Monday, January 29, 2007

Joint Vision

The Sino-U.S. road map towards achieving consensus on the agreed lofty strategic goals within a mutually agreed time-frame is the millennium challenge. When the world’s sole superpower and biggest developing giant talk to each other to resolve the wide range of bilateral issues with global implications ─ there is hope. Especially when they agree that America needs to rein in its appetite for cheap foreign imports and avert their negative savings rate.
Their agreement that the current account surpluses of oil exporting countries ─ estimated to be many times more than China’s ─ is another major source of global imbalances was a refreshing millennium consensus.

The joint vision to engage in ongoing intelligent dialogue to resolve complex economic, military and political issues is a major constructive adjustment for America.

The alternative to the joint vision, that America demanded is self destructive and would create a global economic tsunami. Shock waves would rupture corporate America. A stronger yuan would make household-name brand companies like General Motors, Microsoft, Boeing or even Exxon-Mobil prime acquisition candidates for the acquisitive Chinese with their excess dollars.

The diplomatic significance of the high level delegation to China, is that it only went to China. Not Japan, South Korea, or any other major U.S. trading partner in Asia. There is no doubt China is the foremost strategic global partner for America that needs its undivided attention, especially after it passed Mexico in 2006 as the second largest U.S. trading partner.

The weak yen has left Japan mired in its mercantilist strategies of the past. China knows this and until the yen rises sharply, the yuan won’t either. The fact is America is living unsustainably beyond its means. Consumer spending accounts for 70 per cent of the U.S. economy. A stronger Chinese currency won’t change the unbalanced nature of U.S. growth. Remember that the Plaza Accord of 1985, which sharply weakened the dollar versus the yen, did little to improve the U.S. balance of payments. Instead, it contributed to the asset bubble that led to Japan’s lost decade of the 90s. Any wonder China is in no rush? To try and rush China into an unjustified economic crisis with the threat of protectionism is not only short sighted ─ it won’t work and is a waste of time.

Thursday, January 18, 2007

Arrogant Indebted Nation

The federal deficit and unemployment figures rose during the 2004 presidential election and 2006 congressional elections along with U.S. and coalition casualties in Afghanistan and Iraq. Iraq, like Vietnam, is a reminder of U.S. hubris and illusion. America is an unwelcome occupier losing geopolitical capital at U.S. taxpayer expense. The cost of the Iraq war is over four times greater than the value of the oil America is securing for itself. Joseph Stiglitz, a former Clinton administration economist and a Nobel Prize-winner, and Linda Bilmes, a Harvard University professor, took a broad approach to accounting for the Iraq war, including valuations for lives lost and individuals injured, and attached a price tag of as much as $2 trillion.

The Iraq War has annually since 2003 fueled the largest U.S. emergency spending bills. In 2006 the Senate voted to allow the national debt to swell to nearly $9 trillion to prevent the first-ever default on Treasury notes. The increased debt level represents about $30,000 for every American taxpayer. The war on terror has now lasted longer than World War II and is portrayed by Washington’s spin doctors more like a corporate marketing pitch than progress against the enemy. The political spin was best summarized by President Bush in one of his most famous Bushism in 2004. “Our enemies are innovative and resourceful, and so are we. They never stop thinking about new ways to harm our country and our people, and neither do we.”

The Bush administration’s piecemeal funding of the Iraq war is supposedly going to be terminated by the new Democratic Congress. The Democratic Congress promised to re-assert more control over the monthly billions of dollars spent on the war with no congressional oversight. The congressional power of the purse must be re-asserted by Congress to manage the wars America is fighting. Congressional control over money is imbedded in the Constitution and is one of the most powerful weapons Congress has which has been ceded to the White House. Congress can and must impose restrictions on how money is spent and demand more detailed information from the White House on its recipients, beneficiaries and goals with timelines. Any reason benchmarks and standards of progress are not included in the bills approving funding? The White House and Pentagon arguments that military demands are unpredictable and military demands can change quickly are no longer acceptable by We the Maids.

When the costs of the Vietnam War were eventually absorbed into the normal budget, it brought about a quick peace that Americans and Vietnamese today mutually cherish and enjoy. The payment of extended military operations through a series of emergency requests with limited inhibited congressional scrutiny is no longer acceptable. Americans have the right to know the true cost of the wars.

Since the 9/11 attacks, spending on the military outside of the regular budget process, primarily for the wars in Iraq and Afghanistan has totaled more than $400 billion.

The Iraq Study Group made 79 recommendations. Recommendations 46, 72 and 78 deserve special mention. Under separate headings dealing with the military, the federal budget and the nation’s intelligence agencies, they share one basic idea: Government officials should not lie to the public or each other, especially in matters of war.

Why do We the Apathetic Maids need an unelected panel of political career has-beens to tell us we deserve the truth? The report was a delicately worded indictment of America ─ and its humiliating defeat in Iraq and the Middle East.

Wednesday, January 10, 2007

Strategic Economic Dialogue

The meeting of American and Chinese political heavyweights in mid- December 2006, was a refreshing reminder of how China is mis-perceived by America. The American delegation to Beijing included seven cabinet secretaries, and the head of the U.S. Federal Reserve, to lobby and bully China.While America came to lecture China on currency revaluation and market theories that will benefit China, America and the world, China aired its call for America to reform its own economy and end its addiction to Chinese goods and loans that sustain humongous U.S. trade and budget deficits. The Chinese have, and always will, prefer gradualism. After all, they are the biggest economic experiment in history. Transforming a highly centralized state-controlled economy into a market economy, and transforming an export-driven economy to a consumer-driven economy that affects a quarter of the world’s population, many of whom live on less than a dollar a day is, to say the least, a challenge. China is not a threat to America. It is its most important ally if it is to survive, thrive and continue to guide in the 21st-century.

U.S. politicians received a Chinese power point history lesson on the country’s 5000 year history of poverty, colonial subjugation and civil wars ─ which I also discuss in chapter two. Americans don’t know or understand China.

China has to maintain an investment growth of around 20 per cent per annum if it is to avoid a crash landing and implode ─ with devastating global implications, especially in America. Americans must keep in mind that China’s per capita GDP is only slightly higher than $1,000, while the per capita GDP in America is nearly $4,000. This while China’s reliance on external demand is growing. The ratio between trade turnover and gross domestic product jumped 72 per cent in the first three quarters of 2006, from 63.9 per cent in 2005, 59.8 percent in in 2004, 51.9 percent in 2003 and 42.7 percent in 2002.

America must keep in mind that the Chinese government is beholden to China’s vast export sector, which accounts for more than one-third of China’s economy. Letting the yuan float upward could massively weaken the export-driven economy and create political instability. For example, the textile industry alone supports 90 million workers but makes miniscule profits. The consequence of millions of textile workers being unemployed or the government extending more subsidies to the textile industries while it is trying to reform its market economy will have a devastating political impact.

The first Sino-U.S. strategic economic dialogue addressed long-term concerns and agreed to:

· Establish New York Stock Exchange and NASDAQ offices in China;
· Enhance bilateral contacts to push for a successful resolution of the Doha round of international talks;
· Establish a working group to discuss opening the Chinese services sector to competition and investment;
· Launch talks to encourage protection of investor rights in each country;
· Reinvigorate discussions within a joint committee on commerce and trade to improve transparency and intellectual property protection;
· China will formally participate in the American FutureGen renewable energy project, which receives large subsidies from the U.S. government;
· The two sides also signed an agreement facilitating financing to support U.S. exports to China and agreed to relaunch bilateral air services negotiations;
· Each side also agreed to take measures to address global imbalances. Both reaffirmed commitments to pursuing macroeconomic policies. China to carry out exchange rate reform and U.S. will increase savings rates to promote balanced and strong growth;
· The Chinese also agreed to help the Motion Picture Association of America and other groups do more to tackle copyright piracy on the internet.

America also gave China the green light to join the Inter-American Development Bank. In return, China signed an $8 billion contract to buy four nuclear power plants from U.S. based Westinghouse. The deal creates 5,500 U.S. jobs, and is a solid concrete first step in reducing America’s trade deficit with China. Westinghouse also agreed to transfer technology to China that could be used in the construction of more nuclear reactors in China during the next 15 to 20 years. It’s a pity Westinghouse is owned by Japan’s Toshiba. However, the two day confab failed to produce any short-term solutions to the schizoid Sino-U.S. relationship, other than meeting again in Washington in May 2007.
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