Subject: Comparison between US and Chinese Defense Spending: On and Off Budget Revenues
Date: Sat May 10 23:26:50 MDT 2014
Impact of Permanent Funds on
Public Finance and Emergency Spending
In just a period of just 10 years Chinas Off budget revenues demonstrate a terrible threat with its expected value being equal to the United States defense budget after only modest projections for growth. The combined values of their permanent funds/SOE and their on budget defense spending will be nearly double that of the United States expected defense budget. Worse is the fact that the combined value of China’s on budget and off budget revenues already equal that of the US 420B defense budget and they maintain larger borrowing capacity.
2014, current estimates
(US doubles Chinese GDP)
· The United States has a 16T GDP with 420B D Budget (2.6%) and 110% debt:GDP ratio leaving 40% GDP for borrowing at 6T (at 150%)
· China has a 7T GDP with 200B D Budget (2.8%), with 1T Permanent Fund for 100B (10%) extra revenue, and 3T S.O.E. for 100B (5%) extra revenue, with 25% Debt:GDP ratio and 8T in borrowing capacity (to 150%). 400B combined emergency funding = 5.7% GDP
China has equal war time financing as US if PF discount rate is 7% and SOE discount rate is 5% with slight advantage in borrowing capacity. The US still has huge advantages in technology and military assets but the lower quality Chinese arms with faster production rates and greater capacity might mitigate the position.
In 2028 CEBR forecast
(Parity between US and China)
· The United States will have 23T GDP with 600B defense (2.6%) with 120% debt:GDP ratio leaving 30% GDP for borrowing at 7T (150%)
· China will have 23T GDP with 644B in defense (2.8%) with 25% debt:GDP ratio leaves 125% for debt financing at 28.75T borrowing capacity, with 4.2T in PF (10%) with 420B in extra revenues, and 7.9T in SOE (5%) producing 395B in extra revenues.
Chinese SOE revenues might benefit from hostile expansion of market territories in Asia. This provides a tangible motivation for China to exert themselves in territorial disputes with Japan, Vietnam, Taiwan, and the Philippines. Their communist infrastructure still represent nearly 30% (3T) of their 7T economy and it will scale up to nearly 9T in a 23T economy (2028). The discount rate was set at a moderate 5% but in truth the value might be closer to conventional private sector profit margins at 10-20% or higher. In these instances all revenues can be diverted away from reinvestment towards defense spending with 9T producing nearly 1 or 2T in war finance. This exemplifies the most conventional threat of communism including anti-democratic pressures and sentiments.
The lower technology arms of the Chinese wil contribute to faster production rates especially with Chinas improved manufacturing capacity. These are in addition to the nearly 5x differential in population advantage the Chinese have and offer huge advantages during a prolonged conflict. They are equivalent to the production efficiencies and enlistment advantages the US maintained in WWII which ultimately allowed the US and West to beat the Nazis and Axis. The Chinese public finance advantages are regardless of whether or not the Republicans default on the US destroying our borrowing capacity and disrupting our war production and enlistment rates in a challenge of the federal government over taxes and war time economic controls. In this respect a better analogy (or precedent) might be the end of World War I where the Bolsheviks revolted and sued for peace with the Germans. The Republicans could use a default to sue for secession and abruptly end any conflict the US is involved in with the Chinese.
Variables related to Public Finance
· Debt default by Republicans would serious hamstring the 6T in capacity the US has now or the 8T capacity the US will have in 2028. The economic consequences might provoke similar emergency responses as 2008 with equivalent deficits, despite the federal government invoking federal reserve powers to print the difference (devaluing currency).
· Demand for US/Chinese Bonds is speculative (especially at Chinese figures or 28T capacity). Still, the larger personal and corporate wealth could be a source for concern especially if there is a Red State Rebellion.
Permanent Reserve (Zero Cost Permanent Fund System).docx
Sponsored Financial Instruments (Surrogate Permanent Funds).docx
Market Amortization (Accounting System Substitute).docx
Asset Back Treasuries (Leverage Based Permanent Funds).docx