Flat screen TVs are the cocaine, China is the supplier and Walmart is the pusher.
If we start with the premise that every "real penny" in the economy theoretically traces itself back to some piece of production, then it is not rocket science to figure out that the producers will have all the real pennies. Manufacture a penny out of thin air, tracing itself back to only air, and that penny will become as useless as a Zimbabwean nickel.
And so we have the unholiest and unhealthiest alliance between two nations that we've seen since Hitler and Mussolini exchanged glow in the dark friendship rings.
Over the last decade, China produced like mad but it's citizens socked away 30% in savings. The US consumed like mad, socking away 0%. China is awash with real pennies. Like a good supplier, they then lent those pennies back to the hapless addicts. The addicts, having addictive personalities to begin with, then had a field day. Remember, these are real pennies, not fake pennies, so the addicts can essentially give them away for a time, and still have low interest rates and a decent valuation.
But the pennies have nowhere to go after a while, and sooner or later this structural imbalance must create a bubble in something. But what? Tulips? No, we already had the Great Tulip Crash of 1634 so we can't repeat that one:
Always disheartening to find out your crash has been taken. So, what new to crash? Hey .. how about a stock bubble! No, we already did that one idiot, several times!
Then the addicts, always in search of a new high, get a brilliant idea. Somewhere around year 2000 one very smart Ivy League educated addict blurts "Hey .. how about houses .. they've pretty much went up only with inflation since 1950 .. let's start having them go up 3, 4, 5 times faster than inflation .. and let's give mortgages to everyone .. in fact let's insure through regulation that this happens .. and then we can use the houses as ATM machines dispensing Chinese pennies!"
And so the addicts are off to the races. Loading their Chinese financed houses with Chinese made flat screen TVs.
And so now that the addicts have gone bust, what are the flabbergasted Chinese suppliers going to do? They could stop lending us real pennies, but then the addicts will start manufacturing fake pennies out of thin air, and Chinese debt will become worthless, as their real pennies would be indistinguishable from the fake.
Will they even try this "tough love?" That assumes they even love us to begin with, generally speaking the drug supplier has little love for his customers. The solution would be for China to start consuming it's own goods. Each nation should save at 10%, the rest should be consumption. Had we done this, Alan Greenspan, the former Keeper of The Cost of Chinese Pennies would not have been able to shower them all over us so cheaply.
Next time, let's just exchange rings.