Bush the New Churchill, or, What Would World Be Like With Saddam?

[Wilber]

China is hardly producing nothing. India is also another giant on the rise. The US trade and fiscal deficits have never been higher. I don't know exactly what all that means but I don't think it is good.

That means that American, Canadian and Western European labor priced itself out of the market. As to China, it is slave labor. Trudeau led the way towards the dubious recognition of the Communists.

India is not communist, it is the worlds largest democracy. Ever been to China? Yes labour is cheap but that has nothing to do with communism. It often struck me as ironic that China which claims to be the worlds biggest socialist country is populated by people who practice capitalism better than just about anyone. They save while we spend.

[Higgly]

ndia is not communist...

The state of West Bengal (Calcutta) had an elected Communist government for some time, and nobody tried to depose them. Fortunately India had no resources worth killing for at the time, unlike Chile or Iran.

India sided with the Russians during the cold war. It was so poor nobody gave a damn about them, and it has literally pulled itself up by the bootstraps ever since. India is a miracle of modern democracy, and may be the best we will ever see. Forty years ago, people in India were starving to death by the hundreds of thousands.

It was not unusual to see Aeroflot pilots and flight crews in the hotels of Bombay and Delhi in the 1980s and early 1990s. You could also spot Swissair crews around the pool at the Sun 'n Sand in Bombay or Air France, KLM and Lufthansa crews at the Hyatt in Delhi. It was very rare to see American or Canadian crews.

India has been for some time left-leaning. India Rail is (I think) still owned by the government, as were the airlines up to about 1995. The railyards at Mysore were a marvel to behold only 20 years ago. Sort of like Jay Leno's garage but with steam engines. The Indians kept all of them running like tops.

Trade unions have traditionally been very strong in India, but this has been giving way to education and high tech.

I believe it will be a long time before India forgets its socialist roots.

[jdobbin]

That means that American, Canadian and Western European labor priced itself out of the market. As to China, it is slave labor. Trudeau led the way towards the dubious recognition of the Communists.

So he is to blame for Nixon going to China?

Perhaps he saved you from having to learn Chinese a few years earlier.

[jbg]

That means that American, Canadian and Western European labor priced itself out of the market. As to China, it is slave labor. Trudeau led the way towards the dubious recognition of the Communists.

We are kind of depending on the 'slave labour' right now to keep inflation low. Without it the recent spike in oil prices would have produced high inflation and high interest rates.

I agree that slave labor is helping reduce inflation and workers' standards of living. Unfortunately, the labor unions are largely at fault. Back in the 1950's the northern and central parts of the US were teaming with industrial activities. Even large parts of New York City had manufacturing. As a kid I thought that really rich people owned factories.

Starting with the GM strike of 1970, which established the principle of 3% annual wage increases plus a total adjustment for inflation, known as "cost of living adjustment, or COLA, US industry (and I assume Canadian industry) was slowly flattened. Manufacturing increasingly shifted to "slave labor" locations since it made economic sense to build brand new factories overseas, and pay shipping costs. I believe that if it had not been for demagogic labor leaders, this would not have happened.

As for the morality of purchasing goods made by overseas labor, it is a thorny issue; are these workers better off not having jobs, or being paid miniscule wages? I cannot pretend to know the answer.

In addition, the US economy is also depending on a Chinese gov't willing to buy all of those gov't bonds. The Chinese gov't would not be willing to do that if owning those bonds did not allow China manipulate the gobal labour market to suit itself.

The Chinese buys bonds not because they want to support luxuriating Americans, but because we are simply the only country with a large enough economy to provide an attractive return.

Practically speaking the only way out of the current crisis is a large devaluation of the US dollar - much like what happened to the Canadian dollar in the 1990s. This would be the least painless approach in terms of of the average American but would reduce the importance of the US economy to the rest of world. For that reason, I believe the history books will describe Bush as the administration who pissed away America's superpower status.

Devaluation is not a solution, since the inflation it feeds begets more devaluation.

[jbg]

That means that American, Canadian and Western European labor priced itself out of the market. As to China, it is slave labor. Trudeau led the way towards the dubious recognition of the Communists.

So he is to blame for Nixon going to China?

Perhaps he saved you from having to learn Chinese a few years earlier.

Nixon's trip was most unwise. It was a cheesy political move designed to create a false euphoria of "peace breaking out". Nixon had the 1972 election in the bag. His aim was simple; to best Roosvelt's thumping 1936 victory over Alf Landon. You will rarely see me praising Nixon.

[Riverwind]

The Chinese buys bonds not because they want to support luxuriating Americans, but because we are simply the only country with a large enough economy to provide an attractive return.

The ROI on US$ bonds in the few years has been negative for most foreign currency buyers. The Chinese only buy gov't bonds because they are the only US$ asset that they can purchase in large enough quantities to ensure their currency stays pegged to the US$. Keeping their currency tied to the US$ helps their exports everywhere in the world.

Eventually the Chinese and Japan will realize they don't need to be pouring billions into poorly performing assets. The US$ will tank when this happens. There is a good article in the Economist that talks about how the relevance of the US in the world is economy slipping.

Moreover, America is not the only importer. Indeed, its share of world imports has fallen from 21% to 16% over the past five years—further proof that demand is strong elsewhere

I am not saying the US will become irrelevant - I am just saying that the days of the US as the only superpower are coming rapidly to an end and it was the policies of the Bush administration that hastened this decline and ensured when the adjustment comes it will be more rapid and humiliating for Americans than it needed to be.

[jdobbin]

Nixon's trip was most unwise. It was a cheesy political move designed to create a false euphoria of "peace breaking out". Nixon had the 1972 election in the bag. His aim was simple; to best Roosvelt's thumping 1936 victory over Alf Landon. You will rarely see me praising Nixon.

So the United States should have invaded, occupied and brought democracy to the Chinese?

[Leafless]

I am not saying the US will become irrelevant - I am just saying that the days of the US as the only superpower are coming rapidly to an end and it was the policies of the Bush administration that hastened this decline and ensured when the adjustment comes it will be more rapid and humiliating for Americans than it needed to be.

Do you actually believe the U.S. will allow this to happen?

[Riverwind]

Do you actually believe the U.S. will allow this to happen?

They have no choice - Americans have pissed away their inheritance by running huge gov't deficits that can only be funded because foreigners are willing to buy those bonds. The day of reckoning will come - it is only a question of how painful it will be now. Rapid currency devaluation will likely be the least painful but such an event would further reduce the importance of the US$ economy to the rest of the world. IOW - it is hard to be a superpower when your economy represents only 10% of world's economic output.

To clarify: I am not saying that the US economy will collapse. I am predicting a decade or more of structural change that will be similar to what Canada went through in 90s. At the end of this adjustment the US economy will likely be as healthy as it has even been. The only thing that will change is the US will become like Britain: a country that used to hegmonic power in the world but will be reduced to being simply one of many players. This will have a negative impact on the American psyche for generations much like the loss of the Britsh empire affected the British.

[jbg]

Nixon's trip was most unwise. It was a cheesy political move designed to create a false euphoria of "peace breaking out". Nixon had the 1972 election in the bag. His aim was simple; to best Roosvelt's thumping 1936 victory over Alf Landon. You will rarely see me praising Nixon.

So the United States should have invaded, occupied and brought democracy to the Chinese?

I never said that.

Do you actually believe the U.S. will allow this to happen?

They have no choice - Americans have pissed away their inheritance by running huge gov't deficits that can only be funded because foreigners are willing to buy those bonds. The day of reckoning will come - it is only a question of how painful it will be now. Rapid currency devaluation will likely be the least painful but such an event would further reduce the importance of the US$ economy to the rest of the world. IOW - it is hard to be a superpower when your economy represents only 10% of world's economic output.

I continue to believe, in the final analysis, that China will be unable to get out of its own way. Its unfree political system creates huge oppoortunities for graft, and large amounts of actual waste.

An example. I am aware of a married Chinese couple, who between them have borrowed about $12-14 milllion from two Chinese banks to finance "import-export" businesses. The couple has relatives in New York, North Carolina, China and Canada. The businesses have all folded like a cheap stack of cards, both have, at different times, filed for bankruptcy.

Chinese banks are either government owned, or owned by government cronies. I am quite sure that many so-called Chinese "exports" are not being paid for, much the way this couple did not pay its Chinese banks.

The economic crash I worry about is not the US crashing directly from its deficits (a factor that is well known and built into markets), but China's system collapsing, big time. A recent parellel is the 1997 financial crisis almost created by currency problems in Thailand, Indonesia and Russia. I believe a mild precursor of China's problems is the recent drop in gasoline prices. I believe that China's commodity traders, boosted by easy credit fro these same banks, ran the price up since they were speculating with "other people's money" and have been forced to liquidate positions. Thus, I believe that much of the 2005 price runup from roughly $43 per barrel to $70/bbl (only the last $6/bbl. were Katrina-related), the drop from $70 to $54 in late November 2005, the bounce up to over $78, and now the drop to around $57 is the result of the illiquid position of Chinese traders.

[Riverwind]

I continue to believe, in the final analysis, that China will be unable to get out of its own way. Its unfree political system creates huge oppoortunities for graft, and large amounts of actual waste.

I agree with you 100%. China has its own problems but that does not change the fact that $US interest rates would rise rapidly if the Chinese and Japanese stopped buying US gov't bonds.

[jbg]

I continue to believe, in the final analysis, that China will be unable to get out of its own way. Its unfree political system creates huge oppoortunities for graft, and large amounts of actual waste.

I agree with you 100%. China has its own problems but that does not change the fact that $US interest rates would rise rapidly if the Chinese and Japanese stopped buying US gov't bonds.

Perhaps true. Or the other possibility is that an implosion in China (I'm not expecting Japan to implode) would reduce US trade deficits since it would take China "offline". I expect this to happen since I think China will be shut out of the credit markets.