Tag Archives: China

Are You Prepared for the End of Fake Money? by MN Gordon

Fake money, fiat debt instruments, are responsible for many of the world’s economic ills, including persistently unbalanced trade relationships. From MN Gordon at acting-man.com:

What Is Money?

Today we begin with a fundamental question: What is money?  This, no doubt, is an important question.  And we ask it with clear intent and purpose.  Namely, we want to better understand how it’s possible for America to rack up such a massive trade deficit with China.

 

China-US imports and exports of goods. It has to be stressed that the most often cited figure is the trade deficit in goods, which is the “scariest” figure. The US surplus in services with China has grown rapidly in recent years. It was $33 billion in 2015, doubling from $16.5 billion just four years earlier. By 2017 it had grown to $38.5 billion. The idea that a trade deficit is somehow “bad” is highly dubious. “Countries” do not trade with each other anyway – individuals and companies do, and they obviously do so because they deem it advantageous for both sides. Moreover, these aggregate statistics obscure more than they reveal. The global supply chain is extremely complex – a single $3 t-shirt “Made in China” will contribute to the incomes of people in some 15 to 20 countries before a consumer in the US plucks it off a shelf at Wal-Mart. If we were to talk incessantly about the US capital account surplus – which offsets the trade deficit – would anyone complain? [PT]

America’s trade deficit with China, in 2017 alone, was $375 billion.  That’s a gap of over $31 billion a month – or $1 billion a day.  We believe having a better grasp on what money is will bring clarity to the nasty trade deficit that’s motivating today’s burgeoning trade war.

With respect to our initial inquiry we turn to Victorian economist William Stanley Jevons for edification.  In his 1875 work, Money and the Mechanism of Exchange, Jevons stated that money has four functions.  It’s a medium of exchange, a common measure of value, a standard of value, and a store of value.

Many deficiencies with today’s renditions of money, including the dollar, appear when applying these functions to the present system of floating exchange rates.  With the exception of functioning as a medium of exchange, the dollar, like all of today’s debt based fiat currencies, comes up short in its function as a common measure of value, a standard of value, and a store of value.

To continue reading: Are You Prepared for the End of Fake Money?

 

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6 Reasons Why a Trade War with the Chinese Is Pointless, by Patrick Barron

From the standpoint of economic analysis, trade wars never make sense. From Patrick Barron at mises.org:

In a recent post I explained that China’s manipulations of its own currency hurt only herself and not her trading partners and, therefore, retaliatory tariffs were not warranted and would be self-defeating anyway. China harms herself by causing her own money supply to expand, which destroys capital through malinvestment and causes prices to rise domestically. Retaliatory tariffs cause American goods to rise in price, resulting in a recession and generally lower standard of living. Few economists claim otherwise.

It seems that everyone is in favor of free trade, as long as it is the other guy who must compete with foreign products. When it comes to their own products, the most typical response from American manufacturers begins with the caveat that “although free trade is beneficial most of the time, it causes harm under certain circumstances.” There follows a convoluted chain of cause-and-effect purporting to prove that lower priced foreign goods would hollow out America’s key manufacturing industries and turn America into a second class nation.

The purpose of this brief response is to counter these claims and explain why understanding economic theory is vital to the argument in favor of free trade.

There are two books which address the fact that we cannot experiment with an economy the way that physical scientists do. We must use logic to form irrefutable conclusions of what MUST happen, even if we cannot see it! The first is Frederic Bastiat’s early nineteenth century classic That Which Is Seen, and That Which Is Not Seen . Henry Hazlitt’s updated the book a hundred years later in order to appeal to modern readers. His Economics in One Lesson employs a series of short stories to illustrate that one must always consider the economic effects of an intervention on all and not just a few actors, plus, that one must look to the long term effects of an intervention and not just the short term effects.

So, let’s use logic to consider the effects of China’s economic interventions on itself and its trading partners who do nothing to retaliate against China in any way.

1. China uses its capital in an inefficient way . Outright subsidies to any industry must be paid by someone. The very fact that China believes that it cannot compete in certain industries to its own satisfaction without subsidies is an admission that these industries are inefficient. Therefore, Chinese internal subsidies are transfers of capital from more efficient industries to less efficient industries. Put another way, if the targeted industries already were very efficient, more capital would flow to these industries and subsidies wouldn’t be necessary.

To continue reading: 6 Reasons Why a Trade War with the Chinese Is Pointless

Trump’s Trade War May Spark a Chinese Debt Crisis, by Anne Stevenson-Yang

Trade wars spark unintended, and sometimes disastrous, consequences. From Anne Stevenson-Yang at bloombergquint.com:

There’s no chance China will cut its trade surplus with the U.S. in response to President Donald Trump’s tariff threats. For starters, Washington has made no specific demand to which Beijing can respond. But its efforts may have an unexpected side effect: a debt crisis in China.

The 25 percent additional tariffs on exports of machinery and electronics looked, at first blush, like a stealth tax on offshoring. The focus on categories like semiconductors and nuclear components, in which U.S.-owned manufacturers in China are strong, recalled Trump’s 2016 promise to tax “any business that leaves our country.”

It seems, though, that offshoring wasn’t the target after all. Now, with the imposition of new tariffs on low-value exports that mostly involve Asian value chains, the simple fact of selling cheap products that the U.S. buys has become the problem.

Either way, the administration appears set on shrinking its current-account deficit (which, at a moderate 2.4 percent of GDP, is far lower than the 6 percent clocked in 2006-7) just as the Federal Reserve raises interest rates. Distress has already been registered in China. On July 13, the yuan (also known as the renminbi) hit 6.725 to the dollar, the weakest in a year and 5 percent lower than at the end of May.

Such a move is nothing earth-shaking for less controlled currencies. But a stable renminbi is a key plank in the leadership’s promise to its people, and the exchange rate is tightly managed by the central bank.

Chinese investors have been buying official assurances for a year that the renminbi would be a fortress, but now they’re not so sure and are exporting money again: May saw net capital outflows and a decline in the foreign-exchange reserves. The currency is the most visible sign of slippage in the image that China tries to project of an economy so brilliantly managed that the bright sun of GDP expansion is untroubled by even temporary clouds on trade, employment or consumption.

There are many other signs: The Shanghai Composite Index of stocks has declined 7 percent in a month, dropping below the government’s red line of 3,000 for the first time since September 2016. Corporate bonds are about to set a record for the most defaults in a year. Junk bond yields are spiking. The chorus of anxiety about debt is reaching a crescendo, with daily press reports on governments that can’t pay their employees or meet pension obligations. Property prices are tumbling in some cities and frozen in others whose governments have placed a finger in the dyke by halting transactions.

To continue reading: Trump’s Trade War May Spark a Chinese Debt Crisis

Helsinki Talks – How Trump Tries To Rebalance The Global Triangle, by Moon of Alabama

This article may remind readers of SLL’s “The Eagle, The Dragon, and the Bear.” From Moon of Alabama at moonofalabama.org:

The reactions of the U.S. polite to yesterday’s press conference of President Trump and President Putin are highly amusing. The media are losing their mind. Apparently it was Pearl Harbor, Gulf of Tonkin and 9/11 all in one day. War will commence tomorrow. But against whom?

Behind the panic lie competing views of Grand Strategy.

Rereading the transcript of the 45 minutes long press conference (vid) I find it rather boring. Trump did not say anything that he had not said before. There was little mention of what the two presidents had really talked about and what they agreed upon. Later on Putin said that the meeting was more substantive than he expected. As the two spoke alone there will be few if any leaks. To understand what happened we will have to wait and see how the situations in the various conflict areas, in Syria, Ukraine and elsewhere, will now develop.

The ‘liberal’ side of the U.S. did its best to prevent the summit. The recent Mueller indictment was timed to sabotage the talks. Before the meeting in Helsinki the New York Times retweeted its three weeks old homophobic comic flick that shows Trump and Putin as lovers. It is truly a disgrace for the Grey Lady to publish such trash, but it set the tone others would follow. After the press conference the usual anti-Trump operatives went ballistic:

John O. Brennan @JohnBrennan – 15:52 UTC – 16 Jul 2018Donald Trump’s press conference performance in Helsinki rises to & exceeds the threshold of “high crimes & misdemeanors.” It was nothing short of treasonous. Not only were Trump’s comments imbecilic, he is wholly in the pocket of Putin. Republican Patriots: Where are you???

Senator John McCain released a scathing statement:

… “No prior president has ever abased himself more abjectly before a tyrant. Not only did President Trump fail to speak the truth about an adversary; but speaking for America to the world, our president failed to defend all that makes us who we are—a republic of free people dedicated to the cause of liberty at home and abroad. …

These imbeciles do not understand the realism behind Trump’s grand policy. Trump knows the heartland theory of Halford John Mackinder.  He understands that Russia is the core of the Eurasian landmass. That landmass, when politically united, can rule the world. A naval power, the U.S. now as the UK before it, can never defeat it. Trump’s opponents do not get what Zbigniew Brzezinski, the National Security Advisor of President Carter, said in his book The Grant Chessboard (pdf) about a Chinese-Russian alliance. They do not understand why Henry Kissinger advised Trump to let go of Crimea.

To continue reading: Helsinki Talks – How Trump Tries To Rebalance The Global Triangle

Xi’s overly-ambitious goals triggered US-China trade war, by Katsuji Nakazawa

China’s ambitious economic and trade rhetoric may have hurt it…badly. From Katsuji Nakazawa at asia.nikkei.com:

Soon, all 1.4 billion Chinese will be feeling the pinch of Donald Trump’s presidency an ocean away.

They will look at their dining table and notice their favorite dishes — Chinese-style deep fried chicken, firecracker chicken and twice-cooked pork — are all cooked with lots of oil, much of which is pressed from the seeds of American or Brazilian soybeans.

Similarly, many of China’s pigs and chickens are raised on imported soybean meal, the residue left after oil extraction.

Doubanjiang, the chili-bean paste that determines the splendor of Chinese cuisine, also cannot be made without soybeans. Of the above mentioned dishes, cabbage is about the only ingredient the country can fully provide for itself.

President Trump last week imposed 25% punitive import tariffs on Chinese products, citing violations of intellectual property rights. Chinese President Xi Jinping responded immediately, slapping 25% retaliatory import tariffs on American products, including soybeans.

As a result of the soybean levy, the cost of food in China will jump, dealing a serious blow to Chinese farmers and eaters.

The dish on the right is called laziji and is popular among ordinary Chinese. But it and other Chinese staples will cost more due to China’s retaliatory tariffs on U.S. products. (Photo by Katsuji Nakazawa)

To be sure, discontent might also grow in U.S. agricultural states, where farmers are already having difficulty selling soybeans and other produce to China. Trump could end up losing support from those in the agriculture sector.

The big question is why the game of chicken actually broke out. Xi may have nobody but himself to blame.

Since the days of Deng Xiaoping, China had maintained a less-assertive foreign policy, portraying itself as a “developing country.” Deng’s guidance was to keep a cool head, hide one’s claws, bide time and never try to take the lead.

After coming to power as the Chinese Communist Party’s general secretary in the autumn of 2012, Xi ditched that policy and started to talk of the “great rejuvenation of the Chinese nation.” He labeled it as the Chinese dream.

To continue reading: Xi’s overly-ambitious goals triggered US-China trade war

Record Deficits, Stronger Dollar Equals Record China Trade Deficit, by Tom Luongo

If you pump money into an economy, which the tax cut has done, people are going to spend some of the loot on imports. From Tom Luongo at tomluongo.me:

Sometimes math is a real bitch.   Donald Trump is a smart guy.  I know he knows math.

Too bad he’s ignoring it.

Here’s the gig.  The title says it all.  Government spending is rising rapidly.  More actual money is flowing into the US economy.  Where is that spending going?  To buy cell phones, computers, cars, office supplies and all the rest.

It doesn’t matter if the purchase is made at Best Buy through a Purchase Order, the money still goes to stuff built and imported from China.  The second order effect is that even if it goes to subsidize a farmer in Iowa or a defense contractor in California, that money winds up in the hands of a consumer who does what?

Goes to Best Buy and buys a new TV.  This isn’t rocket science folks, it is simple cause and effect.

More money chases those goods.  Despite the naysayers, Apple is selling a crap-ton of $1200 phones…. built where?  China.

So, the budget deficit thanks to record spending is fueling the very trade deficit with China that Trump is complaining about daily.

Here’s the math.

Big Badda Boom

First up is the budget deficit numbers through nine months of fiscal year 2018, courtesy of Zerohedge.

This resulted in a June budget deficit of $75 billion, better than the consensus estimate of $98BN, and an improvement from the $147 billion deficit in May and as well as slightly less than the deficit of $90.2 billion recorded in June of 2017.This was the second biggest June budget deficit since the financial crisis…

…The June deficit brought the cumulative 2018F budget deficit to over $607BN during the first nine month of the fiscal year, up 16% over the past year; as a reminder the deficit is expect to increase further amid the tax and spending measures, and rise above $1 trillion.

The post has a ton of charts to illustrate the point, but it’s mostly unnecessary.  The US Treasury is issuing debt at an astounding rate to cover this budget.  Spending goes up as tax receipts do thanks to lower tax rates and increasing growth.

To continue reading: Record Deficits, Stronger Dollar Equals Record China Trade Deficit

China Has Been Preparing For A Trade War For Over A Decade, by Brandon Smith

Perhaps the Chinese have a plan. From Brandon Smith at alt-market.com:

The crash of 2008 brought with it a host of strange economic paradigms rarely if ever seen in history; paradigms which have turned normal fiscal analysis on its head. While some core fundamentals remain the same no matter what occurs, the reporting of this data has been deliberately skewed to hide the truth. But what is the truth? Well, at bottom, the truth is that most economies around the world are far weaker than the picture governments and central banks have painted. This is especially true for the United States.

That said, one country has been pursuing an opposite strategy for many years now — meaning, it has been hiding its economic preparedness more than its weaknesses. I am of course speaking of China.

When we mention China in the world of alternative analysis, several issues always arise: China’s expanding debt burden, government spending on seemingly useless infrastructure programs like “ghost cities,” China’s central bank and its corporate subset misreporting financial figures regularly, etc. All of these things fuel the notion that when a global fiscal disaster inevitably takes place, it will emanate first from China. They also give the American public the false impression that a trade war against China will be easily won and that China will immediately falter under the weight of its own veiled instabilities.

However, if one actually studies China’s behavior and activities the past decade, they would see a method to the apparent madness. In fact, some of China’s actions seem to suggest that the nation has been preparing for years for the exact geopolitical conditions we see today. It’s as if someone warned them ahead of time…

In terms of prepping for a trade war with the U.S., China has implemented several important steps. For example, for at least the past 10 years the country has been shifting away from a pure export economy and reducing its reliance on sales of goods to the U.S. In 2018, Chinese consumer purchases of goods are expected to surpass that of American consumers. For the past five years, domestic consumption in China accounted for between 55% to 65% of economic growth, and private consumption was the primary driver of the Chinese economy — NOT exports.

To continue reading: China Has Been Preparing For A Trade War For Over A Decade