The coming China Depression

Wait. That is not my theory, but that of the author of an article written more than four years ago that a reader pointed me to and that I recommend you read. Not because it’s necessarily right, but because it’s fascinating to see where we actually stand four years after the writer’s prediction.

Today, the currency and export policy of China is anchored around its peg to the dollar. The main reason for this is that by artificially undervaluing its own currency, and therefore overvaluing the dollar, China artificially stimulates its manufacturing exports. The second reason is that by buying the excess U.S. dollars and reinvesting them in U.S. government bonds, it acts as a foreign lender to the United States. The third reason is that this foreign lending stimulates American demand for Chinese manufacturing exports and allows the Chinese government to relieve its current unemployment problems… No doubt, most of these loans will turn out to be very expensive because they will be repaid with greatly depreciated dollars, which in turn will exacerbate down the road the growing financial distress of the banking sector in China.

Therefore, it is clear that China travels today the road to Depression. How severe this depression will be, will critically depend on two developments. First, how much longer the Chinese government will pursue the inflationary policy, and second how doggedly it will fight the bust. The longer it expands and the more its fights the bust, the more likely it is that the Chinese Depression will turn into a Great Depression. Also, it is important to realize that just like America’s Great Depression in the 1930s triggered a worldwide Depression, similarly a Chinese Depression will trigger a bust in the U.S., and therefore a recession in the rest of the world.

Unless there is an unforeseen banking, currency, or a derivative crisis spreading throughout the world, it is my belief that the Chinese bust will occur sometime in 2008-2009, since the Chinese government will surely pursue expansionary policies until the 2008 Summer Olympic Games in China. By then, inflation will be most likely out of control, probably already in runaway mode, and the government will have no choice but to slam the brakes and induce contraction. In 1929 the expansion stopped in July, the stock market broke in October, and the economy collapsed in early 1930. Thus, providing for a latency period of approximately half a year between credit contraction and economic collapse, based on my Olympic Games timing, I would pinpoint the bust for 2009. Admittedly, this is a pure speculation on my part; naturally, the bust could occur sooner or later.

Of course, macro-economic predictions like this usually prove to be far off the mark (except those made by me), the most (in)famous perhaps being Gordon Chang’s prediction of “The Coming Collapse of China.” In the case of the article above, the story seems to have occurred almost in reverse – a US (and increasingly European) crisis is what is plunging the world into a recesion, not government-generated inflation in China. America’s economic crisis, not China’s, was the catalyst for the tailspin, and if China is be plunged into a depression, it will be for reasons very different from what the author envisaged. (He was shrewd enough to say that his theory might be offset by “an unforeseen banking, currency, or a derivative crisis spreading throughout the world.” And what we are seeing today was certainly unseen by most in 2004.)

However…however… I honestly believe China is going to be one of the few players that emerges from the current crisis relatively unscathed (and “relatively” is a key word.). Simply because of the size of its own domestic markets and the trade it carries out in Africa and Asia. It will suffer, lots of factories will continue to close and lots of dreams will be erased and jobs lost. But it won’t be depression. What it will be, more than anything else, is a test for the CCP. Running a country the size of China with the staggering problems is hard (to say the least), but it sure helps when the economy is roaring year after year.

One of the most frequently repeated motifs is that as long as the economy is kicking, most Chinese don’t give a damn about human rights and censorship and corruption. Once things slow down and people have more time (and more fear), as they see their opportunities dimming, as they realize the joy ride they were counting on was finite while the ruling classes are doing just fine – will they lose some of that Zhongguo jia you spirit and begin to demand their government do better? Will they look at they way America ousted the Republicans, and demand that same freedom? Short answer: probably not; at least not yet. China is better positioned to weather the current storm without enough rampant misery in the cards to get people thinking about revolution. The government can still spend its way out of this mess they way it usually does. One day China will face an economic moment of truth, the way America is facing one now. I’m pretty sure this isn’t it. Yet.

I swore I wouldn’t post anything today, that I’d focus only on my homework. The Internet is such a monumental distraction. And that will be the subject of an upcoming new post.



How did Palin do in the debate, in which the bar was set lower than ever before?

Who won the debate, based on the polls?

How bad is the economy looking compared to two weeks ago?


“She’ll grow into the job”

From the latest Couric interview with Palin. Heh.

KATIE COURIC: “What happens if the goal of democracy doesn’t produce the desired outcome? In Gaza, the U.S. pushed hard for elections and Hamas won.”

SARAH PALIN: “Yeah, well especially in that region, though, we have to protect those who do seek democracy and support those who seek protections for the people who live there. What we’re seeing in the last couple of days here in New York is a President of Iran, Ahmadinejad, who would come on our soil and express such disdain for one of our closest allies and friends, Israel … and we’re hearing the evil that he speaks and if hearing him doesn’t allow Americans to commit more solidly to protecting the friends and allies that we need, especially there in the Mideast, then nothing will.”

Yes, just the kind of incisive, penetrating mind we need to deal with the most complex, most fragile moment in America’s entire history. President Palin. Horrifying. Literally horrifying.


Prescient words

During the 2004 election I repeatedly posted this quote from the great H. L. Mencken. Looking at Palin and McCain, I realize it’s time to post it yet again. Savor every word. It is spot-on.

“[W]hen a candidate for public office faces the voters he does not face men of sense; he faces a mob of men whose chief distinguishing mark is the fact that they are quite incapable of weighing ideas, or even of comprehending any save the most elemental – men whose whole thinking is done in terms of emotion, and whose dominant emotion is dread of what they cannot understand. So confronted, the candidate must either bark with the pack or be lost…

[A]ll the odds are on the man who is, intrinsically, the most devious and mediocre – the man who can most adeptly disperse the notion that his mind is a virtual vacuum. The Presidency tends, year by year, to go to such men. As democracy is perfected, the office represents, more and more closely, the inner soul of the people. We move toward a lofty ideal. On some great and glorious day the plain folks of the land will reach their heart’s desire at last, and the White House will be adorned by a downright moron.”

H. L. Mencken, in the Baltimore Sun, July 26, 1920.

That vision was fulfilled, of course, in 2004. Let’s do all we can to make sure we don’t elect another moron. Are you registered, and do you have your absentee ballot if you’re living here? Don’t let Palin or the sage who selelcted her anywhere near DC. Your vote really does matter.



If Tina Fey isn’t one, who is? What a performance. Leave this site now and watch the clip here. Don’t have anything in your mouth as you’re watching.


Debate: Brilliant young crusader Obama crushes leathery “maverick”

No, not really. That’s the headline I was hoping to write. But now that you’re looking….

I only saw a small portion of the debate live, and that was via my PC, followed by lots of pre-recorded bits and piece later in the day. Based on that, I would have to join the consensus and call it basically a draw, with Obama “winning” because he seems to have won over more undecideds than McCain.

Both did well (or well enough) and both achieved their most necessary goals:

McCain showed he is basically in control of his faculties and bodily functions (the Palin selection made a lot of us wonder), and that he has a decent grasp of the issues.

Obama showed he can speak articulately without a teleprompter, and succeeded in coming off as an erudite, likable and trustworthy centrist. Personally, I don’t think this is the right time for a centrist, but here we are.

No matter what we thought about the debates, one inescapable conclusion all of us can agree on is that McCain’s behavior prior to the debates was unsettling, to say the least. Maybe “deranged” would be more like it. Canceling the debate on the grounds he’s needed for the economic emergency (he wasn’t) – such a dire emergency for an economy he just said was fundamentally sound?? Flip-flopping and doing the debate?? Canceling his appearance with Letterman at the last minute?? (I presume all of you have seen the hilarious Letterman responses. Talk about backfiring.)

There’s a reason why McCain seems to be losing his mind: The day of the debate and the day prior brought to the foreground the most galling and unforgivable of McCain’s excesses, namely the selection of Sarah Palin as his running mate. Thanks to the interviews she held on TV, I no longer need to tell anyone why I feel she is unacceptable and even dangerous. She can tell you that in her very own words:

COURIC: Why isn’t it better, Governor Palin, to spend $700 billion helping middle-class families who are struggling with health care, housing, gas and groceries? Allow them to spend more, and put more money into the economy, instead of helping these big financial institutions that played a role in creating this mess?

PALIN: That’s why I say I, like every American I’m speaking with, we’re ill about this position that we have been put in. Where it is the taxpayers looking to bail out. But ultimately, what the bailout does is help those who are concerned about the health care reform that is needed to help shore up our economy. Um, helping, oh, it’s got to be about job creation, too. Shoring up our economy, and putting it back on the right track. So health care reform and reducing taxes and reining in spending has got to accompany tax reductions, and tax relief for Americans, and trade — we have got to see trade as opportunity, not as, uh, competitive, um, scary thing, but one in five jobs created in the trade sector today. We’ve got to look at that as more opportunity. All of those things under the umbrella of job creation.

I want everyone to go over this sentence and savor each syllable:

But ultimately, what the bailout does is help those who are concerned about the health care reform that is needed to help shore up our economy. Um, helping, oh, it’s got to be about job creation, too.

She has a list of talking points, and she is frantically trying to pluck the right one, but she jut can’t do it. She simply doesn’t have the breadth of knowledge or depth of understanding to play global politics. This is not a one-time fluke. If you check around, some of the most outspoken (and irritating) female conservative bloggers are saying Palin was and is an out-and-out disaster, and unfit for command.

But as always, I want to put the blame where it squarely lies – on McCain, not Palin. Like his temperamental on-again/off-again decision on the debates, his selection of this profoundly unqualified amateur underscores a dangerous predilection for shooting from the hip and thinking through the consequences later, if at all.

No complaints. Poison pill Palin is now McCain’s kiss of death, a very heavy albatross tied tight around his neck. As conservative Kathleen Parker says:

It was fun while it lasted.

Palin’s recent interviews with Charles Gibson, Sean Hannity, and now Katie Couric have all revealed an attractive, earnest, confident candidate. Who Is Clearly Out Of Her League.

No one hates saying that more than I do. Like so many women, I’ve been pulling for Palin, wishing her the best, hoping she will perform brilliantly. I’ve also noticed that I watch her interviews with the held breath of an anxious parent, my finger poised over the mute button in case it gets too painful. Unfortunately, it often does. My cringe reflex is exhausted.

Palin filibusters. She repeats words, filling space with deadwood. Cut the verbiage and there’s not much content there. Here’s but one example of many from her interview with Hannity: “Well, there is a danger in allowing some obsessive partisanship to get into the issue that we’re talking about today. And that’s something that John McCain, too, his track record, proving that he can work both sides of the aisle, he can surpass the partisanship that must be surpassed to deal with an issue like this.”

When Couric pointed to polls showing that the financial crisis had boosted Obama’s numbers, Palin blustered wordily: “I’m not looking at poll numbers. What I think Americans at the end of the day are going to be able to go back and look at track records and see who’s more apt to be talking about solutions and wishing for and hoping for solutions for some opportunity to change, and who’s actually done it?”

If BS were currency, Palin could bail out Wall Street herself.

If Palin were a man, we’d all be guffawing, just as we do every time Joe Biden tickles the back of his throat with his toes. But because she’s a woman — and the first ever on a Republican presidential ticket — we are reluctant to say what is painfully true.

…Only Palin can save McCain, her party, and the country she loves. She can bow out for personal reasons, perhaps because she wants to spend more time with her newborn. No one would criticize a mother who puts her family first.

I said within a day of her being named that she would self-destruct and take McCain down with her. One needn’t be a seer to predict the obvious, but I remain baffled as to why so many people actually saw her as an asset, as a great choice to possibly be president of the United States. Aside from the announcement’s surprise effect, it was clear from the first that this was going to be a catastrophe. Still, I’m sure it was purely coincidence that McCain’s first suggestion was to cancel the vice-presidential segment and replace it with one of the postponed presidential debates.

Read the Catie Kouric interview again. Better yet, watch the whole thing. Imagine what’s going on in McCain’s head as he visualizes her standing up in front of a hundred million people and matching wits with Biden. As he looks at the Couric interview, does he think he made the best possible decision? Do any of you?

Update: As The Duck presciently noted back almost a month ago in this comment, this was sooo predictable:

Meanwhile, the big story here, as stated earlier, is about McCain, not Palin. Watching them scramble now to vet her is kind of amusing and definitely pathetic. They fucked up with their first major decision, and now much of the election going forward will be about defending Palin. Will this make her a sympathetic figure? To some. But in the light of America’s economic catastrophe, two wars, lack of health insurance, rising unemployment and in general a country deep in the shitter, it’s just a distracting sideshow that will further keep McCain from articulating why he would make the better president.

Truer words were never spoken.


Should Obama be rejected for ties to Fannie Mae?

If you think so, what would you say about this?

Senator John McCain’s campaign manager was paid more than $30,000 a month for five years as president of an advocacy group set up by the mortgage giants Fannie Mae and Freddie Mac to defend them against stricter regulations, current and former officials say.

The story isn’t that McCain has a campaign manager who was dedicated to deregulating one of the lynchpins in this crisis. The story is McCain’s sanctimonious and unbelievably hypocritical finger-pointing at Obama for his ties to Fannie Mae, the “tie” being that the leader of Obama’s VP search was head of the quasi-governmental organization. If that’s reason to link Obama to the Fannie Mae disaster, which was years in the making, then what does today’s revelation do to McCain? McCain chose to play guilt by association, and based on his own rules he’s looking very guilty.

Just one more example of McCain’s descent from being (or appearing to be) the tell-it-like-it-is “maverick” to a nasty, hypocritical, quick-to-smear liar. He’s my senator; I’m ashamed of him. You should be, too.


Are you watching?

By now we all know about the bailout of the robber barons who brought death into this world and all our woe. They and the government – which are looking more and more like a single entity – are being rewarded beyond any of their wildest dreams for their staggering failure and incompetence while we are being asked to pay. I really don’t think the ramifications are clear to most people: we are giving the Treasury Department free reign to do anything it likes with as much money as they want, with no oversight or accountability.

You’ll find in the bailout plan this hair-raising gem:

Decisions by the Secretary pursuant to the authority of this Act are non-reviewable and committed to agency discretion, and may not be reviewed by any court of law or any administrative agency.

You have to read that a few times. This verges on the totalitarian. There will be a semi-annual review by a congressional committee with no power of enforcement, and that’s it. We are giving the Treasury Department everything, on faith, despite the economic maelstrom they themselves helped to create. It is wholly unprecedented and looks like it will go into effect with little or no debate, in the Patriot Act tradition. Krugman asks some simple questions: Does the public have no say in this matter? Are we not owed an explanation about how this will work? No answers yet.

Meanwhile, what about the rest of the nation’s needs? How do we fight a two-front war and provide services as usual and hand the thieves a trillion dollars or more? What about the effect of increasing the national debt and flooding the system with dollars? No one seems to be going there, at least not in the US media. Remember what happened in Germany in the 1920s?

From one of my favorite commentators:

Today’s reported potential infinite bailout of all and any portends, if adopted, is the largest increase in dollars outstanding since the Jurassic Age. It closely models actions undertaken regarding the production of currency liquidity seen in the Weimar Republic….

The only conclusion is that when the smoke clears and the advertised actions have been adopted, nothing more dollar negative than this has ever occurred due to the potential expansion of T bills and therefore dollar supply explosion.

The Times of London raised the question but no one seems to be particularly worried about it. Perhaps we should be.

THE US Treasury’s $700 billion (£380 billion) plan to bail out the banks could undermine the dollar, economists warn. The plan, details of which were unveiled yesterday, will seek congressional approval to raise the total amount the US government can borrow from $10.6 trillion to $11.3 trillion.

It also gives Hank Paulson, the US Treasury secretary, immunity from legal challenge under the plan. The US Treasury will buy mortgage-related securities “from any financial institution having its headquarters in the United States”, draft legislation said. Securities issued before September 17 will be eligible for inclusion.

Word of the proposals created a mood of euphoria in financial markets on Friday. But analysts warned of the risks.

Tim Bond of Barclays Capital, while conceding that the rescue was necessary to avoid the risk of depression, said: “The volume of fresh government borrowing and the fast expansion of the Fed’s balance sheet are both negatives for the dollar, carrying a potential risk of increased inflation.”

Other economists also think that the dollar could be undermined. Kenneth Rogoff, former chief economist at the International Monetary Fund and now a professor at Harvard, said: “It is hard to believe that the dollar will continue to stand its ground as the crisis continues to deepen.”

At this point, would McCain or Obama or Palin or Clinton make a difference? Hard to say. If it were up to me, Obama wouldn’t be my first choice. His ties to Wall Street may be as worrisome as McCain’s ties to the deregulation architects. However, the very distinct possibility of a Palin presidency tips the scales in Obama’s favor. Drastically. Maybe on election day it will all boil down to the lesser of two evils (which most elections usually are anyway). And I think it’s pretty easy to determine which is the greater and which is the lesser.


Obama’s foreign appeal

[Please note that Richard has not approved this blog entry.]

I’ve decided to re-write an earlier post to make my views clearer. Raj

It is clear from many reports that Obama has a massive amount of appeal the world over. This is partly because of the annoyance with Bush and therefore Republicans and partly because of how Obama comes across – young, handsome and eloquent. His race, as much as he doesn’t want it to be an election issue, stands out and reflects well on him.

However, as much as I enjoy reading election commentary from around the world, a recent piece in the Guardian was a bit too much for me. In 2004 a columnist with the Guardian urged readers to write to Americans and suggest they vote for John Kerry – which probably on average harmed, rather than helped, his chances. Recently an opinion piece on why Obama should win was published on the website.

And, most depressing, many African-Americans will decide that if even Barack Obama – with all his conspicuous gifts – could not win, then no black man can ever be elected president.

Yes, that would be depressing – because it would show that America still hasn’t moved on in terms of race. If African-Americans (what about West Indian-Americans – are they backing McCain?) are voting for Obama purely on race then that’s not hugely better in my view than voters voting for McCain because of Obama’s skin colour. But I’m not sure that they would despair that much. Obama has many talents, but he is also inexperienced – and running against possibly the worst opponent for him that the Republicans could have fielded. Although the age difference had the potential to lose McCain the election, if he could get over that Obama was always going to have a real fight.

It is my hope that if Obama loses, black Americans who were backing him will look with hope to the future rather than assume that was going to be the only chance of seeing a black US president. Freedland should have remained as optimistic, rather than make rather patronising comments that mocked the ability of the black voters to weather an Obama defeat.

But what of the rest of the world? This is the reaction I fear most. For Obama has stirred an excitement around the globe unmatched by any American politician in living memory. Polling in Germany, France, Britain and Russia shows that Obama would win by whopping majorities, with the pattern repeated in Africa, Asia, the Middle East and Latin America. If November 4 were a global ballot, Obama would win it handsomely. If the free world could choose its leader, it would be Barack Obama.

Thinking back to the last Democrat president, I seem to remember (perhaps wrongly) that during Clinton’s terms in office, the criticism of America was that it “didn’t do enough” – many countries seem to see-saw between wanting the US to make military interventions and not. Some are better than others, but I wonder whether this “pendulum” will continue to swing. In any case, as much as many people would like to see Obama US president, they have to respect the choice the American people make. As much as I wanted to see Gore and Kerry win in 2000 and 2004 respectively, when I heard that Bush had won I shrugged my shoulders and hoped for the best. It’s also fair to consider the situation reversed – I doubt Freedland would respond positively to calls from the foreign media for David Cameron to be the next British Prime Minister, though it’s probably inevitable.

But what does that say about today’s America, that the world’s esteem is now unwanted? If Americans reject Obama, they will be sending the clearest possible message to the rest of us – and, make no mistake, we shall hear it.

I don’t think at all that America would ignore the world to spite it. But just because the world backs someone doesn’t mean it is the best choice for America – that’s what US voters need to decide on. I remember some years ago that Chinese people desperately wanted to see the back of former Japanese Prime Minister Junichiro Koizumi – despite the fact that he had pushed a reform agenda that Japan desperately needed. Did they care about whether his successors would continue that process or send the country backwards? No. They were focused on one issue – whether the Japanese Prime Minister visited the Yasukuni Shrine or not.

Similarly, even though the world as a whole doesn’t wish a US president who will cause harm to his country, the desires of non-Americans are mostly focused on the next president “not going to war”. If they thought a monkey in a suit would do that better, they’d be “backing Bubbles”. From my POV what people like Freedland see in Obama is a mere shadow of his true qualities, taking a selfish, snobbish, self-righteous view that doesn’t do the man a shred of justice.

I can’t say that I would vote for Obama if I was American, but if he wins, I would give him the benefit of the doubt and hope for a good presidency – if he loses, I would like to see him stand again when the time is right. But for me, unlike people like Freedland, his race, youth and good features are irrelevant. It would be nice if the world could appreciate Obama for his policies rather than his image. Otherwise there will be an even greater disappointment if Obama wins and then does not turn out to be everything they thought he would be.


Election Linklets

What real disrespect looks like.

A good look at what Palin’s done for Alaska.

A marvelous set of questions Palin should be asked. Simple, relevant and fair.

Obama disappoints me yet again. The great orator had better learn how to stand up to the well lubricated Republican noise machine, or fail.

The radical left mouthpiece The Wall Street Journal questions the truth of Palin’s “Bridge to Nowhere” claim. Devastating. That should end that conversation. (Iglesias looks at the same article and makes an astute observation about how the GOP creates damning narratives that succeed in derailing their Dem opponents despite their being pure fabrications.)