China's Mercantilism: Selling Them the Rope

"The Capitalists will sell us the rope with which we will hang them." Vladimir Illyich Lenin

Here is Paul Krugman with a reasonably good explanation of what happens when countries 'manage' their currencies lower. It provides a boost to exports and an impediment to imports. It is not much different than restraints of trade like tariffs and subsidies.

This is not higher math. A few simple price/demand equations with currency exchange factors using high school algebra would suffice to show the power of currency manipulation and a devaluation of 40% as a form of 'competitive advantage.'

Although I am glad that some of the economic sites and economists are willing to discuss this now, and as always respect Paul Krugman for his frankness and learning, the question should be asked, "Where have the American economists been for the past ten years? This is not the first time a major economist has tried to discuss this, and primarily to little effect."

Now that Krugman has made it respectable the more timid are willing to speak, although some of the high profile economic pundits continue to uphold myths and propaganda to support their favorite commercial interests, think tanks, ideologies and honorariums.

It is hard to imagine another modern science that would have tolerated such obvious howlers as economics has recently done, and not only tolerated, but made major tenets and far-reaching public policy out of them. As my crusty statistics professor would say, "economics is sometimes more like marketing than mathematics: self-serving analysis surrounding bullshit assumptions and double-talk."

The Chinese manipulation of their currency was not subtle. China devalued the renminbi significantly in the latter part of the 1990's, and then pegged it to the dollar. It then penetrated the usual safeguards of fair trade laws by obtaining 'favorable' rulings first from Bill Clinton and then from W. Bush.

They ought not to have been granted full trade status until China allowed their currency to float on some prearranged conditions at the very least. One can only speculate on why two US presidents sold them the rope by which to hold the US economy hostage. It is probably nothing more than crony capitalism. As for the economic advisors that surround them, they often have little respect for fair and open markets because they themselves engage in market manipulation to support their policy objectives so much that it becomes a matter of course.

Fair Trade agreements and the WTO are a farce when they permit such dramatic currency manipulation, and this is the direct result of the existing fiat currency regime and a toleration and even encouragement of financial engineering. And globalization is something to always be regulated because of its profound effect on one's domestic markets and public policy. Otherwise the world sinks to the lowest common denominator of the abuses of reckless environmentalism and even slave labor of the worst tyranny for the sake of 'competitiveness.'

Multinational corporations' desires for export revenues and cheap goods do not trump national sovereign preferences for the rights and freedoms of the individual to which a people might commit themselves, and pledge their honor. The natural benefit of unrestrained globalization is a canard similar in nature to the fallacy of naturally efficient markets.

It suited some people to ignore it then because the arrangement provided cheap goods to the US while depressing the domestic manufacturing sector and working class incomes, while boosting the financial sector and masking monetary inflation and asset bubbles. It was a means of empowering and enriching Wall Street at the expense of the productive economy.

Now that China's currency manipulation does not suit them, they are willing to discuss it, since China is not 'playing ball' with the financial engineers and encouraging domestic consumption and adopting Western bankers as their masters.

There is also a realization that their financial engineering has brought the world to the brink of a global crisis of insolvency and a tremendous blow to authentic capitalism from which it may be difficult to recover. And they are afraid.



Of Bubbles and Busts: Which Way for China?

The Financialization of America and Currency Wars in China

US Making Preparations for a Pre-Emptive Strike on Iran (or Some Other Eastern Destination)

Although one would doubt that the US would 'go it alone,' one has to question whether or not they would act in support of a pre-emptive strike by Israel on Iranian nuclear facilities.

Although this news piece assumes Iran is the target, other easterly destinations come to mind in the vicinity of Afghanistan.

The implications of such a strike on the world financial and commodity markets is obvious, and bears careful watching. I would doubt the US would circumvent a discussion at the United Nations. Even George W had to at least pay lip service to international support prior to his attack on Iraq.

SundayHeraldScotland
Final destination Iran?
By Rob Edwards
14 Mar 2010

Hundreds of powerful US “bunker-buster” bombs are being shipped from California to the British island of Diego Garcia in the Indian Ocean in preparation for a possible attack on Iran.

The Sunday Herald can reveal that the US government signed a contract in January to transport 10 ammunition containers to the island. According to a cargo manifest from the US navy, this included 387 “Blu” bombs used for blasting hardened or underground structures.

Experts say that they are being put in place for an assault on Iran’s controversial nuclear facilities. There has long been speculation that the US military is preparing for such an attack, should diplomacy fail to persuade Iran not to make nuclear weapons.

Although Diego Garcia is part of the British Indian Ocean Territory, it is used by the US as a military base under an agreement made in 1971. The agreement led to 2,000 native islanders being forcibly evicted to the Seychelles and Mauritius.

The Sunday Herald reported in 2007 that stealth bomber hangers on the island were being equipped to take bunker-buster bombs.

Although the story was not confirmed at the time, the new evidence suggests that it was accurate.

Contract details for the shipment to Diego Garcia were posted on an international tenders’ website by the US navy.

A shipping company based in Florida, Superior Maritime Services, will be paid $699,500 to carry many thousands of military items from Concord, California, to Diego Garcia.

Crucially, the cargo includes 195 smart, guided, Blu-110 bombs and 192 massive 2000lb Blu-117 bombs.

“They are gearing up totally for the destruction of Iran,” said Dan Plesch, director of the Centre for International Studies and Diplomacy at the University of London, co-author of a recent study on US preparations for an attack on Iran. “US bombers are ready today to destroy 10,000 targets in Iran in a few hours,” he added.

The preparations were being made by the US military, but it would be up to President Obama to make the final decision. He may decide that it would be better for the US to act instead of Israel, Plesch argued.

“The US is not publicising the scale of these preparations to deter Iran, tending to make confrontation more likely,” he added. “The US ... is using its forces as part of an overall strategy of shaping Iran’s actions.”

According to Ian Davis, director of the new independent thinktank, Nato Watch, the shipment to Diego Garcia is a major concern. “We would urge the US to clarify its intentions for these weapons, and the Foreign Office to clarify its attitude to the use of Diego Garcia for an attack on Iran,” he said.

For Alan Mackinnon, chair of Scottish CND, the revelation was “extremely worrying”. He stated: “It is clear that the US government continues to beat the drums of war over Iran, most recently in the statements of Secretary of State, Hillary Clinton.

“It is depressingly similar to the rhetoric we heard prior to the war in Iraq in 2003.”

The British Ministry of Defence has said in the past that the US government would need permission to use Diego Garcia for offensive action. It has already been used for strikes against Iraq during the 1991 and 2003 Gulf wars.

About 50 British military staff are stationed on the island, with more than 3,200 US personnel. Part of the Chagos Archipelago, it lies about 1,000 miles from the southern coasts of India and Sri Lanka, well placed for missions to Iran.

The US Department of Defence did not respond to a request for a comment.

US and UK Move Closer to Ratings Downgrades - Or Not

There is a spread of glass 'half-empty' and 'half-full' versions of this story in the news today. The Financial Times stresses that the ratings are 'safe' for now and 'well-positioned' while others such as Business Week choose to emphasize the deterioration and potential risk.

Who are Moody's and SP to judge this? Their shocking performance in the subprime and credit markets shows them repeatedly to be little more than carnival barkers and shills, willing to say almost anything for pay. Are they as malleable to political and commercial influence in this as they have shown themselves to be in the recent financial scandals?

And yet, the position of the fiat currencies and the financial engineers does seem to deteriorate to anyone who can look at debt to GDP ratios, debt servicability, and the quality of government statistics. And some currencies are more equal than others, being sustained by holdings in foreign reserves because of the current structure of international finance.

It is unlikely, however, that we will hear about any collapse before it happens from these US-based ratings agencies. Their ratings are triggers for traders however, and could be self-fulfilling, a tool for the currency bears, who use leverage to bring down nations.

The US will seek to stand the Dollar on the heads of Sterling and then the Euro to sustain its head about the rising waters.

Make no mistake about this. Keep an eye on Sterling as the currency wars intensify.

NY Times
Credit Agency Warns U.S. and Others of Risk to Top Rating
By DAVID JOLLY
March 15, 2010

PARIS — The United States, Germany and other major economies have moved “substantially” closer to losing their top-notch credit ratings and can not depend solely on economic growth to save them, a report warned on Monday.

The ratings of the Aaa governments — which also include Britain, France, Spain and the Nordic countries — are currently “stable,” Moody’s Investor Service wrote in the report. But, it added, “their ‘distance-to-downgrade’ has in all cases substantially diminished.”

“Growth alone will not resolve an increasingly complicated debt equation,” Moody’s said. “Preserving debt affordability” — the ratio of interest payments to government revenues — “at levels consistent with Aaa ratings will invariably require fiscal adjustments of a magnitude that, in some cases, will test social cohesion.”

Greece, Portugal and other countries that are already in far worse shape have been rocked by strikes and other protests in recent weeks as they try to adopt tough austerity measures.

Without a stronger recovery, governments could encounter serious trouble in phasing out government support for the economy, Arnaud Marès, the main author of the report, said in a statement. That “could yet make their credit more vulnerable,” he said.

Credit ratings are important because higher-rated governments are typically able to borrow at lower costs. Last May, Moody’s cut Japan’s Aaa rating to Aa2, an acknowledgement of the market’s growing unease with the debt burden of the Asian country...

In the United States, the Obama administration estimates that the deficit will rise to 10.6 percent of gross domestic product in the current fiscal year, the highest since 1946, and federal debt will reach 64 percent of G.D.P. Government expenditures are expected to rise to a postwar high of 25.4 percent of G.D.P.

For now, the U.S. debt remains affordable, Moody’s said, as the ratio of interest payments to revenue fell to 8.7 percent in the current year, after peaking at 10.0 percent two years ago. If that trend were to reverse, the Moody’s analysts said, “there would at some point be downward pressure on the Aaa rating of the federal government.”

In Britain, Moody’s said, the risk is that tax receipts fail to keep pace with forecasts, as the government of Prime Minister Gordon Brown has little room left to maneuver. In that situation, the debt — which the government already predicts will stabilize at around 90 percent of G.D.P. — could balloon, undermining the credit rating.

In comparison to both Britain and the United States, the report noted, households in France and Germany entered the crisis with relatively low indebtedness, and hence have a little more room for maneuver. Yet both countries will find themselves under pressure to maintain financial discipline in the event that growth does not rise substantially...

As for the Nordic countries, the agency said the region entered the crisis in relatively good shape, and their credit ratings appeared to be well protected.

About That Seemingly Irrational Need for Bonuses...

Psychopath: A person with an antisocial personality disorder, manifested in aggressive, perverted, criminal, or amoral behavior without empathy or remorse.

He would sell his mother for an eighth.

He would betray his most solemn promise on a whim.

He was a law unto himself, forcing others to serve his needs.

He would grab society's tit and suck it dry.

He would grasp and tear until he showed them all.

He was beyond good and evil--- He was an American hero.

"Our hypothesis was that psychopathic traits are also linked to dysfunction in dopamine reward circuitry," Buckholtz said. "Consistent with what we thought, we found people with high levels of psychopathic traits had almost four times the amount of dopamine released in response to amphetamine."

In the second portion of the experiment, the research subjects were told they would receive a monetary reward for completing a simple task. Their brains were scanned with fMRI while they were performing the task. The researchers found in those individuals with elevated psychopathic traits the dopamine reward area of the brain, the nucleus accumbens, was much more active while they were anticipating the monetary reward than in the other volunteers.

"It may be that because of these exaggerated dopamine responses, once they focus on the chance to get a reward, psychopaths are unable to alter their attention until they get what they're after," Buckholtz said. Added Zald, "It's not just that they don't appreciate the potential threat, but that the anticipation or motivation for reward overwhelms those concerns."

Psychopaths' Brains Wired to Seek Rewards No Matter the Consequences

So let's give deregulation and the efficient markets hypothesis another chance to really maximize the damage.

An entire society built around white punks on dopamine, trapped in the infantile stage of development, allocating resources for the many, the arbiters of utility and worth, from Wall Street to the Congress: this is what America has become.