As I repeatedly warned, China’ possession of both the world’s biggest FOREX holdings of other, mainly dollar, floating currencies, the world’s largest holding of other countries debts, but also has probably the world’s biggest Sovereign Wealth Fund available for investment and purchases. So China is no longer saving money but spending money and this is keeping much of the other G20 nations afloat. Bailing out the EU is just one of the startling uses of all of this creditor wealth. China also is refusing to bail out the US because we foolishly decided to use the Pentagon to project power in Asia. So we will be ruthlessly reduced to printing money which then causes inflation.
For two generations, Japan and China have masked inflation in the US via buying our debts and holding trade dollars in inert FOREX accounts. This era of passively using debt here in the US to run our vast trade deficits overseas is about to come crashing down if Asian powers cease holding US dollars in their FOREX accounts. Japan, for example, didn’t want to disgorge its immense FOREX holdings after the earthquake and tsunami so instead, the US gave them more banking help to make the yen cheaper against the dollar.
So the US dollars were not spent. Japan’s Sovereign Wealth Fund can’t be tapped to save its own people because it would make the yen stronger. This, in turn, interferes with exporters in Japan. Increasingly, the life styles of the Japanese people have been declining as foreign trade expands just as this exact same thing is happening here. Our international corporations like this, they keep their profits overseas as well as shipping outwards and this, in turn, makes the general country’s finances worse, not better.
More exports=more profits overseas which leads to keeping these profits out of country. The declining taxes on these profits means governments have to tax citizens all the more to keep afloat or like both Japan and the US, simply silently run up immense government debts.
It now seems that the Chinese communists who are supposed to be cruel and stupid, are actually spending their own trade surplus profits to expand trade and increase the amount of money flowing back into China. That is, China’s export profits go back home, not to say, the Cayman Islands or Jersey Islands, etc. The government of China realizes that Sovereign Wealth is when a GOVERNMENT, not an international corporation, holds the profits from trade.
The US model whereby trade profits are held by individuals who then hide this from the government is obviously a wretched failure because this system has destroyed our industrial base, pushed millions of former factory workers into severe poverty or a life a crime (mostly as drug dealers) and put the government deep into debt. The solvent Chinese system stands in stark contrast with the insolvent Japanese and US systems. That is, the inability to tax trade profits lies in the dark heart of the crisis hammering both Japan and the US and is directly connected with the ZIRP system and declining wages of workers in the home base states.
In the EU, the crushing of social benefits continues so a General strike hits Greece, as the austerity vote looms. This will spread since more than one EU country is going to see its social services cut ruthlessly while at the same time, the economic system is at its worse. This ‘screw down on services during depressions’ is exactly what causes huge disruptions, revolutions and wars. This is the core of the problem of pure capitalism which depends on coddling the rich: social services go up in good times and down in bad times which is wretched!
It should be the opposite and the point of having a government is to insure that social services RISE during depressions and then are reduced as good times puts people back to work. The US housing crisis, for example, isn’t due anymore to speculators buying multiple houses with no money down and then flipping them. These speculators are long gone.
The US housing market is now crashing due to people losing jobs. As social services are cut and inflation in food and fuel shoot upwards, spending on social services collapse. For example, in the US, the energy program for seniors has been decimated by the GOP even as the cost of heating homes shoots upwards. This, in turn, makes people on fixed incomes much, much poorer. Cutting money for heating when fuel prices rise hurts the elderly and now Congress is talking about cutting medical care and other programs like money for nursing homes.
This, in turn, hammers other parts of the economy as we see teachers, nurses and local police fired en mass. This increases the number of homes going into default on loans. Decreasing the pay of government employees fixes nothing. Since the rich demand tax cuts every time social and employee spending is cut, there is this futile sense of despair as attempts at balancing the budget evaporate every time it is done. The rich’s demands for incessant tax cuts degrades the system meaning, as the depression grows, their wealth increases so they encourage it to get worse and worse just as public spending should increase.
That is, the need to seize the wealth of the rich in time of depression is uttermost. If we protect the wealth of the rich and hammer the poor, we get an eternal depression. The rich, after all, in export heavy economies don’t care if there is no domestic demand. If profits are in exporting goods, they will have to PREVENT the workers from buying what they produce. This means, more money for the exporters and cheaper wages and near-slave labor working conditions.
Examples of this are obvious: in Japan, back before Japan was totally dependent on exporting a lot, the workers had lifetime employment. Today, this has vanished. Over a third of the adult population is part time workers. The full time workers no longer have lifetime employment and all workers have seen wages decline even as the government goes deeper and deeper into debt. The ZIRP depression now has lasted two generations! Major Corporations Oppose Rule Comparing Pay Of CEOs To Workers is typical of our rich: they are scared that workers might learn about how wealth is being moved relentlessly upwards into fewer and fewer hands.
Finally, everyone is noticing the next stage of the Chinese 50 Year Plan as China’s government, which has intercepted a great deal of the foreign trade profits, now moves outwards, spending its trade dollars before they totally lose value as the US frantically prints money to keep afloat: BBC News – China seeks to raise its business interests in Europe
As well as dealing with the eurozone debt crisis, Mr Wen will be looking to boost trade. Chinese companies appear to be on something of a shopping spree at the moment.
“Without democracy, there is no socialism. Without freedom, there is no real democracy,” Wen told an audience at the Royal Society during his visit to Britain.
Robert KaganWEEKLY STANDARD, JANUARY 20, 1997
The advocates of engagement — whom we might call “the new China hands” — offer a host of sunny assumptions about China’s future and the helpful role the United States can play in shaping it. China wants to join our international order, the theory goes, or at least can be persuaded to play a responsible role in the world if only we help China’s leaders understand what’s good for them. By engaging with China, Nye argues, we can “affect how the Chinese define [their] interest.” And as the Chinese come to view the world within the “larger context” we provide for them, “the prospects for conflict [will] diminish.” China, Zoellick believes, “should welcome regional stability and the avoidance of contests for dominance.”
Wilhelmine Germany was a nation on the move, with a dynamic economy, increasing military strength, and a rising ambition both to settle outstanding international grievances and to play a role on the world stage commensurate with its new power. Zoellick argues that the “failure to deal effectively with Germany’s rise led to seventy-five years of conflict.” The new China hands warn that the failure to deal effectively with China’s rise could have the same dire consequences.
Containment is unthinkable — a very dangerous “pipe dream,” according to Henry Kissinger. As Admiral Richard Macke, the one-time commander in chief of our Pacific Fleet, once put it, “What we have to do is make China one of our friends. We can’t confront them, we can’t isolate them.”
The new China hands insist that the United States needs to explain to the Chinese that its goal is merely, as Zoellick writes, to avoid “the domination of East Asia by any power or group of powers hostile to the United States.” Our treaties with Japan, South Korea, the Philippines, Thailand, and Australia, and our naval and military forces in the region, aim only at regional stability, not aggressive encirclement.nd containing Germany. The problem was that Britain did not deter and contain Germany enough. In Crowe’s view, Britain needed to take a “resolute stand” against Germany’s challenge to the international order. Her Majesty’s government had to undertake “all risks of a possibly disagreeable situation [rather] than to continue in the path of endless concessions.” The British did not take Crowe’s advice until it was too late to avoid war. If the analogy with Wilhelmine Germany tells us anything, it is that the best way to deal with a dissatisfied emerging power is not to adjust to it but to make it adjust to you.
But the Chinese understand U.S. interests perfectly well, perhaps better than we do…. Even when the United States and its Western allies have no conscious designs to undermine dictators, we exert pressure merely by our existence — both as a beacon of hope to those living under tyranny and as a vast machine for the global dissemination of information. The replica of the Statue of Liberty erected by the students in Tiananmen Square was tangible evidence of these abstract notions about the global consequences of an information age dominated by the democracies. Deng himself said the democratic uprising had been “determined by the international and domestic climate.”
It is worth recalling the historical analogy with which we began. As Paul Kennedy explains, Wilhelmine Germany could not have been appeased “unless the British were willing to accept a substantial diminution in national influence and safety.” The new China hands wouldn’t dare make such a grim recommendation to the United States. But the strategy of engagement — an effort to steer a middle course between appeasement and containment — may be the most perilous of all. It neither satisfies the demands of the emerging power nor deters that power effectively enough to prevent a serious confrontation.
This is a willful misreading of history! Germany became united and then did several things Britain refused to do. The British elites believed in keeping the lower classes oppressed. So, they figured, if this class of people were hungry, stunted, and above all, IGNORANT, the upper classes would have more servants, the lower people would lose fist fights with the elite boys, and the inability to read or reason would make them easy to control or cheat. This is IDENTICAL to the US policy of keeping blacks from being educated or well fed.
Germany, on the other hand, decided that a strong peasant class that eats well and is muscular as well as educated makes Germany stronger! So the Germans were better fed and got free schooling. The invention of ‘kindergarten’ is due to Germany: they expanded the education to younger ages. Then, there was college: free if you passed the tests. All the other educational parts were all paid by the state, from cradle to grave.
This was viewed as an INVESTMENT and it paid off, hugely. Germany went from an intellectual backwater to one of the top research nations on earth. This was killing the British/US models and the US moved more and more into the German system, copying the kindergarten business, the state universities which began in the late 19th century, etc. As we imitated Germany, we grew stronger. Imitating England was fatal.
Quickly, Britain lost power as German industrial innovation shot upwards rapidly. Meanwhile, Britain was at work on expanding markets via it military: taking over a country or territory and then forbidding them from buying either German or US goods, for example. So Britain had this restive, angry population of foreign people who wanted to get rid of the invaders. This cost a lot to run. When Germany attacked England, it was very undefended due to all the troops and money being spent to hold down restive foreigners.
Germany’s problem was, they tried a military solution to the problem of Britain. The Chinese discussed this a lot with me as we read history together in the mid-1980’s. They did NOT want to be in the position of Germany before WWI. And the key to this was to buy up US debt so that if we did threaten war, China would simply bankrupt us rapidly. This requires delicate measures in that the Chinese would have to persuade other nations to side with them. And eventually, Japan WILL side with China due to the simple fact, WWIII would mean the annihilation of every Japanese person. There will be nothing left there when all the nuclear power plants are wrecked.
Japan can’t afford any wars at all. Recognizing this is life and death for them and I suspect, the populace doesn’t worry about if China dominates Asia. They are being crushed by their own leaders and elites, after all! What do they lose if China runs things? It cannot be worse than the present system. And spreading socialism is the new Chinese style and this is funny as hell since this is what many Japanese would probably want at this point in time! Not US-style rich at the top and everyone else paying through the nose for a basic education, etc.
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