Article 43

 

Sunday, May 17, 2009

The China Puzzle

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By Leon Heonhardt
NY Times
May 13, 2009

On Timothy Geithners first day as a Dartmouth freshman, while he was walking across campus on his way to register for classes in the fall of 1979, he heard a man speaking Thai. swearing in Thai, to be precise from a balcony. Geithner found this amusing, because only a couple of months before, he left his home in Thailand, where his father worked for the Ford Foundation, to move to Hanover, N.H. So he stopped to talk to the man, who turned out to be David Keenan, a Chinese teacher at Dartmouth. The two quickly realized that they had a lot in common; among other things they attended the same schools, about a decade apart, in Bangkok and Delhi. (The cause of Keenan’s swearing, alas, has been lost to history.) Having established a rapport, Keenan then decided to do a little salesmanship. He urged Geithner to take Chinese, the only Asian language that Dartmouth offered at the time.

Geithner did, and found that he liked it. Learning another Asian language, he told me recently in his soaring office at the Treasury Department, was a nice little piece of continuity for me.Ӕ He ended up majoring in government and Asian studies and taught basic Mandarin classes to make some money. After Dartmouth, he attended the School of Advanced International Studies at Johns Hopkins. He then spent three years at Kissinger Associates, working with Brent Scowcroft, the future national security adviser, and helping Henry Kissinger writechapters on China and Japan for one of his books. From there, he joined the Treasury Department and began a meteoric rise through the bureaucracy.

In the five months since Barack Obama introduced him as the next Treasury secretary, Geithner has already run through what seems to be a careers worth of images: the brilliant technocrat whose appointment caused stocks to soar; the neophyte public figure who flopped in his debut; the regulator who has grown too close to Wall Street; the Obama adviser with the same unflappable nature as his boss. One image that hasn’t yet attached itself to him, however, is his original professional image. By training, Tim Geithner is a China hand. And though the immediate financial crisis is likely to dominate his tenure at Treasury, the economic relationship between the United States and China may ultimately prove just as important. It could be crucial to preventing the next crisis.

Over the past decade, China and the United States have developed a deeply symbiotic, and dangerous, relationship. China discovered that an economy built on cheap exports would allow it to grow faster than it ever had and to create enough jobs to mollify its impoverished population. American consumers snapped up these cheap exports shoes, toys, electronics and the like ח and China soon found itself owning a huge pile of American dollars. Governments dont like to hold too much cash, because it pays no return, so the Chinese bought many, many Treasury bonds with their dollars. This additional demand for Treasuries was one big reason (though not the only reason) that interest rates fell so low in recent years. Thanks to those low interest rates, Americans were able to go on a shopping spree and buy some things, like houses, they couldnҒt really afford. China kept lending and exporting, and we kept borrowing and consuming. It all worked very nicely, until it didnt.

The most obviously worrisome part of the situation today is that the Chinese could decide that they no longer want to buy Treasury bonds. The U.S. governmentҒs recent spending for bank bailouts and stimulus may be necessary to get the economy moving again, but it also raises the specter of eventual inflation, which would damage the value of Treasuries. If the Chinese are unnerved by this, they could instead use their cash to buy the bonds of other countries, which would cause interest rates here to jump, prolonging the recession. Wen Jiabao, Chinas premier, seemed to raise this possibility in March, in remarks to reporters at the end of the annual session of ChinaҒs Parliament. We have lent a huge amount of money to the U.S.,Ӕ Wen said. Of course we are concerned about the safety of our assets. To be honest, I am definitely a little worried.Ӕ In all likelihood, this was mostly posturing. Were China to cut back sharply on its purchase of Treasury bonds, it would send the value of the bonds plummeting, hurting the Chinese, who already own hundreds of billions of dollars worth. Yet WenҒs comments, which made headlines around the world, did highlight an underlying truth. The relationship between the United States and China cant continue on its current path.

It has already helped create the global economic crisis, by splashing cheap money around the world and enabling American indebtedness and overconsumption. This country is now suffering through its worst recession since the early 1980s, one that could ultimately become the worst since the Great Depression. In China, the collapse of global trade has eliminated 20 million jobs along the industrial southern coast, according to BeijingҒs official numbers. One Obama adviser told me the real number may be much higher.

So putting the global economy onto a more sustainable path will require dealing with the imbalances between China and the United States. In the broadest terms, this will mean that Americans must consume less and that Chinese must consume more. Domestically, Obamas economic agenda is organized around the first half of this equation. He has said that economic growth must rely less on consumer spending than it has, and he is pushing for a series of investments in education, science, medicine and alternative energy the fruits of which are meant to replace consumption. But those fruits wonגt mature as quickly as American households are paring back. For the sake of the global economy, persuading China to consume more will be crucial, too. It will also make a big difference to Chinas 1.3 billion citizens. Most are still poor enough that consumption doesn’t mean yet another Barbie or iPod; it means basic comforts, like medical care and transportation.

Moving to an economy based more on consumption and less on exports happens to be the policy of the Chinese government, and has been since 2003. Its latest five-year economic plan, announced in 2006, was organized around the idea. The biggest problem in China’s economy, Wen said in 2007, is that the growth is unstable, imbalanced, uncoordinated and unsustainable. Remarkably, though, the Chinese economy has become even less reliant on household spending, and even more reliant on business and government spending, in recent years. Consumer spending now makes up about 35 percent of China’s gross domestic product, down from 40 percent in 2004 and almost 50 percent in the early 1990s. By comparison, the share is 54 percent in India, 57 percent in Europe and 70 percent in the United States.

The challenge for Geithner and the rest of the Obama administration, then, is persuading China to live up to its own five-year plan.

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The Next Depression Part 32 - The Worst Is Yet to Come

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This was the largest single act of class warfare in the modern history of this country. It is a direct attack on the American peoples ability to be able to stabilize their homes and their neighborhoods. This single vote will define the careers of everyone. We are back to taxation without representation, to markets that are openly rigged.
- Dennis Kucinich, Bailout Betrayal, October 5, 2008

Every plan weve heard from Treasury amounts to the same thing an attempt to socialize the losses while privatizing the gains.
- Paul Krugman, Biggest Con Job of 2009, March 3, 2009

The real economy is sinking fast and, with it, any hope for a quick recovery. Policymakers are completely at a loss. The public knows that things are far worse than they are being told.
- Mike Whitney, May 1, 2009

If You’re Not Petrified, You’re Not Paying Attention

By Aaron Task
Yahoo Finance
May 15, 2009

The green shoots story took a bit of hit this week between data on April retail sales, weekly JOBLESS claims and FORECLOSURES. But the whole concept of the economy finding its footing was “preposterous” to begin with, says HOWARD DAVIDOWITZ, chairman of Davidowitz & Associates.

“We’re in a complete mess and the consumer is smart enough to know it,” says Davidowitz, whose firm does consulting for the retail industry. “If the consumer isn’t petrified, he or she is a damn FOOL."

Davidowitz, who is nothing if not opinionated (and colorful), paints a very grim picture: “The worst is yet to come with consumers and banks,” he says. “This country is going into a 10-year decline. Living standards will never be the same.”

This outlook is based on the following main points:

With the unemployment rate rising into double digits - and that’s not counting the millions of “underemployed” Americans - consumers are hitting the breaks, which is having a huge impact, given consumer spending accounts for about 70% of economic activity.

Rising unemployment and the $8 trillion negative wealth effect of housing mean more Americans will default on not just mortgages but student loans and auto loans and credit card debt.

More consumer loan defaults will hit banks, which are also threatened by what Davidowitz calls a “depression” in commercial real estate, noting the recent bankruptcy of General Growth Properties and distressed sales by Developers Diversified and other REITs.

As for all the hullabaloo about the stress tests, he says they were a SHAM and part of a CON GAME to get private money to finance these institutions because [Treasury] can’t get more money from Congress. It’s the greater fool’ theory.”

“We’re now in Barack Obama’s world where money goes into the most inefficient parts of the economy and we’re bailing everyone out,” says Daviowitz, who opposes bailouts for financials and automakers alike. “The bailout MONEY IS IN THE SEWER and gone.”

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Obama warns of worse economy to come

By Agence France-Presse
Raw Story
June 22, 2009

President Barack Obama painted a bleak picture Tuesday of the economy, warning unemployment will get worse, and vowed to act on climate change and health care as long-term solutions.

In a wide-ranging White House news conference, Obama also said he had no plans for a fresh stimulus package, hoping to give time to see the impact of the 787-billion-dollar economic plan approved shortly after he took office.

“We’re still not at actual recovery yet. So I anticipate that this is going to be a difficult, difficult year,” Obama said.

“I think its pretty clear now that unemployment will end up going over 10 percent,” he said, explaining it would take time for an economic recovery to translate into job growth.

The jobless rate in the world’s largest economy surged to 9.4 percent in May, with the figure shooting to a record high 11.5 percent in the most populous state of California.

“What’s incredible to me is how resilient the American people have been and how they are still more optimistic than the facts alone would justify,” said Obama, who has largely held onto his high popularity ratings.

Obama appealed to Americans to back plans to reform the health care system and tackle climate change, calling them critical to perking up the economy in the long term.

Obama said a bill before the House of Representatives, which would force reductions of carbon emissions blamed for global warming, would spur a new green economy vital to the country’s future.

“That will lead to the development of new technologies that lead to new industries that could create millions of new jobs in America jobs that cannot be shipped overseas,” said Obama, who has sharply reversed predecessor George W. Bush’s skeptical approach on global warming.

“What I’ve got to do is to make sure that we’re focused both on the short term how can we provide families immediate relief and jump-start the economy as quickly as possible - and I’ve got to keep my eye on the long term,” Obama said.

The US president said that by passing climate and health care reforms, “we’ve got a foundation for long-term economic growth.”

“And we don’t end up having to juice up the economy artificially through the kinds of bubble strategies that helped to get us in this situation that we’re in today.”

Obama called for Congress to work on legislation to bring medical care to the estimated 46 million Americans - or 15 percent of the population without health insurance.

He said he reads two or three letters each day from families that risk losing their insurance or their homes as they struggle to keep up with payments.

But Obama also said he would not support legislation unless it tries to find systematic ways to bring down the skyrocketing cost of health care.

“We have a long-standing critical problem in our health-care system that is pulling down our economy. Its burdening families, it’s burdening businesses, and it is the primary driver of our federal deficits,” Obama said.

The US economy fell into free-fall last year as a bad debt crisis whiplashed major banks, drying up the flow of credit which is the lifeblood of the financial system.

Obama said he believed stimulus dollars meant to help Americans pay their mortgages were helping, but not quickly enough.

“I dont feel satisfied with the progress that we’ve made. We’ve got to get our Recovery Act money out faster,” Obama said.

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Posted by Elvis on 05/17/09 •
Section Dying America • Section Next Recession, Next Depression
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American Ostrich 2

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Abuse CAN ONLY take place if enough people are SILENT about it, which is to say that those who are silent about the abuse are complicit in it. EVIL can only PLAY ITSELF OUT without restraint when good people see what is happening and do nothing. Staying silent in the PRESENCE OF ABUSE, though seemingly a passive role, is to unwittingly play an active role enabling our own victimization.
- Paul Levy

I wouldn’t call it fascism exactly, but a political system nominally controlled by an irresponsible, dumbed down electorate who are manipulated by dishonest, cynical, controlled mass media that dispense the propaganda of a corrupt political establishment can hardly be described as democracy either.
- Edward Zehr Columnist, 1936-2001

Those of us who manage the publics dollars will be held to account - to spend wisely, reform bad habits, and do our business in the light of day because only then can we restore the vital trust between a people and their government.
- President Barack Obama, A New Era of Responsibility, the 2010 Budget

The first question to ask about the Recovery Program is, “recovery for whom?” The answer is, for the people who design the Recovery Program and their constituency, the bank lobby. The second question is, “what is it they want to recover?” The answer is, another Bubble economy, having seen the Greenspan Bubble make them so rich with his particular kind of wealth creation: wealth in the form of indebtedness of the real economy at large to the banking system, and unprecedented capital gains to be made by riding the wave of asset-price inflation.
- Michael Hudson, The Recovery Plan From Hell, February 11, 2009

Many people today don’t want honest answers insofar as honest means unpleasant or disturbing, They want a soft answer that turneth away anxiety.
- Louis Kronenberger

Excuses You Might Believe In
Democrats Are More Powerful Than Ever. How Will They Justify Doing Nothing?

By Ted Rall
May 16, 2009

The defection of Pennsylvania’s Arlen Specter and the imminent certification of Al Franken as the winner of Minnesota’s election recount has handed Democrats what they always said they lacked in order to pass a progressive agenda: a filibuster-proof majority in the U.S. Senate. Now they face the awful problem of coming up with new excuses for not doing anything.

How will Obama, Nancy Pelosi, Harry Reid and other fake liberals weasel out of making good on their promises for real action on healthcare, the economy and the war? It won’t be easy. They control both houses of Congress and the White House. Obama is about to fill a new vacancy on the Supreme Court. The Times of London writes that “Mr. Obama, by some assessments, has more political leverage than any president since Franklin Roosevelt in 1937” - at the peak of the New Deal, just before he overreached by trying to pack the Supreme Court.

The Republican Party, on the other hand, is suffering a crisis of faith - too much God-cheering and not enough adherence to core values like small government, fiscal conservatism, isolationism and protectionist trade policy. A mere 21 percent of Americans still call themselves Republicans, the lowest number since 1983. Similarly, reports the latest ABC News/Washington Post poll, “just 21 percent say they’re confident in the Republicans in Congress ‘to make the right decisions for the country’s future,’ compared with 60 percent who express that confidence in Obama.”

Democrats have never been as powerful. Republicans are weak. Obama won with a decisive, sweeping rejection of the Republican status quo. Harry and Louise, call your agents--socialized medicine is on the way! Not.

Be careful what you wish for--what you say you wish for, anyway. “The left is going to push Obama--now that he’s got a veto-proof majority--to drive an agenda that a smart president would realize is a long-term political disaster,” GOP pollster Rick Wilson tells ABC. “Long-term political disaster” is mainstream media code for “stuff that corporations hate.”

Well, yes. What passes for the left in this country (center-right everywhere else, because they read) now has some not-unreasonable questions for Barack Obama. Such as:

Pretty please, can we now live in a country where people don’t have to spend $800 a month to health insurance companies that deny their customers’ claims?

Why are we still in Iraq?

How about some help for the victims of KATRINA, many of whom never collected one red cent after losing everything?

Why are we paying billions to banks and still letting them GOUGE US with 25 interest credit card rates? Speaking of which:

How about doing something that might actually help people who live in the economy, rather than just capital markets?

These queries seem all the more relevant coming, as they do, from the liberal base of the Democratic party--the people who got Obama elected.

The trouble for our cute, charming prez is that he has no intention whatsoever of introducing a true national healthcare plan: one that covers everybody for free. He wants to expand the war in Afghanistan and drag out the one against Iraq. He will not punish Bush or his torturers, RESCUE homeowners in foreclosure, or nail scumbag banks to the wall. These changes would cost trillions of dollars to multinational insurance companies, defense contractors and other huge financial concerns who donate generously to candidates of both political parties and have a history of using their clout to manipulate elections in favor of their favorite candidates. A classic example is oil companies, who push down gas prices before elections in order to help Republicans.

The most that Democratic voters can expect from Democratic politicians is incremental, symbolic change that doesn’t cost their corporate sponsors any serious coin. The New York Times marked Obama’s 100th day in office with an editorial that approvingly encapsulated his accomplishments to date: “He is trying to rebuild this country’s shattered reputation with his pledge to shut down the prison camp in Guantnamo Bay, Cuba, his offer to talk with Iran and Syria, and, yes, that handshake with Venezuela’s blow-hard president, Hugo Chvez...The government is promoting women’s reproductive rights. It is restoring regulations to keep water clean and food safe. The White House has promised to tackle immigration reform this year.”

Trying. Promoting. Has promised.

Guantᡡnamo isn’t being closed; it’s being moved. Gitmo’s detainees will be transferred to a new harsher gulag under construction in Afghanistan. Thawed relations with Iran and Syria would create new business opportunities for big oil. Defending the right to an abortion is popular and doesn’t cost Bank of America a dime. Immigration reform is code for legalizing illegal immigrants, not closing the border. Safety regulations reassure consumers and pump up the economy. Closing the border would raise wages. Corporations won’t allow that.

Unfortunately for Obama’s Democrats, small-bore initiatives only go so far, especially with the economy in meltdown. When people are desperate and angry they don’t care as much about flag-burning or creationism or a handshake with Hugo Chvez. They want action - real action.

How will the Democrats avoid genuine change now that they enjoy the ability to enact it? Will they blame obstructionist Republicans? Will Democrats cross the aisle to vote with the Republicans? A new war, perhaps?

If nothing else, whatever dog-ate-my-homework excuse they come up with for sitting on their butts is bound to be amusing. If nothing else.

Ted Rall is the author of the new book “Silk Road to Ruin: Is Central Asia the New Middle East?,” an in-depth prose and graphic novel analysis of America’s next big foreign policy challenge. Visit his WEB SITE.

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AMERICAN OSTRICH

Posted by Elvis on 05/17/09 •
Section Dying America
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