"A Chinese Conspiracy Theory"

Andrew Leonard at Salon sums up recent commentary on Chinese investments in U.S. bonds that is going sour, and provides some of his own:

A Chinese conspiracy theory, Andrew Leonard: Hardly a day goes by without Dean Baker finding something to get angry about in the pages of the New York Times or Washington Post, but on Friday morning the co-director of the Center for Economic and Policy Research delivered a double-dose of dyspeptic sputtering.

"Is China's Central Bank Run By Morons?" asks Baker, responding to a Times piece detailing the woes of the People's Bank of China, which has found itself stuck with a gargantuan pile of U.S. bonds that are turning out to be a pretty bad investment.

Baker can't understand how anyone could have been stupid enough, back in 2001 or 2002, not to foresee that the then mighty dollar would inevitably decline, given the size of the U.S. trade deficit. If the Times' Keith Bradsher was reporting accurately, argues Baker, when he quoted an expert in Chinese financial affairs as saying that many bank officials "resented the institution's losses," then the Times misjudged the importance of the story.

If the people who run China's central bank are really this ignorant, that should have been the headline of the article, which should have been on the front page.

I think Baker is overstating the case to declare that "Apart from buying bonds from Zimbabwe, it's hard to imagine how [the Chinese] could have made a worse investment." After all, if the Chinese hadn't been bailing out the U.S. financial system, where would the U.S. have gotten the money to pay for all the Chinese-made goods whose export has fueled China's economic rise?

To me, the most interesting tidbit in Bradsher's story was a reference to a conspiracy theory currently all the rage in China.

From the Times:

[The expert] said the officials blamed the United States and believed the controversial assertions set forth in the book "Currency War," a Chinese best seller published a year ago. The book suggests that the United States deliberately lured China into buying its securities knowing that they would later plunge in value.

"A lot of policy makers in China, at least midlevel policy makers, believe this," Mr. Shih said.

That nugget reminded me of a line from a long, if not particularly interesting or insightful essay about Chinese-U.S. relations by Treasury Secretary Hank Paulson in the current Foreign Affairs.

Despite the two countries' long history of interaction, they frequently display a stunning ability to misunderstand each other.

Seriously; the officials at the People's Bank of China probably aren't morons, but they do betray a breathtaking misunderstanding of the quality of recent government in the United States if they think we could intentionally pull off that kind of massive grifter's scam on China. We're not worthy.

Another line from Paulson's essay is apropos here:

Exploiting popular anxieties about globalization, economic nationalists in China are questioning the benefits of China's integration into the international economic system.

That sentence also holds true if one substitutes the words "United States" for "China." Both nations boast sizable factions who believe the other side is taking advantage of them. I don't normally find myself in Paulson's camp, but I've got to agree with him on this one -- the U.S. and China are not playing a zero-sum game. China's bankrolling of U.S. debt has been critical to the stability of the U.S. economy and the U.S. appetite for Chinese goods has translated into increased prosperity for hundreds of millions of Chinese.

That's not necessarily a bad thing.

Brad Setser comments here.

Comments

[anne]

"China's bankrolling of U.S. debt has been critical to the stability of the U.S. economy and the U.S. appetite for Chinese goods has translated into increased prosperity for hundreds of millions of Chinese."

Simple and critical, and Chinese economists have not been ignorant and the evidence is in the smoothness and rapidity of growth these 8 years which has importantly helped spur the most rapid period of international growth ever recorded. Chinese economists have not been unaware or foolish, and Chinese growth is not from my perspective threatened any more than we have continually considered it threatened through these years.

[anne]

There are sacrifices the Chinese Bank has to make, that the Finance Ministry will insure but the sacrifices have been well planned for years through all sorts of complaints by Anmerican analysts.

[National Pastime]

Ripping off savers has been a national pastime for a long time. Why do you think the US has inadequate national savings, and has to borrow virtually everything from overseas? Domestic savers got tired of being ripped off, and switched to inflation hedges instead. The theory that foreign savers should be willing to be ripped off because it is good for their economy may not work out too well in the long run.

Then again, policy is all about the short run, and ripping off savers is the favored short run policy.

[bakho]

Speaking of ripping off US savers, it looks like the Freddies are about to become government property/nationalized.

[dd]

Duh, step one gather bad assets. Step two nationalize.
http://www.nytimes.com/2008/09/06/business/06fannie.html?_r=1&oref=slogin

[dd]

Step 3: Substitute MBS and agency debt for "worthless" special issue Treasuries in SS fund.
Privatization by another name or a Bushism:
Bush portrays Social Security fund as worthless paper
http://www.signonsandiego.com/uniontrib/20050406/news_1n6socsec.html

And so it will be.

[dd]

The Palin "choice" is causing much panic and will speed up the unwinding in unimaginable ways. One of Rummy's unknown unknowns.

[mrrunangun]

The legitimacy of the current Chinese regime rests on its ability to deliver an improving standard of living to its people. They have no faith in communist or any other ideology. As long as the average man feels he is getting ahead, he will not get too angry about politics. Once the average guy thinks he is getting worse off, the problems will begin for the regime and the country may even break up. So the current regime is willing to make short-term sacrifices of opportunities to grow its capital even faster by losing money on its US securities for the time being. When the whole thing blows up over there, assuming that this game cannot go on forever, the regime can attribute that to Yankee perfidy and skulduggery and possibly absolve itself of responsibility. It may then be able to satisfy its public by using its leverage as creditor to punish the US. Then things may get a bit tighter here.

[Patrick]

Of course it can be used against the GOP. McCain will support it. Here's how: who do you think on the hook to keep the bond holder whole? The US taxpayer of course. So the guy who doesn't know how many houses he has is telling the millions who now have NO home that the best use of their taxes is to subsidize the bad investment decisions made by the the Communist party of China. That's a special kind of maverick.

[Too Much Fed]

"China's bankrolling of U.S. debt has been critical to the stability of the U.S. economy and the U.S. appetite for Chinese goods has translated into increased prosperity for hundreds of millions of Chinese.

That's not necessarily a bad thing."

To the contrary, using debt (instead of actual currency/earnings) to attempt to stabilize and smooth real GDP, stock prices, and housing prices and create "fake" demand for chinese goods IS THE PROBLEM because it comes at the expense of lower and middle class Americans!!!

[Too Much Fed]

"at the expense of lower and middle class Americans" means fewer jobs and negative real earnings growth (especially when price inflation is measured correctly) so that the fed can attempt to create more and more debt for the benefit of the bankers and the rich.

[Too Much Fed]

"China's bankrolling of U.S. debt has been critical to the stability of the U.S. economy and the U.S. appetite for Chinese goods has translated into increased prosperity for hundreds of millions of Chinese.

That's not necessarily a bad thing."

Wow! SOMEONE ATTEMPTING TO SAY THAT USING DEBT TO MANIPULATE PEOPLE IS OK. That is something I expect to come out of geekspeak's (alan greenspan) mouth!

[Too Much Fed]

"China's bankrolling of U.S. debt has been critical to the stability of the U.S. economy and the U.S. appetite for Chinese goods has translated into increased prosperity for hundreds of millions of Chinese.

That's not necessarily a bad thing."

So, America (on a personal and national level) should keep on spending more than we make and go further into debt to the oil countries, china, and the rich and bankers???

[hari]

From the linked articles and commentary...it seems our understanding of Chinese State Capitalism is still rudimentary, at best. And that includes Brad....

The bottomline is that Chinese Treasury is flush with capital from export trade. And as long as principal direction of financial/monetary policy is made inside the small Politburo group, it's inevitable that direction of policy dealing with mountains of cashflow accumulated, so far, is fundamentally political.

In other words, the political economy of mainland China will continue to dictate the direction of its monetary policy - not economic fundamentals - and the loses, if any, reflects a decision not to diversify its portfolio of foreign holdings away from US Treasury/Agencies.

As long as Paulson & Co can underwrite the liquidity of Agencies...it will surely not matter for Chinese Politburo the ups and downs of the transactions.

[Lafayette]

Crooks, but not fools

Article: "Is China's Central Bank Run By Morons?" asks Baker, responding to a Times piece detailing the woes of the People's Bank of China, which has found itself stuck with a gargantuan pile of U.S. bonds that are turning out to be a pretty bad investment.

Perhaps, but in the French press word is out that the Russian Central Bank is NOT run by morons.

At the beginning of the year, the Russian CB had 16% of Russia's total foreign currency reserves invested in Fannie & Freddie. Since then, however, they started winding down that investment and have made a cool billion dollars in profit. Their position in these holdings is down to a mere 500 megabucks.

Now, who told them to make that killing whilst the killing was good? I wonder. Someone inside Fannie or Freddie, who was paid handsomely for the information?

And, how curious it is that the sell-off coincided perfectly with their invasion of Georgia .... during the Olympics when the world's attention was turned the other way. What other dollar assets, in the US, did the Russians take out of harm's way? (Read, preemptive sequestration.)

Not fools, the boys over in the Kremlin. Crooks, but not fools ...

[anne]

"The Palin 'choice' is causing much panic and will speed up the unwinding in unimaginable ways."

Prove this, prove this, prove this, prove this, prove this.

[Blissex]

«And, how curious it is that the sell-off coincided perfectly with their invasion of Georgia .... during the Olympics when the world's attention was turned the other way.»

Unfortunately it was the Georgian army, armed and trained by USA interests, that attacked first, taking advantage of the Olympics. Still, they did not attack Russia, but their own region of South Ossetia, which was however part of a dispute and had Russian peacekeepers in it.

Things are much murkier than Fox News says :-).

A bit like in the 1960s JFK installed first strike nuclear missiles in Turkey on the Russian border, and only because of that the russians started sending missiles to Cuba to do the same to the USA. In Russia it is called the Turkish missile crisis, not the Cuban missile crisis.

Understandably they are now rather concerned that GWB is now installing other missiles on their borders, even if they are allegedly only anti-missile, not first strike ones, and that GWB is arming and training their neighbours. Try to imagine China arming and training the Mexicans and installing anti-missile defences in Ontario.

[anne]

"And, how curious it is that the sell-off coincided perfectly with their invasion of Georgia ... during the Olympics when the world's attention was turned the other way."

How curious, the lying.

[BJ Feng]

"Exploiting popular anxieties about globalization, economic nationalists in China are questioning the benefits of China's integration into the international economic system."

That's news to me. During my visit, both for business and pleasure, I didn't meet anyone who seem anxious about globalization or who seemed upset by China's increasing integration into the global capitalist system.

The Chinese have gained from integration and they know that, maybe the youth (under 18) have forgotten the poverty of the past, but everyone older realizes that almost everyone is better off now than they were before. Yes, it's remarkable that almost everyone is better off from farmers to workers in manufacturing. The only people not better off are the childless elderly who have no means of earning money, and who've seen inflation destroy their savings. Perhaps some of the ethnic non-Han minorities are only marginally better off, but I have very little personal knowledge of happenings in the far West of China.

"The book suggests that the United States deliberately lured China into buying its securities knowing that they would later plunge in value.

'A lot of policy makers in China, at least midlevel policy makers, believe this,' Mr. Shih said."

We have to be careful here of real grievances or just normal bitching among people who know they have to take a loss for the good of the nation. I'm sure managers aren't happy that they've lost money, and it's normal for people to blame someone else so that they don't seem incompetent. This is the first time I've heard of this conspiracy, though I've heard others about Bush deliberately bombing the Chinese embassy, and about Bush's plans for an invasion of Taiwan to prevent the Chinese from ever getting that back.

I saw a lot of foreign books translated into Chinese. Bill Clinton's "My Life" was one of those, particularly numerous are political and economic books. I seriously doubt that the Chinese Central Bank officers didn't understand what they were getting into as the "Bretton Woods 2" system has been openly discussed here in the US. Again, I'd be careful, likely that some employees bitched to the author to gain sympathy--poor China, poor us we have to take these loses--but don't actually believe in that viewpoint.

[hari]

May be it is politically unpalatable, but for sake of realism and clarity on recent global developments, it's manifestly abundant that a form of *racist fear* is being unjustly promoted by half-cooked experts on developments in China. Jealousy and whatnot belong to psychotic minds who can't deal with facts of the emergence of mainland China on the international scene. They have to find ways and means to downplay its historical significance.

I expect more of the same from our pseudo-experts on China.

[hari]

What will they say now...after NSG agreed in early hours of Sat in Vienna/Austria to approve US/India Nuclear waiver agreement thereby unleasching some $40Billion (FDI) in nuclear energy sector in India?

[hari]

NSG - Nuclear Suppliers Group.

[anne]

Look to what China accomplished in developing infrastructure since being awarded the Olympics in 2001, then look to the relative lags in India, Pakistan and Bangladesh (India in particular). What India needs to do in increasingly study China's economic planning. The idea that a central bank's role is to be shrewd in capturing investment return is just not relevant for China which will direct the bank as a development bank. Monetary policy in China is not interest rate manipulation but capital allocation, and the Chinese bank no matter the success in limiting a slowing in coming months has been strikingly successful for China as a whole.

[Lord]

Yves had a nice take on this as struggle between the central bank and finance ministry that sounds more accurate.

[KThomas]

anne, I find your girlish love affair with Communist China very disappointing. Bottom line, these US bonds are worthless and sooner or later, the Feds must rase the rates or the bonds get dumped. LOL, seriously, the party is over. The real party is just getting started.

[dd]

anne, observe. Observe McCain touts no economic credentials. Observe Palin's economic resume. Observe this "team" has a good chance of winning. McCain determined against balancing the ticket with strengths to compensate for weaknesses. Or perhaps you believe the McCain/Palin team will be a winning combination for the economy and are capable of stewarding the current credit crisis.

[paine]

i've not seen a convincing model
that shows when a ploy like the prc's forex fiddle
with its pile up of inevitably over valued foreign debt
is a long run net gain
and when a long run net loss
first of all for "the fiddler nation's"
"leading class "
and second--- and more importantly --
for the class of foreign trading partners
on the over valued end of the fiddle
and then we can talk politics
ie how this can happen in broad daylight
year after year
even if it obviously comes
---must come even---
at the expense directly and indirectly
of almost every one else
on both sides of the trading boundary

[Icarus]

Anne...

So, you want India to follow the infrastructure development model of China? What exactly do you mean?

Farmers are now protesting, especially in West Bengal, but in several other states, about land acquisition in the name of Special Economic Zones. Which side would you support? The SEZ's which represent 'development' and infrastructure aggrandizement...or, the argument of farmers' groups, and development critics, who want to allow for the possibility of non-modern lives?

Should the forces of urban planning and capitalist development, and the money the wield, be able to disrupt, dislodge, and hence destroy the lives of the peasantry?

Where's the love for the common man now?

The Chinese state has the power to demolish squatted areas in the name of better infrastructuer. India has a tougher time with it, as the state is weak.

How exactly should India follow China's footstep?

[BJ Feng]

There's a difference in mentality too. The Chinese are used to government assigned housing, so they don't resist being told to move as long as the new housing is at least as good. Considering the state of old housing, it would be hard for new housing not to be much better. The only problem is that replacement housing usually is farther away from the city center. I'm only speaking of Shanghai where I know of 3 instances when family members had their homes demolished to make way for a highway in the first two instances, and a commercial center in the last case. The new homes were as much as 40 minutes away from the center via public transportation vs. 15 or so prior.

Thanks to the legacy of communism, these were considered government assigned housing, so no one thought much when the government decided to demolish the old apartments, which only had ONE bathroom per floor and ONE kitchen to be shared by several families. The new housing had private bathrooms per family US style.

Anne, the advantages are only with infrastructure. The Chinese government doesn't have to worry about pissing off a small number of people as they aren't elected. So they are able to determine the most sensible placement for traffic flow and follow up on that. Still, I believe the highways are too small, even now they're experiencing rush hour jams. All the new highways I've seen adopt the US model of at least 4 lanes each way.

And by demolishing old housing and moving people to the outskirts, they make way for new development in the city center. Huge commercial buildings and residential apartments are being constructed in their place. But this is an one time benefit, the government is selling 70 year leases on the new buildings and won't be able to demolish enmass by decree again.

[paine]

kthomas
the last comment not up to your best standards

the rate of price level change here can't do much
unless the rate of price level change is more rapid over there while prc bond rates stay at least equal to us rates
play wit a model that takes both relationships simultaneously into acount
not just one by one by none

note :
as you can guess
--in the real world --each possible combo
has different pathways and this a different distribution
of income effects
even with a similar target
of
relative price levels
or
relative forex rate end points

might want a nice program and a fast machine
to do the heavy lifting for you on the calc front

[paine]

"The idea that a central bank's role is to be shrewd in capturing investment return is just not relevant for China which will direct the bank as a development bank. "
exactly right
and yet by the fear/hate mongers
such a policy orientation
is called politics ---god forbid.... geo politics even ---
not economics not industrial policy

trans nat snake oil :
" natiional state economic policy
is about laissez faire
all else is tyrany "

[hari]

Paine - in my studies of mainland China, the PLA has never entered another sovereign territory - other than 1962 Himalayan Boarder War with India - and then abruptly PLA turned around and cleared their presence in the delta of the Ganges close to Calcutta.

China has no interest in interfering in internal affairs of another sovereign state - friend or foe. The reverse is, of course, equally applicable.

[paine]

laff proves
--apropos his great game
pro uncle
partisan reading of georgian events--

how easy it can be some times
to dupe
a self described
experience rich
eagle eyed veteran sceptic

the more informed
the more pre armed
are often
the easier fooled

[hari]

Paine - you're fiddling in the wind!

Why don't expose your innocenti....?

[hari]

What the Marquis is deducting from events is pure heresay or teltale of sequential events - without any proof whatsoever.

if the Russian were that clever, dear Paine, they shld by now have made a real killing of the money market....

[Blissex]

«i've not seen a convincing model
that shows when a ploy like the prc's forex fiddle
with its pile up of inevitably over valued foreign debt
is a long run net gain»

There is no need of a model! It is all about path dependency: physical and human capital and building comparative advantage. The chinese have simply made it cheaper for USA companies to close their USA plants and open new ones in China than otherwise.

If you are a middle aged USA executive the Chinese have allowed you to earn huge bonuses and stock options by the one time gain of dismantling a factory in Akron and setting it up in Guangdong before anything else does it, you take it. Sure, your workers and your successor will be eaten alive by those chinese guys to whom you have transferred physical plant, know how and value added, but screw them!

There is no need of a model also because it has worked in much the same way for Japan, Korea, Taiwan, Singapore: all poor but highly developed countries with a government that has ruthlessly bribed greedy fully vested USA executives into selling their own industries down the river to their future competitors for short term gain.

and when a long run net loss
first of all for "the fiddler nation's"
"leading class "
and second--- and more importantly --
for the class of foreign trading partners
on the over valued end of the fiddle
and then we can talk politics
ie how this can happen in broad daylight
year after year
even if it obviously comes
---must come even---
at the expense directly and indirectly
of almost every one else
on both sides of the trading boundary

[Lafayette]

hari: What the Marquis is deducting from events is pure heresay or teltale of sequential events - without any proof whatsoever.

The bit about the Russians cashing in on F&F shares is from a reputable French newspaper (Le Figaro).

The bit about the Russians invading Russia during the Olympics is hardly hearsay either.

The bit about who told the Russians to dump F&F shares IS pure speculation. Yes, I suspect it is an inside job. Washington has become a place where even your grandmother's for sale.

[Blissex]

«Washington has become a place where even your grandmother's for sale.»

That is so crass! In New York your grandmother would instead be remortgaged, securitized, tranched, leveraged, and be the source for $100 billion of Grannie Mae CDOs, that the Fed*mart (always low interest rates -- always!) would accept as collateral for treasury bills.

[Barack Obama]

"There is no need of a model also because it has worked in much the same way for Japan, Korea, Taiwan, Singapore: all poor but highly developed countries with a government that has ruthlessly bribed greedy fully vested USA executives into selling their own industries down the river to their future competitors for short term gain."

The US created that model. After decolonization during the 60's, the advanced developed countries entered of a period of stagflation. Reagan and Thatcher created a new colonial economic system where developing nations manufacture G7 goods at a cheap price. G7 countries can also dominate countries culturally via a free market system where developing countries adopt American consumerism and lifestyle by purchasing their products and services. Excess savings from developing countries are invested in the US to keep the dollarized global economy going.

The people who benefit from all this are the wealthy ... primarily in the US. The huge profits from goods manufactured cheaply in China are not shared with the Chinese but Americans business owners and investors. Cheap goods produced in China also allows American branded goods to generate more profits globally ... not neccesarily priced cheaply for American consumption.

China needs to form a coalition with other developing nations, OPEC, and Russia to break free from dollar hegenomy and create a monetary system where excess savings from these countries can be invested in one another's economy rather than the US. The continued investment in the US by these countries is no longer profitable.

[BJ Feng]

Sorry Barack, if you've been to China recently, there's no doubt that the average Chinese person has benefited drastically from entering the "dollarized global economy".

You need to rethink and re-examine your false assumptions. The beauty of capitalism is that BOTH sides are made better off. You buy a T-shirt made in China for $5, knowing that it would cost you a hell of a lot more to make yourself and at least a few bucks more if made elsewhere. The factory in China gleefully sells you a T-shirt that costs them $3 to make. The factory worker is glad that his job pays double what he was making as a farmer and with fewer hours worked. Everyone wins. True, some may gain more than others depending on different factors, but everyone gains something, if they didn't then they wouldn't participate. Why would a farmer want to work in a factory that paid less and was more difficult? Why would the factory sell T-shirts at a loss? Why would the American buy Chinese T-shirts that were more expensive than others? Your premise of exploitation doesn't make sense.

Destroy the "US-led global consumerism" and the American has to pay nearly double for a T-shirt, the factory closes and the owners lose most of their invested capital, and the worker goes back to subsistence farming, working longer hours in the hot sun and for a lot less money.

[Obama]

@BJ Feng

It's not the American economy that's helping China ... it's adopting Capitalism and alowing their citizens to create private enterprises. Had China adopted capitalism during the 50's, Chinese farmers wouldn't be subjected to producing goods cheaply to service manufacturer from another country. Were the Europeans or Japanese subjected to that or were they given the oportunity to develop their own industries and manufacture their own products to trade with the world?

Again, there's a huge difference to in economic policy prior to the Reagan/Thatcher policies.

I'm sure people in Latin America during the 80's and Southeast Asia during the 90's were also happy that they could produce American goods cheaply but that all changed once they realized that their economy was beholden to dollar hegenomy.

Sure, the Chinese government leveraged themselves better than policies that were adopted by SE Asia and L.America but China is still beholden to the US dollar ... and it's "success" is dependent on recycling dollars earned through hard work back into the American's debt economy. Certainly the Chinese are smart enough to realize that this is/will be a losing strategy in the long run.

[Lafayette]

Once upon a time long, long ago

BJF: You need to rethink and re-examine your false assumptions. The beauty of capitalism is that BOTH sides are made better off.

Yes, BJ, both sides are better off.

But, like in Orwell's Animal Farm, Some are more better off than others. The wholesale dislocation of jobs from both Europe and the US to the Far East has pauperized hundreds of thousands ... to give a decent living to hundreds of thousands.

Liberal economics did more for China in a decade in a half than UN assistance programs would have done in a hundred years.

All that, nonetheless, came at a price so dear as to not substantiate Liberal Economics as always right in whatever, whenever and wherever it undertakes. The pauperization of whole sectors of the economy, in both the EU and the US, was not recognized in time for the terrible consequences it would bring. We got caught with our pants down.

In terms of consequences, specifically were these: Enormous riches for the Walton Family and fellow plutocrat heads of business (who profited from the China Price) in contrast to the professional recycling into lower paying service jobs for a great many who had, once upon a time, a decent salary with which to raise decently a family.

This false assumption of Liberal Economics is all yours : That an economy can forever blithely dislocate un- and semi-skilled labor whilst ignoring the consequences for a large part of its own population.

The damage is done. Hopefully, the (real) Barack Obama will institute a long term plan to enhance uniformly education and professional training in order to give people a chance at a decent living -- as their parents or grandparents had once upon a time long, long ago.

Nothing less will accomplish permanently that objective, which perpetual rounds of tax-rebates will never be able to achieve. Tax-rebates are media pap for the masses, that make politicians appear to be doing something. Rarely are they permanent solutions to infrastructural economic deficiencies.

[Infrastructural = Of or relating to the basic physical, societal, organizational structures and attributes needed for the proper operation of an economy. Of which a population's skills, talents and competencies are amongst the most fundamental attributes.]

[BJ Feng]

Sectors come and go, the candle manufacturing sector was devastated by the creation of a new light bulb sector. And the introduction of cheaper foreign products have routinely devastated sectors in the past, like cheap US cotton/textiles flowing into England. The US was once like what China is today, an emerging manufacturing powerhouse that threatened industries in established European markets. Yet is Europe better off today after having nursed the US to developed status? I'd say so, the riches that grew from taking European money are now flowing back into Europe. And with China it will be the same. One day, China's riches will flow back into the international marketplace and the world will have yet another country able to buy and support the new industries of tomorrow. And in the meanwhile, while we wait for the seed to germinate and grow, we enjoy the benefits of lower cost goods and all Americans benefit from that.

Again, industries come and go, your wish for a static economy where jobs last forever just isn't possible. A total trade embargo of all foreign products would cause much more harm than good, there just isn't anyway to avoid the pain. Just like getting a shot from the doctor, it hurts, but not getting one would hurt a lot more later on. It's not a zero sum game as you imply. Yes hundreds of thousands or maybe even millions get hurt, but billions benefit with the flow going from rich to poor nations. How can a progressive be angry with a system that benefits the poor so greatly?

As for Obama, he assumes that China doesn't benefit as much or even more from being "beholden" to the US dollar. International trade makes us all dependent on one another. What would the world do without US agriculture? Obama, I'll repeat myself and urge you to put aside the idea that there can be only one winner, that someone has to be "exploited", or that it's a zero sum game, it isn't. The "magic" is that when you tie countries together through trade, 1 + 1 = 3, and everyone gets a part of that extra 1.

[Real Person from the Real World]

The difference for the Light Bulb vs Candle economy from back then and now is TECHNOLOGY. Today, jobs like a radiologist reading an x-ray can be done from anywhere, including the Philippines. The ocean and distance were a barrier to much of the dislocation back then.... Today, the guy who fixes your car does not face the competition and does not want to cut his fees, just because you are now getting $10/hr even though his rates are based on a day and age when you used to get $40/hr. He keeps his standard of living. You don't.

[Blissex]

«Today, the guy who fixes your car does not face the competition and does not want to cut his fees, just because you are now getting $10/hr even though his rates are based on a day and age when you used to get $40/hr. He keeps his standard of living. You don't.»

Actually his standard of living *improves* because most prices fall faster than his income as other people's incomes fall faster than his. He pays at China Price level but earns at USA price level.

Same for all those (licensed professionals, brand franchisees, CEOs, graduates of celebrity universities, owners of prime location shops) that have a degree of market power.

[Lafayette]

Ignorance

BJF : Sectors come and go

and,

The US was once like what China is today

Such blithe insouciance or ignorance … likely both.

With one fell swoop you’ve just reduced the lives of thousands to a Darwinian “survival of the fittest”.

BJF: I'd say so, the riches that grew from taking European money are now flowing back into Europe.

Do tell us where. It would come as an awesome revelation.

Is you your hero Mittal, the Indian billionaire who bought Arcelor (French specialty steel manufacturer), having made promises to maintain it – then fired people left and right?

What I dislike about people with blinders on is their total oblivion to the misery that plutocrats wreak in their relentless pursuit of not only the Market Solution but their own personal greed.

I like to think there is a hell made just for them.

we enjoy the benefits of lower cost goods and all Americans benefit from that.

Not if your job has dislocated to China, BJ. Which is precisely the fate I wish upon you.

What planet do you live on?

[Lafayette]

Us, no one else. Us.

anne: China's bankrolling of U.S. debt has been critical to the stability of the U.S. economy and the U.S. appetite for Chinese goods

There are a number of good perspectives on this subject.

Yes, Chinese goods give American dollars "legs", that is, they go a bit further. Presuming one has those dollars. If you've been put out of employment by a job's dislocation to China, then cheap (and dirty, because their quality is not all that good) Chinese goods is small comfort.

The traditional economist explanation, and you've heard it from me, is that "These jobs now allow us to reallocate resources to other work that is more productive and therefore more remunerative." Yeah, right -- were it only that simple.

That "other more remunerative work" is probably not of the kind that has left the US. That work is found further up the skills ladder. Those left behind don't have much of chance of getting hired to better paying jobs with their un- and semi-skilled competencies.

The solution is therefore long-term and painful. And, in two parts:
1) We must assure that these people can be recycled into more skilled jobs that conform to their past capacities. (They ain't going to university to become dental surgeons.) And, for that to happen, the retraining MUST BE free, gratis and for nothing -- or these people are going absolutely nowhere (but to fester in poverty for the rest of their lives).
2) More disciplined secondary school training to assure that Young Adults without the capacity to undertake a University education, find Trade Training that can lead to viable employment. Reducing the level necessary to graduate with a high-school diploma is certainly NOT the answer. Adding a component to secondary-schooling that includes Trade Training probably is -- the sooner they get started, the better.

Then there is the fact that the debt overhang, meaning the maintenance of that trillion dollars in T-notes or other bonds that the Chinese may be holding, has to be paid. By who? Ya got it in one; every man, woman and child in America.

Paying America's external debt means that the monies employed cannot be applied to better use elsewhere. Imagine those funds going into Health or Education and imagine the better lives we could have as a consequence.

No, dear friends, we've got fat (literally and figuratively), dumb and happy purchasing imports of all kinds without nary a consideration of the consequences.

And, the time has come to Pay the Piper for his fluting.

Let's not blame anybody else. It is us who went to WAL-MART these past fifteen years to buy all those goodies. It is us who got disoriented by the al Qaida menace and stuck in a costly war, when in fact the larger menace was under our very noses.

Us, no one else. Us.

[Icarus]

Lafayette...

In the case you described, yes, Mittal is a hero. There is so much fat to trim when it comes to French Labor, that it best be done by an outsider, like a billionaire indian.

The competition is horizontal, between groups of laborers in various countries, not vertical, between labor and capital within a nation.

The French laborer at Arcelor was redundant, expensive, and simply untenable in a global economy. The only way to warrant high wages, western wages, is to add value at a high level, in a relatively un-tradable skill. Outside that little protection zone, it is slighly darwinian.

Labor needs to learn to take care of themselves, and live within this global environemnt. You don't get a guarantee of a standard of living...you have to 'earn' it. And to 'earn' it, you must constantly prove to the market that the skill you provide warrants it.

You feel anguish for the middle class in the West. Perhaps they've had their ride...and it's over.

[Lafayette]

Icky: There is so much fat to trim when it comes to French Labor

What you know about French labor would fill a thimble.

Tone down your Right-eousness. It's showing through your carapace.

[Lafayette]

Hollywood Happy Ending

Icky: The only way to warrant high wages, western wages, is to add value at a high level, in a relatively un-tradable skill.

What you know about the steel industry is apparently even less. Arcelor is a niche steel producer of specialty steels, which have a distinct market of their own and Arcelor was making a profit when Mittal bought it.

Mittal has enough capacity in both India and Russia for ordinary steel I-beam production. He needn't come to France for that.

Italy, around Brescia, is another example of a thriving specialty steel industry. And, they do not need Mittal to tell them how to make a profit.

A mindless rush-to-the-bottom of wage costs is what sinks an economy. You want us all eating noodles like the Chinese and riding bikes? You first, old boy.

The situation is not desperate. As I've said many a time, when manufacturing wage costs are high, as they are in any modern economy, manufacturing is maintained by applying the best principles of automated production. This results in fewer people involved and enhanced unemployment -- which must be addressed by recycling into higher skilled work.

But another consequence is that the manufacturing remains on-shore. Off shoring production not only loses direct manufacturing jobs but also the ancillary services that surround any production entity; like engineering, QC, logistics, administration.

Too many American managers gave up on that notion (of highly automated production) and simply opted for the China Price -- because it was the easiest way for these Lazy Fools to go. It also served to reduce operating costs and boost profits; which were their metrics for obtaining stock-options. But which also led them to beggar the blue collar worker.

Our Free Market nonsense, taken to its mindless extreme, has rebuilt a China as a political force. With its warped notion of a manifest destiny as an Imperial Power, China has identified and targeted only one nation on earth as its principle antagonist. Uncle Sam. It does not even take the EU seriously.

China is going to be one Big Trouble for the US of A, not only commercially but geopolitically. We think of them as the Yellow Peril and they think we are the White Peril.

Which does not make for a Hollywood Happy Ending.

[China Central Bank]

So you think China has stepped out of touch.... Think again.
What was the US dept purchased with??? Gold??? think again.

It was purchased with Paper - Chinese Yen. Oh, how hard it is to print those papers, so we didn't, we transfered the digit and added lots of zero's

HOw *((*()_)( hard is that.

[Pasta Kokoş]

kadın video izle youtube videolarını izleyebilmeniz için

[bayrakçı]

bayrakçı aybayrak ticaret olarak hayatımıza bu şekilde devam ediyoruzparti bayrağı

[kthomas]

So they got a little greedy? They are not alone.

[bayrak]

parti bayrağıBayrak imalatı yapan ve bu sektörde ticari anlamda bayrak pazarlayıp satan kişilere bayrakçı denir.Bayrakçılık bir devletin,bir milletin, egemenliğini temsil eden bir sembol değildir.Devletlerin milletlerin eyaletlerin,şirketlerin,derneklerin kurum ve kuruluşların temsil eden ve o yörelerin tarihi,turistlik,renklerini özelliklerini yapısını açıklayan ve temsil eden estetik bir öğedir.Ülkemizde bayrakçılık 1990'lı yıllardan önce kısıtlı ve belli şartlar aranarak bayrakçılık yapılıyordu.1990'lı yılların son dönemlerine doğru bayrakçılık konusunda yapılan değişiklilik neticesinde bayrakçı daha önem taşımaya başladı ve bayrakçılıkta önemli bir sektör haline gelmeye başladı.

thank you so much. nice article.. i use in my lesson

[bayrak firmaları ve rehberi]

So you think China has stepped out of touch.... Think again.
What was the US dept purchased with??? Gold??? think again.