Follow the Money
On Wednesday, the Senate showed strong support for a proposal to place a 27.5 percent tariff on all Chinese products if China does not revalue its currency within 180 days. Meanwhile the House is promoting a bill that defines exchange rate manipulation as a prohibited export subsidy and sets guidelines for U.S. agencies to sanction China and protect U.S. industries.
I have read two excellent missives on Protectionism at Mish's GET Analysis Blog. Mish makes a valid comparison of the current legislation to Smoot-Hawley enacted in 1930: "Are we bound and determined to replay the great depression, complete with a more modern version of Smoot-Hawley?".
I feel I should weigh in at this point. Fear and fret not, a semblance of propriety must be maintained, but above all, control. Perception is not reality, money is.
In "The Formula," when a cringing underling suggests to an oil executive (Marlon Brando) that the price of gasoline at the pumps be raised, and then blamed on the Arabs, Brando's retort says it all: "Arthur, your missing the point, we are the Arabs."
All the Smoot-Hawley type protectionism talk is nothing more than saber rattling, misdirection and sleight of hand for the publics consumption. The legislation in question is a ruse and sheer theater, Terry Schiavo and The Pope have better odds of walking again, than this legislation does of getting passed.
The RMB cannot be completely untethered from the dollar. To do so would push China into something that would make a hard landing look good and we have too much at stake to allow that. One thing we must thank Tricky Dick Nixon for was warming up the communists to capitalism with two beautiful lesson's that were not lost on the Chinese central planning and control committee.
First, If you can't beat em, join em. We beat Japan and Germany senseless; squatted in Europe through NATO; as a result commiserated with the UK and its territories; defended corporate oil rights in Korea and Vietnam (Gulf of Tonkin); incorporated Mexico and Canada through NAFTA; and "outlasted" the Russian Communists (who were in cahoots with us all along) through the Cold War.
And currently we're on a crusade in the middle east for democracy and freedom. Yeah right. We are pressing our manifest destiny again in Afghanistan, Iraq and a player, er, I mean country to be named later.
The second lesson was why limit yourself to exclusively screwing your own populace with vinegar? When you can screw your populace, and a whole lot of others with sugar, and look good doing it? Since Nixon's visit, it has taken a lot of years, lives and hard intelligence work to get where we are today with regard to China's central planning and control committee.
With regard to both lessons, where does that leave China? First lesson, too big to beat, so it looks like join em. The second lesson China has taken to heart.
A simplistic analogy for the development of our relationship with China: Arch villain Mr. Big's (Yaphet Kotto) plan in the 70's Bond film "Live and Let Die"; why starve a junkie and make him your enemy? Produce enough heroin, that you can afford to give every junkie and non junkie, a free dime bag. Once they've had a taste of that sweet smack, you know they'll be back.
The catch is, the second bag is not for free, and because of your overcapacity it's way cheaper than anything else on the street. In the process, you control the market, drive the competition out of business and out of their minds. Want proof: Just ask the Japanese and European's how sales are these days? And then look at their economic numbers.
The sweet allure of mo money and the official "crack" of the new millennium and new world disorder; globalism, quite the combination and its spread faster than Sars or avionic flu. We print mo money, they manufacture, we buy the cheap goods, their government and our corporations get the money. The money gets distributed, we invest there and use their labor force for our labor arbitrage. Some of the money gets expatriated by the rich to offshore tax havens and eventually some of it filters back into our economy.
The best part is we can effect arbitrage on our "Monopoly" money, just lower rates, debauch, print more, and sell bonds for more worthless dollars. They have to keep their currency at our level, or else they price themselves out of the game. And guess whose coming to dinner to eat the bonds? Not Ma and Pa Kettle to help the war effort, our trading partners do.
Too late for the Chinese, they are just our latest victim and they're hooked in a big way. Do you really think that 1 Billion Chinese workers making $29 a week or any of the countless third world laborers can afford to buy or need the goods they manufacture? Get real.
They need the American consumer, because otherwise, its game over, countless factories shut and everybody goes home. Then we get Tiananmen square again, except this time, its worse, because everybody has had a taster of that sweet green and they like it. Whose back is in the corner?
Not ours, the house never gets its back in a corner. But its always nice to let others think you can, because that means you have another crisis to manage. That's part of the illusion, just when things look like their going out of control, and everyone is caught up in the spectacle, you've managed to consolidate even more control over the situation, and without anyone being the wiser. I tell ya, Machiavelli would be jealous.
Nobody, and I mean nobody, makes more money out of thin air than we do. Merger, acquisition, leveraged buyout, debentures, junk bonds, spreads, arbitrage, artificial asset bubbles, all smoke and mirrors with no tangible process or end product needed. Some might say the Chinese are trying to beat us at our own game, all I have to say is good "f"-ing luck. Japanese investors bought Pebble Beach in 1990 at the height of our last real estate bubble for $841 million. After the bubble deflated in 1992 it was sold for $500 million.
The pure capitalist mantra from Gordon Gecko in "Wall Street" comes to mind: "Greed, is good". It is good, for one thing, getting people, who are vain and needful things, to do stupid things. We've been at this since the last secular bear market in the 70's. We had to figure a way to get more suckers into the game, while exporting our risk. That means both economic and ecological. How did we do that?
Globalism and "free" trade, that's the hot ticket. Everybody gets a stake and all boats will rise. They just ate up those free dime bags and kept coming back for more, the FCB's are full of our fiat currency, and there is no secondary market. In reality a worthy alternative currency does not exist and anything posing as such is nothing more than a contrivance.
Want proof? When we dug up Saddam's scraggly ass, he wasn't hoarding Gold or Euros or Loonies or Francs, just 7500 crisp pictures of Benny Franklin. Wonder why? As sickly as our economy is, we are still kicking everyones ass on the planet, and that includes the Chinese. (Chinese GDP is 20% of ours, and thats if you believe their numbers, case closed.)
Sorry, there's no such thing as "free" trade. Its a nice concept, but like Marxist communism, it looks great on paper, but in practice, a whole different ball game. Its not win-win, that's for Pollyanna's and wishful thinkers. You want to dance, you pay the piper. And its always the hidden costs that come back to haunt you later.
The other players at the table have willingly eaten our risk. In the process they sold their people out and polluted their environments. We just baited the hook, and they swallowed so deep, that we would have to gut them to get the hook out. Lets be honest, "free" trade in practice is a euphemism for global corporations raping and pillaging for profit.
We are the masters, we invented the game, and we still play it the best. We are to capitalism, greed and economic terrorism, as Darth Vader is to the Force. In this culture money is everything, money is God, money is our religion, and it determines everything we do.
We have morphed into one big Las Vegas. Yeah, its a theme park; Yeah, bring the kids too. Do you know what the theme is? Yeah, we'll take your money and make you feel good while your paying for the privilege.
Despite appearances and media hyperbole to the contrary, we are still the 800 pound gorilla on the block. We need China and the Arabs, but they need us far more. Perception is not reality, money is, and remember, if you want the answers, always follow the money.
China, Yuan and Dollars
China: A Case For Rising Rates
Mish's GET Analysis: Nonsense on Free Trade Continues
Mish's GET Analysis: Free Trade, What Free Trade?
Morgan Stanley: Drumbeat of Protectionism
I have read two excellent missives on Protectionism at Mish's GET Analysis Blog. Mish makes a valid comparison of the current legislation to Smoot-Hawley enacted in 1930: "Are we bound and determined to replay the great depression, complete with a more modern version of Smoot-Hawley?".
I feel I should weigh in at this point. Fear and fret not, a semblance of propriety must be maintained, but above all, control. Perception is not reality, money is.
In "The Formula," when a cringing underling suggests to an oil executive (Marlon Brando) that the price of gasoline at the pumps be raised, and then blamed on the Arabs, Brando's retort says it all: "Arthur, your missing the point, we are the Arabs."
All the Smoot-Hawley type protectionism talk is nothing more than saber rattling, misdirection and sleight of hand for the publics consumption. The legislation in question is a ruse and sheer theater, Terry Schiavo and The Pope have better odds of walking again, than this legislation does of getting passed.
The RMB cannot be completely untethered from the dollar. To do so would push China into something that would make a hard landing look good and we have too much at stake to allow that. One thing we must thank Tricky Dick Nixon for was warming up the communists to capitalism with two beautiful lesson's that were not lost on the Chinese central planning and control committee.
First, If you can't beat em, join em. We beat Japan and Germany senseless; squatted in Europe through NATO; as a result commiserated with the UK and its territories; defended corporate oil rights in Korea and Vietnam (Gulf of Tonkin); incorporated Mexico and Canada through NAFTA; and "outlasted" the Russian Communists (who were in cahoots with us all along) through the Cold War.
And currently we're on a crusade in the middle east for democracy and freedom. Yeah right. We are pressing our manifest destiny again in Afghanistan, Iraq and a player, er, I mean country to be named later.
The second lesson was why limit yourself to exclusively screwing your own populace with vinegar? When you can screw your populace, and a whole lot of others with sugar, and look good doing it? Since Nixon's visit, it has taken a lot of years, lives and hard intelligence work to get where we are today with regard to China's central planning and control committee.
With regard to both lessons, where does that leave China? First lesson, too big to beat, so it looks like join em. The second lesson China has taken to heart.
A simplistic analogy for the development of our relationship with China: Arch villain Mr. Big's (Yaphet Kotto) plan in the 70's Bond film "Live and Let Die"; why starve a junkie and make him your enemy? Produce enough heroin, that you can afford to give every junkie and non junkie, a free dime bag. Once they've had a taste of that sweet smack, you know they'll be back.
The catch is, the second bag is not for free, and because of your overcapacity it's way cheaper than anything else on the street. In the process, you control the market, drive the competition out of business and out of their minds. Want proof: Just ask the Japanese and European's how sales are these days? And then look at their economic numbers.
The sweet allure of mo money and the official "crack" of the new millennium and new world disorder; globalism, quite the combination and its spread faster than Sars or avionic flu. We print mo money, they manufacture, we buy the cheap goods, their government and our corporations get the money. The money gets distributed, we invest there and use their labor force for our labor arbitrage. Some of the money gets expatriated by the rich to offshore tax havens and eventually some of it filters back into our economy.
The best part is we can effect arbitrage on our "Monopoly" money, just lower rates, debauch, print more, and sell bonds for more worthless dollars. They have to keep their currency at our level, or else they price themselves out of the game. And guess whose coming to dinner to eat the bonds? Not Ma and Pa Kettle to help the war effort, our trading partners do.
Too late for the Chinese, they are just our latest victim and they're hooked in a big way. Do you really think that 1 Billion Chinese workers making $29 a week or any of the countless third world laborers can afford to buy or need the goods they manufacture? Get real.
They need the American consumer, because otherwise, its game over, countless factories shut and everybody goes home. Then we get Tiananmen square again, except this time, its worse, because everybody has had a taster of that sweet green and they like it. Whose back is in the corner?
Not ours, the house never gets its back in a corner. But its always nice to let others think you can, because that means you have another crisis to manage. That's part of the illusion, just when things look like their going out of control, and everyone is caught up in the spectacle, you've managed to consolidate even more control over the situation, and without anyone being the wiser. I tell ya, Machiavelli would be jealous.
Nobody, and I mean nobody, makes more money out of thin air than we do. Merger, acquisition, leveraged buyout, debentures, junk bonds, spreads, arbitrage, artificial asset bubbles, all smoke and mirrors with no tangible process or end product needed. Some might say the Chinese are trying to beat us at our own game, all I have to say is good "f"-ing luck. Japanese investors bought Pebble Beach in 1990 at the height of our last real estate bubble for $841 million. After the bubble deflated in 1992 it was sold for $500 million.
The pure capitalist mantra from Gordon Gecko in "Wall Street" comes to mind: "Greed, is good". It is good, for one thing, getting people, who are vain and needful things, to do stupid things. We've been at this since the last secular bear market in the 70's. We had to figure a way to get more suckers into the game, while exporting our risk. That means both economic and ecological. How did we do that?
Globalism and "free" trade, that's the hot ticket. Everybody gets a stake and all boats will rise. They just ate up those free dime bags and kept coming back for more, the FCB's are full of our fiat currency, and there is no secondary market. In reality a worthy alternative currency does not exist and anything posing as such is nothing more than a contrivance.
Want proof? When we dug up Saddam's scraggly ass, he wasn't hoarding Gold or Euros or Loonies or Francs, just 7500 crisp pictures of Benny Franklin. Wonder why? As sickly as our economy is, we are still kicking everyones ass on the planet, and that includes the Chinese. (Chinese GDP is 20% of ours, and thats if you believe their numbers, case closed.)
Sorry, there's no such thing as "free" trade. Its a nice concept, but like Marxist communism, it looks great on paper, but in practice, a whole different ball game. Its not win-win, that's for Pollyanna's and wishful thinkers. You want to dance, you pay the piper. And its always the hidden costs that come back to haunt you later.
The other players at the table have willingly eaten our risk. In the process they sold their people out and polluted their environments. We just baited the hook, and they swallowed so deep, that we would have to gut them to get the hook out. Lets be honest, "free" trade in practice is a euphemism for global corporations raping and pillaging for profit.
We are the masters, we invented the game, and we still play it the best. We are to capitalism, greed and economic terrorism, as Darth Vader is to the Force. In this culture money is everything, money is God, money is our religion, and it determines everything we do.
We have morphed into one big Las Vegas. Yeah, its a theme park; Yeah, bring the kids too. Do you know what the theme is? Yeah, we'll take your money and make you feel good while your paying for the privilege.
Despite appearances and media hyperbole to the contrary, we are still the 800 pound gorilla on the block. We need China and the Arabs, but they need us far more. Perception is not reality, money is, and remember, if you want the answers, always follow the money.
China, Yuan and Dollars
China: A Case For Rising Rates
Mish's GET Analysis: Nonsense on Free Trade Continues
Mish's GET Analysis: Free Trade, What Free Trade?
Morgan Stanley: Drumbeat of Protectionism
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