Writing Volume III

The Jasmine-Nile Revolutions and standoff in the Wisconsin State Capital have inspired me to finish volume III of the Custom Maid trilogy -- Custom Maid Revolution.

Consequently, no more blog posts for now.

Stay tuned!

Breaking Bread & Rapping

The private dinner for China’s President Hu Jintao during his recent state visit, in the Old Family Dining Room in the White House residence, illustrated Obama’s careful mix of warmth and firmness for the leader of a nation that is at once the largest U.S. competitor and most important potential partner. It is a complicated relationship between two affectionately competing super-powered partners.

Breaking bread together, over a glass of wine or two, breaks down barriers, allows people to get to know each other, establish a solid foundation on which the partnership can build and brings them closer together. A genuine heart warming reassuring rap enables them to develop a much-needed personal chemistry and connection.

Underscoring the desire for candor, the White House said there were no official note-takers at the dinner and offered no readout of the discussions. Very important considering it will be the last major summit between the two presidents, although not the last meetings before 2012 when Hu steps down from his final term as party chief, and Obama is up for re-election.

Fascinating to hear what they both had to say publicly after their private dinner. On democracy, Hu said China is committed to the development of socialist democracy. “Without democracy, there can be no socialist modernization,” he said.

“We will continue to expand people’s democracy and build a socialist country under the rule of law in keeping with China’s national conditions.”

“We also know this: history shows that societies are more harmonious, nations are more successful and the world is more just when the rights and responsibilities of all nations and all peoples are upheld ─ including the universal rights of every human being,” Obama said.

The fundamental principle of the Marxist party is to “put the people first” and “govern for the people.” Sounds a lot like the U.S. Constitution declaration of “Government of the People, For the People, By the People.” America’s Founding Fathers words had a far greater global influence than most people realize. They even influenced Karl Marx. Sometimes I wish they would influence today’s leaders of the Communist, Democratic and Republican parties in America and China. It is in the interest of all three parties to better realize, safeguard and develop the fundamental interests of the majority of the people ─ We the Maids who have the power to sweep them out.

The D.C. Summit

Watching the picture-perfect pomp and ceremony surrounding President Hu Jintao’s state visit to Washington on January 18, 2011, was a dream come true. After writing four books that each, in it’s own way, advocates a Sino-U.S. partnership to lead the world through the 21st-century, and having given a talk earlier in the day advocating a Sino-U.S. partnership that is long overdue, I came to the realization that America and China have finally come to terms with each other.

Both president Barack Obama and Hu Jintao understand that a crisis in one will adversely impact on the other. What happens to one affects the other, and why shouldn’t the results be positive? “The China-US relationship is not one in which one side’s gain means the other side’s loss,” said Hu.

“What Deng Xiaoping said long ago remains true today. There are still great possibilities for cooperation between our countries,” Obama said.

The flawless formal highly choreographed red carpet-black-tie arrival, with welcomes from President Obama, Vice President Joe Biden and their wives, and a long line of Cabinet members and Chinese dignitaries was just the long overdue face gaining spectacular and respect that protocol conscious China and Hu craved and deserve. China wanted to see Hu being treated as the respected leader of a nation taking its place at the head of the global table.

What a difference to the snubs president Hu received during his 2005 and 2006 visits to the U.S. The 2006 arrival ceremony was marred by protocol blunders including an outburst from a Falun Gong protester.

The ceremonial pomp-filled 21-gun salute, with full honors and color guard welcoming ceremony ushered in a page-turning “new chapter” with a new play book for the “new era” in Sino-U.S. relations.

The mutual feel-good factor by Americans and Chinese towards each other seemed to overnight replace the mutual mistrust and is on a harmonious trajectory for the prickly growth of bilateral ties. Both countries have recalibrated their tone and direction of their ties. More than 50 percent of Americans and Chinese regard Sino-U.S. ties as “very important,” more than double the 2009 percentage. With the changing of the global political and economic landscape, Sino-U.S. relations now go well beyond the boundaries of bilateral ties and have global ramifications. China and the U.S. share many common interests and both sides must “work together to open a new chapter of co-operation as partners,” said president Hu. The repeated calls for broader cooperation as partners by both presidents was long overdue.

The last 30 years of relations were marked by continued exchanges and increased mutual understanding, Obama said, before adding that Hu’s visit serves to lay the foundation for deeper prosperity between their two nations in the next 30 years.

Mutual Trust, Respect and Benefit

Before America and 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 has to be based and developed on geopolitical and economic facts. The domestic political reality of each country ─ verbal and factual ─ are the special national sauces each has to get used to, and trust.

Wikileaks release of U.S. State Department highly classified confidential cables didn’t do much to restore any of 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, which is not really surprising. Both have to change politically and meet each other half way, politically and economically. Both have to co-operate and reciprocate more ─ and learn from each other.

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 motivate China to restrain North Korea. 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.

America refuses to sell its high tech technology to China. So why is America surprised when China refuses to sell its precious rare earths to Japan?

Presidents Barack Obama and Hu Jintao, can and must turn a new cooperative page They both have to start trusting and respecting each other and their respective domestic agendas as national leaders if they want to leave a legacy of being the builders of the Sino-American bridge for constructive global leadership in the 21st-century.

Balanced Global Leadership

The New Year and decade will hopefully usher in the peace and prosperity the world has long been craving. The state visit by China’s President Hu Jintau to America this month, where he will finally be feted at the long overdue White House state dinner by President Obama, offers both leaders the opportunity to do just that. Balance their countries mutually beneficial ─ and globally beneficial ─ leadership roles.

America’s economic and financial crisis offers China a unique opportunity to become the new global leader. China can replace the U.S. as the world’s new superpower. The question is will it? China has little debt, enormous savings with huge growth potential. Its’ current per capita income of $3,300 could be raised to $10,000 within two decades through a combination of growth and currency appreciation. At the same time, gross domestic product could rise from today’s more than $4 trillion to $13 trillion in today’s dollar terms. Such an increase could offer plenty to investors who bet on China’s future.

Many countries are retreating from some free market rules that have guided international trade in recent decades and have started playing by Chinese rules. But for China to engineer a new capital and political world order, it has to end the rampant corruption, fraud, intellectual and political misrepresentation, allow its currency to float freely, open it’s capital markets, have a truly independent judiciary that adheres to the rule of law, a free press and a more democratic political system ─ all of which are achievable ─ and a good reason why America should embrace China as its partner and lead the world together to a peaceful and harmonious future, a theme I have repeatedly advocated over the years.

The reality is the world is not anxious to embrace China as the world’s new superpower. The world still looks to America for leadership because of its constitutional ideals and humanity. To continue to lead, America cannot do so alone anymore. It needs a partner. That partner is not Russia, Japan or the EU. It is China.

The Sino-U.S. currency and Korean clashes are good starting cornerstones for both leaders to build their balanced shared global leadership roles at their summit to ensure a mutually beneficial and financially secure and peaceful 21st-century.

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.

Sino Supercomputer, Drones, GPS & Mars Rover

It is not only on the dollar financial front that the U.S. is getting shellacked. The shellacking it is encountering on the supercomputer, drone and GPS fronts, American pioneering cutting-edge frontiers are heartbreaking ─ and un-American. America’s leadership in the supercomputer technology has been hijacked by China with its new fastest supercomputer in the world ─ the Tianhe-1A that can perform a mind numbing 2.57 quadrillion calculations per second.

The supercomputer is a key research tool in such fields as climate change, product design and weapons development. Any wonder the U.S. is concerned? It is an expensive and serious national security issue for both countries. China is rapidly catching up with the U.S. in the supercomputer installation business. So why not work together on joint aspects that are not security threats in the interest of building mutual trust and respect?

China’s ability to build drones and get a satellite to Mars, and launching satellites that can show people how easy it is to get around on earth, without getting lost and not using GPS, ends America’s role as the sole provider of global GPS services. China is challenging America not only on earth but in the skies.

Unmanned aerial vehicles, commonly known as drones, are considered the future of military aviation and could one day replace the fighter jet. China has developed more than 25 different models that is causing anxiety in the Pentagon because “when deployed, will expand the PLA Air Force’s options for long-range reconnaissance and strike.”

By 2012 China will also have more than a dozen satellites capable of covering the Asia-Pacific region and by 2020 it will have complete global coverage with 35 satellites which will give China strategic independence and another commercial gold mine. The GPS was a navigation revolution comparable with the invention of the compass, except that it is controlled by one power. America is no longer the world’s sole traffic cop in the sky at the dawn of the new space age.

Giving America a run for its money on earth and the skies is not enough for China. It is also reaching out to the moon. China’s lunar probe Chang’e-2 that was launched October 1, 2010, sent dramatic photos of the moon’s surface and areas proposed for China’s first unmanned soft-landing around 2013, which will carry a moon rover and a telescope. The telescope has attracted international attention because it will be the only lunar-based telescope and could lead to new astronomical discoveries.

Corporate Republic ─ Income Inequality

America has become a corporate hedge fund republic where the richest one percent possesses more net worth than the bottom 90 percent. The top one percent of Americans owns 34 percent of America’s private net worth, according to figures compiled by the Economic Policy Institute in Washington. The bottom 90 percent owns just 29 percent. That also means that the top 10 percent controls more than 70 percent of Americans’ total net worth. Huge concentrations of wealth corrode the soul of any nation. All one has to do is look at Africa and Latin America. The same is now happening to America.

Emmanuel Saez, an economist at the University of California at Berkeley, who is one of the world’s leading experts on inequality, notes that for most of American history, income distribution was significantly more equal than today. And other capitalist countries do not suffer disparities as great as ours. “There has been an increase in inequality in most industrialized countries, but not as extreme as in the U.S.” Professor Saez said.

Yet, career politicians insist on granting $370,000 tax breaks to the richest Americans as a way to stimulate the economy during a recession? I don’t get it. How is that going to stimulate the economy? Do politicians really think these rich taxpayers are going to stimulate the economy by buying fancy cars and yachts and hire more groundskeepers and chauffeurs? Of course not. But they are the people who fund the politicians re-election campaigns.

The unemployed poor who can stimulate the economy with unemployment benefits are given no breaks because they don’t have money to spare on career politicians re-election campaigns. A study commissioned by the Labor Department during the George W. Bush administration makes clear the job-creation power of unemployment benefits because that money is spent immediately. It is pumped back into the economy rather than a savings account or politicians re-election coffers.

Clash of The Currencies

The “shellacking” Obama and his democratic Congress received was not limited to the midterm elections. They also received a shellacking for their monetary policy at the G20 in Seoul last week..

While America demanded, make that ordered China to revalue the yuan with the threat of sanctions, America decided to print $600 billion to stimulate its economy with the second round of quantitative easing, commonly spun as QE2. The result, a weaker devalued dollar ─ 15-year lows against the yen and an all-time low against the Swiss franc ─ with China taking the biggest hit because of its multi-trillion dollar holdings. The result, instead of China being criticized for its currency policy at the G20 in Seoul last week, it was America that was roundly criticized by world leaders, including China, for its destabilizing currency policy that is causing trade imbalances and disparities not only at home but globally. The U.S criticism of China’s yuan policy and push to revalue the yuan was soundly rejected by world leaders who put the blame for the global clash of currencies squarely on U.S. shoulders.

The biggest force undermining the dollar is the U.S. Federal Reserve’s dollar printing policy, not China. It is time this is acknowledged and that the U.S. reconsider its exchange rate policy in rebalancing the U.S. economy. With the dollar’s interest rates in the U.S. at nearly zero, the country is printing more money and pumping it into the U.S. markets from where it flows to the rest of the world. As a result, the dollar has tumbled; inflation expectations have increased; asset and commodity prices have hit new highs. Even worse, the dollar’s appreciation has negatively impacted other economies and currencies, forcing them to act, either by imposing capital controls or intervening in their exchange rates.

Banks take the U.S. dollars the Fed prints and instead of investing and circulating them in the U.S. economy, look for better returns in emerging countries and create inflation, asset and housing bubbles with their hot dollars that they withdraw when they have maximized their returns, leaving the local economies in shambles as witnessed during the 1997-98 financial crisis. It should therefore not come as a surprise that countries as diverse as Brazil, Indonesia, South Korea, Vietnam and China have imposed restrictions on investment inflows to defuse the danger of hot money.

This is a “beggar-my-neighbor” policy. During the 2008-2009 crisis, the U.S. nationalized a lot of private debt, but in the post-crisis period, it tried to internationalize its public debt. The policy is shortsighted, beneficial to neither U.S. economic growth nor global recovery and stability. Shifting America’s accumulated debt burden across the world by softening the dollar only forces other countries to take action to protect their currencies. That ultimately isolates the dollar and its users. Historical experience shows that policymakers must be cautious about aggressively shifting exchange rates.

In the 1970s, the U.S. pursued a devaluation policy for the same purpose and using the same justifications. It led to chaos around the world and plunged the U.S. economy into a prolonged period of stagflation. Maybe the world can stop the U.S. from repeating the mistake, through currency interventions. This isn’t a currency war, it is good medicine, not only for the countries protecting themselves, but America as well.

The U.S. weak-dollar policy could backfire big time, leading straight to inflation without growth along the way. There is no mileage in politicizing currency management. There are no winners in a clash of currencies.

Dying American Dream

The American Dream has not only turned into a nightmare but is dying. People the world over dream of coming to America the way millions of immigrants, myself included, did to better ourselves. America was a place where if one worked hard one got ahead and created a better world for their children who in turn did the same for theirs. That was a dream all Americans believed in. Today less than half believe so according to a poll released by ABC News/Yahoo News in September 2010.

This point was brought home to me wherever I came in America in 2010. Homeless people shuffling and pushing shopping carts with all their worldly possessions. As a lawyer who represented mobile home and trailer park developers when I practiced law in California in the 70s, I couldn’t help think, my, mobile home living sure has changed in America these days.

The seeds of today’s global economic disaster were sown in the 1980s. From 1980 to 2005, the U.S. economy, adjusted for inflation, more than doubled. But the average income for most American families actually declined. The standard of living for the average family improved not because income grew but because women entered the workplace by the millions. As hard as it may be to believe, the peak income year for the bottom 90 percent of Americans was way back in 1973, when the average income per taxpayer, adjusted for inflation, was $33,000. That was nearly $4,000 higher than in 2005!

The American dream was alive and well and evidently unassailable. Yet somehow, following the oil shocks, the hyper inflation and other traumas of the 1970s that triggered my protest horseback ride to my Beverly Hills office in 1979, We the Apathetic Maids allowed the oil companies and their extremist career politicians in the Military Industrial Congress to smother the dream.

America can and must restore the American Dream. The dream can be revived. It will take time, courage and sacrifice. The American experiment is alive and although dying, can and must be resuscitated and restored by reaching back to the founding principles of this great republic envisioned by the Founding Fathers and enshrined in the Constitution.

Tea Party Revolt

What has fascinated and absolutely captivated me during the 2010 midterm elections is the emergence of the anti-establishment tea party movement and its vocal disgust and active revolt at the political process, system, expanding government, rising taxes and the career politicians and bureaucrats for their lack of adherence to the Constitution, who were enriching themselves and their Wall Street financial backers at the expense of America’s founding principles and taxpayers. Career politicians are not what the Founding Fathers had in mind for America.

The volatile 2010 midterm election brought out the angry voters willing to punish career politicians, Democrats and Republicans alike. The anti-incumbent wave went beyond anger at the Democrats, Republicans, Left, Right, Conservative or Liberal. Voters were angry at every Washington career politician and their Wall Street corporate influence peddlers who have hijacked the system and created a corporate welfare state at the expense of hard working taxpayers.

The Tea Party is the new phenom on the U.S. political landscape. It concluded the primary season with eight “citizen” Senate nominations and 33 candidates running in congressional districts, shocking not only the Democratic and Republican establishments, but the political pundits, who again, got it wrong misreading the anger and revolt brewing in America.

The Silver State senatorial race between Senator Harry Reid and Sharon Angle was a nail biting “man up” showdown, the nastiest and highest-profile Senate race that epitomized two of the strongest political trends of the 2010 election year: anger against incumbents and the vulnerabilities of the Tea Party candidates.

Tea Party Express began as a PAC called Our Country Deserves Better that political operative Sal Russo, a long-time conservative Republican ad man, and former California Assemblyman Howard Kaloogian formed in 2008. They were frustrated that Senator John McCain wasn’t drawing enough contrast with Obama during the 2008 presidential election. They rebranded the PAC after CNBC’s Rick Santelli made his famous “tea party” remarks on the air in February 2009 that spurred the protest movement.

Christine O’Donnell, notwithstanding her refreshing frank wackiness and “checkered background,” is on the Tea Party frontline carrying the banner of big business, like her sister Sarah, who told Karl Rove to “buck up,” to his checkered background comment about O’Donnell. It doesn’t matter to the party movers and shakers if O’Donnell loses, as long as she sweeps some like minded people into office elsewhere in the country on her tea leaves.

Destructive Deficit Spending

The global financial crisis is going to end. The only question is when, not how. The how is certain. With ugly stratospheric budget deficits. Investors will need to be persuaded to hold Himalayan high mountains of debt for decades. The history of financial crisis show that public debt typically doubles, even adjusting for inflation, in the three years following a crisis. America and many rich and poor nations are well on their way to meeting these projections.

Throwing money at the problem and propping up greedy banks that created the speculation is, as Jim Walker of Asianomics says, like trying to put out a fire by pouring gasoline on it. The result will be an even bigger, more searing fire.

The multi-trillion U.S. deficit financing is crowding many emerging economies and their companies out of the international capital markets that only creates more resentment towards America.

The reality is that in order to build America and restore it to its former glory the current financing models have to be torn up and replaced with fiscal prudence. A depression will undoubtedly follow with mass unemployment and wealth destruction. But it can be short and sweet as opposed to the prolonged agony America and the world have gone through the last three years ─ and also lay the foundation for a new era of healthy sustained growth.

A drive to devalue the dollar could spin out of control by eroding confidence in the currency, leading global investors to cash out of assets denominated in the dollar before their losses worsen. The potential for a mass dumping of the dollar, especially by the Chinese, is a very realistic scenario.

No nation has ever devalued its way to prosperity. The Japanese tried and failed in the late 1990s. A weaker dollar, or the mirror image of a stronger Chinese yuan would be no exception to that time-honored premise.