China

It Feels Strange Outside Economically

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A few things have happened recently that have the hairs on the back of my neck standing up in economic terms. It feels like it did right before the crash in 2007-8, when we were still in the end stages of the bubble.

One – Japanese and Venezuelan devaluation

Japan (a thoroughly modern economy) and Venezuela (a semi-dictatorship oil economy) both recently devalued their currency. Japan was warned by the G7 (fat lot of good that will do) here about it:

The official said: “The G7 statement signaled concern about excess moves in the yen. The G7 is concerned about unilateral guidance on the yen. Japan will be in the spotlight at the G20 in Moscow this weekend.”

Venezuela did more of an “old school” devaluation, where the “official” rate is moved closer to what it really is trading for in the black market, and Bloomberg writes about it here.

Venezuela devalued its currency for the fifth time in nine years, a move that may undermine support for ailing President Hugo Chavez and his allies ahead of possible elections later this year… He ordered his government to weaken the exchange rate by 32 percent to 6.3 bolivars per dollar… A spending spree that almost tripled the fiscal deficit last year helped Chavez, 58, win a third six-year term. The devaluation can help narrow the budget deficit by increasing the amount of bolivars the government receives from oil exports. Yet the move also threatens to accelerate annual inflation that reached 22 percent in January.

I kept that whole paragraph in the block quote because it encapsulates all the elements of fiscal ruin so succinctly – profligate government spending, impact on commodities imported or exported (that move opposite of currencies), and the impact on inflation.

Two – The Chinese and Russians Aren’t Buying Our Debt – We Are

I had thought that the Chinese and other countries were big buyers of our debt which funds our budget deficit. But I was wrong. Per this WSJ article:

China’s holdings of $1.17 trillion in U.S. Treasurys in November 2012—the most recent date for which we have a figure—are virtually unchanged from two years earlier, when they stood at $1.16 trillion. Beijing has purchased a lot of Treasurys over this period but many have been redeemed. Net new investment is essentially zero.

But if the Chinese aren’t buying our debt, who is? The answer – the US government.

The largest buyer of new U.S. Treasurys during the past three years has been not China but the U.S. Federal Reserve. In fiscal year 2011, for example, the Fed bought more than three-fourths of all new Treasury debt.

Here’s a challenge for you – try explaining to a child or someone unfamiliar with economics how it is that we can spend money that we don’t have, issue debt, and buy it back ourselves.

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Some Views From Overseas

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…on the US election results.

Janet Daley, in The Telegraph: “So Europe got the American president it wanted the one who would present no threat to its own delusions. The United States is now officially one of us: an Old World country complete with class hatred, ethnic Balkanisation, bourgeois guilt and a paternalist ruling elite. And it is locked into the same death spiral of high public spending and self-defeating wealth redistribution as we are. Welcome to the future, and the beginning of what may turn out to be the terminal decline of the West.”

Melanie Phillips: “The greatest satisfaction today over the re-election of Obama is not being felt in the Democratic Party. It is not being felt among the media…No, the greatest satisfaction is surely being felt in Iran.”

The Dissident Frogman: “Hear this final prophecy America: only one man can kill the Republic, and it isn’t Barack Obama. The one man who will kill your Republic is the one man who will last give up and renounce it. Don’t you dare be that man.”

Read them all.

Also, here’s something interesting: Li Keqiang, China’s next premier, has been advising his associates to read Alexis de Tocqueville’s 1856 book The Old Regime and the French Revolution.

Newsweek throws Obama under the bus

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The Newsweek cover for next week is astonishing.

The lead article is by Niall Ferguson and is devastating. The fact that it is the cover story is an even bigger surprise. It’s interesting to speculate on the reasons.

Welcome to Obama’s America: nearly half the population is not represented on a taxable return—almost exactly the same proportion that lives in a household where at least one member receives some type of government benefit. We are becoming the 5050 nation—half of us paying the taxes, the other half receiving the benefits.

On foreign policy, one of Obama’s few strong points in polls, it is even harsher.

For me the president’s greatest failure has been not to think through the implications of these challenges to American power. Far from developing a coherent strategy, he believed—perhaps encouraged by the premature award of the Nobel Peace Prize—that all he needed to do was to make touchy-feely speeches around the world explaining to foreigners that he was not George W. Bush.

In Tokyo in November 2009, the president gave his boilerplate hug-a-foreigner speech: “In an interconnected world, power does not need to be a zero-sum game, and nations need not fear the success of another … The United States does not seek to contain China … On the contrary, the rise of a strong, prosperous China can be a source of strength for the community of nations.” Yet by fall 2011, this approach had been jettisoned in favor of a “pivot” back to the Pacific, including risible deployments of troops to Australia and Singapore. From the vantage point of Beijing, neither approach had credibility.

His Cairo speech of June 4, 2009, was an especially clumsy bid to ingratiate himself on what proved to be the eve of a regional revolution. “I’m also proud to carry with me,” he told Egyptians, “a greeting of peace from Muslim communities in my country: Assalamu alaikum … I’ve come here … to seek a new beginning between the United States and Muslims around the world, one based … upon the truth that America and Islam are not exclusive and need not be in competition.”

Read the whole thing, as Instapundit says.

China may be entering a new era

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There is a huge story going on in China right now. A very high official in the Politburo, named Bo Xilai has been purged, and his wife has been arrested. The story as reported is not the real one.

Here is John Burns’ opinions of What is going on.

First the official version.

CBS News) BEIJING – We are getting a rare look at the inner workings of China’s Communist power structure thanks to a scandal that erupted there this spring. CBS News correspondent Barry Petersen tells us about the man at the center of it.

The Chinese nicknamed Bo Xilai a “princeling,” which means one of the most powerful men in China.

Now he’s called criminal in a case that is part soap opera, part murder mystery.

In a stunning announcement this week, Bo was dumped from China’s Politburo, the powerful committee that runs the country.

His glamorous wife Gu Kailai has been arrested for the murder of Nick Heywood, a British man found dead in a hotel room last November. At the time, Chinese police said he died of alcohol poisoning — although his family said he didn’t drink.

The background story is:

Well, of course what we see here is something that none of us really wanted to see at all, and I’m not talking about the murder. That, of course, we would all regret. What we’re seeing is a new upheaval in the Chinese political leadership, the most important political purge in Bo Xilai, the former Chongquing party chief, candidate for the inner sanctum of power in the politburo. And this is very disturbing to those who had hoped, believed, perhaps, that China, this is a new China, the post-Mao China, which was heading toward a period of political stability, the rule of law, in other words, had really put the Mao era, the Cultural Revolution, the chaos, the great leap forward, and all the rest of it, behind it. What we’re seeing now in this very sordid tale is something much more like what we saw of Chinese leadership in what we, and indeed, I think most Chinese would describe as the bad old days of Mao Tse Tung, a politics that is much more personal, that is much more brutal. Let’s not forget that in the Cultural Revolution in China under Mao, millions, I think the Chinese officially concluded ten million people, died. Now it’s not to suggest that China’s heading for that. The present Chinese leadership who purged Bo are saying, in fact, that it’s to prevent that kind of…return to that kind of politics, that they’ve purged him. But then you have the question of the alleged murder. the story begins in mid to late November when, and at that time, the world knew nothing about it. Neil Heywood, a 41 year old private school educated Englishman of some personal charm, went to Chongqing, the capitol city of Sichuan Province in Southwest China, source of the wonderful hot food that we all like in Chinese restaurants, and on some sort of a business trip. He had for some years, we now know, had a very unusual personal relationship with the family of Bo Xilai, the Communist Party chief in Chongqing, and that relationship seemed to be centered very much on Bo Xilai’s wife, Gu Kailai, a 53 year old rather handsome woman from her photographs, daughter of a retired, probably now dead, revolutionary general under Mao Tse Tung. This was Communist royalty. Long story short, Neil Heywood ends up dead in his hotel room in Chongqing. The Chinese report to his family that he died of over consumption of alcohol. They report that they’ve cremated him without autopsy. The family, the Heywood family, appears to have accepted this, and that includes Mr. Neil Heywood’s Chinese wife and two children living in Beijing. The next stage was that the police chief of Sichuan Province, the closest personal aide, if you will, to Mr. Bo, the party chief, having reported so it is now said, to Bo Xilai, that Heywood didn’t die of over consumption of alcohol. He died of poisoning, and that the poisoner, or at least the one who organized the poisoning, was none other than Bo’s own wife, Gu Kailai.

So what we have is a tremendous turn in the politics of China, and it seems to center, this scandal’s center on the death of this Englishman. And it’s left to people like myself to now go in pursuit of what the real story behind all of this was.

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A Multipolar World

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CommodityOnline:

India’s crude oil imports from Iran is facing a risk of potential disruption as increasing US and EU sanctions make it impossible for Indian ships to obtain insurance.

Greg Scoblete, The Compass Blog (Real Clear World):

I imagine if I were an Indian official, I’d be a bit peeved to learn that acting “responsibly” means privileging the interests of the United States over my own country. Nevertheless, Burns has a point. After all, India may rely on Iran for 12 percent of its oil imports, but look at what the United States has been willing to do for India:
 

Presidents Obama and Bush have met India more than halfway in offering concrete and highly visible commitments on issues India cares about. On his state visit to India in November 2010, for example, President Obama committed the U.S. for the very first time to support India’s candidacy for permanent membership on the U.N. Security Council.

 
I don’t know about you, but if the U.S. was asked to forgo 12 percent of its oil imports in exchange for another country’s endorsement for a seat on a multilateral forum, I’d make the trade. I mean, c’mon, 12 percent? The U.S. gets about that much from the Persian Gulf – and we barely pay that area any attention at all…

Europa:

“The EU-India free trade agreement will be the single biggest trade agreement in the world, benefiting 1.7 billion people,” said president Barroso. “It would mean new opportunities for both Indian and European companies. It would mean a key driver for sustainable growth, job creation and innovation in India and Europe.”
 
The EU is India’s largest trading partner, accounting for about €86bn of trade in goods and services in 2010. Bilateral trade in goods rose by 20% between 2010 and 2011.”

Asia Times Online:

Last year Israel supplied India with $1.6 billion worth of military equipment and is India’s second-largest defense supplier after Russia. Sales are only going to rise. Indian defense procurements from Israel in the period 2002-07 have touched the $5 billion mark.

And this doesn’t even get into the China-EU-US-Israel-Saudi Arabia wheels-within-wheels complications when it comes to arms deals, hoped for arms deals, trade deals, hoped for trade deals, energy politics, and the rest of it….

It’s not 1985, now is it? The past is a different country, a Russian (Soviet)-oriented Cold War country used to thinking in terms of “Kissengerian” alliances and blocs. An intellectual adjustment may be needed. It’s like 3-D chess out there….

Speaking of energy:

“Was Saudi Arabia involved?” (Asia Times Online.) If it makes you feel better, let me point out that Saudi petrodollars continue to fund all sorts of interesting educational activities on the subcontinent, in Africa, and elsewhere, along with Iranian monies. So that’s nice.