CHINESE CHECKMATE

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After the unfortunate bout of talking about religion here, we resume talking about money again. What a relief, eh? But I also stand by my contention that religion, money and government are all intimately intertwined both by history as well as circumstance. If one wishes to understand the interplay between all of these forces, we get the key to the kingdom of understanding what is happening in the world. With this, we can predict things as well as explain things that seem inexplicable.

 

Not that everyone wishes for this. There are many commentators out there who have tried to talk about all these things. But due to either anti-semitism or religious bias or a desire to NOT talk about vital aspects of this business, most talk goes into the ditch. I persevere in this matter because I find it to be of uttermost importance. The more this disturbs people on the left and the right, Jewish, Christian, Hindu or Buddhist, Muslim or atheist, or whatever: we have to look at the entire planet, all of human thought, the magic of numbers and what I call, The Cave of Wealth And Death.

 

Today, the NYT has an interesting story about the Chinese reaction to the present economic monetary meltdown. The Chinese are not Jewish nor Christian. The government is relentlessly atheist. The Chinese practically invented modern civil service over 1,000 years ago. This is all about literacy, the ability to remember things and understanding government regulations. All, very admirable traits, incidentally.

Qualifying Tests for Chinese Financial Workers – NYTimes.com

Chinese regulators have stepped up their policing of banks, ordered them to limit their counterparty risk in overseas derivatives transactions and reviewed trust companies to make sure that they are not taking inappropriate risks. But China’s most unusual response to international financial turmoil has been the government’s decision to increase rapidly the number of qualification tests that are required for workers in the financial sector. The government has also increased the number of people required to take these tests.

The improvements that China is starting to make in its financial regulatory system are likely to be tested heavily in the next few months. Recently Chinese banking regulators have taken a series of steps to encourage banks to lend much more heavily, as part of a broader government effort to halt an economic slowdown unfolding with alarming speed.

State-controlled banks — and almost all banks in China are still majority-owned by the government — are being told to lower the required down payments on home mortgages, lend more money to exporters and provide much greater financing for local and provincial governments engaged in building new roads and other infrastructure projects.

Online, there rages this debate about the nature of banking.  A very, very good debate, I may add.  And one that I enjoy engaging in.  There are many sectors here.  One section believes that if they buy and hoard gold, eventually, gold will become money, somehow.  This is actually a reasonable plan, considering how our rulers in the US are relentlessly destroying the value of our currency issued by the privateers running the Federal Reserve which is neither federal nor has much in the way of any reserves.

 

Then there are the  laissez faire people who believe that government controls are pure evil and if we just let people run amok, great wealth will grow.  They want anarchy, yet will scream in rage if I call them ‘anarchists’.  This is very funny to me.  I once belonged to this commune in the 1960’s.  We had this banner outside, ‘Anarchists unite!’  People would approach me and say, ‘How can anarchists unite?’

 

I would then yell, ‘Oh my god!  We can’t!  We must fight each other!’  My favorite scene out of many favorites, in ‘Monty Python’s Holy Grail’ is where the anarchist collectivist peasants patiently explain to an increasingly enraged King Arthur, how they run their commune.  It is exactly the way we ran ours! 

The laissez faire people believe in fairy dust. They hope, I bet, that they would be the King Arthurs in an anarchist landscape.

 

Then there are the mainstream people: they love to think that the status quo has no problems except it sometimes doesn’t work. And if we restore it somehow, it will work again.

 

Other people believe if you fix one thing or another, the other unbalanced parts will suddenly align themselves with the new system and that will do the trick. There are sour puss historians who note that the rise and fall of great empires is inevitable and all empires go bankrupt due to excessive wars that bring little or no material wealth to the empire. This bitter look at history is probably the closest to the truth of the matter.

 

The anarchists who are laissez faire have a sub-group that subscribes to the imperial overreach philosophy. At Anti-war.com, there are many of these sorts. At least, they are trying to be honest about themselves. The people who use the cloak of invisibility to hide their involvement in and responsibility for events by forbidding anyone from talking about either war or religion when discussing economics, are FRAUDS. Who don’t want things to change at all. They are the ‘status quo’ people who wish to keep it and don’t want a massive overhaul.

 

Back to the Chinese: my involvement with the communists were when they were Maoists and I had to give them the bitter truth about Mao and capitalism. Once they figured out not only what capitalism was in the 20th century, they also began to think about the meaning of government vis a vis commerce, internal financial affairs and taxes.

 

When the Mongols poured across all of Eurasia, they invaded rich China. The Mongols first wanted to simply annihilate all the Chinese, totally. Or, leave them extremely poor. But according to Chinese history, Ye Liu Chu Tsai dissuaded the Mongols, explaining how labor is wealth and the wealth from taxing the peasantry and artisans would bring far more loot than the conquests looting of cities.

 

The point here is, China is a very ancient civilization. With a long, rich and even horrible history. China has been the highest levels of civilized society and has been ravaged totally more than once. It is not so amazing that it is rising, like its emblem, the Phoenix, once again from the ashes of nearly-total destruction under first, the Europeans, then the Japanese and finally, Mao. It is part of the Chinese ethos: hard work and intellectual excellence.

 

U.S. Woes Open Door for China – WSJ.com

The “Anglo-Saxon brand of market-based capitalism” is under a cloud, Roger Altman, former U.S. deputy Treasury secretary and now chairman of Evercore Partners, writes in one of the Foreign Affairs pieces. “The U.S. financial system is seen as having failed.” That can’t be good for America’s moral authority.

Conversely, China stands to benefit from the mess in a couple of ways. In practical terms, because its financial system is far less exposed to the debt problems now ravaging the West, China simply will suffer less real economic damage.

Sure, China will endure short-term hits from the decline in consumer demand for the goods its factories churn out. But to the extent it suffers less damage overall, its relative strength will grow. Having accumulated massive piles of foreign-exchange reserves, for example, China now can use that cash to make strategic investments that an economically flattened West simply can’t. It will be better able to give aid to struggling nations, thereby winning friends there, and can keep up its pattern of investing directly in commodities and natural resources around the globe.

At the same time it reaps practical benefits, China has an opening to expand its political sway. As developing nations watch the convulsions in world financial markets, they may well decide that China’s model of a kind of centrally controlled capitalism is more attractive than the American model of unfettered capitalism. The danger is that the developing world starts to look to China for economic lessons, rather than to the West.

Nearly all articles talking about or much, much more often, attacking China’s economic system never, ever, ever mention Japan.  This puzzles me.  Why is Japan being cloaked in this way, so it is utterly invisible to Western readers?  Who is imitating whom here?  This is a very important question.  Which country perfected the all-exports/no imports coupled with a huge FOREX reserve and holding US Treasuries and debts while making there currency weak?  All this, while under a one-party system? 

 

It was Japan, not China.  The US hasn’t been the world leader in finance or trade since LBJ!  No one has been imitating us except perhaps, England.  I know that the Chinese wanted to flatter us and use us but certainly, even from the very beginning, they made it clear, they were going to be the hunters and our economy, their prey.  And to learn how to hunt us, they trailed closely after the Japanese.

 

Any nations foolish enough to imitate the US were destroyed long ago.  The US was kept running only because we are the global empire and thus, amazingly big.  Like the difference between hunting rabbits and elephants, the amount of ammo needed is much greater for the elephant.  Not one first world economy has so little social services as the US.  All of them use VAT taxes as well as very high gasoline taxes to discourage wild consumer spending.  

 

All of them have free education all the way through the University system.  Except Japan and England have let the private sector overhang the public education sector just as in the US where it is the worst.  An American student used to have a leg up on all other nations.  But today, the cost of schooling has risen very swiftly while the support from our government has fallen.  So even if our students get a good education, they start life with a very heavy financial burden.

 

As for the US giving out money: we are paupers.  We beg for money from Japan and China.  And both are in a very foul mood now.  The Japanese are in hysterics, wondering how they can bankroll the US somehow so we get back into spending our way to ruination.

 

Bloomberg.com: Worldwide

Japan should write-off its holdings of Treasuries because the U.S. government will struggle to finance increasing debt levels needed to dig the economy out of recession, said Akio Mikuni, president of credit ratings agency Mikuni & Co.

The dollar may lose as much as 40 percent of its value to 50 yen or 60 yen from the current spot rate of 90.40 today in Tokyo unless Japan takes “drastic measures” to help bail out the U.S. economy, Mikuni said. Treasury yields, which are near record lows, may fall further without debt relief, making it difficult for the U.S. to borrow elsewhere, Mikuni said.

“It’s difficult for the U.S. to borrow its way out of this problem,” Mikuni, 69, said in an interview with Bloomberg Television broadcast today. “Japan can help by extending debt cancellations.”

The U.S. budget deficit may swell to at least $1 trillion this fiscal year as policy makers flood the country with $8.5 trillion through 23 different programs to combat the worst recession since the Great Depression. Japan is the world’s second-biggest foreign holder of Treasuries after China.

First of all: the yen has been hugely cheap for years and years.  The fact that Mr. Mikuni thinks the yen might rise to 50 to the dollar means, there has to be a 40% drop in the dollar!  And this is exactly what the US is demanding China do!  If Japan suddenly dumps its FOREX reserve and its US securities kitty into global markets, this will utterly destroy the US ability to buy oil.

 

For the last year, the Japanese have hinted at this.  There is a game of ‘chicken’ developing here: both China and Japan hold more than $1.5 trillion in US paper and whoever drops it off the cliff first, will beat the one who hesitates.  So both are whispering or suggesting this should be done but not doing it.  Will they do it?  I would think so!  This will probably happen after Saudi Arabia falls to revolutionaries. 

 

This possibility is extremely high, not low.  It is the focal point of all of bin Laden’s works and dreams.  And it will happen if oil drops below $30 a barrel.  This will bring the money machine of Saudi Arabia to a screeching halt.  For Saudi Arabia holds around $1 trillion in US paper in public and another $2 trillions in private deals of various sorts.  This is why the US government has been frantically bailing out Saudi machines like Citigroup, for example. As well as Fannie Mae and Freddie Mac. 

 

If all the Saudi deals collapse along with oil prices, the Kingdom will be doomed.  The wild misspending of the royals is legendary and infuriates all the Muslim fundamentalism.  Fundamentalism is spreading like wildfire even in good times.  In bad times, it becomes the focal point and the flame for revolution like in Iran.

 

ASIA Economic crisis: US, China and the coming monetary storm – Asia News

A crucial point is the high percentage of public debt held by foreign investors. For many years after the Second World War the United States was a net creditor to the rest of the world. Since 1987 that is no longer the case. What proportion of the US public debt is held by non-resident foreigners after the United States adopted a number of rescue packages this fall remains unclear. The latest available official figures show that at the end last year the ratio between gross foreign debt and net claims of foreigners on the United States (Table 13-5 of the US Government budget for the 2009 Fiscal Year) stood at 61.82 per cent, (12) up from 54.42 per cent in the previous year. It is probable that this year it rose even further. But let us assume that it was the same as that of 2007. Even on the basis of the first number (118.02 per cent of the public debt with respect to the GDP), the threshold indicated by the aforementioned IMF study has been crossed (the ratio is about 73 per cent of the US GDP).

One thing must be made clear. The IMF study obviously referred to emerging economies whose currencies unlike the US dollar are not reserve currencies.(13) It is therefore impossible to determine with any certainty what the level is in the current US case. We can none the less roughly assume that a breaking point is quickly coming up because if we add up US public debt and spending commitment in health case (Medicaid and Medicare) and pensions (social security) we get to 429,27 per cent of GDP.(14)

Last but not least let us not forget that in 2007 Asian investors, especially Japanese and Chinese, were the main foreign investors in US financial assets.

This article from the Asia News has bad history, a common problem.  The US ceased being a creditor nation in 1971.  So Nixon, in a total panic, cut the entire connection to gold and imposed draconian wage/price rules. Now, the foreign holdings of US debts is over 60% and rising rapidly.  It rose over 7% in just one year.  At this rate, it will reach 100% in 6 years????  

 

It should be obvious to everyone that Japan and China intend to own us entirely.  But this is now collapsing due to the US collapse in buying. Store shelfs are packed with goods.  But let that not fool us!  These are the detritus from deals made at least a year ago if not longer.  There is nothing in the pipeline.  Once the shelves are cleared of goods, there will be few replacements.  

 

Americans imagine that Asia will fund our buying forever.  But what if Asia can’t do this?  This is a pertinent question.  It means, one or the other giant might just dump the whole system and start over again.  And China has certainly done this in the past and the cruel overlords of Japan have no scruples when it comes to crushing someone in their paths.

 

China seeks WTO probe of US taxes on Chinese goods: Financial News – Yahoo! Finance

It’s the first time Beijing has ever sought a WTO panel in a trade dispute.

Washington delayed the panel’s establishment at a meeting of the WTO’s dispute body on Monday, but an investigation will likely be launched early next year. 

Obviously, China is changing gears.  Both China and Japan are fighting to see who will get to the moon first.  China just announced, they will patrol the Seven Seas and stop piracy.  I will note with considerable alarm, the US has been pretty crummy at that job lately.  The US space program is in shambles and we don’t think twice, using Russia to access space for us.  

 

But we have been insulting Russia lately. As well as China.  Perhaps we imagine, if China drops the $2 trillion + dollar instruments they hold, we can laugh at them.  But I think, Japan will stun us by doing this to us, first.  Sales of high-end items from Japan are collapsing.  If Japan can’t have us as a market and the main market is China…remember: the US and China are now running neck to neck as Japan’s main customers.   The mind spins.  

 

Editorial – How to Pay for a 21st-Century Military – NYTimes.com

In recent weeks, this page has called for major changes in America’s armed forces: more ground forces, less reliance on the Reserves, new equipment and training to replace cold-war weapons systems and doctrines.Money will have to be found to pay for all of this, and the Pentagon can no longer be handed a blank check, as happened throughout the Bush years.

Since 2001, basic defense spending has risen by 40 percent in real post-inflation dollars. That is not counting the huge supplemental budgets passed — with little serious review or debate — each year to pay for the wars in Iraq and Afghanistan. Such unquestioned largess has shielded the Pentagon from any real pressure to cut unneeded weapons systems and other wasteful expenses.

 

The NYT is the US bell weather news outlet.  And the Washington Post.  Both are warmonger rags.  The fact that the NYT is even talking about money here shows the fears of the ruling elites.  Almost all of this money is courtesy of Japan and China.  And note how the NYT doesn’t call for us to abandon any of our bases overseas nor stop our wars.  They hope we can save some money by reducing our military to be foot patrols protecting European and Asian powers who are scared of neighbors.

 

All of this, of course, on our taxpayer’s bill. For the money Japan and China are giving us are LOANS.  And even if we ZIRP these loans so we pay no penalties, if the PRINCIPAL continues to soar, we are doomed.  And this is why cheap loans are a trap.  We can’t afford anymore debts!  This is a debt crisis, not a lending crisis.

 

And one thing is certain: the non-mainstream economic part of the web is very aware of this while the mainstream remains relentlessly clueless.  More debts won’t fix this.  Saudi Arabia and Israel want us to attack Iran, especially after Iran called on the Christians to act like Jesus.  And thus, they can have a little war and all wars in the Middle East causes oil prices to rise.  But if that happens, our economy blows up!

 

This is called ‘The Horns of Dilemma’.  And we reenter the maze where the Minotaur, aka, the Derivatives Beast, lives.  And more about that later.  The Beast is active.  The financial systems of the world will collapse.  I only hope the Chinese force ALL the bankers and brokers to take a difficult test of the new rules.  Which Beijing plans to impose on the entire planet.

 

AND THEY WILL SUCCEED.  This is their plan. The US and EU refused to police our bankers and brokers.  So the Communist Chinese will do this for us.  No one will bank with the West.  They will bank with China if China has good controls.  And all the pirate islands will die off, one by one.  And our money will have Mao grinning at us.  We deserve this.

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