This page has been archived and commenting is disabled.
Redefining The Sino-US Nash Equilibrium: Albert Edwards On Why Upcoming Wholesale Tariffs With A "Malevolent" China Are A Certainty
Today's very remarkable analysis from Albert Edwards presents a stunning spin on the China-US Nash Equilibrium, concluding that wholesale tariffs with China are now inevitable: "If another round of credit-fueled investment is about to be unleashed onto a global economy, already on the verge of deflation " it will simply not be tolerated. Watch the trade data closely. Watch the US unemployment rate closely. The US public is on the verge of revolt which is increasing likely to end in across-the-board tariffs." Why has the SocGen strategist come to this conclusion? Simple - he now believes that "China is becoming a malevolent influence (my words) on the global economy and strong action is necessary." As to who gets to buy US bonds should China start a boycott or outright dumping? Who else: "Why, Mr Bernanke is just waiting for his chance."
The core if Edwards' argument is that the US public is angry. And we agree: "Some 42 million Americans were in receipt of food stamps in July, up some 18% yoy (see chart below). Make no mistake, the government isn't throwing money at people willy-nilly - those in receipt of stamps are on the poverty line, currently defined as a 2 adult and 2 children household having a net income of $22,056 p.a." And what is the global regime like in the face of this ongoing social deterioration? In a word - ugly:
Chinese foreign exchange reserves are rising at a record pace in order to maintain the yuan/US dollar peg... meanwhile the US is now running a record deficit with China on the latest data (see chart below - we run the data through Datastream's seasonal adjustment and the story is the same)... and meanwhile Chinese Premier Wen is warning that a 20% yuan rise would bankrupt Chinese companies and sharply rising unemployment would cause a major social upheaval (i.e. exactly what is happening in the US).
Obviously the last thing on China's mind is the welfare of the US consumer (when, ironically, it should be: it is after all still an export driven economy).
As if the US public wasn't enraged enough - resembling an angry bull pawing the ground and frothing at the nostrils " then surely it is best not to wave a large red rag at them. This came in the double-whammy of August#s record US trade deficit with China, and record quarterly $194bn surge in China's foreign exchange reserves to an eye-watering $2.65tr in Q3 (see chart below) - just what the matador ordered!
And something interesting happened today: from having a neutral view on China's mercantilism, Edwards has now gone very bearish.
Having completed my international economics modules at university, I have tried to follow the debate as closely as possible and there is merit on both sides of this fractious argument. But the one big surprise that has caught me out since the credit bubble burst is that the US trade deficit has not fallen further (and vice versa for the Chinese surplus). I am persuaded by recent articles by Martin Wolf in the Financial Times that China is becoming a malevolent influence (my words) on the global economy and strong action is necessary - link. But who will buy all those Treasuries I hear you ask? Why Mr Bernanke is just waiting for his chance.
Two further excellent FT columns by the highly regarded economist, Gavyn Davies (link)and my old friend Peter Tasker (link) point out that due to the currency link a MASSIVE monetary ease will be transmitted from the US to China. No wonder China hiked rates in a surprise move yesterday to counter this threat.
Edward's conclusion, not surprisingly, given the preceding, is that should China launch more of the same policies, the US will simply snap, and the result will be a collapse in two decades of globalization.
The savvy market commentator Frank Veneroso has been at the forefront in pointing out that China?s investment-led model is unprecedented in the history of industrialisation (see chart below). And therein lies the rub. If another round of credit-fueled investment is about to be unleashed onto a global economy, already on the verge of deflation ? it will simply not be tolerated. Watch the trade data closely. Watch the US unemployment rate closely. The US public is on the verge of revolt which is increasing likely to end in across-the-board tariffs.
And we completely agree with Edwards that China is suddenly woefully underappreciating the dramatic change in the global Nash Equilibrium. Now that the Chairman has gone full tilt on QE2 and monetization, the answer to the question of where the billions in new securities will come from that will need to be purchased for the Fed to fulfill its $1.5-$3 trillion UST demand mandate is suddenly crystal clear. Why the US Federal Reserve of course. Let China start dumping its ~$850 billion US bonds in retaliation - well, that's what the Fed better (and perpetual) bid is for. After all Bernanke will be the top holder of US debt within a month anyway.
»
- 13690 reads
- Printer-friendly version
- Send to friend
- advertisements -
(Reuters) - The United States wants G20 finance leaders to make a clear commitment to facilitate and not impede market-driven exchange rate appreciation and will discuss current account targets as a possible means to do so, a senior U.S. Treasury official said on Wednesday.
http://www.reuters.com/article/idUSTRE69J3PX20101020
I think the reason this system will fail is because the US wants to retain the reserve currency status and enjoy all the related benefits and expects the other countries such as China to make adjustments and bear the costs. This US centric global trading system will come unwound...
USA wants to continue to export inflation and beggar thy neighbor.
This can't be stopped.
War will stop it, at least temporarily.
Have you noticed? Here on zerohedge, the comments have already decayed into an "US" versus "them" mentality. "Them," being the Chinese. My kind.
The initials of the United States sure are convenient for times like these.
"will be a collapse in two decades"
I think that particular event horizon is just a wee bit closer than 2 decades.
Fed is proposing to spend $1 to $7 trillion in QE2 to garner 0.25% of GDP growth(0.25% of $14T=$35b, or in increased tax returns of $14b on that increase of GDP assuming 40% taxable). So on $1 trillion in gov expenditure (of future returns) nets $14b in tax revenue...a return on our spending of (drum roll, please) one tenth of one percent. Only our gov could come up w/ this one.
Ohhh, but the debt payments on that $1 Trillion never go away and are something like $35 to $70 billion a year in perpetuity.
Ohhh, BTW, this doesn't factor in the further devaluation of the dollar due to the wanton printing causing further increases in commodities, hard goods (without offsetting wage increases) further slowing the GDP negating the desired result and in fact leaving us poorer now and in the future.
Please correct the math if I'm off...but if the math is anywhere near correct, this is insanity.
I see no inconsistency with the one-tenth percent return, its just what cash is earning in a money market fund! What goes around, comes around.
The Christmas shopping season this year will be a price-cutting bargain basement sales event and after that, the tariffs on iPads, etc will start to get added on.
Regarding Nash equilibriums, if China is exporting deflation and USA is exporting inflation, who will get to zero first?
I think the collapse has already started. It's just that the global collapse is a process, not an event.
Bretton Woods 2.1 is merely a transitional phase to the next global monetary regime.
Admittedly off-topic but just in case anyone is wondering how the whole "loose gorilla" thing turned out yesterday, here's a recap. Be sure to watch the dash-cam video.
http://www.nbcactionnews.com/dpp/news/local_news/authorities-release-das...
Obviously a victim of fraudclosure.
Wasn't that taken from C-Span?
Not off topic at all.
I have visions of brigades of the unemployed, whose jobs have been outsourced acting the same way in about a year or two once their 'for profit' college diplomas are discovered to be worth less than the paper they're printed on.
MAKE A NOTE : IF REVELOUTION STARTS - FIRST TARGET BERNANKE AND ALL OTHER FED GOVERNORS SUPPORTING FURTHER QUANTITATIVE EASING.
oh, yeah, they are the ones bringing this on, right? dang, i was just getting out my Death to China signs.
Bul-Nan-Kee ! That's Chinese for "Undervalued Yuan"
Ben-Knee is Chinese for "Print USD like it's 1999!"
Your Chinese sucks.
If the US people OR the Chinese want to protect themselves from the malevolence, then they need to cut off the head of the snake.
Bernanke is not the head of the snake. "He is an errand boy, sent by accountants to collect the bill"
Ha!
Good one.
First examine your relationship with the PTB. Figure out, given that relationship, if you have been mistreated in any way. If not, then figure out who needs to get their !!!! together, and who is trying to wake you up.
Those conclusions are interesting.
And as far as advocating violence, I would say spelling might come first.
Playing escalatio with the Chinese ... We play "Poker" and they play "Go" (or was that the Japanese?).
... the question is whether it is according the plan or whether this is an unintended consequence.
Good thing there is that massive, city sized and interconnected, bunker under Stapleton airport for the elite to hide in when the nukes start flying.
Did Go help them out in the Opium wars?
The author calls it as it is...China is a wanton mercantilist manipulator.
The USD is *too strong* given our accounts deficits. But, the EU and China and Brazil want to play the exports game and they want us to give them our production AND consume their exports while somehow MAGICALLY generating the wealth to do so without selling anything to ANY of them.
I would argue that the situation from the Chinese perspective is that the US vowed to maintain a strong Dollar policy and encouraged imports from China. They were happy to buy as they knew the revenues would be plowed back into US assets, especially Treasuries and preferred to run up debts rather than raise taxes. The weak Yuan kept imports cheap and this helped to disguise the fact the average American was not getting richer. Added to that, Chinese lending kept rates low and helped fuel the housing boom.
make no mistake, American leaders played a game with China that worked out in the short term but has lead to this mess. The aim of the Chinese authorities was to create jobs, which should have been the aim of the US, but they were too busy spending money on trying to build an empire and worrying about the next election to notice what was happening long term.
I suspected you were rather tardish now I know for sure.
"they want us to give them our production AND consume their exports"
I think we were the ones golbalizing things weren't we? Anything that could be shipped offshore was. I believe you investor types were the main ones applauding the process. They "pushed" us to do nothing. They merely accepted our ill advised offers. As to expecting us to "consume their imports" what choice do we have? WE shipped them all of our manufacturing capability.
"China is a wanton mercantilist manipulator."
I believe you have a misspelling:
"China is a won ton mercantilist manipulator."
There, fixed it for you
If Damon Vrabel is to be believed, China will be spearheading the next world war against the USA as its primary creditor
If they dump it, the fed will print it and the dollar will drop 20%.
So what?
You think China can blackmail America?
HA! HAHAHA! HA!
really, they will always be the dog of America. And if the master says sit, and they don't, they get whipped :)
+ 100 suppressed yuan
Default now...give the world the finger , get rid of the FED, Print Constitutional money , kick the doors open on our once great manufacturing sector. And lets get on with it, we don't need all this global bullshit. Bring the troops home put them on the border, use the drones when the boogymen hold their little training jambroee campout's. simple as that....
I'm doing my best to be a good comment poster, so may I ask why I'm being junked? It's not just an "I don't like this button," or at least that was my understanding.
Do not worry .... Speak your mind who cares about junks.
Wear your "junk" as a badge of honor.
It really is a silly button and usually bears no relation to the actual underlying comments.
People do use it as a way to object to the poster's statements.
Grand Supercycle, now those posts are real junk, as in spam. Why he still gets to post his spam link is beyond my paygrade.
Zerohedge lately has just been getting some trolls around who dont like hearing the truth. We know for certain the SEC drops in, Im sure Geithner and Bernanke do as well.
Enslavement of Azia! :)
Even if they work cheap, their stuff will be sold high. And the profits go to the state on which I can buy a Ipad for everybody.
To be honest, I'm pro that stuff.
TAX EM HIGH, TAX EM HARD!
Good for local job creation, good for competition, good for state revenue...
Hey Blood,
Not Made In China
This is Made in Belgium!.........
http://www.youtube.com/watch?v=8l_7wd0IP5A&feature=related
...classic choon...err tune from '86.Do ya renminbi...err,i meant remember it?
Excellent post. For 30 years we've watched as our manufacturing base has been dismantled in the name of 'free trade' which is nothing of the sort. It's a race to the bottom. I'm at the point where I can't see the point of the WTO except to maintain the status quo for our corporate overlords.
Interesting that Russian papers running stories about Russia being admitted to WTo next year. The US trying to play two sides off the middle for a paradigm that is long since dead. The US entire trade was manufacturing for Fin services and that simply hasn't panned out. Witness JPM rush to build its Asian business or Citi or Barclays etc. Mckinsey like foresight.
http://www.youtube.com/watch?v=LB4D-GbQ9A4
Ben Fulford recommends a Nobel Peace price to China..
"The Nobel Peace prize should have gone to the Government of China and not a lone Chinese dissident. The fact of the matter is that China has been a major force for world peace while the governments of the Western nations have been pushing for never ending war."
http://benjaminfulford.typepad.com/benjaminfulford/
This may be the issue, make China the bogeyman. America likes simple answers and clear enemies. It fits with Bennie's desire to rev up the helicopter and "prove" his college thesis.
Without trying to pass judgement, what is the proper response to the Chinese mercantilism we have/are now experiencing? It was fun for a while when we could buy flat screen TVs on the cheap, but it is not sustainable as history shows.
Shame on both the victim and perpetrator of this mercantilism. How is it prevented, especially given the mercantilist's unwillingness to change their predatory ways?
sschu
War is usually how this was arbitrated in the past
War is usually how this was arbitrated in the past
Not surprising. The perverse incentives created by such unbalance makes it very difficult to stop on both sides, even though there are many rational voices pointing out how this ends.
War is a distinct possibility here, let's hope history does not repeat in this case.
sschu
Lets see. 1.3 billion chinese. Attack drones roughly $1.3 million/copy (love the symmetry), unless the chinese will build them for us @ $98,347.38 each, versus 310 million US $98K per chinese attack drone. Does $98K x 310 million come anywhere close to 857 billion in USTs? This POS Walmart calculator won't work.
Interesting that both Martin Wolf and AEP have posted articles recently about "currency wars".
http://www.ft.com/cms/s/0/52b8a8e4-d0b0-11df-8667-00144feabdc0.html
http://www.telegraph.co.uk/finance/comment/ambroseevans_pritchard/
The conspiracy side of me says it is all arranged to bring the Chinese down a notch. The rational side says there is something to all this.
sschu
I see no problems with tariffs to fix the issue of the Chinese slave labor problem. Globalization is just the marketing for exploitation of 3rd world countries.
+1000!
Who cares? Really. It's so far beyond just plain fucked up. There're no words for this, are there?
I finally get it. We export inflation to them, and import their POVERTY.
It's only taken three decades for us to figure it out.
The current argument is that they are not letting the inflation in - meanwhile we get the poverty. So, the pot calls the kettle black and vice versa. FX wars getting ugly now that it is all coming out in the open.
Washington wants a trade war to divert attention from its massive failures. Thank god for the internet. Check that, thank all the gods.
Flying Spaghetti Monster FTW!
Yep. I'm sick of China. We had a nice co-dependent thing going on for awhile there.
But this is increasingly Us vs. Them and I don't see why we have to let them win in the name of "free trade." I'd rather that we win.
Time to bring back whatever Cold War strategists are still alive to rejuvinate our good old "how to stymie your enemy at every turn, on every playing field" type of thinking.
Game theory, bitchez.
"But this is increasingly Us vs. Them and I don't see why we have to let them win"
Are you really that dense? We don't make anything here anymore. You're pretending that we can do without their manufacturing capability is truly ignorant. You are delusional if you think otherwise. We don't even have a source of light bulbs anymore forget the medical equipment, auto parts, electronic parts, machine parts, raw materials and virtually ALL consumer products. Yeah sure, let's just tell them to F off. Wow are you people ignorant.
What is your alternative?
Reduce military spending.
Can't we all just get along?
No. Never. Next question?
Why not? It would benefit both parties more than each trying to take the share with the most benefit. Nash and what not....I mean, game theory might be about this game, but this game is not about that theory. If there should be a game theory philosophy used for economics it should be Alan Watt's game theory that is considered before Nash's. Not to discount Nash's work, but Watt sort of told you what it is. "Life is a game, and a playful one." Not everybody needs an ipad, so we should share, and get along.
I can't wait until the US places tariffs on Chinese goods. It only benefits the government as they collect more in taxes from, guess who, the US populace! So, if I have this correct, we the people, we get to pay more for goods - Chinese or otherwise, and if we choose to buy Chinese, the money goes to the G man. That's fantastic. And if I choose American, I know that I am overpaying as there is no competition for the goods being produced domestically. This is a win-win as far as I can see it.
"That's fantastic. And if I choose American, I know that I am overpaying as there is no competition for the goods being produced domestically. This is a win-win as far as I can see it."
The ignorance here is truly astonishing. We don't make anything here anymore. Don;t you understand that? At most all we do is assemble call it "substantial transformation" under the rules and label it "Made in USA." It will be very difficult to do that if we suddenly run out of the parts.
Historically speaking, parts came from Wisconsin, Michigan, Illinois, Indiana, Ohio and other Rust Belt locations. The Norden bombsights were made in Indianapolis. Now we make aircraft parts in Washington and super drill bits in Pennsylvania.
There is plenty of CNC / robotic / electronic and metal-bending capabilty in the USA. It might take three months to get online and set up supply chains. Remember a lot of China's capability was delivered by western capitalists building the plants with western engineers setting them up. Now China has capacity to do that, the US just hasn't had the price incentive. A change in tariff or tax code would change that.
globalism IS dead, multiculturalism IS dead, now the argument is over how to bury them.
The implosion of the securitization market supports this thesis ....
Globalism is dying, not dead.
The multicult isn't dead yet either. It's getting there, though. Only a few honest voices are necessary to wash away decades of ignorance and disinformation once the freefall endsand people feel the hard bedrock of truth.
I was just called "absurd" for feeling "uncomfortable" puttin my money into stocks...by a PM on CNBC.
Alert...Alert...new level of insult from the bankng masters...
Was Maria B relaying her experience on the CNBC casting couch? Granted money and stocks were "double entendres"
So, how do we profit off this?
"So, how do we profit off this?"
Maria Bartiromo, is that you?
Two words:
General Dynamics
Trade deficit is a mysterious thing. The more you have it, the more we, the American people, through their importers, want it. Then the more we hate it.
What an ambivalent desire of pleasure.
I (!!!) and my generation, we demand beer (bread) and entertainment. And we want it now as of yesterday..or ELSE !
p.s. Must watch more videos of dat stunned guy trashing the Chinese produce.
p.s.s. Agree with Edwards however I disagree with his timing. I was thinking the same would happen about a year ago, apparently we are not that angry.. yet. At least here in S Cali people are still contempt with the status Que.
Yeah, let's continue borrowing from and lending to ourselves. This is even more fun than the kindergarten games!
A scary thought -- do those peeps really think we can continue playing this game with punity, or do they simply not give a flying fuck about anything beyond their next paycheck?
How are those Chinese solars looking?
"Spain’s Solar Deals on Edge of Bankruptcy as Subsidies Founder" - http://wattsupwiththat.com/2010/10/19/spains-solar-deals-on-edge-of-bankruptcy-as-subsidies-founder/
Something can be increasingly likely and yet still extremely unlikely. There won't be any new tariffs on China, just some fireworks and blowing off steam around election time.
China is an old-fashioned empire. It does care some about the US and European consumers, as those are its main export markets. But the Chinese ruling elite's attitude towards the Chinese consumer is: you just shut up and work, work, work for me, peon! And don't you dare go trying to learn anything I don't want you to know!
China's increased imports are almost all industrial inputs, and much of the increase in dollar terms is just price increases driven by China's wasteful over-investment in fixed capital. The closest thing they've got to increased consumer imports are more Mercs for increasingly lower levels of party hacks.
Meanwhile US policy towards these guys is to pander to them while begging for opportunities for our cronies to share in the profits from exploiting Chinese workers. And when our own consumers can't keep up the imports, our government borrows to support them. To secure its credit, China has basically been given the status of super-senior creditor to the US economy. No matter how bad it gets, China is first to be repaid. Who do you think was being protected by the bailout of the GSEs?
They still have to manufacture for part of the rest of the world.
China has no choice but to keep wolfing down our bonds.
They will continue to do so until they have more aircraft carriers than the U.S.
Which means at least 10 more years of buying.
We hold all the cards. We can simply default, or send over some F-18's to take care of business.
LOL....
Robo we have a new base on guam for our fleet of drones.
You can send the carrier back to the strait of hormuz ..
Robo neocon. How's that forever war thing working out for you?
War can only achieve transfer of wealth when there is wealth to be transfered.
It is an old age observation that is going to strike back hard on our noses.
War does not create resources, it moves resources from one side to another.
In this era, the world resources are mostly on the western side.
It is going to be hard to move something that is already moved on this side of the world.
At best, we are going to prevent a country which happens to be on the right side when it comes to war. It has nothing to do with jobs and malevolence.
Gang mind set and gang wars.
Well our manufacturing better get ready to make those armaments double time, exponential double time.
Hillary Clinton waves her dick around telling China that they gotta let us spy on them with Google and next thing is TBTP got the next excuse to mobilize the national front, increase military expenditures, invade another country, shut down the Internet, limit free speech, raise taxes and trow anybody in jail that farts wrong.
Distractions Men! Don't let 'em get away with another free breath! They'll be marrying Chineses and mating with dog sandwiches.
Easy to find a stick to beat a dog.
Unfortunately, it wont solve anything. There is not much to be fleeced in China.
Time to remember an old saying: you cant draw blood from a stone.
You forget...The previous three decades of "representative tyranny" out sourced "The War Industry" out so that all those doo-dads that go "Boom" are made in China. Go ahead...default. China will take your toys away. It will be hard to do since China is buying the government, but hey, that's free market capitalism.
The old adage applies here; "You owe me $1000, you've got a problem. You owe me $1,000,000, I've got a problem!" I've thought for a long time that China's 'investment' in US debt is shaky. They've just paid for the adventures in Iraq & AfPak - the dumb fucks. The whole rare earth metals thing does have me worried though. Globalization is over - welcome to the the NEW, new America. Kind of like the old one, where we actually make shit. Tariffs bitchez.
How do you want globalization to end the way you imply when the US is supported by the whole world? The US prosperity, bought by moving large amounts of foreign wealth to the US through debt, can not exist without it.
Expansion natural course. The US has been expanding fast but now, the head is banging against the walls as there is nowhere left to expand.
At best, the US is trying by every means to maintain globalization by trying to reduce the share the other actors get in the globalization endeavour.
"At best, the US is trying by every means to maintain globalization by trying to reduce the share the other actors get in the globalization endeavour."
Not quite. The US citizenry is, and has been opposed to globalization for some time. You'd never know it because our idiot media simply parrots what their corporate masters want them to say. The whole point of this article is that the demand by the people for tarrifs will get louder and louder as jobs continue to be shed. Eventually the breaking point will be reached and instead of thousands of striking Frenchmen, you'll have millions of pissed off armed Americans. Eventually, the message will get through.
In the most duplicious manner as the US is one result of globalization.
As a whole the U.S. has enjoyed an increase in prosperity due to globalization, but it's been unevenly distributed. Many have even suffered a loss in real income, so they will be more than willing to return to the times before globalization when they did benefit, even though the U.S. as a whole may be poorer. That is why the majority want globalization to end.
http://www.bloomberg.com/news/2010-10-19/china-hides-rampant-inflation-in-money-binge-patrick-chovanec.html
The western privileged elite corporatists/central bankers have been trying to pull China into modernity with "Engagement." I used to preach and practice the same until I gave up 10 years ago realizing that China, who developed a language and culture completely separate from the rest of the world, cannot be brought into the central banker fold. Sure Warren Buffet and every other swinging dick can do the banquet thing and hire some Chinese guy to represent, but they just want the technology. Their market is theirs. After that, we don't serve a purpose. Again, this is a nation and culture that discovered America decades before Columbus and said; 'So what.' You better get your thinking caps on and read some science fiction because you might as well think about dealing with agents from Planet 10.
If "the West" had a policy it should have been to create regional haves and have nots within China. China always looks within and destroys itself into feudalism.
OK Ben wakes up in the morning and bids up the price of Gold to $3000 and states that is the new floor for Gold and any other monetory easing in the near future will be expressed in Gold.
What effect would this form of easing have on the world economy.
First before we go any further we need to understand that the key difference between the 1970s and today, besides the scale of the monetary inflation is that during the 70s a large element of the subsequent goods inflation was the result of increased wages via labour.
Now this monetory inflation is expressed more directly in the commodity, bond and equity market without passing through the average workers hands.
This enormous wage arbitrage experiment with China and everywhere else is coming to a end - the equity price explosion of the 80s and 90s was the consequence of this model as equities achieved a greater surplus over and above labour.
Now the banks recently are for some reason unable to produce credit to continue to reanimate this monster - why - well the total costs of this experiment have come full circle as commodity inflation has zeroed the benefits from shipping junk across the Pacific - all that Marine diesel is being wasted to no ones benefit but oil producers - America should be turning BTUs into wealth and not just consumption which is expressed in GDP which rises with the oil price until the subsequent collapse
How does one reverse this phenomena - well certainly producing Treasuries is not doing much for the US economy in the long run - it continues the capital destruction of America to a obscene level not unlike Volcker's 20% interest rates of the past - the only difference really is that the US economy is not strong enough to take 5% interest rates now that it has been weakened by 40 years of strange friedmanite ideas about wealth creation.
Indeed since the halcyon days of Apollo the US has lived in a nightmare world of soap operas and fluff.
The US is in fact desperate for capital to reanimate its utilities and technology's. It has 50 year old coal power stations, 40 year old airports and executives with the mental age of 10 year olds.
Instead the USA transfers its last remaining capital to the east via treasuries that are kept artificially high.
These treasuries have created China and everywhere else really.
The problem for the FED is that its client banks cannot produce anymore credit - now banks hate to increase their capital because it reduces their profitability.
That is why they always favour production effeciencey over capital creation if they have a choice - but do they have a choice ?
They do not - a recognition of Golds true price level by the FED would collapse the capital flow to China and elsewhere and recapitalize the US
It is easy to imagine what would happen to base metals and oil if China and others have less dollars to spend as at least officially they have little Gold and Japan has even less.
India a more compliant ally would certainly benefit, also the ECB and BOE would be forced to follow the FEDs example.
This of course is dependent on the western powers having the Gold they say they have. Even so I believe Europe has vast amounts of Gold in private hands and as long as there is not another consumption binge which would waste more capital it could be deployed to create capital in America not unlike what has happened in China during the 90s and noughties.
Watch this space...........
With no repercussions we watched, and some applauded no doubt (Wal-Mart) as they devalued overnight by 33% on January 1 1994. 1.1 billion serfs now working for 33% less. That worked out. F them! So what's the joke. China is one big super fund site in the making with no water. What did they get for raping their own environment? Overcapacity and a bunch of poorly built vacant office, residential and retail buildings. Nice work China. F U and your horseshit drywall. How much of that is in your own buildings?
The second chart, showing the forex reserves, is very telling as to whose court the ball is truely in.
The owners of this country are not afraid of sheeple outrage which I think is overstated in any case. What they do care about is that China is starting to throw its weight around. They can get anyone to make plastic widgets and underwear therefore I do believe that the sino smackdown is nigh.
http://www.youtube.com/watch?v=0JSL-XAL6pY&feature=related
You are right. They are not afraid, but that is arrogance. The owners flaunt the laws of the land more and more, and that is their greatest mistake. We as a society worked long and hard to get the orignal barbarians to obey the rule of law, but now the lessons are changing. We are unzipping western civilization. Mike Tyson said it best when he said "everybody has a plan till they get hit", and the owners are about to get hit, and then we'll see how good their plan is.
Apologies, this is far too long but maybe the repetition of a thought is worth it...
My parents grew up in the Great Depression 1.0 . We learned to shut off lights as kids. We did a lot of things ourselves like cutting the grass, yard work, etc. My parents had their mortgage paid off within a couple of years holding only basic jobs because they had saved ahead of time and paid down most of it. And the house was affordable for their savings.
Self reliance in all shapes and forms will be the mantra going forward. It will become so of necessity, the mother of invention. I was shocked when I went back for a college reunion a couple of years ago to see how the physical plant had changed. The place was a veritable country club. Spoiling kids is nothing new and it may go up and down through cycles but the fact is that spoiled they have become. The sense of entitlement is astounding. Kids who intern in finance for the summer are very good at ordering $300 bottles of vodka in a bar but they can hardly use a photocopier. College graduates have grade point averages of 4.5 ... wait, wasn't an A and 4.0 as high as it went?
Inflation has been present everywhere. Viagra should be the metaphor for our age. Inflation guaranteed...
In China just 40 years ago people were emerging from the cultural revolution. Dysfunctional? I'm not sure that even war vets and those who grew up in the GD 1.0 could come close to relating to deprivations suffered. And then magically they open up and tell Corporate America, here is your billion man market. The Chinese were so thrilled to have a job that they dove right in. They did not mind their CCP cattle herders since they had grown accustomed to the herd.
The game has run its course ladies and gentlemen. The billion man market is a myth. This myth seduced Americans and Europeans in the 1800s. It did not work out. It seduced them again in the 70s. There never was ONE CHINA. There are competing factions within China yet we tend to view the Chinese as monolithic. They are not. The veil of the CCP makes it appear so and cultural traits of inscrutability as well as censorship reinforces this. Imperial China itself was grounded in the theological veil of the Mandate of Heaven. Wars in China have been fought for thousands of years jockeying for power in order to assert the Mandate. It has served as a political ground, but it may also have been a political curse. The Middle Kingdom always looking inward ...
China Inc. may be operating more on inertia now than we think. It is an export economy, it is mercantilist, it is governed by people who put their own in prison simply for thinking. It is also divided by diverse peoples, languages and geography. I hope that in the future, the Chinese people and the West will benefit further from one another, as I am sure that they will.
For now, it looks like either the export ship is on auto-pilot or the Chinese have committed the cardinal sin of believing their own bullshit.
Well, push has come to shove friends. The currency war does not have to become hot. Maybe tariffs will help to raise the Chinese people from their doldrums and break their shackles. Confucian thought places a large emphasis on the individual and self reliance.
Shall we continue along paying for what we cannot afford and outsource and offshore every last job? Or can we recreate a more balanced economy that functions off of work and self reliance, infused with scientific thought and technological advance yet also intrigued by political and philosophical traditions that were embraced by the framers of and embedded within the constitution several hundred years ago? A more balanced society.
The 3000 year history of the West has deep roots in a form of thought that was elevated by the ancient Greeks long ago. When Newton and Leibniz co-discovered the calculus what they had actually done is to refine a process of thinking that had been worked through conceptually over thousands of years. It was a progress of science. So don't bury yourself in a cultural delusion of self pity. The tradition we stand upon is rich and vast. And it is a tradition that honors the freedom of thought which is essential to its survival.
And don't worry about the Chinese, they will take care of themselves.
Worry about breaking your own shackles. Wake up and start thinking again.
Nothing personal China Inc.
As Robert Plant sings, "Bring it on home ..."
http://www.youtube.com/watch?v=wz4gRjI-HRA
Great post..!!
Been preaching this stuff for years now. Even before the meltdown started.
Nice post.
When the Levee Breaks.
http://www.youtube.com/watch?v=WbrjRKB586s
BECAUSE WE LEARNED NOTHING FROM THE GREAT DEPRESSION!!
Better stock up on Nikes and iPods!
...and light bulbs. We don't make those here either anymore.
China could wage a proxy war in the Middle East; anti-aircraft & personnel missiles alone could be a game-changer - remember the USSR & Afghanistan? Besides, WalMart would never OK said tariffs.
Then the next thing is to start making WalMart step back into line, or face perilous consequences.
The ignorance here is just flabberghasting. China makes the damn source parts for virtually everything we "make." WE, US, YOU and ME and OUR CORPORATE MASTERS outsourced it all to take advantage of what amounted to their slave labor. We love holding slaves don't we? Remember if you start anything at this late date Taiwan is either theirs or a smoldering heap which means you just lost your electronics industry including all your mil-spec parts. Pretty hare to make F-18's and the like without any semi-conductors or resistors. Furthermore there is nothing you can do to protect Taiwan. The geography is unchangable. Wow are you people beligerent and stupid. War would kill us and them and assuming anyone survives at all then Europe and Russia would be in primacy again. Maybe that's better as the ignorance, inability to think critically, and vain glorious belief in your own imortality over here is simply astonishing. Defies all reason.
My, you are a sanctimonious blowhard. This is about TARIFFS.
The average American is clueless. They have no clue how things are designed or manufactured. Most so called "Made in America" products are chock full of components (semiconductors, metals, chemicals, basic , materials ..etc) are made in Asian countries. If not for cheap labor and these product "inputs", many so called US "manufacturers" would be out of business. There is not a single American source for many of these Asian sourced components. If an American company tried to build a factory and fabricate these components, they would cost many times more and be unsellable.
It may sound crazy but a very high Gold price would kill inflation or more accurately wage deflation.
The false metrics of CPI inflation do not recognize the decline of the median wage.
Wealth is being continually destroyed as capital is expended to keep the ponzi going....
Globalization obviously continues to work to the benefit of international bankers and multinational corporations who work with them rather than for the people of the United States, and the balance of payments formula is part of their strategy. They use the United States as a consumer/credit pawn, and the other countries as either low-wage labor pawns or sources of natural resources, using their financial and corporate power to deflect economic consequences away from the advantage of the many to serve the privilege of the few. It’s interesting how on course their plan has been. Consider this quotation from 1930:
“The United States under present conditions will be transformed from the most active of manufacturing nations into a consuming and importing national with a balance of trade against it.’
Those are the words of Louis McFadden, chairman of the House Committee on Banking and Currency, who charged that this was why “the Federal Reserve Bank of New York is eager to enter into close relationships with the Bank for International Settlements… The conclusion is impossible to escape that the State and Treasury Departments are willing to pool the banking sytem of Europe and America, setting up a world financial power independent of and above the government of the United States…”
Deflation? We don't whine about "deflation" when we get to pay less for a new hard disk that has twice the space and costs 20% less. That is a price decline caused by innovation and market forces. If people choose to spend less (either beause they lost their job or because they fear they might), that will cause prices to decline, but prices did not decline because of "deflation". We have not had a massive decline in the money used to buy goods and services. It is highly unlikely that the Fed or Executive Brach will allow it. Unless and until it does, we cannot have deflation even if prices decline due to lower levels of spending.
The thing to fear will be any expansion of credit or policy that substantially increases the amount of dollars in the hands of those who will buy things or pay people (either in wages or transfer payments), AND where there is no corresponding increase in wealth or resources.
Actually, as negative as I am on the US economy, I have to say that our capacity to produce for export is not our problem. Our exports per capita compare quite well to the Eurozone and Japan. We've got a big diverse territory with a lot of raw materials and good farmland. We've got highly advanced technology, still compete in various kinds of machinery, and don't forget our bad-ass weapons! We're tops by far in software. And as much as them furriners gripe and gripe and gripe about our shite Hollywood movies, the truth is a great huge lot of them will pay fat margins to see Heather Fox and her cleavage get chased around by evil robots in 70mm widescreen.
Americans don't underproduce relative to Europeans and Japanese, Americans overconsume. Imports per capita are much higher and the excess is funded with foreign borrowing. For a while we fooled ourselves with a real estate bubble that our economy was growing. Then that broke down, we got 20%-ish unemployment, we're unable to blow any big new bubbles despite all our government's efforts, and we're still trying to keep up practically the same level of imports and consumption. That is ultimately what is heading for collapse here.
Hello decoupling!
China has already positioned itself to take advantage of having its currency rise while the dollar falls. China has not been buying comodities and cutting long term contracts in dollars for no reason. China will be buying oil at 2009 prices while we are getting the shaft at $140/barrel. We are so boned. The saving grace for frequent ZH readers is that we are buying gold and silver.
Thanks for taking the time to discuss this, I feel strongly about it and love learning more on this topic.
cheap vps
windows vps
cheap hosting | ucvhost