The Human Conspiracy Blog-space

China, Inc. Part Three

Read Jay B Gaskill’s Lost Souls Coffee Shop, an allegory for the human condition.  More on the Bridge to Being Blog at http://jaygaskill.com/blog2/ .

And read Jay Gaskill’s new thriller, The Stranded Ones.  More on the Policy Think Site at   http://www.jaygaskill.com/TourTheStrandedOnes.pdf .

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Copyright © 2003, 2004, 2005, 2006, 2007, 2008, 2009 & 2010 by Jay B. Gaskill

Permission to publish, distribute or print all or part of this article - except for personal use - is needed.

Forwarded links are welcomed.

Contact Jay B. Gaskill, attorney at law, via e mail at law@jaygaskill.com

This is the third and last in a series of articles. 

See China Inc. One at http://jaygaskill.com/ChinaInc.htm

& China Inc. Two at - http://jaygaskill.com/ChinaInc2.htm .

CHINA, INC. PART THREE

This piece is posted in htm format at this link: http://jaygaskill.com/China3.htm

The global economy changes everything. 

AMERICA, INC. AT RISK

Countries behave more and more like corporations whose rise and fall depends crucially on the international (read external) markets for goods, services and borrowing[1]. When China’s market manipulation and lending actions are seen through this lens, certain startling insights follow.

You can file them under the ‘predatory behavior’ category.

When a large business, seeking monopolistic dominance, floods a competitive market with dramatically under-priced goods for the purpose of burying competitors, anti-trust principles are invoked:  This corporate behavior is called predatory pricing. [See the Wiki-primer at http://en.wikipedia.org/wiki/Predatory_pricing .] 

When a country like China does this to the American manufacturing sector, we just say it’s part of the ‘global economy’.  After all, there is no super country to enforce anti-trust norms.

When a large corporation offers weaker governments special incentives that have the effect of inducing dependence and constraining policy decisions, we call it ‘influence buying’ or, in extreme cases, ‘bribery.’ 

When the current Chinese regime, acting through its agents and puppets, becomes our principal creditor by gradually acquiring one trillion dollars of US debt and policy makers are intimidated, we just say it’s part of the ‘global economy’. 

After all, aren’t we big enough and adult enough to take care of ourselves? 

But when the best the American government can do is to reduce annual borrowing at the margins (i.e., reduce an annual deficit from the trillion dollar category to the merely multi-billion dollar category) we remain hostages; our creditors still hold they keys to our next payday. 

The looming danger should be apparent:  Fewer and fewer lenders are available, except for the ever ‘generous’ Chinese.

‘MIS-UNDERESTIMATING’ CHINA, INC.

The current Chinese regime can be counted on to compete with us ruthlessly and unfairly.  Its current regime will never lift a finger to prevent or ameliorate the demise of the USA as an economic, geopolitical and cultural force in the world, even if that outcome causes temporary economic distress in China itself. 

All the while, the regime will present to us a bland, amiable face, concealing the world’s oldest functioning governing arch-bureaucracy, the world’s most mature predator civilization, and a deep internal turmoil that threatens – always – a clique of frightened post-communist, communist rulers, hiding-in-plain sight.  This is an acutely dangerous phase in China's history.

Any other view of modern China represents suicidal naiveté.

PREDATOR – PREY ANALYSIS

America is a wounded animal, capable of lashing out, but all too vulnerable to predators.

All civilizations are inherently predatory, China and the Western democracies included.  Modern, intelligent predators are capable of cooperating.  The secret here is to avoid becoming prey or indulging in prey behavior. 

Consider a pride of lions.  The weaker, slower prey are always taken first.  We were an ideal target for the Chinese planners.  We have fallen to a trap exploited by a fellow predator civilization with a cultural predisposition for very long term thinking - not a  virtue that immediately comes to mind when one thinks of Americans. 

Now we Americans are in a life-death struggle, but it is not primarily a military confrontation.  [Please note-  any predator needs to retain and be prepared to use teeth.] 

We have taken a dramatic hit in the first phase of a protracted economic confrontation.  We are fully capable of losing in this struggle because we have disabled ourselves to a dangerous degree.   Before I outline the measures that specifically apply to China, we need to take up the more urgent question of self-repair.

THE ELEPHANT IN THE ROOM

For the moment, our current politicians seem blithely unaware of the sheer scale of the transition that will be required to save the USA from the most brutal correction we have ever experienced, the Great Depression included. 

Every annual deficit increases a total national indebtedness.   A single surplus is like a touchdown the last minute of the game when your team is 30 points behind –not much to cheer about.

At the end of WW II, the national debt was 90% of our Gross Domestic Product (the aggregate measure of our internal economic activity).   As we rapidly approach that number (on our way to passing it) we need to keep in mind that two things were dramatically different then: 

(a) We dominated world trade.

(b) Our national debt was not held by our enemies.

In the current and following fiscal years, the national debt will be comparable to the percentage of GDP in WW II.  Moreover – without a sharp course correction - it will exceed 100% of GNP within the current president’s tenure.  

Yes, there are differing estimates, but the reality of the trendlines is starkly clear.  Whatever the details, there is a consensus of recognized experts that the current course is unsustainable, that a debt to GDP ratio exceeding 60% will permanently cripple the economy and that the current debt structure (half of which is held by “foreign interests”) is dangerous.

The Heritage Foundation’s charts are available at http://www.heritage.org/research/features/budgetChartbook/Debt-and-Deficits.aspx . 

The National Research Council’s recent report is summarized at: http://www8.nationalacademies.org/onpinews/newsitem.aspx?RecordID=12808 .

But federal policy makers are still in a denial bubble.  Remember the refrain, “We’re passing the debt crisis on to our grandchildren” ?   We are the grandchildren. 

Here is the real elephant in the room:

For the last three decades the US enjoyed a consumption economy one subsidized by growing indebtedness.  We now must become a production economy characterized by debt reduction.  The longer this transition is delayed, the greater (and more brutally destructive) the inevitable correction.

To understand the alarming seriousness of our predicament, just imagine one scenario: 

I do not exaggerate when I say that this is exactly the kind of scenario that generates a World War.

THE TOUGH LOVE REMEDIES

We are credit addicts, beguiled by the impossible dream that incomes will always catch up with undisciplined spending.  Our credit & consumption spree lasted three decades. It was subsidized by foreign investors who bought into a succession of financial bubbles, all of which were driven by a perversion of the American Dream.

Unless we act decisively, the next sound will be the American Bubble, the plop heard round the world.

The real American Dream was as simple as it is durable:  “Work hard in a free country and eventually you can earn a place among the well off middle class”. 

The perversion of that dream was as complicated as it was evanescent:  “Get on board now with the current fad, borrow if you have too, but you too can be rich!  Hurry!  Get yours now!”

We are addicts to fantasy, to unearned wealth.  We need to break the addiction.  Our first priority:  Wean ourselves from Chinese debt and under-priced Chinese goods, then foreign debt, then all but a tiny carry-over debt that is periodically retired in full, cycle to cycle.

This is not rocket science.  It is just very difficult to implement. 

There are three broad categories of solutions, all of which are well known.  What is currently lacking?  Leadership and political will

Step One.

Radical fiscal discipline. 

Eliminate all budget-forcing elements.

Global warming advocates speak of the “climate forcing” effects of human activities. 

Here are the ‘budget forcing’ equivalents:

(a) Defined benefit entitlements. Instead of committing to a fixed dollar amount, government entitlement programs insist on meeting ‘needs’ by providing supplemental money in the form of cost of living adjustments and non-capped benefits.  All this is hidden in a budget system that puts most annual appropriations outside regular scrutiny, relying on stealth accounting devices like the non-existent social security trust fund.

(b) Built-in cost of living adjustments for salaries and wages of federal employees.

(c) Inflation-adjusted year-to-year appropriations. 

(d) Routine spending beyond realistic revenue projections.  The failure to link general appropriations to real-time payment, allowing under-funded appropriations to create instant political constituencies for their continuation.

Fixed Dollar Amount Solutions: 

(a) Flat line all entitlements, colas

(b) Eliminate all under-funded appropriations.

(c) Create robust overspending auto-correct mechanisms.  Notwithstanding salaries, wages and purchase reserves, all department and agency budges are corrected on a month-to-month real time basis, with instant pro-rata salary, wage and benefit reductions to achieve zero deficit balance.

Adopt 100% discretionary annual budgeting.

At present most of the federal budget is tied down by so called “non-discretionary spending”, which essentially means that the congress has abrogated its ongoing spending authority where all entitlements, like social security, are concerned.   Every appropriation needs to be freshly considered every fiscal year.  No entitlement is sacred.

Practice Zero Minus 2% Budgeting.

Local governments and some larger private businesses are familiar with so called ‘zero based budgeting’ which requires that the affected agency, department or section start the budget process from scratch each fiscal year with a justification for the continuation of last years’ budget. In the Beltway mindset, it is a given that all existing appropriations have earned a permanent place at the trough, including a cost escalator for inflation.  This model radically differs.  Zero is a true zero, the actual absolute amount from the prior year, less 2%, must be justified: (a) what get even that sum, and (b) why not get 2% less.

Step Two

Make the Transition to a Real Budget Surplus, Debt Retirement Model.

In addition to iron fiscal discipline, the present circumstances require us, not only to stop borrowing to fund the federal government (a radical idea in the current Beltway brain), it demands that we begin immediately to pay down the federal debt. 

This requires us to face an unpleasant reality:  Chronic deficits have almost buried us in not-repayable debt.  Merely curtailing the accumulation of deficits will not work.  Those who propose that we ‘grow our way’ out of our debt load have misjudged the sheer scale of the problem.  Consider for  moment, that a responsible American government actually began to generate small budget surpluses.  At ground zero of this noble effort, the total debt would be roughly equal to our entire gross domestic product, about 12 trillion dollars.  Any token debt repayments would probably not exceed the debt service.  How much growth in our GDP can we reasonably count on?  Take a number, say 4%.  Assume we have stopped the debt growth in its tracks by not borrowing at all.  To bring the ratio of outstanding debt to GDP below, say 40% (from unthinkable to horrendous, to awful, in other words) would require that we grow the Gross Domestic Product by about 150%.   That would take us roughly 9 and a half years.  And that assumes an unprecedented level of fiscal discipline coupled with a sustained growth rate, with no intervening recession. 

But it could be done.

Step Three

Achieve Sustained Economic Growth

This project requires a set of insights that some on the left, including the Chinese post-communist, communist leaders now dimly understand – an improvement over their former block-headed puzzlement.  Economic progress starts with innovation, is propelled by risk-taking and sustained by reward.  Every failed economic model in the last 80 years shares one fatal flaw: development killing bureaucracy.

The liberal mindset at its very best is the human charitable impulse made public policy.  The conservative mindset at its very best is the creative impulse made public policy.  Excessive bureaucracy kills both.  

I am persuaded by the subset of economists who hold that economic progress is primarily driven by profit-making business progress.  It follows that the next cohort of leaders capable of extricating the US from its economic malaise will have cut their teeth in intimate, ground level contact with the business community. 

Several lessons emerge from a study of business-led economic recoveries.  Here they are:

LESSON ONE

Don't differentially burden achievement, as measured by the most rigorously honest metric available, profitable earnings.  When governments punish behavior, the behaviors tend to abate. When politicians punish profits, there are fewer and fewer profitable enterprises.

About three years ago I witnessed a remarkable interview of an arch-liberal public figure (still in office, inhabiting one of those safe urban seats) who was being questioned about the economic wisdom of burdening the business economy with too many costly social programs.  His reply was remarkably candid.  I paraphrase:  “We've learned that we need capitalism in order to have wealth to redistribute.  And in recent years, we've learned that the private economy can tolerate a lot more that we thought it could.” 

Three years later, we can now add, “...and now you've found the limit by running a train well past it.....”

LESSON TWO

Government spending dries up capital available for business development.  [I won't outline the evidence here.  I invite my fiscally conservative friends in both parties to remove your ideological blinders and study the issue.  Some relevant links include: http://online.wsj.com/article/SB10001424052748704471504574440723298786310.html and http://www.house.gov/ryan/speeches_and_editorials/2010speechesandeditorials/12710roadmap.htm ]

LESSON THREE

Bureaucracies unreasonably  delay and constrain business development.

Obvious?  not to our current political leaders.  Some starting links: http://www.enterpriseworks.org/pubs/IRG%20Discussion%20Forum.pdf and http://www.aei.org/article/101387 .

LESSON FOUR

Government imposed employment requirements retard job growth.

See these links among many others, http://www.cato.org/pubs/tbb/tbb-0508-25.pdf and http://www.infoplusacct.com/laborburden.html .

OUTLINE OF THE CHINA-SPECIFIC SOLUTIONS

Assume that the  US works overtime to restore a vital,productive, debt paying economy. In the meantime we need to address the China issues because China is a bureaucratic, authoritarian state on the make.   

China needs clear boundaries from us.  Jimmie Carter's impotent railing at the Soviet Union is not the model to follow.  Our opposition must be bright line, to be sure, but in every instance it should be linked unflinchingly with real-world concrete consequences. 

Here's a short list to be followed by an economic war plan.  

We oppose, prudently to be sure, but resolutely and effectively any Chinese territorial expansion, especially Taiwan. 

Remedy: Military alliances in the Teddy Roosevelt tradition.  We can afford to be polite in our rhetoric, while leaving no doubt whatsoever about our bottom line.  We have a time window during which no Chinese regime, whatever its rhetoric, would dare entertain a military solution to our resolute defense of the democratic status quo.

We oppose Chinese intimidation of functioning democracies, especially Taiwan, but also Hong Kong.

Remedy: Economic support via a selective, pro-democratic trade policy.  [More below].

We fight back against Chinese intellectual property and industrial secrets piracy.

Remedy: Pierce the government-corporate veil, attach assets, selectively devalue indebtedness. [More below.]

We prevent Chinese predatory pricing.

Remedy: Anti-democracy import surcharge. [More below.]

We face down Chinese predatory lending.

Remedy: Selective borrowing freeze. [More below.]

DISCUSSION

Conservatives have been just as naïve about free trade dogma as the liberals were about the immortal golden goose.  The golden goose has lymphoma and free trade has become an open door to predators.

There are several concrete economic actions that the USA could put in place within the next four years:

Trade

We selectively deny free trade benefits to identified non-democratic regimes, especially China. 

This would be accomplished via congressional legislation that binds the president. It would be accompanied by several findings, among them that Taiwan and, on a selective basis, Hong Kong-originated enterprises are presumptively exempt as long as these regions remain democratic in fact.

Otherwise, all Chinese enterprises are considered agents of the regime, whatever their pretensions to the contrary.

Based on compelling, dramatic evidence presented in open hearings, Chinese goods are determined to be tainted by employment abuses, slave labor, child labor, comprehensive health and safety violations, repression of free speech and religious practices

Based on a similar body of evidence, Chinese commercial enterprises are found to have collectively benefit from comprehensive and systematic theft of intellectual property and trade secrets.

A reparations-surcharge is applied across the board on all non-expect goods from Mainland Chinese sources, their agents and surrogates.

Predatory lending.

Based on appropriate congressional abuse findings, as above, all further borrowing by the US government, and all its agencies, including the fed, from Chinese mainland sources is forbidden.  A separate debt-repayment surcharge is attached to all Mainland Chinese-sourced imports on a dollar-for-dollar basis, that is, for every dollar paid for an import, an additional dollar is charged and applied to retire a dollar of existing federal indebtedness to Mainline Chinese lenders.

Private lawsuits, including class action suits, for product contamination and related liability issues are authorized against Mainland Chinese enterprises directly against the Chinese government on a collective-control-equals-collective-responsibility basis.  A collection procedure is established to attach Chinese assets and for further surcharges on Chinese goods. [See my 2008 proposal, China Syndrome - http://jaygaskill.com/ChinaSyndrome08.htm ]

Caveats and exceptions.  Not all our strategic partners are perfect democratic countries. But they are partners and they do not hold us hostage as massive creditors.  A presidential exception, limited in scope is an essential safety valve. 

Make no mistake.  Doing these things amounts to a declaration of war, a trade war to be sure, but a real war, one that will call us for a time to the same level of dedication and endurance our grandparents went through in WW II.  What do we have to lose?   They think we are already defeated.  All we have to lose is our soft chains, our prey status.  And we gain a brilliant future for our children, the restoration of the American dream.

Thank you, China, for waking us up before it as too late.

JBG

Posted by U2RGood at 01:44 PM | Permalink | Comments (0)

Posted by U2RGood at 04:30 PM | Permalink | Comments (0)

IMPLICATIONS OF THE MASSACHUSETTS ELECTION

Read and print this article as posted in htm format at this LINK:

http://jaygaskill.com/SpinningMASSACHUSETTS.htm

SPINNING THE MASSACHUSETTS CORRECTION

The Clash of Narratives-

&

WHAT HAPPENS NEXT?

Crafting the dominant narrative out of the latest developments is the game of the media, the punditoria and the political class.  The pending Massachusetts surprise poses a real problem for the political elites because it potentially challenges all of the narratives.  As a result we’ll see a concerted attempt at “narrative containment” over the next few weeks.  But it won’t take until a new narrative emerges.

Once a narrative takes root on center stage, it becomes a self-perpetuating filter.  On the eve of the Massachusetts upset, we are at a narrative tipping point and the pundits, opinion shakers – and those whose careers will live or die when the new narrative takes hold are scrambling for position.

Spin is the art of warping the meaning of current events to fit the dominant narrative.  What is about to take place is beyond mere spin, because there is, as yet no new dominant narrative. [and this holds true whether Brown wins or loses by a narrow margin in this "safely blue" state.]

PAUL KRUGMAN, the liberal economist-turned-political columnist, is fiercely clinging to the “liberal elites know best” narrative, even at the expense of the destruction of the Democratic Party.  

DAVID BROOKS, the New York Times’ ever-thoughtful embedded quasi-conservative, elite-minded Obama-fan, is struggling to craft a “the people are sometimes almost-right even when they are Right” narrative out of this.

Two more cautious voices from the NATIONAL REVIEW are included for “balance”.  My own views are outlined at the end.

THE NEW YORK TIMES

PAUL KRUGMAN

What Didn’t Happen

http://www.nytimes.com/2010/01/18/opinion/18krugman.html?scp=2&sq=krugman&st=Search

Lately many people have been second-guessing the Obama administration’s political strategy. The conventional wisdom seems to be that President Obama tried to do too much — in particular, that he should have put health care on one side and focused on the economy.

I disagree.

It’s important to remember, also, how important health care reform is to the Democratic base. Some activists have been left disillusioned by the compromises made to get legislation through the Senate — but they would have been even more disillusioned if Democrats had simply punted on the issue.

And politics should be about more than winning elections. Even if health care reform loses Democrats’ votes (which is questionable), it’s the right thing to do.

DAVID BROOKS

The pragmatic Leviathan

http://www.nytimes.com/2010/01/19/opinion/19brooks.html?ref=opinion

[OBAMA’S] has become a voracious pragmatism. Driven by circumstances and self-confidence, the president has made himself the star performer in the national drama.

He is no ideologue, but over the past year he has come to seem like the sovereign on the cover of “Leviathan” — the brain of the nation to which all the cells in the body and the nervous system must report and defer.

Many Democrats, as always, are caught in their insular liberal information loop. They think the polls are bad simply because the economy is bad. They tell each other health care is unpopular because the people aren’t sophisticated enough to understand it. Some believe they can still pass health care even if their candidate, Martha Coakley, loses the Senate race in Massachusetts on Tuesday.

That, of course, would be political suicide. It would be the act of a party so arrogant, elitist and contemptuous of popular wisdom that it would not deserve to govern. Marie Antoinette would applaud, but voters would rage.

The American people are not always right, but their basic sense of equilibrium is worthy of the profoundest respect.

THE NATIONAL REVIEW

http://corner.nationalreview.com/post/?q=YjNmYmY1NzQxNDQ5OWY2N2NhYTM2ZTM3MmY3ZTE2YjE=

MARK STEYN

The Scott Heard Round the World

[THE] genius Dems succeeded in making their own assumptions about one-party rule a very potent secondary issue. Very foolishly, Obama both underlined the regal hauteur of the Massachusetts machine — and simultaneously nationalized the election by portraying it as a referendum on the Hopeychange. If Martha now loses, he can't plead it's nothing to do with him.

JIM GERAGHTY

The Perfect Storm Hits

http://article.nationalreview.com/?q=ZmQwZjM0YWFjMWExYzg3MjI3Njk2ODYyYjhmOTJlYmM=&w=MA==

A Brown win will have Republicans believing that they can win anywhere, and that confidence will be wonderful heading into the midterms. It’s worth remembering that a Republican can win anywhere with that perfect storm: a strong candidate, a weak and clumsy opponent, independents fed up with the status quo, and a lucky break or two along the way.

B U T ... N E X T

THE COMING POPULIST REFORMATION

The best kept little secret is that American populism is more intelligent and better informed than any prior populist movement in history. 

We are seeing a set of events the onset of which I’ve been predicting since 2006.  [See http://jaygaskill.com/newPPP.htm Populism 101 --Party, Polity and Populism].

The most potent populist movements in history have been propelled by the middle classes.  Nothing has changed in that respect.  The American ruling democrat elites have lost the middle class, but the republicans haven’t yet credibly filled that vacuum. 

In reality, the staggering scope of the economic and geopolitical problems facing the US requires an entirely new level of leadership, one that combines clarity, candor and common sense in a way that incorporates poplar wisdom and elevates policy. This is a tall order indeed and why: WE NEED AN AMERICAN RENAISSANCE. 

I’ll have a great deal more to say about this over the coming weeks and months.   The barest conceptual outline follows.

ARCHITECTURE OF AN AMERICAN RENAISSANCE

FIVE THEMES:

[1] Inclusive growth through shared freedom and responsibility;

[2] Rejection of identity politics;

[3] Robust protection of personal liberty and national safety;

[4] Creation and production vs. repression and appropriation;

[5] Protection of family stability;

[6] Political honesty and accountability.

PROMOTIONAL CRITERIA FOR CANDIDATES

PERSONAL: Likeable & intelligent with gifted communication skills.

SUBSTANTIVE: “Gets” the five themes, lives the 6th, has an attractive policy agenda and some policy accomplishments.

RESUME: Both government and private sector experience, solid character references and an upward life experience vector.

Posted by U2RGood at 11:21 AM | Permalink | Comments (0)

Want to escape the dismal headlines? Read Jay Gaskill’s new thriller. 

Find out more at http://www.jaygaskill.com/TourTheStrandedOnes.pdf

[ Print Version of this article is posted at: http://jaygaskill.com/TheTsunamiCorrection.htm ]

THE COMING TSUNAMI CORRECTION

Why an Ideological Rebalancing of the Congress is almost certain....

Welcome to the Policy Think Site: http://www.jaygaskill.com    

As Posted On

The Out-Lawyer’s Blog: http://www.jaygaskill.com/blog1   

The Human Conspiracy Blog: http://www.jaygaskill.com/blog3 

Also check out the “OutLawyerGaskill” channel on YouTube at http://www.youtube.com/user/OutLawyerGaskill ...

All contents, unless otherwise indicated are --

Copyright © 2003, 2004, 2005, 2006, 2007, 2008, 2009 & 2010 by Jay B. Gaskill

Permission to publish, distribute or print all or part of this article - except for personal use - is needed.

Forwarded links are welcomed.

Contact Jay B. Gaskill, attorney at law, via e mail at law@jaygaskill.com

The 60/40 senate juggernaut was formed in the 2008 “red to blue” election when eight seats changed parties from Republican to Democrat.  This left the Democratic caucus - that includes independents Lieberman (Connecticut) and Sanders (Vermont) - with a filibuster-crushing 60 votes.

In this year’s election, only 16 Democratic seats are up.  For purposes of this discussion, I’ll consider the 18 Republican seats to be safe.

Given current polling trends, we can reasonably expect the House to change ideology, but not necessarily party control this November.  The key to my assessment is that the remaining Blue Dog contingent in the House are going to be more and more willing to defy the current leadership on behalf of their local constituents. 

The populist, anti-incumbent, anti-elite mood is as intense as any current political observer can recall...and it is growing. 

The race to watch is the special senate election in Massachusetts.  If the Republican challenger Scott Brown defeats the shoo-in Democrat establishment nominee Martha Coakley this Tuesday, it will be the equivalent of a political tsunami.  Even a cliff hanger will be a loud message:  This is a growing trend, one that can upset the power grip of Democrats even in the bluest of states.

Note to liberal Democrats:  You are in denial if you continue to misread the current trend as a blind reaction to the recession, because it is, at core, a knowledgeable reaction to liberal excesses.  It represents the desertion of a supermajority of independents, driven by revulsion, fear and - dare I say it? – hope.  The leftwing hubris of the congressional party leaders, Reid and Pelosi have created a teaching moment for the Democrats, to wit: that independent Blue Dogs are your indispensable internal check and balance against going over the cliff.  The independent voters got the lesson.  Democrats may need to learn it the hard way.

Note to conservative Republicans:  You are on probation.  Scott Brown’s surge is fueled by a populist, anti-establishment mood, to be sure, but it has moved the needle much farther in this blue state because Brown is presenting as an intelligent, good-government conservative, rock solid on the conservative issues that unite Americans, but with a lighter touch on the divisive issues, as a kinder, more gentle Rudy Giuliani, if you will.    

The Massachusetts outcome aside, even a single shift in the Senate will undo the Democrat’s grip on the filibuster-choke.  And that is certain to happen.  For example, Senate Majority Leader Harry Reid will probably lose in Nevada.  On balance more Democratic Senators will certainly lose their seats than will Republicans.  Knowing this, the administration and Democratic congressional leaders are attempting to structure all key legislation this year such that the president and a simple senate majority can block their repeal in 2011.

So the real question becomes this:  Is there a scenario in which the 2010 elections could produce an effective conservative Senate coalition, composed of independents, Blue Dog Democrats and Republicans?

Open seats held by Democrats include: the late Senator Kennedy’s seat in Massachusetts (open pending the special election on Tuesday), Roland Burris’ seat in Illinois, and Ted Kaufman’s seat in Delaware.

To this short list we can now add the “preemptive retirement” seats held by Chris Dodd in Connecticut and Byron Dorgan of North Dakota.

In the Democrats’ nightmare worst case, the only truly “safe” incumbent seats are Inouye of Hawaii and Schumer in New York.  Realistically, however, the Democrats will likely retain nominal control of the Senate.

I say nominal control because Blue Dog Democrats will undoubtedly rediscover the political value of striking out on an independent path when Republicans regain 15-30 seats (39 would shift control). 

Recall that the 11-7-09 vote for the health care “reform” bill was only 220 yes against 215 no, with 39 Democrats voting no with the Republicans.  That was a five vote margin for a measure that is now polling at 55% against among likely voters. 

Public opinion cannot be ignored for two years.  We can reasonably predict that enough conservative and fiscally prudent Blue Dog Democrats will emerge in the November congressional elections to restore the House to its traditional center-right orientation whether or not the Democrats lose control. 

On the Senate side, a new majority leader will be in play, either way, and the remaining Democrat senators (probably a greatly reduced majority) will no longer be willing to buck public opinion. 

On November 6, 2012, 33 of the 100 senate seats are up and 24 of them are Democrats.  It’s enough to provoke some authentic soul searching among party leaders, don’t you think?

JBG

Posted by U2RGood at 10:20 PM | Permalink | Comments (0)

We Americans are deep in debt to a brutal regime that is fully capable of executing dissenters in the thousands. They think we can be bought because many of our political leaders already have. But there is hope.  More below....

Want to escape the dismal headlines? Read Jay Gaskill’s new thriller.  Details at  http://www.jaygaskill.com/TourTheStrandedOnes.pdf

Welcome to the Policy Think Site: http://www.jaygaskill.com    

As Posted On

→The Out-Lawyer’s Blog: http://www.jaygaskill.com/blog1   

→The Human Conspiracy Blog: http://www.jaygaskill.com/blog3 

All contents, unless otherwise indicated are --

Copyright © 2003, 2004, 2005, 2006, 2007, 2008, 2009 & 2010 by Jay B. Gaskill

Permission to publish, distribute or print all or part of this article - except for personal use - is needed.

Forwarded links are welcomed.

Contact Jay B. Gaskill, attorney at law, via e mail at law@jaygaskill.com

The Print version of this article is posted at this link:  http://jaygaskill.com/ChinaInc2.htm

China Inc., Part Two

Why We Must Prevail

America, the shining hope of the world, stands diminished by our government’s deep indebtedness to a predatory corporate entity.  This “corporation” has proved itself fully capable of executing dissenters in the thousands, of enslaving men and women in the hundreds of thousands – even millions, all without the least tremor of conscience.  This huge corporate entity plans to back us into a corner where its leaders hope to force us to choose between economic oblivion and our own political subordination.  Their style is stealth and gradualism.  Our subordination has already begun.  Our weakness has already generated policy rationalizations for submission among the intellectual class, while our friends on Wall Street are still hypnotized by tomorrow’s transaction. 

This is your wakeup call.

If you have read the companion article (www.jaygaskill.com/ChinaInc.htm) you already know that the corporate entity is China, the world’s oldest empire.  This is the country with the uniquely long view and the long history. China is the country whose collective memory of its former humiliation by the West is as vivid as yesterday.

I began my first article in this series by praising the economist Paul Krugman for the insight that Chinese economic behavior is predatory, and criticizing him for taking economic analysis beyond its range of competence.  His solution (see the original article) is to persuade the Chinese regime that the revaluation of Chinese currency against the dollar and the Euro is to the rational economic self interest of everyone concerned.  I’ll return to Krugman’s ideas in a moment, but let me first record my belief that the Chinese won’t do it.  Moreover, I believe I know why they won’t do it.

The quaint notion that people and nations are only motivated by rational self interest, especially as seen through the lens of a civilized chat at Yalta in 1943 or at Versailles in 1919 or Helsinki in 1975 has been belied by the human experience.  The Yalta, Versailles and Helsinki discussions were preceded by bloody and protracted armed conflicts. 

People are capable of coolly rational appraisals, but we are not moved by them:  When I hear advice about China from the “all people are rational in the same way that we are” crowd, a vivid set of counter examples comes to mind, among them:

• The .2 million joyfully screaming soccer fans at Maracana Stadium in Rio De Janeiro in 1950;
• The huge and frightening hordes of resentful Nazi thugs-in-uniform marching through the streets of Weimar Germany in 1923;
• The Chinese women weeping at the (still continuing) state-ordered abortion of their babies ( http://www.npr.org/templates/story/story.php?storyId=9766870 )
• The hollow-eyed Jewish prisoners being herded to their mass executions, too many of them to count, far too horrible to recount by the deniers (1941-44);
• The exultant crowds at a Dave Brubeck concert in 1963 New Deli and 1970 Warsaw;
• The throngs of Chinese soldiers invading Tibet in 1950 and the tanks crushing freedom-seeking students in Tian'anmen Square in 1989.

Mere economics does not explain the full range of human behavior because it is a derivative discipline: Economics tells us that IF a mass of people want a certain thing, they will be presumably willing to trade X or Y for it, but the values traded within of various transactions always depend on psychological intangibles. 

In fact, there are some things people will kill for.  And there are goals that involve values and objects that excite passions that are well outside mundane market analysis.  China’s behavior is one of those non-mundane intangibles, understandable through a study of history, but not predictable in the sense that the price of milk will go up in a shortage. 

This is why economics fails over and over again as a predictor of human behavior.

The ineluctable fact of our predator natures colors everything, including the current Chinese regime’s behavior over the last several decades.  We need to remind ourselves that the Chinese people achieved total hegemony over an entire continent.  Where were the original peoples?  They escaped, first to Taiwan, then by canoe to the Pacific (as chronicled in the classic Guns, Germs and Steel by Diamond).  Had these peoples not escaped, there would be no trace of them in China, not a single one.  Make no mistake:  Humans are the world’s alpha predators and the Chinese civilization is humanity’s most venerable alpha predator organization.

China wants the USA to fail as a system, as a country and as an example to the world.  Alternatively, they want us to play the boot-licking role assumed by little Finland in the shadow of Soviet power. Predators will cooperate with other predators but not with prey.  Our first priority as Americans is not to become prey.  Our second priority is to make sure our co-predator friends do not become Chinese prey.

It would be irresponsible of me to have outlined our folly and peril in my earlier piece (China Inc and the American Future) without offering a solution.  I will suggest that in this piece and present the solutions in more detail in Part Three. 

If you are ever tempted to underestimate the growing psychological weakness that is infecting American policy makers and advisors, your complacency can be nipped in the bud.  Read in the current (January-February 2010) issue of Foreign Affairs, by the Journal of the Council on Foreign Relations, a piece titled, “NOT SO DIRE STRAITS, How the Finlandization[1] of Taiwan Benefits U.S. Security”, by Professor Bruce Gilley. 

Until now, Taiwan has remained an island of economic vitality and political freedom, a constant irritant (but not a threat) to the Mainland communist regime because it has remained within the zone of American strategic protection.  In predator terms, this means “this is not your prey”.  In geopolitical terms, this is a protected zone of democratic political processes and economic freedom, a living laboratory of a successful model to be protected and copied,

The entire Foreign Affairs article would have been rejected out of hand ten years ago.  How economic dependence and weakness changes one’s “strategic perspective”! 

Professor Gilly makes the classic “prey argument” while trying very, very hard not to admit that it is just the same thing as “appeasement”.  I believe that this piece is the foreign policy establishment’s trial balloon, an attempt to float something chillingly like the inapt advice some “hip’ men in the 70’s gave to potential female rape victims: “Relax and enjoy it; it’s the rational thing to do”.  I recommend that ladies in danger take self defense training and carry firearms.

We will see more and more of this kind of thing.  Our negotiating leverage with the Chinese has been blown; the secret is out and the media are on the case:  [http://abcnews.go.com/Politics/International/story?id=1867118&page=2 ] 

We must proactively address the Chinese debt problem, and soon, or we will suffer the Finandization of the USA.

Consider (but do not be intimidated by) the scope of the problem: 

For decades the US government has been living on borrowed money.  This is behavior that normally ignites an inflationary bonfire because it recklessly expands the money supply.  But inflation was held back by a devil’s bargain:  The Chinese lent us the money to buy their manufactured goods at ridiculously low prices.  This was money lent to us at very low interest rates.  The Chinese regime approved this arrangement, in part, because our banking system was backed by the new fools’ gold standard, highly leveraged, greatly overpriced American real estate. But I believe the Chinese regime really did this for an entirely unrelated reason. After all, the Chinese are not fools: They have already been paid. 

The influx of their underpriced goods postponed our great inflationary reckoning, lulling us into bubble after bubble, and bust after bust, while our key industries were being hollowed out. 

What did the Chinese get out of this?  They were able to use this credit and fire-sale shipment arrangement to loot our intellectual property and industrial skills. 

Walk through any store and start reading the labels.  It is a chilling exercise.  I spent 30 minutes a few days ago in my favorite hardware store ago trying to find any tool, machine or useful artifact that was made in the USA.  I rejoiced when I found a drill assembled in Mexico. 

Everything else was made in China.

Thirty years ago, all those hammers, drills and saws were made in factories on American soil. 

The Chinese thirty year plan has succeeded:  They have cloned our factories, rebuilt them in China and driven their American competitors out of business. 

Now we are in a hostage situation of our own bipartisan making.  Withdrawal from cheap Chinese manufactured goods will be traumatic because the cost differential is close to three to one.  But at this point, severe inflation is almost inevitable because of the huge frontload of federal fiat money chasing a limited inventory of goods and services.  

And we still owe the Chinese almost a trillion dollars.  That number is growing as I write this.  Well before the current president’s first term is over, the trillion dollar mark will have been exceeded.  We continue to borrow.

Even if we repudiated our entire debt held by the Chinese regime and its agents (not likely), we’d still be under water.  No other lender will be willing to finance the lunatic binge spending of the US Congress and the runaway costs of our “non-discretionary” entitlements.  If the Chinese ever do inflate their currency and we ever devalue ours (the hoped-for scenario by many economists), our trade balance will improve (but not our income!). Our unpaid debt will not go to zero, and – all other things equal - we’ll still be insolvent. 

As I said, the Chinese were not fools.  They have already been paid. 

You will recall that President Obama was recently stiffed by Chinese leaders in a celebrated face to face series of meetings that out stage-managed our Politician in Chief.

“President Obama and Chinese leader Hu Jintao discussed a wide range of issues during the president's visit to the communist nation, including climate change and Iran's nuclear program. But there’s one issue aides say the two leaders didn't talk about: China's holding of $800 billion in U.S. treasury bonds.”

[ http://www.foxnews.com/politics/2009/11/17/obama-hu-avoid-discussions-indebtedness-china/ ]

No.  We wouldn’t want to talk about the elephant in the room, would we?

Arguably the US might have been better in the long run, if we had used the stimulus package to pay back the Chinese.  But that was not possible, because the stimulus was financed with borrowed money, too.

We need to change direction.  I believe that will actually happen.  The open question is whether we will act quickly and decisively enough to be effective.  Here is an outline of our situation and the direction any real solutions will necessarily take:

1. Like the former Soviet Union, modern China is riddled with contradictions that will eventually lead to a collapse of the communist regime.  This collapse will be followed by profound internal changes that will eventually produce one of two outcomes: (a) China reemerges as a federation or collection of smaller nations, that in terms of peaceful behavior and civilized conduct are on a par with contemporary Europe and Japan; (b) The whole process devolves into World War III (or IV), a conflict that will threaten the survival of civilization itself.
2. China’s transition process may take a very long time, during which its current regime will attempt to perpetuate itself by bringing America down into ruin and irrelevance or by fully subordinating us as an underpaid supplier and political vassal.
3. Only a strong, prosperous and independent America, recommitted to our founding revolutionary principles can provide the bulwark against the very worst of these alternatives.
4. Therefore we need to extricate our selves, on both the private and governmental level, from the current excessive debt load, and entirely from indebtedness to the Chinese regime and its puppet enterprises.
5. We must also, and in roughly the same time frame, reverse our negative trade balance with the rest of the world, and in particular we must wean ourselves from any dependence on Chinese products, the inflow of which in the present circumstances is like loss-leader priced heroin.

As difficult as the last three goals might seem, the advantage of pursuing them intelligently and relentlessly is that our economy can be restored to stable, sustainable prosperity in the bargain.  And this can readily be accomplished within the lifetimes of the current generation of middle-age adults, done in more than enough time to provide our children and grandchildren with the America that, once again, is the light of the world and the foundation of the American dream.

I promised early in this piece that I’d explain my prediction that the Chinese will not revalue their currency to comply with Paul Krugman’s notion of their economic self interest.  From the predator perspective, China needs to “conquer”, i.e., politically subdue all of the other predators who represent a potential competitive threat within the intended scope of the “prey field” over which the Chinese regime needs secure control.  China is about 20% of the world population and we are about 5%.  China’s interior is not capable of feeding its own population, most of which is rapidly migrating to the cities.   The largest proven agricultural resources in the world are in the Americas, particularly in the US.

China, as a predator civilization, has embarked on a full industrialization strategy, one that requires unfettered access to all the resources and food needed to support its huge and increasingly demanding population.  If we let them, China hopes to accomplish the deindustrialization its American competitor and the reconfiguration of the American economy as its agricultural supplier and recreational venue.  Failing that, China would be comfortable with our demise, leaving the rest of the planet, including South America, as unprotected prey.  China will not do anything to ameliorate our situation, including revalue its currency, until and unless that step is necessary to achieve the territorial and political market control (read hegemony), that it seeks.

Is this irrational behavior from a genteel economic perspective?  Yes.   But is it the reality we face?  Yes, again.  No student of history should be the least bit surprised.....

In China, Inc. Part Three, I’ll outline the concrete steps we must take when we choose to meet the challenges raised in points 4 and 5.  I believe this will be one of those unique times in our history when it may feel like a war, but not a shot need be fired.

Stay tuned and do not despair....

JBG

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CHINA INC. & THE AMERICAN FUTURE:

Paul Krugman almost gets it.

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CHINA INC. & THE AMERICAN FUTURE:

Paul Krugman almost gets it.

Analysis

By

Jay B Gaskill

“China has become a major financial and trade power. But it doesn’t act like other big economies. Instead, it follows a mercantilist policy, keeping its trade surplus artificially high. And in today’s depressed world, that policy is, to put it bluntly, predatory.”

Paul Krugman, January I, 2010

Highly credentialed pundits like Dr. Krugman tend to present themselves as shrewd and “worldly”. 

No surprise there.

They want us to know that their special knowledge comes with special wisdom.  We live in a celebrity obsessed age in which undereducated actors have become international experts.  “If those Hollywood idiots can do it”, the highly credentialed pundits think, “then we can do it ten thousand times better”.  

A hint to the wise: 

Given enough adoring attention, we are all “experts” on matters far removed from our core expertise.  As a lawyer with a laptop, I’m no different.  But my particular expertise is thuggish behavior.

Here’s the dirty little secret: 

Most modern intellectuals are “reality challenged” in that they are seduced by the notion that rational self interest is the governing principle of the world.  This is typically presented in the drawing room, gentlemen-and–ladies-making-deals context. 

It excludes three essentials from the picture, all of which are painfully evident from a study of Human history:

(a) We Humans are the top predators of this planet.  This is a role we cannot ignore or ever fully escape...because the alternative is to become prey.  This is why our main institutions are predatory in function in that they always seek to expand the range of the predatory harvest and to kill off or subordinate all competing predators. 

(b) Nation states are predators.

(b) Thuggish behavior is low level predator conduct.  It will always emerge when any predator group starts thinking and behaving like prey.  The drawing room ethos is prey behavior unless it is coupled with an overarching, alpha-predator toughness.

“We are able to sleep soundly in our beds because rough men stand ready to act in our behalf....” [Attributed variously to Churchill or Orwell, but you get the idea.]

The drawing room, genteel, rational self interest paradigm is the disease of the modern intellectual.  It is seductive because, after all, who is better equipped to determine what is in your rational self interest than some professional economist, political scientist or even a REAL scientist. Does it matter how removed your problems and concerns are from somebody’s doctoral dissertation?  Not if they have risen to the top of the heap of punditry.

Paul Krugman is a Nobel Laureate in Economics and he writes in the New York Times about a variety of political topics.  The common thread in his pieces is that economics and politics are inseparable and that Dr. Krugman knows best.  To be fair: Sometimes that works out.  Though a liberal, Dr. Krugman has served as the current administration’s most effective critic. 

On January 1, Paul Krugman got something right.  Then he flinched from the implications. 

Here’s an irony for you:  The part that Krugman nailed was in complete accord with the views of two populist gadflies, Lou Dobbs and Ross Perot.  Such a right/left/populist concordance alone is enough to make us commoner types wake up and take notice.

Mr. Dobbs has been a trenchant critic of American trade policy for years, pulling no punches when the Bush Administration continued down the same suicide trail that was blazed by several previous administrations.  Ross Perot was the first major figure to apply the ‘emperor has no clothes’ clarity of vision to the US borrowing and outsourcing addiction.

Let me quote Krugman and Dobbs side by side:

Krugman said this on 1-1-10:

China has become a major financial and trade power. But it doesn’t act like other big economies. Instead, it follows a mercantilist policy, keeping its trade surplus artificially high. And in today’s depressed world, that policy is, to put it bluntly, predatory.

Dobbs said this on 3-28-04:

... in the two years since the United States paved the way for China's entry into the World Trade Organization, our trade deficit with China has increased by nearly 50 percent. The total U.S. trade deficit has reached nearly a half-trillion dollars.

And on 1-23-08, Dobbs added:

The irresponsible so-called free trade policies of Democratic and Republican administrations over the past three decades have produced a trade debt that now amounts to more than $6 trillion, and that debt is rising faster than our national debt. All of which is contributing to the plunge in the value of the U.S. dollar.

LINKS:

Krugman: http://www.nytimes.com/2010/01/01/opinion/01krugman.html

Dobbs: http://www.usnews.com/usnews/opinion/articles/040405/5dobbs.htm

AND: http://www.cnn.com/2008/US/01/22/Dobbs.January23/index.html

On a separate, but related point, Dobbs trenchantly connected another set of dots:

By entering costly free-trade agreements and allowing the WTO to extend its reach, the United States has been complicitous in broadening the strength and scope of the multinational corporations, which resemble nation-states in wealth but have none of the limitations of national borders. And huge multinational corporations, unlike nations, also have no significant responsibility to the citizens of any particular country.

Let me complete the circle:

This is about China, Inc., the worlds largest, most dangerous and least socially responsible “multinational” corporation.  Its behavior is textbook consistent with a predatory corporation bent on destroying the competition by flooding the market with underpriced commodities (driving other manufacturers out of business) and goods and securing exclusive supplies of essential raw materials (think of China’s quiet acquisition of “rare earth” metals with the goal of achieving monopoly control of the essential ingredients for high-tech energy -  http://www.theaustralian.com.au/business/news/china-builds-rare-earth-metal-monopoly/story-e6frg90f-1111119076188 ). 

China is also an ancient culture for which long term thinking is hard wired. 

We have been losing a three decade chess game with an ancient empire.  There is just time enough to wake up before we reach the checkmate stage. 

It is no coincidence that China is “not helpful” when it comes to Iran’s nuclear ambitions.  One more 911 would be the Coup de gracé for the American economy. 

Rational self interest?   Perhaps.  But drawing room ethics?  Forgetabout it.

JBG

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