China Syndrome

OK Global Geopolitics Geeks (that's right I'm addressing the G3 posse) here's your fix. Todays topic? China.

Before everyone anoints them the new Superpower, riddle me this. What's China's path to Superpowerdomehood? And here are the rules.

1. China's currency, the renmimbi is pegged to the dollar. This gives them a tremendous edge in production cost, especially when exporting to the worlds largest consumer nation (that us).

2. China growth depends on energy, and more specifically gas, and more specifically, cheap gas. Can't grow without it. As all those hundreds of billions of people start movin' on up, or really, before they can even imagine that deluxe apartment in the sky, they need need cheap go-go juice.

3. The current generation of Chinese have never, ever experienced an economic downturn. All up, and big ups at that.

4. 1.3 BILLION people makes for an amazing market that everyone wants to play in. And when times are great, 1.3 billion people are a great form of leverage for growth, and it makes you the absolute belle of the ball. But when things go bad, that's 1.3billion people to go bad with, and gives you leprosy. Leverage cuts both ways folks.

So now, we know that the Chinese have a great demand for oil which is driving up price. But what's also driving up the price of oil is the fact that its priced in dollars, and has the dollar falls, the price of oil goes up.

And now you have China's knot.

Increasing gas prices will kill their growth. They must have cheap gas. Killing the renmimbi peg will give relief from rising gas prices, but losing the peg kills the production cost edge that drives the economy.

If China keeps the peg it must spend huge chunks of its dollar reserve to prop up our dollar, while also spending huge amounts to subsidize its citizens cost of gas. China does have a massive cash reserve (about 1.2 trillion, most of it dollar backed) but a double whammy like the one above can whip through it, fast. Not only that, but if the reserve looks low enough, speculators will attack the peg, forcing China to again dip into its reserves to protect it, or let it go. If it then fails, China will find itself having blown through hundreds of billions of dollars for no real reason, maybe they can call Bush and start a support group.

If it drops the peg without defending, China's production costs will immediately rise. Cheaper gas, but mores expensive goods. That's a huge risk. Again, 1.3 billion people have hopes of improving their lot in life. If the economy takes a dive, or potentially even pauses, then that's 1.3 billion ticked off citizens. How does any government manage that? While no expert, my brief rundown of revolutions leads me to think that most of them are economically based. When living conditions fall low enough, the people revolt. Now that China's citizens have tasted growth and success, how much of a shock does it take to start splintering the country? Even without that dire prediction, how do you pull 1.3 billion people out of a recession?

Either path has looks like a loser.

The dollar's fall is big news here, but it must be giving China night sweats.

PS. Did you know that the dollar is now worth .97 Canadian dollars. Are things really so bad that we have the cute little currency in North America?

Oh well, I suppose the good news after eight years of disastrous republican economic policy is that it may slow China down.

Greenspan Sleeps Well

So I came across an article about former Fed Chairman Alan Greenspan's thought's on the Fed's complicity in the current economic slowdown/recession (you pick).

Lots of blah, blah, blah on an issue that no one can ever really know the answer, but I did have to take a moment to appreciate these quotes.

I have no regrets on any of the Federal Reserve policies that we initiated back then because I think they were very professionally done

And...

Clearly, certain of our anticipations of what would happen as a consequence of those policies were off but there's no way of avoiding that.

Ok, lets play with the first one.

See, he doesn't have regrets that his policies were wrong, and may have destroyed trillions of dollars in value, and killed off whole companies, wrecked the economy and destroyed households, because these policies were "professionally" done. It's kind of like a mob hitman saying he has no regrets for killing innocent people because he did so in a "professional" manner. This is going to be my new mantra when I make a mistake. "Yeah, sure I made a terrible error, but I was a pro about it." I absolutely love that one.

And lest you think that living in the Beltway distances you from the people, go back and read the second quote. Why the empathy just oozes out of it. "Hey, we made made some bad assumptions, what can you do, right? It happens. Why is everyone so bent out of shape? You can't avoid making mistakes, that's why pencils have erasers."

Every decade has its legacy. The oughts' legacy will be the catastrophic implementation being shrugged off with a "hey, it happens, what can you do" attitude and a total disregard for consequence by both the perpetrator and the stakeholders.

Good idea, wrong question.

Presidential Phoenix John McCain was asked if he would veto tax increases*. Not one to miss a softball he said, "Yes."

Problem is that it only reinforces the public misperception that taxes are the problem. The much, much better question is, "would you veto any bill that increased spending?" A "Yes!" to that is something to get excited about.

OK readers, for the 154th time, revenue is only part of the problem, it the spending stupid.

*Bonus points if you picked up the subtle bias of the questions.

From Chris Wallace, "As president, will you veto any tax increase passed by a Democratic Congress?"

From Bob Shaffer, "Let’s just say that you do become president and a Democratic congress raises taxes. What would you do? Would you veto it?”

Not just congress folks, the Democratic congress. Lousy liberal media and their pro-Democratic agenda.