Your Lying Eyes

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23 January 2009

Obama to Take On China?

Tim Geithner has signaled a new, tougher stance against China by accusing it of manipulating its currency. According to the Washington Post article, his fellow liberals are all a-twitter with this tough-guy approach.
"It was very interesting to see that Geithner has stated that China is manipulating its currency," said Eswar Prasad, a senior fellow at the Brookings Institution. "Things are going to get quite heated on the China-U.S. front this year. This statement was clearly a shot across the bow, signaling that this administration does not plan to mollycoddle the Chinese."
Good - great, but there's a simple question to be asked here - Who's holding the cards? China has been encouraging saving, discouraging domestic consumption, and concentrating on exports to grow its economy, and has pegged the Yuan to the U.S. dollar to support that strategy. Now that there's a global recession, China could decide to encourage domestic spending to keep its economy growing, but why should it?

Had the Obama administration come into office promising a new, sober, economic retrenchment designed to turn the U.S. economy around from a spend-thrift service economy to a saving-oriented manufacturing one, then China might consider re-thinking its trade policies. But since Obama is instead promising the mother-of-all stimulus programs, designed to get Americans filling in potholes or whatever and piling up multi-trillion dollar deficits to get the U.S. consumer to get back to spending money like there's no tomorrow, why should China even consider Geithner's complaint? All they have to do is wait for the U.S. printing press to start churning and they'll be back in the saddle in no time. I'm afraid that in this standoff all our cards are showing, and China's holding a straight and we've got a pair of sevens.


Anonymous Anonymous said...

Pardon me for oversimplification Z, but our situation from fifty thousand feet looks like this:

China is willing to have its slaves, er....workers, make it on a few bucks a day and live in shacks, so they can have them work in factories and produce goods much more cheaply than we can.

Our lovely corporations, prodded by Wal-Marts, have shut down the factories here and moved them to China, but still "own" the deeds legally to these entities.

Our populace, most of which no longer make all that much money, has to borrow money to spend money because their earnings are all tied up in the car note/house note/credit card payments. We are going to "extend" their credit by letting them borrow more money against their future even further into the future so they can buy more stuff that is now made in China that our corporations and their shareholders ultimately get paid for en masse. The rich in the gated communities (the shareholding class) get richer, the indebted get more indebted, the Average Chinese worker stays pretty damned poor.

What is China's long term objective in all of this? Will they someday just announce all those factories over there are "theirs" and screw our shareholding class? Is our shareholding class counting on those 12,000 nukes and 16 carrier groups ability to destroy China physically in order to deter the Chinese from contemplating this?

Our elite may be thinking in terms of a "global-economy-nirvana" in which they are the owners of the world's large corporations and lending institutions and a truly integrated humanity where there is a free flow of people who eventually all intermarry causing there to be one light-brown human race, but somehow I get the feeling that China, Indonesia, India, and Russia aren't really buying into any of that and are just allowing the US to make some very stupid economic/demographic moves while laughing at us quite heartily in private.

Where will the US be in 100 years vs. China? I have a feeling that this will no longer be the wealthiest nation on earth, but mere agricultural producer that sells food to other nations. It always amazes me that people expect us to have a unending technological advantage over the rest of this planet. Technological advantage eventually becomes military advantage. It could be that one new missile system invented by some sequestered geek could make our nuclear advantage null and void within a few years, and China building a large navy making our carrier fleet effectively checked in just a few years. Would we behave the way that we do if our military didn't back our financial sector up? I think we wouldn't. Are we counting on selling entertainment and financial services to the rest of the world? Please! Other nations can make their own movies and entertainments and sell each other money as well or better than we can.

Post WW1 and WW2, a man could not be blamed for being very bullish on the future of the United States. But NOW............I think a man would be very foolish to be bullish on the future of the United States. China seems to be the coming world superpower in my estimation. If it weren't for the backward Islam in Indonesia and Arabia sort of hemming that country (China) in physically, I'd be more optimistic about her future still.

This "economy-based-on-borrowing-money" stuff is for the birds. Its not sophisticated or modern, its just stupid and hasn't ever really been done thourougly anywhere in human history. Its WEIRD Ziel to see credit card swipes at fast food windows. Its strange to know that some people pay for their very gasoline on credit and just struggle to make a payment to MasterCard or Discover every month that is larger than their car note, but still smaller than their house note. Has any country in history effectively had so much of its populace living like this for a very long period of time? Of course the answer is no.

The election of Barack Obama should tell the elite that something is off the rails here. He, who has been true friends with Jerimiah Wright, radicals, Marxists, Feminists, a Weather Underground Terrorits, Marxiscatti Education (Indoctrination) "Reformers", and other unsavory characters on the far-left, is no friend to our elite whether they know it or not. I think in his second term they might really start finding that out in earnest. I look for suprisingly moderate first term from him. He's smart.

If we didn't have any more nukes than China had, Obama wouldn't even dream of "taking China" on. Our air superiority will not last forever. Other nations will tire of us bullying the world and start purchasing weaponry with which to defend themselves with against us. Our military "hegemony" can only last as long as we have the money/technological advantages to fund it and feed it. We are losing both of those as we speak. In seventy years the notion of the US dictating anything to China might sound comic to the populace at that time. Im glad I wont be around then.

January 23, 2009 10:25 AM  
Anonymous Anonymous said...

China is screwed. By building an export-based economy and acting as an international creditor, China is in roughly the position that the U.S. was in circa 1929. Let 'em nationalize the factories. There still isn't going to be enough demand from anywhere to prop them up.

What's more, the U.S. and U.K. (likely followed soon by the Eurozone) are trying to inflate their way out of this mess. That's bad news for citizens of Western countries, but it's a real nightmare for China. Their holdings of foreign debt will begin to devalue, they can't sell it off without speeding up the devaluation, and they will begin losing their labor cost advantage. Their economy will soon start to unravel like a cheap spring.

Long term problems too - China's population is aging much faster than the U.S. due to decades of the one child policy.

As for India, I spend a lot of time there. They are looking down the barrel of some bad internal problems. I wouldn't be a bit surprised to see independence movements in some Indian states in the next few years. The collapse of the energy markets may see the same thing happening in Russia.

It's going to be rough to be an American over the next few years, but it'll be nirvana compared to what's coming in Asia.

January 23, 2009 4:36 PM  
Blogger ziel said...

What is China's long term objective in all of this? Will they someday just announce all those factories over there are "theirs" and screw our shareholding class?

They won't have to - they'll be able to just buy them with all those trillions of little coupons (called "dollars") they've been collecting.

January 23, 2009 5:48 PM  
Blogger ziel said...

China is screwed. By building an export-based economy and acting as an international creditor, China is in roughly the position that the U.S. was in circa 1929. Let 'em nationalize the factories. There still isn't going to be enough demand from anywhere to prop them up.

There's enough demand internally to prop them up. They've been saving and denying their people a modern industrial life. They can let their currency float, reduce exports, increase imports, and start living the high life, buying up properties world-wide and sucking up Africa's natural resources with their new almighty Yuan.

Then, once the U.S. is back on its feet after a decade of painful retrenchment, they'll just reverse the polarity again and start saving and exporting again because we'll just fall into the same trap.

As far as India and many other Asian economies, my guess is your probably right - they have nowhere near the human capital of China.

January 23, 2009 5:54 PM  
Anonymous Anonymous said...

RP in TX,

You have some interesting insights, some of which I'd like to come true.

I'd love, trust me, for us to have been secretely "foxy" in all of this, and in 30 years look back to how we hyperinflated China's economy, wrecked their labor-cost advantage (by having a new generation of Chinese workers who demanded to be paid like everyone else on the planet), and we would be relatively well-off again (and competitive again) back here in the US.

But RP, something deep inside of me tells me that the country that has all of the factories is the country that can make raw materials into products that consumers around the world will buy (neglecting to mention that 1 Billion-plus market right there at home in China). Will America (and Canada) retain the physical ability to make any product other than agriculture, dumb movies (that I haven't been a consumer of much at all), silly TV shows, and selling each other money, and fast food? Oops, I forgot...........way overpriced real estate and paper-mache houses.

This just doesn't seem like the hallmarks of a really sound 50 year economic expansion to me, but a 20 year bubble set to burst. Its hard for me to concieve that a large continental-sized nation can have an economy like the one I describe above. Barbados or a tourist destination doesn't have to produce great wealth, but the continental United States probably needs to. Its almost perverse to think that we are entering an era where our raw materials will be shipped to China to be "made" into products, so they can be shipped back here for sale, while our treasury floats T-bills that the Chinese buy so that we can borrow the money (from them) so that the whole process can go on unabated.

Believe me RP, I'd love to be wrong about all of this and look back in my old age and say to the kids, "boy I was sure wrong about all of that all those years ago, I should have trusted that smart Mr. Greenspan and Mr. Bernake", but I dont think I will. Thats how it looks from the recliner anyway.
Good luck on your business in India BTW, they've always struck me as nice people when Ive dealt with them personally.

January 24, 2009 10:08 AM  

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