Category Archives: China

Where are the climate talk denunciations?

The Paris climate talks ended with no agreement of any kind – none. The “deal” is to allow every country to set its own happy level of CO2 emissions. Isn’t that friendly? Go ahead China, India, America – knock yourself out. Pollute away. There are voluntary guidelines and NO penalties.

This is of course no different from all the other talks which sometimes came up with unenforceable targets set way into the future. At least those meetings ended with benchmarks that we could point to and say – “You (or We)  failed”. Yet the conclusions by the press are all benign – there is apparently good and bad news. I just can’t find the good news. When the press which is in favor of attacking global climate change, won’t call out the attendees of these ridiculous conferences then there is no chance that countries or  politicians will pay any penalty for pollution run-a-muck.

 

Conference attendees celebrate?!
Conference attendees celebrate?!

Obama has no reason to defend himself against criticism because there isn’t any. We shall go on reading about Chinese restaurants charging for clean air as though it’s just who they are – those little rascals. Where are the protesters like we used to see at WTO talks? Our millennial generation is too worried about political correctness to apparently care about trivial things like the end of the planet.

Doesn’t this video from one week ago tell us everything we need to know?

Apparently not.

(If you can’t see the video then go here.)

 

 

Corporate Treason

We saw something this week that we have never seen before: GM announced that it will import the first 100% Chinese made car. It’s the Buick Envision.

buick-envision

GM is, as you might remember, the car company that survived the 2008 economic meltdown only by virtue of government money. Now that money is being used to hire Chinese workers and fire Americans. Is there any point at which the US government feels embarrassed about being taken by US multinationals and … China.

The current tariff rate on cars imported into China = 25%. Our tariff is 2.5%. The big point here is that cars are a huge value added product and almost the only one left that employs a large number of Americans. Car companies are like diamonds that every country desperately seeks because high value added = high wages. Has everyone bought into the idea that since T-shirts and TV’s are all made there, everything might as well be made there? Plenty of SUV’s are made (profitably) in the US. Is the government malevolent or stupid (= my favorite question about George W Bush). How did the citizenry become so quiescent or suicidal that it is willing to actually buy an Envision, knowing where it’s made?

People are willing to boycott goods that are made by rogue states or evil corporations (tobacco, big oil polluters) but seem to have no sensitivity to economic sovereignty and the death of the middle class. The (American) left has decided (apparently) that a job in China is just as good as a job in America and the right is in favor of anything that improves multinational profits. Our dysfunctional government is not sitting on the fence here.

It is financing our economic enemy.

 

No Revolution For Bernie And Other Musings

  1. There will be no revolution Bernie – they only happen after conditions get suddenly worse. Outsourcing and the collapse of the US labor movement has been happening in slow motion for twenty years. Everyone is scared not angry and fear begets quiescence not rebellion.
  2. Can we stop saying it doesn’t matter if the candidate knows nothing: “He/She will pick good advisers and they will set policy”. After seeing George Bush II pick Dick Cheney and invade Iraq we must abandon this ridiculous mantra.
  3. Can we stop conflating nice Chinese people with the Communist government of China? Just because there are many reasonable, intelligent, atheistic, Chinese scholars in America doesn’t mean that China is not out to crush us to death – economically. It also doesn’t mean they are not utterly malevolent politically. (Robert Mugabe just won their peace prize!)
  4. Can we please stop talking about the coming manufacturing renaissance in America. Unless trade policy changes there will be no such thing. Multinational investments in China are too big for them to abandon and the wage differential is far too big. A new Deloitte study provides all the data and it shows that re-shoring means moving production to Mexico.
  5. I ‘d like to applaud Russia for its recent effort to do something in Syria, not because I like President Assad but for the first time in twenty years the world will have someone else to blame when things go wrong. Whatever fallout or unintended consequences follow will be their fault. I’m sure Noam Chomsky will find a way to blame the United States anyway.
  6. Europeans may well be racists but the logical reason for concern about Syrian refugees comes from the conflict between the modern European secular state and the fundamentalist mentalities of all these immigrants. It’s hard enough to absorb people from other countries of a different color but when they bring along fervent religiosity as well, it’s impossible.

Should we fear Chinese economic weakness?

The stock market mess started when China decided to devalue its currency by a paltry 3%. The panic that followed has apparently stopped them from doing more, if they ever had more in mind. Their stock market (if we can call it that) has fallen by 42% after rising spectacularly over the preceding year. That “market” is extremely illiquid and composed of odds and sods that hardly represent their macro-economy.

But even if it were the perfect cap-weighted index with every major company included, why should I care if it fell 42%? Do western banks lend to Chinese companies? No. Do western investors invest in their stocks? No.

If it’s indicative of a Chinese economic collapse, I still don’t care! China buys (virtually) nothing from the west so our companies would lose no orders. Sure Australia would sell them less iron ore but is that what we are so worried about? The question is, how does a decline in an irrelevant economy – spread to the west? What is the transmission mechanism?

Perhaps investors in Japan will get scared by a decline in that market and then we get scared by a decline in the Nikkei -etc etc but that sounds more like a limited decline. Oil prices will fall since China is a huge buyer and anyone with oil stocks or stocks of banks that lend to oil companies will get hurt. There is of course a benefit on the other side- we are all richer since we will save money at the pumps.

There are clear losers: Canada, Russia, Venezuela, Australia, Saudi Arabia etc. but can they cause fear to spread and explode. How much do we care about Toronto real estate or negative Venezuelan GDP? The answer is murky since transmission lines are often opaque so I don’t want to get too cavalier. Perhaps Chinese economic weakness is a symbol of weaker US import demand. China may just be the leech in the coal mine simply telling us that our own growth is flagging.

Wage growth has completely stalled as I predicted it would years ago. No wage growth -> no consumption growth -> no import growth. Competition from Chinese peasant labor has killed the glorious US consumer who they (the Chinese) depend on for work. The cycle is almost complete.

The parasite has sucked too much blood from the host.

Searching for A New Vein

Test Question: Can you name one Asian country that relies on domestic demand to fuel its growth?

I can’t.

China has failed for obvious reasons- poverty and corruption. You just can’t get enough spending from $4500/year laborers to generate new domestic production and tax revenue. Even the upper middle class has nothing left to spend after they save 30% (!) of their earnings. The script was written in Singapore and played over and over again in Taiwan, Tokyo, Hong Kong, Vietnam and South Korea. It created the economic miracle of China.

So when growth slows – what do you expect China to do? Devalue! The problem is that most first world production is already there and (therefore) first world workers’ earnings are utterly stagnant – which makes sense due to the commodification of labor from offshoring. It’s getting harder for the parasite to extract a quart of blood.

These circumstances explain why we shall never have inflation and we shall never see worker wages rise to any significant extent. The largest Chinese export is global economic stagnation. Every new devaluation exposes our policies as absurd and our policy makers as corrupt. Is Obama merely the President of cheap flat screen TV’s? A trade war is raging and all our politicians carry a white flag.

We can’t blame the Parasite – it has only one way to survive.

 

Death by China

Should we pity unions or hate them?

The Republican party agrees on one thing: Unions are evil because they distort the free market. Employers reduce hiring when it is artificially overpriced. Worse still they get angry at workers who collectively ask for a raise. Republicans may be just defending big business but that doesn’t explain why so many workers are abandoning unions (or simply refusing to join). They appear to be cowed and then, even worse, they are jealous of others who are in a union that does get results. Those unions are mainly in the public sector where workers cannot be outsourced.

We hear a lot about income and wealth gaps and about “American Exceptionalism” (which refers to the historically anomalous development of the middle class – the phenomenon that blew up all of Marx’s forecasts). The simple truth is that without the myriad of labor laws, enforced by the Department of Labor (established in 1913) and the rise of national unions like the AFL/CIO, UAW, and the Teamsters, we would have always had a huge wage gap between the rich and the poor. We may never have developed a middle class at all.

Unions only succeed when there is NOT a huge extra supply of labor sitting on the sidelines, waiting for others to be laid off. When there were waves of immigrants coming from Europe in the late 1800’s unions never had a chance. They had strikes like the Pullman Strike and the Haymarket Demonstrations (which turned into riots) but these utterly failed partly because management had too many choices. It wasn’t until coal miners desperately fought for a tiny raise (in 1901) that we finally got the government involved and management was forced to accept the decision of an arbitrator. Capital owners had gone too far and as immigration subsided they lost their advantage.

By the 1970’s the pendulum had swung to the other extreme and immigration was very low. Auto unions could get almost anything they asked for and those crazy agreements still hang over the head of that industry. Republicans look back on those days as proof that unions created the stagflation of the 1970’s. They conveniently forget about oil embargoes, post Vietnam defense cutbacks and sky high interest rates.

What killed the auto sector was foreign (subsidized) competition and cheap(er) foreign labor. Yes, labor went too far which is what happens when government policy is absent. We have the opposite problem today because of Chinese labor competition and illegal immigration. (Economic cycles temporarily exacerbate or weaken the long term trend.) The government refuses to address the core problem – just like it wouldn’t in 1885.

Bill Maher conflates this dynamic as a battle between free market policies and socialism. It is nothing of the sort. When the global labor supply declines due to war or local (foreign) political factors our labor movement accumulates power and their agenda rules Washington. That’s how we got the GI bill and such progressive taxation (until the 1980’s). In our Gilded Age, labor had no power so socialist policies had no chance. Globalism (ie trade with mercantalist nations) has simply returned us back to that era.

Ideology is a slave to demographics.

If you can’t see the video then go HERE.

Let the diets begin!

Greece went to the mall and loaded up on imported cars (German), imported clothes (Chinese), imported wine (France) , then they renovated all their houses. They used a credit card they were given by the EEC. Every time they exceeded their limit, it was raised … until?

Greece got an extension this week but the problem was just kicked down the road – again. Greek desperation (exasperation)  is a metaphor for the fear and depression that has settled throughout Europe. The single currency system is a failure. Without a credit policeman it could never work and the benefits of easing currency barriers look completely anachronistic given technology like Apple Pay. Who wants free and open borders in a world of roving ISIS cells? The regulated, insulated, antiquated European model has been crushed by (currency) policy inflexibility. Outside of Germany, no one really needs a European worker – not even the Europeans.

Incredibly the people seem to have adjusted. No matter how high the unemployment rate rises, no one complains. Outside of Greece we don’t have a single angry Prime Minister making radical proposals. Where’s the fire? The complacency has led to such severe belt tightening that Europe has become a creditor! They have surplus money to lend even though they don’t even make the clothes on their backs. Apparently living in your parents basement (at 30) doesn’t require much of an allowance.

While the common man in Europe has adjusted to a new asceticism, his American counterpart still borrows in the belief that things will get better – soon. Interns get jobs in New York City in the hope that someday they will cover the rent without mom and dad’s help. Law schools get ever more applicants even though we have proof that it leads only to indebtedness and unemployment. In the tri-state area (around New York) baby sitters get paid more than college graduates (and it’s in cash!)

We are all partly Greek – it’s just that the debt collector arrived at their door first. Yes they borrowed in a foreign currency so  we are  better off than they will be but pulling out of the death spiral where we borrow to buy stuff made elsewhere will be very hard.  Let’s take a test to see if you are prepared for the inevitable belt tightening.. You pass if none of the following are true:

  • You are still living in the same house you had when your children were growing up but they are gone and the real estate taxes are greater than $25,000 per year.
  • One or more of your children are studying at expensive private universities – paid for by chunky student loans.
  • One or more of your children are at a non-Ivy league law school.
  • You are subsidizing one or more of your children who have taken jobs far away that will never cover their overhead.
  • You have saved less than $2 million and actually believe that social security, your children or the lottery will cover your retirement.

You get extra marks if:

  • Your household contains multiple generations and multiple wage earners (and you’re OK sharing space with your children’s families).
  • Your health is fabulous (since Medicare will get worse and probably go broke by 2020).
  • You live in a low tax state especially where the climate is temperate, because your fixed income(s) won’t cover the higher taxes (and utility costs) that most broke (Northeastern) states ( and California) levy.
  • You prefer to live in small, really small space.
  • You have no debt of any kind.
  • You’ve always dreamed of making coffee at Starbucks.

American optimism needs some adjustment. We stopped being exceptional the moment we abandoned American labor in favor of third world peasants and cheap flat screens. Greece is showing us what it’s like when there are no options left. Their only hope for economic rejuvenation is currency devaluation, deregulation and complete government transparency.

We are not so different.

Deflation – What did you expect?

When you import 1.25 billion (peasant) laborers who buy (almost) nothing, then you will get a vast oversupply of goods and (by definition) labor. Prices for both will fall. Interest rates will then fall and for a while the stock market will be happy since costs fall faster than store prices.

With all the fracking we do, it’s no surprise that energy prices go down. The last thing we need is a new pipeline to Canadian oil sands. As energy prices fall, so fall food prices since a huge cost of food comes from transportation to get it to market. Falling commodity prices are the icing on the deflation cake.

When you get deflation it follows that GDP growth will die because people put off buying since they come to expect that all prices will be lower if they just wait. Wage growth atrophies so no one has any money to spend anyway. Only one country has decent GDP growth – America. (Yes I’m not counting China since their stats are fake and they don’t buy anything other than coal and oil from the rest of the world). There’s a new game in town (except in Switzerland) – devalue so you can sell everything to those crazy American consumers. Thus the $ is going up up and away. (This has helped US stocks – for now.)

Deflation is the final message to every deluded economist and politician – you can’t get sustained growth without employed, well paid workers. In the end we need them to buy stuff because Chinese peasants will never make up for their absence. Chinese workers have to buy goods that they make. When we buy their goods our money just gets put into Chinese savings accounts where it dies – un-recycled, unless you consider that per cent which is stolen by Chinese officials. Germany thought they could grow by selling cars to unemployed Italians and Greeks – really? They’re no different than Apple that sells iPhones to millennials who work as interns earning $12/hour. Such games have a limited time horizon.

Solutions? Government stimulus would be useless since the money you hand to first world consumers will go to 3rd world clothing makers (for example). Buying more bonds or making credit easier won’t help since no one wants to start up a new business in the first world where labor is way too expensive. Negative interest rates will make saving very expensive which will reduce money for investment. The only (and best answer is – Devalue your currency. Send the Euro to 100 and make sure it falls faster than the Yen. Every penny of American prosperity will be claimed by its trade partners.

If the US doesn’t devalue against the Yuan then we shall inevitably look just like stagnant Europe (and Japan). Our interest rates will be negative so retiring baby boomers will be paying banks to keep their money. The cost of government budget deficits will drop to zero but revenues will also be falling so it’s a kind of death race. Saving and investing will evaporate which sort of makes sense since the last thing anyone needs is more productive capacity. Horrible wage growth will continue to shock slow thinking economists who just don’t get it.

Such is the nightmare of fixed currencies and free trade with a giant communist parasite.

Globalization’s Evil Stepchild

Everyone seems to ask repeatedly: How can the stock market set new records when there is all this global turmoil? Are investors not watching the mess in the Middle East, the bankruptcy of Russia, the instability in Brazil and Argentina, Euro-sclerosis, narco/government crime in Mexico, and Ebola?  Perhaps it’s all Fed created liquidity that just fuels an infinite rally. After all, the only alternative to stocks are bonds with no yield, so lets just go all in and roll the equity dice.

But maybe there is another logical explanation. It used to be that we would have bilateral trade – we would buy goods from specific countries where they had a geographic or technological superiority. Even more importantly, they would buy our stuff. Proximity was an advantage. Lower transportation costs and similar consumer tastes gave our neighbors significant advantages even if their labor costs were high. On the other hand i f they got hit by an earthquake or a revolution then we would have to find new buyers and suppliers. For now intra – European trade is still huge just like trade between the US and Canada.

Things are changing – fast.

We suddenly introduced an entity that can produce anything at a cheaper price. Egyptians now import twice as much stuff from China than from Turkey. China is the number one importer into Russia, Syria, and Brazil. It’s even passing Holland as the biggest importer into Germany! Virtually every country can now buy all its consumer goods from China at vastly lower prices than anything made regionally (or locally) – if they have sufficient US dollars… and therein lies the rub.

Since China buys nothing from anybody (except some raw materials from the Third World), Russia, the European Community and the UK have to borrow (US) dollars, endlessly to get all this fabulous stuff, that they used to make at home (or get regionally). The result is a crash in economic interdependence (and GDP growth) and a rise in borrowing to finance trade deficits.  No one cares if Russia dies because no one sells anything in Russia. Libya, Iraq, Syria, Brazil, Venezuela, Mexico, Turkey, Greece, Spain, and France can all implode – you can get everything you need from China so everyone else can go on permanent vacation; just don’t buy stock in a bank that lends money to these places.

It turns out that “globalization” was a fraud. Yes,we can now read tweets from Jordan and follow the Ebola crisis in West Africa thanks to new phone apps. But the economic connections that were flowering in the 90’s thanks to lower tariffs and floating exchange rates are dying. If everyone just buys everything from China then who needs their neighbor’s goods. For that matter, why do I care about the guy four states or four hundred miles away? As long as the economic implosion next door doesn’t cause people to invade then it’s all good. Japan has been in an economic quagmire for 20 years and it has hurt nobody other than Japan. If you had predicted that in 1988, people would have thought you were crazy. Now everyone is just like Japan.

In the end, it’s all about imports. As China takes up a greater share of every countries’ imports, other countries drop out of everyone else’s economy and out of their lives. They are seen and heard on the news but not in our portfolios (unless you are crazy enough to invest in them). Putin is a social media sideshow. We are economically invincible – feel free to ignore political or economic failure in South America, the Middle East, and southern Europe. Welcome back to the 1950’s when TV brought us news about far away places but everyone understood that none of it really mattered – unless we were stupid enough to send our army there. (or substitute “banks” for “army” to update this rule.)

All this freedom we now have, to ignore the world, comes at a huge price. We too, are part of the evil bargain. We have allowed Chinese imports to infect us as well so we wallow in debt and our wages stagnate. This is one huge trade-off: We have accepted a slow grinding economic death but are appeased by the lack of blow-back when other countries suffer more than us.

Unfortunately schadenfreude doesn’t pay the rent.

Is liberalism under pressure?

The WSJ had an op-ed article describing public fatigue with the liberal fights against campus rape, Wall Street, and police brutality. The assertion is that complaining and protesting is passe even when it appropriately attacks genuinely bad behavior. If anything the level of public apathy has been a shocking new development given the level of economic instability and Washington dysfunction. So why such fatigue?

First we have to accept the premise which is rather dubious, but the argument discusses some evidence that is disappointing- there are in fact very few campus rallies and (for example) Occupy Wall Street utterly failed to grab the support of the economically disenfranchised. Perhaps there is fatigue.

The Answer:

When people are beaten down and cowed by their economic masters – when they know that they have no power to fight back, they become conservative… unwilling to rock the boat. They become more devoted to God, sports, and alcohol. They see protest as futile and irritating since it may anger their feudal masters. We have become just like … the Chinese (again). A serf in 1325 didn’t protest – he grovelled. A Chinese peasant in 2014 never bothers to demand a raise because he is fungible, replaceable… and he knows it. China has exported this condition all around the globe.

So don’t let your anger get in the way of the game, the party or church and don’t spoil the mood. My life is getting worse and I have no idea how I’m going to survive through my retirement years but for now I just want to NOT think about it. College students surely know all about their horrible job prospects so they can either protest or get ready for that huge fraternity party this weekend. They always go with the free beer. And – Please, don’t mention the word union at work – the boss might be listening.

Conservatives embrace the misery, seek solace in Jesus and blame the “others”. Liberals make too many waves. Grab your gun and a beer – we’re going to Bill’s house to watch Fox News and shake our fists at the screen. They’ll give us some good scapegoats.