Elaine Meinel Supkis
Tim, one of the readers of this news service kindly sent me this Harvard Magazine article where a group of professors try to talk about the personal and international consequences of America running deep in the red. Of course, half of them are grasshoppers who think there will never be a winter so who cares if we run everything in the red while the others are ants who fret about all this but feel that the Chinese ants who work hard and save will keep both the ants and grasshoppers in America alive because they will lose money if they don't save us from our own silly follies. Not one of these people discussed our trade deficits in energy! And only one had an inking about China's plans for us.
From Tim, a reader of this news:
by Jonathan Shaw for Harvard Magazine:The global imbalances created by this dynamic of American borrowing and foreign lending appear stable for now, but if they slip suddenly, that could pose serious dangers for middle- and working-class Americans through soaring interest rates, a crash in the housing market, and sharply higher prices for anything no longer made domestically. Harvard economists and political scientists see possible threats to globalization (the opening of markets and trade that has made the economy a world phenomenon): the risk of rising protectionism; the potential for a world recession if market forces unwind the imbalances too quickly; and even the possibility that political considerations could trump shared economic interests, causing nations to use their international financial positions as weapons.
'Could pose serious dangers? This isn't a future perfect tense, this is present tension because the housing crash isn't possible, it is here, today, now. In full bloom. And what do these fine Havard economic professors worry about? Why, that the mess we are sliding into might move us to change the rules of 'Free Trade'! I hate to say this, but anyone who imagines globalization is good for the empire is nuts. Or rather, the empire, like all previous empires before it, is forced to do 'free trade' and carry the entire burden of patrolling the planet alone and this bankrupts them. Why can't these professors who have a lot of free time, not read a little history?
But then, not one of them called the entity we live in, an 'empire.' For years, I have hammered away on this issue. Namely, the refusal to see the facts about defining what we are in the first place means we can't learn any lessons from history. And the British government's propaganda about WWI and WWII turning it into 'poor, itty bitty Britain' being picked on by the bullies of Japan and Germany is pure hog wash and it conceals the brutal face of British imperial conquest and rule. Namely, it was evil for Japan and Germany to enslave the world but not for Britain!
Even when they admit they were an empire, they still pretended this was a white man's burden and not them stealing stuff at gun point. All empires, when they expand using their military (this is always the main tool used if one is more powerful than other nations), collect lots of loot, slaves and exploits resources at a profit. They often colonize other people's lands, too. Brutally, if the natives refuse to retreat.
But after a certain point, the provinces begin to get richer than the home base of the empire! The wars are less and less profitable and the empire must spend fabulous sums, holding down distant lands. And every firestorm in far lands can become vast forest fires very rapidly and if the empire starts to stumble and a sign of this is rising debts, then the other rising empires will whittle away at the empire or even destroy it with one sudden blow.
Knowing this, one can then track our own trajectory. Are we going up and up or are we beginning to decline in power and strength? A sign of rot is, despite near-infinite spending on weapons and wars, the empire begins to lose one war after another. The US has been losing most of its attempts at occupation and control when there is a determined opponent.
We won the Cold War only because we had fewer enemies at home and abroad compared to Russia. But since that last victory, we have accumulated enemies at an astonishing rate. Which takes us to the other basic fact about all empires: the minute power becomes unipolar, all other nations will band together or make often secret alliances with rising powers in order to clip the wings of the reigning empire. This is inevitable and an iron law of history.
Jeffrey Frankel
Putting international politics aside for a moment, “When a country gets a capital inflow [such as the United States has now], generally speaking things are pretty good,” observes Jeffry Frieden, Stanfield professor of international peace. “It allows you to invest more than you save, and consume more than you produce. There is nothing necessarily wrong with that,” he notes. Firms do it all the time, and so do households. They borrow on the expectation that they will be more productive and better able to pay the money back in the future. The United States, for example, was “the world’s biggest debtor for a hundred years,” Frieden notes, “but the money was used to build the railroads and the canals and the factories and to improve the ports and to build our cities. It was used productively, and it worked. The question to ask now is not, ‘Is the country living beyond its means?’ The question is, ‘Is the money going to increase the productive capacity of the economy?’
Capital inflows are not a blessing but a hazard. The US was weak when we had to depend on capital inflows which is a fancy way of saying, 'Foreign powers put us in debt and we have to bow to them.' This is not a good thing except if one is doing what the Chinese are doing: building a nation rapidly with an eye for gaining the upper hand and eliminating the foreign money that is trying to take over. The Chinese have a 50 year plan and it involves understanding the dynamics of imperialism and how to use foreign funds to build up the industrial base of the nation.
There are few empires as old as China's--From Xinhua:
A mysterious underground chamber has been found inside the Chinese imperial tomb guarded by the famous Terracotta Army, Chinese archaeologists say.Historical records describing the tomb of Qin Shihuang, China's first emperor, do not mention the room which is 30 metres (98 feet) deep.
*snip*
Despite his brutal methods, Emperor Qin is remembered as a hero in China for forging a unified state.
I read the Chinese talking about themselves. This is a strong belief of theirs that power comes from someone strong wielding the sword and forcing people to work for the empire and not personal greed. Namely, what may be good for the private equity funds may be toxic for the empire and so the empire must squelch them or at least have the hedge fund hell hounds on a very short leash. The Communist Chinese are big believers in the ideology that the needs of the empire trumps all other things, all of them, without question.
Chinese President Hu Jintao on Saturday morning reviewed troops of the Chinese People's Liberation Army (PLA) Garrison in the Hong Kong Special Administrative Region (HKSAR) at the Stonecutters Island (Ngong Shuen Chau) Naval Base.Hu, also general secretary of the Central Committee of the Communist Party of China and chairman of the Central Military Commission, arrived here on Friday to attend the celebrations marking the 10th anniversary of Hong Kong's return to China and the swearing-in ceremony of the third-term government of the HKSAR.
About 1,900 troops were present on the occasion, in the formations of guard of honor, army, navy, air force, armored force and helicopters.
Here is the picture. Spit and polish galore. And Hu has shed his disguise of meekness and smallness. See how he strides, how diffently he is dressed! His proud bearing, his glittering eyes!
Reading his body language, I see a man who is filled with tremendous confidence. He knows he has set his empire on a road to possible victory. And the sign of this is both his increasing alliances and often secret deals with many other nations and above all, Russia. And he is now a dragon who sits on the world's biggest pile of money. This is important.
Jeffry Frieden:
But momentary feelings of well-being are not the whole story. Virtually any economist will tell you that globalization is good, but that it creates winners and losers. The benefits of global trade accrue from what economists call “comparative advantage,” the theory that a country gains from specializing in production activities at which it is relatively better (even if it is not the absolute best at producing anything). All of the countries that do this are better off than they would be without international trade. But even though it is possible to prove mathematically that this is true for nations, it is not true for every group of people within nations. These, Frieden says, are globalization’s losers: firms that will be driven out of business; workers whose wages will go down or whose jobs will be displaced by foreign competition; mortgage holders who will be foreclosed upon by foreigners; corporations that will be bought by foreigners and, like Chrysler, discarded. When a country runs a large current-account deficit, as the United States does now, foreign manufacturers and holders of dollar debt come into focus as their factories supply American stores and their financiers buy more iconic American assets.
These poor professors! They look at the littlest effects and feel no fear, just slight concern that some poor saps will have to live less well than themselves with their year-long vacation every seven years, etc. My grandparents on both sides were professors during the last Depression. They didn't suffer even slightly! They went through it, serene. But then, neither were in debt, either!
And this is the stern lesson I grew up with: you never know when there might be a depression so don't go into debt after 50 years of age! Pay everything off! This saved my life, by the way. I had to live a very hard time to pay off everything but in the end, when disaster struck my own family, I had a solid base of power, my farm, free and clear so we survived.
The problems facing Americans isn't some of us going bankrupt or being unhappy. It is the geo-political-economic decline of our empire that is exposing us to total destruction. We can start WWIII in an attempt at looting the Middle East or violently reacting to the other empires clipping our wings suddenly.
And at the heart of the Chinese 50 year plan is the plucking of all our feathers one by one, carefully and slowly until our goose is ready to cook. And they love to eat geese. The collapse of most American industries coupled with a flood of money flowing back here from Asia being used exclusively by private equity funds that are borrowing it to use to buy up companies so they can create secretive, non-government supervised private monopolies and interlinking cartels, their plan is to milk us of all our excess income, paying for things we must buy. Namely, the US will be just like it was under Ma Bell when it was a crummy monopoly (I had regular fights with that beast during half of my life!).
Globalization indeed is creating winners and losers but I am not talking about Joe Smoe working for Chrysler, the entire nation can be a winner or loser and how do we tell who is winning and who is losing?
Easy: trade surplus PROFITS and the size of one's FOREX reserves. As well as percentage of control of a market. For example, the Japanese now dominate the world's automotive markets. This is a significant loss for the US. We are also no longer energy exporters, we are the biggest importers. This is a bad thing, not a good thing, if we run trade deficits.
Every day now, I see another feather plucked off of us. This week has been pretty ferocious now that our housing market is collapsing. Every time a hedge fund dies or a bank folds, feathers fall. We call it 'moulting' and birds regrow the feathers. But not if the fox eats them.
The pools of debt investments that are at the center of this story -- things that go by names such as collateralized debt obligations (CDOs) and collateralized loan obligations (CLOs) -- are pools of mortgages, corporate bonds, corporate loans and other sorts of debt.Because the buyer of a CDO gets a pool, rather than a single mortgage, bond or loan, CDOs are less risky in a same way that a portfolio of 20 stocks is less risky than a portfolio with just one stock. If one mortgage or bond or loan goes bad, the total damage to the portfolio as a whole is very small. It's this very real portfolio effect that lets someone like David Baland, president of the board of regents at the School for the Blind and Visually Impaired in New Mexico, tell The Wall Street Journal, "Some loans may go bad, but when it boils down to us, if there were one or two defaults among the pool of loans, it would be like a fly hitting a windshield."
Ever drive through Shamrock, Texas, in the evening in summer? You get some awfully big, juicy bugs plastered on the windshield! An you can't see much when they smash there! Also, the defaults we must fear are not the 'one or two' but multiple! And this is indeed, what is happening not just on the lowest level but much higher up. Not only are many more people going bankrupt this month, our industries are in trouble, too. For the financiers using fancy money from overseas has loaded up our entire economy with debt which takes us back to the first paragraph: the flood of money coming in isn't free. It is DEBT and this is very bad at this level.
THis is merely one of the many different ways that Realtors have been playing with their data: First, a slow selling house can get pulled off of Multiple Listing, and then relisted with a different MLS number and at a lower price. That makes the overall time-to-sell appear much better than it really is. The mulligan can take months or even years of time-on-the-market-to-sell.This game also improves the "Percentage of asking price recieved" number. A $600k house that sold for $450k is 75% of ask, versus the same home relisted and asking $500k -- and getting the same $450k; that's selling for 90% of asking price.
Yes, they lie. Everything has to be hidden so the numbers look better than they actually are. And the entire army of economic professors should be yelling about all this! They also should be yelling about the red ink but it is obvious to me that the concept of 'free trade' trumps all other considerations.
Rawi Abdelal
Protectionism is a legitimate concern stemming from global financial imbalances, agrees the Kennedy School’s Jeffrey Frankel. “That is what happened in 1971 and 1985 when Americans became worried about trade deficits that were indeed alarming, but drew some incorrect conclusions. We economists always explain that the deficit is the result of macroeconomic forces, and that we need to cut the federal budget and depreciate the dollar, but to your average congressman and your average man in the street, that doesn’t seem very tangible. There is a temptation for scapegoating,” he explains. “It was Japan in the 1980s and now it is China and, on outsourcing, India.” Adds former U.S. Treasury Secretary Lawrence H. Summers, the Eliot University Professor, “I think there are enormous potential losses—in terms of consumer well-being and the real incomes of workers, and ultimately, in terms of the ability to maintain a stable global system—that come from the threat of protectionism, and so I think containing that threat is enormously important.”
This is the mental illness of all monetarists: since money is meaningless now, they inflate or depreciate it at their whim and this is supposed to have no downsides. I remember the dollar devaluations long ago! My family does a lot of work overseas and my parents had to have the State Department give them all their money before they flew out and they would make a detour to Switzerland to change it to Swiss francs and then do their stuff in India or Saudi Arabia, etc. I came home from Germany just in time to see the dollar collapse. I got my education there by the skin of my teeth for it would have been too expensive just two years later.
And this was a tremendous loss of power! The US watched Russia expand its influence rapidly because our currency was dying. Indeed, the Japanese and Chinese saved us from ourselves by not circulating huge amounts of dollars we print so the dollar has sailed on, secure, for a while after the Bretton Woods II collapse. But this is coming to a swift end.
From Harvard Magazine, the economists talk about FOREX reserves:
Furthermore, as Summers points out, the real returns on these reserve investments, measured in those countries’ local currency and after adjusting for inflation, are close to zero. Why these countries are sending us their money—while choosing investments with returns so low that they could easily turn negative if the dollar were to depreciate significantly—is, he says, “a very profound question, in my judgment.”How these lenders to the industrialized world decide to act in the future has large implications for whether the imbalances sort out gradually or violently. Although their desire to lend and export is aligned for the moment with our consumerism, we cannot expect that they will want to keep accumulating dollar-denominated debt forever.
The “rational reason” for reserve accumulation by countries like China, says Kenneth Rogoff, Cabot professor of public policy and professor of economics at the KSG, “is that they are terrified of having a financial crisis and, by stocking up on Treasury bills, the government puts itself in a position to bail out banks and bail out companies in an emergency.”
Arf. I will laugh to death. This is just too silly. If there is any country on earth who should be worried about a fiscal melt-down, it isn't China. It is the US. But of course, the Federal Reserve can save everyone who is in debt by printing up dollars! All you have to do is add more zeros! Voila! Instant wealth. This way, the debtor nation can pay off everyone with worthless script. Germany tried this after WWI. Then they did route #2: bankruptcy. This destroyed all of Europe's banks. And the US, too! Then they used option #3: World War.
And this is the answer to the profound question as to why Japan, who we defeated in that war and China, who itches to teach Japan a lesson thanks to that war, are dueling with dollars. Japan was doing it to keep the yen weak so they can destroy our industries. But China is doing it so they can bankrupt us when the time is right. So now, Japan is frantically buying dollars again and storing them in the FOREX reserves to keep abreast with the Chinese. And this is killing the yen and the dollar which are the ONLY major economic power house currencies to be declining! Isn't that shocking?
The FOREX reserves are an albatross around Japan's neck but is a brilliant sword in the hand of Hu!
From Harvard Magazine:
Summers believes that the reserve accumulation going on now “is, in significant part, because they want to maintain an export-led growth strategy.” In 1999, he observed that the global economy depended on the U.S. economy (which accounts for almost 30 percent of global economic output, and an even higher proportion of final demand), and that the U.S. economy depended on American consumers (whose consumption is equivalent to 70 percent of GDP). Consumption had become what Summers has called the “single American engine” propelling the world economy. In such an environment, keeping exports inexpensive has been a rewarding strategy among our trading partners for maintaining their economic growth. China’s purchases of dollars keep that country’s currency weak relative to ours, making Chinese goods inexpensive for American consumers. “The reserves are not objectives in and of themselves,” Summers says. “They are a means to maintaining an exchange rate at which their exports will be extremely competitive, and so are a kind of subsidy to domestic industry.”
If this is true, why does Russia have the world's 3rd biggest reserves? And Saudi Arabia? Everyone is beefing up their reserves so it isn't due to them subsidizing trade. After all, why do oil nations have to do this? The oil pays handsomely by itself! But Equador and Venezuela as well as Russia are beefing up their FOREX reserves far beyond our own nation which ranks #20 or now lower on the list of who has the biggest reserves.
And the news that we consume 70% of our GNP as stuff for ourselves rather than production for export is a very dangerous thing indeed. This is bad news. And the world isn't feeding us because they love us. We are very unpopular in much of the earth.
Nope. Japan feeds us because they want to control us and use our military to protect themselves and their oil from Saudi Arabia (they are the biggest customers!). But China is feeding us for utterly cynical reasons. They have no plans for feeding us forever or even too many years longer. The rising yuan is proof of this.
From Harvard Magazine:
But what if our current account deficit is a side effect of globalization that is not going to go away? Richard Cooper, Boas professor of international economics, takes a much more relaxed view about this possibility than his colleagues do. In theory, he says, the deficit could persist forever, as long as it eventually stops increasing as a percent of the U.S. GDP.Cooper, who was undersecretary of state for economic affairs from 1977 to 1981, and chair of the Federal Reserve Bank of Boston from 1990 to 1992, sees global imbalances as a natural consequence of a decline in investment “home bias.” “What do we mean by globalization?” he asks. “What we mean is that everyone around the world thinks beyond [his or her own] national boundaries when it comes to allocating their savings.” Americans used to invest almost 100 percent in the United States, but now allocate a portion of their portfolios abroad. “That is a process that is going on worldwide: foreigners are investing more abroad, too, but foreigners save more than Americans do.” Because the United States is 30 percent of the world economy, a world with no home bias would see foreigners investing 30 percent of their savings in the United States and Americans investing 70 percent of their savings outside the country. “If you apply those two numbers to actual savings levels,” Cooper says, “you get a $1.1 trillion current account deficit in the year 2005, with foreigners investing $2.3 trillion in the U.S. on savings of over $8 trillion, and Americans investing $1.2 trillion abroad. The difference between those two is $1.2 trillion.” International diversification of investments, in other words, causes the current account gap.
“Of course we are not there yet,” Cooper notes. “Actual foreign investment was about $1.2 trillion in 2005, and U.S. investment abroad was less than half that. That means that in getting from here to there—what economists call the stable state—the deficit could actually grow as a share of GDP,” he explains. “It can’t grow forever as a share of GDP, but it could grow for a while, as it has been doing in the last decade.” How high could it go? Rogoff says that, at least in an accounting sense, we could handle deficits “until the debt level gets as high as 100 percent of GDP without breaking a sweat at today’s interest rates.” For his part, Cooper believes that the deficit will eventually stabilize at an absolute level, and that as long as the American economy continues to grow, the deficit will slowly decline as a percentage of GDP.
Professor Cooper should be thrown out of Harvard. Thinking we can run up deficits forever is pure insanity. Does Japan run a deficit for even one year? And why not? What has happened to them? As the run surpluses with the world, their percentage of world markets has grown. Their industries flourish and ours decline. Their FOREX reserves shoot up and ours collapses. So who is right? Of course, the Japanese have created a faux depression so we feel sorry for them but this is like a millionaire dressing in rags, I have known such guys. One of the biggest shipping owners in the world used to do that for fun. I asked him why and he said, 'No one will cheat me!' And he was right. He used to curse Onassis and shout about how he was giving the Greek shippers all a bad name. 'And he will bring the IRS down on my head, too!' he would yell.
After WWII, the Greeks bought up all our excess Liberty ships and then used them to ruthlessly undercut American shipping companies and drove 90% of them out of business by the 1970's! Now, the Chinese and Korean shippers are doing the same to the Greeks.
From Harvard Magazine:
A dollar crisis for the United States would be in nobody’s interests, of course. If the currency dropped 40 percent, nations holding dollar reserves would see the value of their holdings drop by a like amount. Doing anything that might precipitate a dollar crisis, including suspending purchases of dollar debt, would therefore hurt everyone. (Summers refers to this as a “financial balance of terror.”) But that is not enough to guarantee that such a thing might not happen, either by accident or as the result of a diplomatic crisis, says the Business School’s Rawi Abdelal. “World politics is about countries doing things that are not in their narrow economic interests, but that serve some political agenda,” whether a crisis like Suez, or the long-term maintenance of export-related jobs.“The nightmare scenario,” says Mohamed El-Erian, who as chief executive officer and president of Harvard Management Company (HMC) oversees the investment of Harvard’s $30-billion endowment, “includes the possibility, for example, that Taiwan does something to upset China; the U.S. allies itself fully with Taiwan; and you have a political crisis with economic implications.” A conflict over the Taiwan Strait, agrees Abdelal, “could lead China to diversify quickly out of dollars. I think that things could turn out very badly, very quickly.”
The most important domestic remedy, says Jeffrey Frankel, who served as a member of the Council of Economic Advisers under President Bill Clinton, and on its staff under Martin Feldstein during the Reagan administration, is to try to raise the national savings rate, in order to reduce our need to borrow from abroad.
At last, one professor who isn't totally blind. Gah. I live near Boston. They should call me over to instruct them about the realities of finances and international politics. But I have no degree at all so no one listens.
Raise national savings! HAHAHA. Easy as pie, guys! I talk about this all the time: raise the damn interest rates so they are above and not below the rate of inflation. Period. It works, believe it or not! If housing prices are rising at 10% a year and banks pay on savings, only 2% and loans for houses are 4%, guess what? No one saves! Especailly if all other things are rising faster than 2% a year! Like anything, if people want more of something, they must pay more and banks want my savings then they must offer me good returns!
And this is controlled by the Federal Reserve. Who has no idea what 'Sovereign Wealth' is! Imagine that. I wonder if these professors know. I bet they don't.
From Harvard Magazine:
Frankel says the current situation is frequently compared to the Bretton Woods system as it worked in the 1960s. “There were constant meetings then among the U.S., the Europeans, and Japan where everybody agreed not to sell dollars. They realized, ‘If any one of us sells dollars, we are going to bring the whole thing tumbling down.’” That worked for a time. But back then, Frankel says, the European central bankers “met with each other every other month and looked each other in the eye and agreed not to sell. Today, there is no agreement at all. The Asian countries and the oil exporters don’t meet each other regularly, they are not political allies, and there is no sense of propping up the system. The Chinese and the Japanese, the two biggest holders, are kind of at odds.
Heh. Why, our ruling elites and the bankers who run things can't meet with the Chinese and Russians and with secret hand shakes and chanting of magic spells (YES THEY DO THIS) and all the Masonic symbols and Skull and Bones prayers to the Executioner who is Death, why, if they could do this with the Russians and Chinese, they could continue ruling the planet and pay for everything with FAKE MONEY created out of thin air!
But alas, this is ending. This lovely dream. Time to wake up and get back to work!
Culture of Life News Main Page
Did you see the pit they found with all the coffins, in China?
Posted by: Old Ari | July 01, 2007 at 07:19 PM
Yes. There are lots of bodies buried all over the place. When I was a child, I accidently dug into a grave that was over 1,000 years old. Showed my mother the thigh bone and she ordered me to stop digging. I was only around 9 years old. Of course, I was then fascinated with that spot. The University of Arizona's archeology students showed up and poked around. Nothing is sacred.
Posted by: Elaine Meinel Supkis | July 01, 2007 at 11:13 PM