and its regime.

Everyone knows that the vast and huge state corporations have come under the government's meat axe, but not for reasons of efficiency or progress. The extravagant supplemental money benefits for state employees have been completely eliminated. The reason is known, which is that there isn't any more money for the government to keep providing, and also because the state firm has never turned a profit and never will. This sudden ripping out of long cherished state cash bonus and other cash benefits has shaken the faith of the mass of state employees in the whole of the system, in Xi Jinping's bizarre notion of the "Chinese Dream" and in Xi himself as the reformer who would make things better and more secure.

The people know how much they have to pay for a house and what they can buy at the markets from food to clothing to household goods, a car, iPhone and the like. The popular joke of several years ago about house prices, that for an ordinary Chinese to buy a house they had to start saving during the Tang Dynasty (900 A.D.) is too serious now to be funny any more.

The people and the government to include its banks and its industrial corporations are significantly reducing their spending, which leaves almost no one else to spend much on much of anything.

Edited January 11, 2015 by Publicus

[F430murci]

@Publicus: where you get this from that Chinese have "thrown in the towel on the government"? Where you get this from that "increasing number of.people who have significantly reduced the amount of money they spend"?

I do not see any evidence of this. GDP.growth last year was 7.5%, this year probably around 7%, overall consumption is growing, maybe not as much as the government would like, but it's growing.

The government is well aware of the housing bubble and has been cooling the market now for 1.5-2 yrs. You say the bubble burat last March? Did you see a crash? I didn't. It's more a soft landing or taking some pressure out of the market.

Lol, first off you have to acknowledge that any numbers coming out of China are suspect and that their GDP has largely been inflated by useless construction projects that are now going into default. China's property bubble is actually much worse than the US's in 2008, but the financial institutions in China are government owned so they have much more discretion or leeway in restructurting the bad loans to keep the banks afloat. Unfortunately, it is the private investors and the property developers in China taking the beatings. The banks are essentially the government. They can print money, use federal reserves or adjust balance sheets as they like.

China's biggest problem is the vast income disparity is getting larger by the day. They are far from being a consumption economy which is needed to decrease the income disparity gap and place the average Chinese in the position of actually being able to buy real estate or purchase larger ticket items. Rural poverty in China is shockingly bad and many in large cities live in the shadows of empty high rises in poor living conditions and shantees.

[F430murci]

-snip-

Developments in the housing market are even more disturbing, with over-supply already producing house-price declines at an annualised pace of 10-12%.

http://rss-globalmarkets.bnpparibas.com/r/20141017_China.pdf?t=AiKoAjNfPl5-V9v0TO887&stream=true

So Uncle Sam will keep its place as número uno in Billy Boards Top 100.

As already said, China doesn't have the economic engine to pull out of this. China picks up the scraps of the West by providing cheap labor.

As China's labor costs have increased, the US has begun to bring many of those Chinese jobs home. It costs too much money to ship raw materials to China, have them manufactured into products, and then ship them back. Those costs plus the Chinese labor add up enough to pay for US labor.

The US is also innovating with robotics. It can now make clothing without human intervention. Robots don't want employee benefits and will work 24/7 without extra pay. In the beginning of the Chinese expansion clothing was a large part of production. Also, countries with cheaper labor such as Cambodia and Vietnam are picking up clothing manufacturing contracts.

With rapid depreciation in housing and other financed items, and a shrinking manufacturing sector, China is going down.

The West provides the world with technology and makes a bundle from it be it big international websites, commercial aircraft, the internet, computers, smartphones, and on and on, and China picks up the scraps.

Yes, for many reasons the US is starting to look elsewhere for labor and will continue to do so in the near future. Big changes are coming here and we will likely see some regulatory changes in 2016. Candidly, we don't need China for squat. We prop China up because we are dumb arrrssees and yet that relationship causes more economic hardship than anything to the US. We can look to more stable environments in many countries if we truly need cheap labor, but everything is going so automated that cheap manual labor is becoming a thing of the past anyway.

[quidnunc]

I'm not a complete noob in financial matters, but after all those years I still don't understand why a low inflation is so bad.

Low inflation=No money in the market to drive up prices!! (very simplified)

Not exactly. Deflation or very low inflation mean that people would rather hold on to their money than spend it. In addition, if people have mortgages or other loans, deflation means that they actually become more expensive to service especially since when there is deflation or low inflation, the rate of unemployment is higher.