Once burned, twice shy. Lots of people bet in 2001-2002 that the dollar would drop, and lots of people lost their shirts.

Timing is everything. I can predict that the dollar will fall, there will be a major world depression, that the Chinese Communist Party will fall, that a major bank will go bankrupt, and that the sun will eventually swallow the earth, however, if I can’t assign dates to them those predictions are useless.

DC: The coming Olympics is another flashpoint with US human rights groups, Falun Gong, and Tibet protestors planning to embarrass the Chinese government by fomenting violent protests in Beijing in front of the world’s media.

Yup, and we’ll see how much the Chinese government has learned about handling the press. There are lots of tricks and techniques big corporations and American politicians use to play up or play down an issue, that I’m sure the Chinese government has learned. If the demonstrators are at point A, but all of the cameras are at point B. You let the story run a when no one is reading, then you what a few days, and do nothing to change the situation. You figure out all of the things that could possibly happen to make you look bad and you have a counterstrategy for each point. Etc. Etc. Etc.

The media is a tool which people use to promote their own interests. Wow!!! What a discovery. People tend to be self-serving, hypocritical, and inconsistent in their arguments. Surprise. Surprise. Surprise.

Rather than complain about it all of the time, the PRC is starting to learn the rules and to play that game. It’s been a while since I’ve actually heard the PRC scream about something.

This is why the more recent PRC accquistions have been quieter than the CNOOC deal. The CNOOC deal was a very important learning experience. What happened with CNOOC is that Chevron-Texaco wanted to make money, so they put out all of their lobbyists and media consultants to make the Chinese government look like crazy devils. In more recent deals, Chinese companies have partnered with US companies and used their lobbyists and media consultants to make things work.

Media spin and public relations is how people with power in the United States keep their power, and the Chinese government is learning how to use media spin, public relation consultants, and lobbyists to mold public opinion to its advantage. Sounds awful…… Candidates selling themselves and using the same techniques to sell politicians that people use to sell soap. Ick…..

Except that if the Communist Party can figure out how to use spin and public relations to stay in power, then maybe it won’t have to toss people in jail or beat them up to do so……

I write in big bold letters *do not trust what I say because you might lose money*. You trust me, and you lose money. Now it’s my problem that you can’t read.

DC: Tell your story to consumer investors of GE Financial which broke the 1 dollar per share rule on their money market fund due to losses on CDOs. The money market fund isn’t insured by the FDIC, and it wasn’t written in stone that GE would cover any losses, so investors were shafted out of their hard earned money that they thought was safe.

Not only was it not written in stone that GE would cover there losses but it was written all over the place that no one made any guarantees that the money market fund would retain its value. Look at any money market fund and there are pages and pages of “This fund is not insured” “Past performance does not guarantee future results” “This fund may lose value.” It’s often in BOLD CAPITAL LETTERS on page one of the prospectus.

So how did you think that the fund was able to pay better interest than an FDIC insured bank account?

DC: The US is sure to lose its crown as a world financial center with this type of unscrupulous behavior.

Actually this is the reason why the US is the worlds financial center. There are all sorts of laws and regulations that force people to write things in BIG BOLD LETTERS and to warn people about what is safe and what isn’t. Also when things blow up, there are procedures to figure out who owes who what.

It also requires about 500 other things. Semiconductors are useless if you don’t have the software to run on them and the soldiers that are tried on the software. The classic military mistake is to focus too much on hardware and not enough on training.

DC: What if there was a war in the Taiwan Straits or a collapse in North Korea with US troops advancing across the border, could China rely on foreign suppliers for replacement electronic components?

In case of a major war, supply chains would be so utterly disrupted, that neither China nor the United States could rely on any production and would have to make do with existing inventory. Also, having reserve industrial capacity is useless if it is a fast intense one that lasts for days or weeks rather than years.

Also if you really want chip production capacity in case of a war, your best strategy is to get Intel to build a factory in China, staff them with local workers, and the seize it if the bullets start flying.

DC: But the Chinese state should also be financing biotech and nanotech to cover all future technology areas.

OK. who gets how much? Who decides who gets how much? How do they decide who gets how much? If the main criteria for funding is which companies have the ex-President’s son on their boards. I doubt that very good decisions will be made.

That way if there is a major breakthrough elsewhere in the world in those technologies, the Chinese won’t be too far behind the curve. It is only the government that can finance longterm investment in basic research.

Maybe you are right, but I thought of a case, where a big bank would go bankrupt. As well only in a case of “emergency bailout” I could imagine that.

http://english.people.com.cn/90001/90776/90884/6341042.html

Does this put a cap on Chinese SWF’s?

J. Bradford DeLongAs more time passes with neither the value of the dollar declining sharply nor market forces beginning to shrink America’s current-account deficit – which may well reach $1 trillion this year – two diametrically opposed reactions are emerging. Most international finance economists are becoming increasingly frightened that a major international financial crisis could erupt. Indeed, they fear that the scale of that potential crisis is becoming larger and larger.

Others – especially managers of financial assets – are becoming increasingly convinced that economists don’t know very much, and that what they do know is of no use to traders like themselves. They see little reason to believe that current asset values and trade flows are not sustainable.

After all, they (or some of them) argue, the real GDP of the United States is growing by $400 billion per year, with about $270 billion going to labor and $130 billion to capital. Even after depreciation, that $130 billion of extra annual income is capitalized at about $1.5 trillion of wealth, so the current-account deficit, even at $1 trillion, is not overwhelmingly large. We Americans can sell off two-thirds of the increment to our wealth to finance imports and still be $500 billion better off this year than we were last year.

Moreover, the annual interest charged on the extra $1 trillion per year that Americans borrow from the rest of the world is about $50 billion – just one-eighth of annual economic growth, while the trade deficit is financed out of the growth of the value of capital. So what’s unsustainable? Why can’t the US current-account deficit remain at its 2006 value indefinitely?

The counterargument hinges on the difference between the current-account deficit and the trade deficit. The current-account deficit is equal to the trade deficit plus the cost of servicing the net international asset position: the net rent, interest, and dividends owed to foreigners who have invested their capital in the US. As time passes, deficits accumulate. As deficits accumulate, the cost of servicing the net international asset position grows.

Thus, in order to keep the current-account deficit stable, the trade deficit must shrink. And the only way for the trade deficit to shrink substantially is for net imports to fall, which requires either a relatively sharp decline in the value of the dollar, thereby raising import prices, or a depression in the US. Both outcomes would weaken demand for foreign goods by making Americans feel that they are too poor to buy them.

As a result, holders of dollar-denominated assets should be looking forward to two alternative scenarios. In one, the value of the dollar will be low; in the other, the US will be in a depression. In neither scenario does it make sense to hold huge amounts of dollar-denominated assets today. Therefore, foreign speculators should, any day now, dump their dollar-denominated assets onto the market, and so bring about the dollar decline that they so fear.

But foreign-currency speculators and international investors are not looking forward to either of these scenarios. They continue to hold very large positions in dollar-denominated assets, which they would not do if they thought the US faced a choice between a cheap dollar and a deep depression.

So, what alternative does the market see? And why is it so different from the possible scenarios that international financial economists see?

The answer appears to be that there is nobody in the financial centers of New York, London, Tokyo, Frankfurt, and Hong Kong who thinks it is their business to bet on a future flight from the dollar. Especially in times of crisis – and a sharp fall in US imports would imply a much more severe crisis for Asian and European exporters than it would for the US – the dollar is a currency that you run to, not from.

George Soros can bet on a run on the British pound. Thai import-export firms can bet on a run on the baht by accelerating their dollar receipts and delaying their dollar payouts. Everyone can bet on a run on the Argentine peso – a favorite sport of international financial speculators for a century and a half. But not the dollar. Not yet.

In other words, the market is betting that the dollar will fall gradually in the next five years, and that the US current-account deficit will narrow without a financial crisis. That is what happened in the late 1980′s, and in the late 1970′s, too. After all, God, it is said, protects children, fools, dogs, and the United States of America. But the odds on a soft landing are lengthening with each passing day.

project syndicate

Chinese relations with Russia are the best overall in history. There has never been as much trade between the two nations.

Chinese relations with the United States are unstable at best in the political sphere, but better in the economic sphere due to corporate business ties. The US military supports Taiwan’s formal separation from China. Until that core issue is resolved, Sino-US political relations will always remain strained.

All it takes is for another US spyplane crash over China to create another diplomatic crisis. The coming Olympics is another flashpoint with US human rights groups, Falun Gong, and Tibet protestors planning to embarrass the Chinese government by fomenting violent protests in Beijing in front of the world’s media. For instance, foreign NGOs paid and organized the storming of foreign embassies in Beijing by North Korean refugees. It was far from a random event. Some Chinese police aren’t the best trained in dealing with organized protestors from Western NGOs.

From where the ‘US(Rest-world)-Against-China’-feeling?

“A strong national defense requires..
.. war in the Taiwan Straits ..
…a collapse in North Korea with US troops advancing across the border…
.. weapon technology …
.. Air Defense system, the Su-35 Fighters, ..
..Strategic Bombers…”

Commentary:
a. We should not think -if all stay cool- that the Taiwan-Question will be solved by bombs. That is irreal.

b. We should not think, that China will solve the “problems” around Spratley Islands and other “little” stuff, by bombs against: Japan, Vietnam, Indonesia(?), Philippins(?), ….

c. We should not think, that China will solve “problems” with Russia by bombs:

China-USSR Border: Eastern Sector 1988 (452K)
http://www.lib.utexas.edu/maps/middle_east_and_asia/china_ussr_e_88.jpg

China-USSR Border: Western Sector
http://www.lib.utexas.edu/maps/middle_east_and_asia/china_ussr_west88.jpg

d. We should not think, that China will solve the “problems” with India by bombs.

China-India Border: Eastern Sector
http://www.lib.utexas.edu/maps/middle_east_and_asia/china_india_e_border_88.jpg

China-India Border: Western Sector
http://www.lib.utexas.edu/maps/middle_east_and_asia/china_indiaw_border_88.jpg

e. We should not think, that the other pending “problems” will be solved by bombs.

e. Or should we?

f. If we should not, then there is no reason to run big military investment programs and to built up a big military machine.

g. If we should not, then there is no reason to speak like -let us say- a Sioux on the war-path.

h. I think, we should stop thinking in categories of enemy, hostility, defens, bombs, aggression, military steel, ..

i. I think, we have only to understand, that we are global, that the guy 10’000miles away is your neigbor.
If you live in the “global village”, you should not dynamit up the house of the neighbor; that makes to much troubles for the others in the village.

k. I hope, the Chinese do not think, that the whole world has an intest, to be hostyl against it.

l. I tell you: in reality there is almost not a single state, that wants overrun any other states.
Till now: there are only two states in ongoing paranoia; I do hope, China will not become the third.

(m. I really don’t understand, what is not understandable or extrem difficult of the word: “we are global”)

globumedes