If China Fails, does America also Fail?

• (May 18, 2015) International Business Times: Dow Jones Industrial Average Hits Record High ahead of Wal-Mart Stores Inc Q1 Earnings
• (August 27, 2015) After Wall Street’s spectacular meltdown last week, Nobel laureate Robert Shiller is ready to forecast a full-blown stock market crash.
• (August 27, 2015) Wall Street Journal: The U.S. economy has offered varied evidence of its underlying strength during a week of wild swings in global stock prices and wide anxiety over signs of a slowdown in China.
• (January 7, 2016) NBC News: Markets Routed Again Over China Economy Fears

Over the course of the last 8 months, the DOW fell from its record all-time (life-time) intra-day high of 18,312 to 16,540 — a drop of 1,798 points — or almost a 10% drop.

Over the past 5 months, the DOW had two big drops — last August, and most recently — and both times it was blamed on a slowdown in China's economy.

Is the U.S. economy now so dependent on China's economy? If China does well, does America do well? If China fails, does America also fail?

Of course, all of this is a puzzle, as U.S. corporations have also been spending record amounts on merger-and-acquisitions — not to mention, on stock buybacks to increase share values to increase the value of executive stock option grants, that, when excised, are taxed at a lower rate for capital gains rather than regular wages.

And that's not counting all their profits stashed in offshore banks. It's all a big mystery to me. Will all those tiny island tax havens be the only thing left surviving after the next major global economic meltdown?

Profits are not infinite, they are limited by the growth in the population, the number of jobs the masses hold, what they are paid in wages, how much it costs to live, and what workers have left over to spend on other things.

If everybody had a job paying double what it costs to live, less taxes would be needed for welfare, Medicaid, unemployment benefits and food stamps. The Social Security Trust Fund would be well-funded, and more money would be available for defense and infrastructure spending — because workers with higher wages would also be paying more in taxes.

But instead, most of the profits have been spent on stock buybacks, merger-and-acquisitions, and executive salaries — or sheltered in tax havens. Profits have not been spent on wages or re-investment (or taxed to fund defense and infrastructure spending).

Stocks on the stock market can not continue to rise in value for infinity if a greater and greater percentage of the population is left out of labor force without work while wages remain stagnant. If robots and technology could put everyone (except tech people and robot builders in China) out of work, the few people left in America who still have jobs would need to earn enormous wages to pay their share of taxes to support defense and infrastructure spending (and even robots and their owners need defense and infrastructure).

Paul Krugman (January 8, 2016) When China Stumbles:

"The Chinese situation looks fairly grim — and new numbers have reinforced fears of a hard landing, leading not just to a plunge in Chinese stocks but to sharp declines in stock prices worldwide ... And some smart people think that the global implications are really scary; George Soros is comparing it to 2008 ... China is a big economy, accounting in particular for about a quarter of world manufacturing, so what happens there has implications for all of us ... And if my worries come true, we are woefully unready to deal with the shock."

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