• Don’t Believe The Pundits On This Being China’s Century

While countries struggle, muddling their way through stimulus packages and bailouts, China is being touted as everything from, “the best current place to invest,” to being, “the engine that will pull the globe out of its recession.” These entreaties and prognostications are sprinkled with reminders of the power it wields over America, given the huge dollar reserves that it holds. If I may quote Tony Soprano, “forget about it.”

China has asked rather politely, that the U.S. maintain its creditworthiness. No kidding? That plea was less a wish that the U.S. not skip town on its debt (devalue the dollar dramatically), than it was a declaration of a deep desire for a return to excessive U.S. borrowing. When the U.S. borrowed, it bought. When it bought, China prospered. This is rather basic, however, what is not so evident, or obvious to many pundits and experts, it seems, is the fact that China became inebriated through the glory days of consumerism. China now suffers the consequences of its acquiescence to a surety that the intoxicating euphoria enjoyed around the globe for a generation, would never end.

China understood that to become America’s principal provider of goods, it had to manufacture less expensively than anyone else. China excelled at squeezing productivity out of its labor force. It rapidly implemented a sweeping expansion of the necessary infrastructure to manufacture products faster, better (sometimes), and cheaper (always). New plants sprouted at an unprecedented rate. China’s expansion of its machine was based on an enormous assumption - the rate of growth it was enjoying through exports would continue unabated. It is now shutting down plants faster than it opened them. The capacity that was preparing for demand twenty years out, is now shutting down, and the Chinese are not about to ramp up their own consumption to energize reopening of the plants. While China has become a major manufacturer, the majority of its manufacturing is for, and on behalf of foreigners, selling established brands. China’s authoritarian “system” has made the creation and recognition of its own brands, all but impossible.

American consumers are not returning to the binge behavior of the past twenty years, although their ambivalence on trade with Asia persists. As for China, it focused on creating trade surpluses, and it adroitly squeezed its workers, but it did not prepare them, or its industries for broad based consumption. It has not created a self-sustaining, stable economic environment. China will dip into its coffers to stimulate internal employment, spending on infrastructure, or investing in what it knows best - export industries. Endeavoring to attract foreign investments, China will claim improvements in efficiencies, forensics, accountability and accounting practices of its indigenous infrastructure. The claims are beyond its ability to deliver. Until such critical elements as property rights, or a welfare breadbasket are implemented through appropriate taxation, Chinese consumers will be more prone to save, as they must individually concern themselves with how to pay for tomorrow’s meals.

Any cash China spends outside will go to acquiring natural resource producers for pennies on the dollar in the present climate, and countries, including Canada will be happy to sell out. This will do absolutely nothing for the long-term health of the North American economy.

There are currently foreign reserves of around $7.5 trillion held around the world with particular concentration of dollars held in East Asia, where since the late 1990s there was perceived need to protect against currency speculations, and a tendency, no, make that urgency, to feed (finance) the American engine driving China’s growth. We should note that the size of China’s reserve accumulations have, in the past couple of years, attracted the very speculation they sought to themselves protect from, which has further accelerated the bloating imbalance. The size of China's dollar reserves forces a tentative, even precarious, equanimity between the U.S. and China, but it is a potent equilibrium nonetheless. It will be a long road traveled before China finds sustainable balance in savings, consumption, exports, and internally stimulated (broad based) investment. It will also be a long wait before we witness demonstrations of international responsibility emerging out of China. Until then, China will continue to flex its new-found influence to push for such things as an independent currency a few degrees removed from the dollar.

The world’s economic history has been fueled by leaps from one bubble to the next, but the current recession may have a long wait for the next bubble of consequence that will yank the world out of the doldrums. Whatever its form, it is not likely to come out of the less than transparent, state owned, and controlled economy of communist China. China has created a massive middle class in a single generation, but it has yet to empower it. China will not soon be supplanting Americans, or Europeans, in the mall line-ups yearning for China-made-American-invented-branded-and-engineered products. American consumers are unconsciously pushing back the clock on that empowerment of the Chinese middle class through their dramatic behavior modification of the past year. Like it or not, global economic stability will for the foreseeable future depend on the West, and very particularly on America.

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• China’s Weak Gambit On A Currency Shift

China is calling for a move toward an obscure international currency known as SDRs (Special Drawing Rights) used by the IMF, to replace the U.S. dollar. The proposal on first blush suggests China is concerned with looming inflation in the U.S. and the devaluation of the debt it holds. While a reasonable concern, why would it push for such a dramatic shift?

The U.S. / China relationship is both complex and fragile. The American consumer has been the principal driving force that has fuelled the Chinese economy into becoming the world’s third largest. The result has been the creation of a communist controlled capitalist system very reliant on a democratic, open society on the other side of the Pacific.

The U.S. has long pressed for Beijing to allow its currency to float. All requests fell on deaf ears. Now with the world is in financial turmoil, and with the U.S. being blamed for mismanaging its own economy, there is some not so subtle muscle flexing being exerted by numerous countries, particularly China. Currency is a major element at the heart of any international debates. China’s suggestion that the world should begin moving away from the dollar changes the dialogue away from demands to see its own currency, the yuan, move higher which would reduce the competitive price edge of its products. Obviously this could in turn very negatively impact its exports. From the U.S. perspective, a rise in the yuan would aid in reducing its mounting deficit with China.

China purchased dollars and will probably purchase more of the Obama packaged U.S. debt. While it can clamor for a move away from the dollar, China has every incentive to see the dollar’s value remain strong, and will not sell its dollar reserves.

So what are we to make of China’s current grandstanding just before the upcoming G20 meeting in early April?

It is understandable that this populous country wants to increase its influence on the world’s financial affairs, and feels emboldened given its almost $1.5 trillion in U.S. securities, nevertheless, the world’s business is done, and continue to be done in U.S. dollars. China and Russia might wish otherwise, however trade is very dependent on the safety and security of the method of payment.

Although there have been abuses in America’s capitalist community, the vast majority of the country’s businesses are well managed organizations who present reliable balance sheets. The Euro has been touted as a potential alternative to the dollar, however the current economic state of countries like Germany, France, England, Italy and others, suggests that they are having difficulty putting their own and collective houses in order, affecting long term confidence on the common European currency. Some of the European member nations also present little reliability as worthy credit risks. For countries such as China and Russia, it would take two or three generations to establish confidence through the evolution of independent, authentic, trustworthy, and transparent organizations populating their economic landscapes.

The Knights Templar became extremely powerful in the middle ages because they could do what others, including whole countries, could not. Their influence was rooted in their reputation as a fighting force. They could guarantee letters of credit paying for goods moving across borders in a disorganized medieval world. America is not in a position to be losing it’s power and influence any time soon. Even as it goes through the process of recuperating from the abuse of its financial system, America remains the principal safe haven for the world’s cash, and the world's principal trading partner.

America holds two critical elements standing in the path of any change to the current status of the dollar; military power, and international confidence in its business sector. It is at this point inevitable that we will see a devaluation of the dollar as the U.S. government prints dollars on its way into unprecedented spending. This action will impact all of America’s creditors, however, it is difficult to envision an unseating of the dollar as the dominant reserve currency and the preferred currency of trade. It is also not likely that Americans will be unseated at the world's foremost consumers, and they buy in dollars.

No matter how much China beats the drums for change, SDRs will remain tools for the IMF to account for its aid to debtor countries, the IMF will not be creating a new super-reserve currency, and the dollar will maintain its position in trade.

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• G20 LAYS BLAME, BUT NO SOLUTIONS

A new world order? Not likely. What? You’re confused as to what and who makes up this new “Group” of countries now supposedly in charge of straightening out the world's economic recession? The politically loaded international photo-op was principally aimed at instilling confidence in the folks back home with two blunt instruments. One, “Watch me as I fly off to the U.S. because I’m really concerned about your plight, and I’m going to do something about it with these 19 other leaders.” Two, “… are you still watching? I’m shaking my finger at America. It is responsible for this mess, and we’re not going to take it anymore. How do I look?” Then home they all went, back to Paris, London, Canberra, Berlin, Tokyo, etc., back to their constituencies, having achieved nothing, but having left behind them in the American capital an odorous agglomeration of blame.

Countries around the world are relishing the misfortunes befalling America a little too enthusiastically. Their own balance sheets seem not to have cowed them into embarrassment. Sarkozi started the finger pointing process, quickly followed by Brown from Britain. The more powerful presences, China and Japan, were somewhat more polite, but the gloating from all members was evident, and its obnoxious cacophony has stained the cover pages of the world’s media.

It is also evident that most member countries believe it is now time to pounce, while the U.S. version of capitalism , and the country itself, appears vulnerable in their eyes. They feel that now is the time to create new international bodies intended to redistribute the economic clout from Wall Street to somewhere else. To where? Who knows? Perhaps to somewhere between Paris and Beijing, like the North Pole, or Geneva, or Moscow perhaps, … just anywhere but Wall Street. Anywhere but in the U.S. Dmitry Medvedev completely overlooked the fact that America held an election only days ago, and the largest economy’s electorate articulated its renewal by deciding to send Obama to the White House. He and his boss Putin felt it gratifying to assert that the United States had poor market oversight. Evidently Russia has not quite been brought up to date on the full translation or meaning of such terms as oversight, transparency, or even democracy, but accuse, they did. It read well back in Moscow.

Some humorous non-decisions by the 20 leaders were worth noting. The leaders indicated they would look into executive pay scales. That should be supremely comforting to most Russians and Chinese, whose leaders and friends are pilfering the treasuries of every business they can possibly find that produces any cash. How can an international body possibly dream of overseeing or regulating corporate entities? More likely, this is an arrow, that while directed at the U.S. banking institutions involved in much of the mortgage crisis, it will land in the middle of the Atlantic somewhere just North of Bermuda.

Another by-product of this historic conference was a call for the creation of new financial market watchdogs wonderfully identified as a “college of supervisors.” This group of experts would monitor major financial institutions dealing with transactions that crisscross member country borders. Actually, this was more than a call, it was a “pledge.” Pledges have more conviction. Such earnest commitment to oversight over financial markets would bring warmth to taxpayers from New York to Vancouver, as they settle in for the winter. The most heartening element in the pledge was its inclusion of hedge funds and derivatives under the oversight umbrella. This must read well in Caracas, but surely no one in North America is taking this seriously.

Granted, the $60 trillion in credit default swaps market is an aggregate of transactions floating in the ether of the electronic digital age, but we have not reached an age where civilization has advanced enough for international bodies to take oversight positions on the financial corporate firmament. National sovereignty will not allow it. Weak countries succumb to demands of organizations like the IMF. It is foolish to expect that any one of the 20 countries representing 90% of the world’s GDP would deign capitulating to such supervision or surveillance, particularly the United States.

It is understandable that a “plan” might be difficult to fashion in so short a time, however this financial calamity did not develop yesterday, and with the thousands of insiders and experts floating through the hallways and byways of 20 governments, it might not have been too much to expect the emergence of some creative ideas or concepts.

Calls for “financial stimulus” efforts are not a “plan,” and are definitely not creative. Oversight on the existing structures, even at a national parochial level, simply acknowledge that there is a problem, but will prevent nothing, and safeguard nothing of value since the organizations under scrutiny will be in no position to execute any abusive or dangerous transactions.

The world of tomorrow, which is no more than a year away, will have new structures, new frameworks of varying complexities, new inventive manners of exploitation that will create new financial bubbles around products not yet conceived. During the Dutch Golden Age, the spectacular, and scarce Semper Augustus tulip, with its blood-red flares and flakes streaking a white background, became a symbol of the 1637 tulip bubble. A single bulb of the rarity supposedly reached a value equal to a mansion in Holland. Delusions, illusions and herds create momentum. There always exists a human being or two, being human, taking advantage of that momentum. International bodies will never have the foresight to effectively provide oversight on behalf of their constituents. We now look forward to the musings of the next G20 meeting.

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• OBAMA’S NEGOTIATING – WEAK or INEPT?

The culminating event of the primaries will be the upcoming Democratic Convention. Hillary Clinton has evidently taken the upper hand on all fronts in her negotiations with Obama and the Democratic Party. It is now obvious that she came at them hard, heavy and authoritatively. They all caved. What does that say about the decision the Party is about to make? Who exhibits the capacities America desperately requires in its new leader?

We are being subjected to strange whining in the media that the Clintons’ have a need for attention and power, and that the Clintons’ upcoming presentations at the Democratic Convention are nothing more than Hillary and Bill’s egocentric final gasps on the political stage. We are told that the Clintons being given national exposure through use of the podium in Denver, is taking away attention from Obama, and is detrimental to the party. The blame-the-Clintons game is well under way.

We can be swayed by the media and discern this as an annoying last kick at the can by the Clintons, or we can perceive it as an additional window providing insight into two critical players vying for position on the final ticket to the White House. We should also recognize it for what it is, a distinctly adroit maneuver on Hillary’s part, sending notice that she isn’t anyone’s wallflower and remains a proficient force to be contended with on the American political landscape.

Obama could have avoided this very threatening affront to his leadership and capacities, if he had placed Hillary Clinton on the ticket as his Vice President. With Hillary in such position, he would have been in effective control. Why he hasn’t closed that deal is perplexing.

Obama’s political chops may have been earned on the streets of Chicago, but negotiating on the world stage requires an uncommon strength, and will, that goes beyond anything learned. The finer elements are inherent. Pressure tests the mettle. It is therefore to the voters’ advantage that Obama didn’t sweep into victory with an overwhelming number of delegates. All voters are being treated to a display of skills and command of the battlefield that is politics. This will furnish all Americans a finer measure of the candidates, with which to make more educated decisions come the Presidential elections.

It is also inescapable that the Democratic race is not yet determined, nor is an upcoming Democratic White House a foregone conclusion.

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• OBAMA, A SOCIAL PHENOMENON?

Pundits in every media are tripping over themselves to explain the dearth of Republican votes in the current primaries while the Democrats are apparently showing up in droves. It is perplexing that the media isn’t deciphering and proffering why a man with little experience, and little national recognition prior to just a few months ago, is making a bee line for the White House.

We are witnessing an unusual confluence of events. The American economy is slowing while the vast percentage of Americans are coming to a realization that the opportunity they’ve believed in, is not turning out as professed. As I’ve noted previously in these articles, the most consequential element unconditionally required for the long term health of a society is broadly available education. It all starts there. An educated society understands its needs and how to meet them. It is capable of achieving what is required for its own long term harmonious, and reasonable, well being. An educated society also understands its values, aspirations, and culture within the context of the broader global community. An educated society has a sense of evolution and remains sanguine in the preponderance of its opportunities. When greater and greater numbers are unable to achieve education to the maximum of their capabilities, hope evaporates. When such numbers reach significant percentages of the population, that society strains. Evaporation of opportunities accentuates any resentments that may be simmering.

We have all accepted that our free market system will produce prosperity for the greatest number. If any such system is to function adequately and serve the greater good over the long term, balance and reason should, and must, prevail. Today’s America faces a rapidly spreading divide between the proverbial “haves” and a much too large segment of the population struggling each day to achieve sustenance and shelter. While the burden of through-the-roof medical care costs is literally breaking families, and an avalanche of mortgages are sliding into foreclosure, and cars are being repossessed in unprecedented numbers, national headlines tell the newly displaced that the Head of America’s largest oil company has paid himself $400 million. He did it, not because he was smarter or more talented than millions of others, but because he could. His board members are in on the game and endless others at the top of the financial food chain are abusing their positions like the hedge fund manager who paid himself $2 billion in compensation last year. It is accepted because it would be inappropriate to say anything against such abuse, since that would imply denigration of the sacrosanct concept of “free market.” Unfortunately, there is nothing “free market” about such abuse. When the head of one the world largest internet based companies, who after receiving almost a billion dollars in company stock, proceeds to take shares in different new public offerings, adding another hundred million or two to the personal pot, something is rotten in the system. The fact that “others did it” is hardly a proper or moral rationalization, yet the media stayed silent. There was absolutely nothing free market about this abuse of position. No abuse is reasonable and rampant abuse only serves to break the system.

During the coming election voting booths will see millions of faces the booths won’t recognize. The Democratic candidate will likely be Obama, and he could become the next President, not because of his track record, but because he has been able to deliver speeches that resonate with millions who are feeling left behind in the opportunity sweepstakes. His addresses actually promise very little and provide little insight into the man. Their delivery evokes an unsettling sense reminiscent of proselytizations déja-vu. There is something discomforting about someone appropriating the power of the Presidency with so little experience and obscure intent, yet it is his appearance of “detachment” from the imperious top of the food-chain that is creating such broad based support amongst those feeling disenfranchised. Although one hopes that he takes this trust seriously and meets the monumental expectations, the national debt of over $9.2 trillion and the total U.S. combined debt at over $50 trillion provide almost overwhelming constraints to the restoration of broad based opportunity.

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