MERRY CHRISTMAS and A HAPPY, HEALTHY AND PROSPEROUS NEW YEAR

Happy Holidays!

“The Moment of Truth”─ A Political Non-Starter

The Bowles-Simpson bi-partisan National Commission on Fiscal Responsibility and Reform, appointed by President Obama to recommend solutions to America’s dire economic problems and deficit spending ─ did just that. It made very constructive observations and sweeping recommendations in how America spends money and collects taxes and proposed solutions to tackle the U.S. debt by harshly trimming federal spending, especially defense spending, that even the commission recognized were political non-starters ─ even though imperative for America to get back on a sound financial footing. “We’ll… be in a witness-protection program when this is all over,” said former Republican Senator Alan Simpson, co-chair of Obama’s deficit-reduction committee when he and his co-chair Democrat Erskine Bowles, former President Clinton’s chief economic advisor, released a draft of their 59 page report in earlier this month.

The report proposed the cutting of 200,000 federal-government jobs by 2020, roughly 10% of the work force. The proposed plan would achieve nearly $4 trillion in deficit reduction by 2020, reduce the deficit to 2.3% of gross domestic product by 2015, overall the tax code, trim defense spending, cap government revenue at 21% of GDP and reduce debt to 40% of GDP by 2035. “Throughout our nation’s history, Americans have found the courage to do right by our children’s future. Deep down, every American knows we face a moment of truth once again,” the report said.

America needs some big structural solutions and changes to get back on a sustained growth path. The necessary structural fixes can only happen with bipartisan consensus and sacrifice, two political ingredients that have been sorely lacking in Washington.

America milked the stock market in the 1990s to have a good life. When it burst in 2000, the country switched to the property market for another decade of good life. When that crashed, the government decided to print money and suck on the treasury market in a desperate effort to defend America’s lifestyle through government spending. That hasn’t and will not work either. The federal government has more than $9 trillion in debt. If the fed were to buy it all up, it would lead to a collapse of the dollar, and hyperinflation.

The Washington gridlock and bipartisan stalemate has frozen career politicians ability to realistically and meaningfully address the country’s economic problems. America cannot continue its debt-fueled growth model on borrowed money from China for unjustified tax cuts and entitlements without long-term structural changes and investments in new growth enterprises.

Bowles and Simpson, the committee co-chairs, acknowledged that the reality of the Washington Beltway, both of whom are Beltway insiders and know it well, is that their recommendations will never see the light of day because of the built in self-serving interests of corporate America that will be adversely affected by their recommendations and command their lobbyists and supporters in Congress to ensure their recommendations never get to first base. They were right. Congressional leaders from both parties severely criticized their report and recommendations even though what they recommended is exactly what the Tea Party movement and citizen taxpayers want.

Mutual Trust and Benefit

Before either America or China embrace each other, there has to be true mutual respect, as distinguished from politically expedient respect, that is mutually beneficial. This is one critical relationship that cannot flourish by being limited to words alone. It is one that is based and developed on geopolitical and economic facts. The local domestic political reality of each ─ verbal and factual ─ are just the special national sauces each has to get used to, and trust.

China’s heightened technological capabilities were highlighted when it rerouted massive volumes of Internet traffic from both the U.S. government and military networks, including the Senate, Army, Navy, Air Force, Marines, Secretary of Defense’s office, NASA, Department of Commerce, National Oceanic and Atmospheric Administration and many U.S. companies like Microsoft to China in March and April of 2010. Such actions are anything but confidence builders. The incidents highlight the security vulnerabilities of the public Internet, which uses a trust-based system to route data from one server to another. Information follows the most efficient path, not necessarily the shortest, and servers advertise their ability to handle traffic. There are more than 100,000 routers in the world. Any one of them can be “spooked” to reroute traffic. The majority of Internet traffic in the world is routed through the U.S.

China Telecom sent erroneous messages that led servers around the world to route traffic through China in 2010. The tactic could be used to spy on specific users, disrupt communications or conceal a separate attack.

Wiki leaks release of U.S. State Department highly classified confidential cables didn’t do much to restore the already eroding trust. Accusing China’s Politburo of directing the 2010 cyber intrusions into Google’s computer systems as part of a “coordinated campaign of computer sabotage carried out by government operatives, private security experts and internet outlaws,” something I had warned would happen in Custom Maid War and Feasting Dragon, Starving Eagle, is again shifting blame and responsibility from where it belongs ─ Washington and the Pentagon.

Mutual suspicion gets neither anywhere, especially closer to each other. This is not really surprising. After all, with the inherent built in different political systems, one party openly authoritarian, versus two party authoritarian disguised as democratic, there is bound to be mistrust. Both have to change politically and meet each other half way, politically and economically. America more autocratic and China more democratic. Both have to co-operate and reciprocate more ─ and teach each other how.

Positive reinforcement with co-operative positive acts repeatedly reinforced by each other are a lot more constructive and productive than political duplicity where the cheating by one party results in the other responding in kind ─ tit-for-tat.

American arms deals with Taiwan do not exactly motivate China to restrain North Korea, especially just because America the arms supplier wants and says so. After all, if America doesn’t listen, why should China? The fact that Obama has met with Hu more than any other foreign leader since the start of his presidency is meaningless if no trust is developed because of the failure of America to listen. China is not receptive to lectures, especially when America doesn’t listen. To make matters worse, Obama’s visit to the four largest Asian democracies in November ─ India, Indonesia, South Korea and Japan ─ and skipping China only begs the question of trust more.