Wednesday, March 7, 2012

116 For US, China is the financial bogeyman

Re item 4: about the US Foreign Debt to China.

China is blamed for factory closures and the Us Foreign Debt, but what about Free Trade? Why don't those in the West who promote Tarriff reduction get blamed for the unemployment and the Foreign Debt?

Is "One World" too sacrosanct for that? Is it a "given", beyond debate?

(1) - (3) Socialism & the Nanny State
(4) For US, China is the financial bogeyman
(5) Ishihara Shintaro (Mayor of Tokyo) on the Asia Crisis

(1) Socialism & the Nanny State

From: Date: 05.10.2009 06:48 PM

Great reply Peter, thank you. I don't have an idyllic vision of some mythical free market, I just think the free market gets blamed unfairly, because it has not been "free" since the Federal Reserve and the banksters got a hold of it. It was only "deregulation" in a rigged game that caused this mess. Your perspective presents some very interesting thoughts I have not pondered. I'll be reading it again to digest it more fully and see where it leads me. I know we need a strong fedgov to protect us against the mega corporations. I don't have a problem with the states experimenting with social experiments. From a quick read, my first impression is that your ideas might work well on that level, but I still am more than leery about the United Ststed fedgov being in any way involved in health, education, or welfare.

Even for me to ponder socialism on a state level is a huge concession because of the hell we have endured for almost 15 years running a wonderful, tiny little private school that saves dozens of incredible kids who were falling through the gaping cracks in our socialist education system. We never made us money in the good years; we are dying on the vine with the economic mess, all while knowing 4 or 5 kids to fill every open seat if the parents had their own school tax dollars. The stress is far too much despite our long, stellar track record. We're trying to gracefully wind the entire thing down so I can concentrate the rest of my life fighting the oligarchy in America. I'll have more time to think and sort through things like your reply in a year or two if we can dump the mortgages and insane taxes we pay in Putnam County NY. I am leaning towards our next home having a VIN number (do they have those in Australia - the are ID's for motor vehicles here).

Comment (Peter M.):

> "our socialist education system"

The 60s Revolution and its aftermath introduced Communist (Trotskyist) features into our Culture. Trots call themselves "Socialist", so it's not surprising that you use this word for such features too.

But Socialism of a nation-based type (ie other than International Socialism, which is the Trotskyist kind) is quite compatible with allowing parents to allocate their Federal Education funds to the school of their choice. I believe this is called a "Voucher funding" system; and fully support it.

Those who oppose it are the Teachers' Unions, which in many cases seem seem Trotskyist-led.

The same Unions make endless demands for smaller class sizes and increased funding, but they support the "Object Lessons" approach which places great demands on teachers. By this method, every teacher must prepare a "Lesson Plan" for every class every day. It's a very top-down approach, allowing Head Office detailed control.

In the 1950s & 60s, teachers were issued with a curriculum and a text-book for each class. But "Lesson Plans" were not required; instead, the teacher worked to the textbook in his or her own way.

Under the "Lesson Plan" scheme, a teacher is supposed to make the lessons "entertaining", and to insert ideas for such into the Lesson Plan. The assumption is that the kids don't really want to learn; that you have to sugar-coat the lesson.

In the 1950s & 60s, there was more recognition that lids inherently want to learn, You, the teacher, do not provide candy either as an incentive or a reward; to do so cheapens the lesson.

Well, the "good" kids have their own motivation to learn. But the "bad" kids are a drag on the rest. In the past, the school system countenanced the use of force to make them co-operate, just as it countenanced parental discipline in the home.

Banning such discipline is based on the Marxist idea that Parents and Teachers form an "Upper Class" in relation to the Children. In the USSR, Children were encouraged to Reform their parents, and even dob them in if they resisted the Party Line. Trotsky even complained that Stalin had backtracked on this, partially rehabilitating the Family (The Revolution Betrayed, chapter 7, page 151 at

If Discipline is restored in homes and schools, and the Media forced to stop subverting children (eg with excessive entertainment programs, encouraging passive viewing instead of active play; and with ads targeting them), the stress level of teachers will fall greatly.

Getting rid of "Object Lessons" and daily write-ups of classes will also reduce teachers' workloads greatly.

(2) Socialism & the Nanny State
From: Tony Ryan <> Date: 05.10.2009 06:37 AM

A pleasure to read your site today... first off, your concise history of Australia's most civilised era, which I have pasted into my reference library. Then came Paul Craig Roberts and his usual on-the-ball insights; and it really came home to me how much consensus is developing as to the real state of the world's politics. My guess is that in two years more than half of the nation will think thus.

(3) Socialism & the Nanny State
From: John Craig <> Date: 05.10.2009 09:22 AM

While there are many problems in current economic / political environment, they are not going to be understood or solved by disussions about socialism (in the sense of collective control of the means of production) as this simply doesn't work - because it is impossible for the collective to know what to produce.

The contribution of profit-focused capitalism is that it provides a reasonably reliable means for linking supply with demand - as compared with producing what planners think that people ought to want.

Charles Moreira's suggestions about market economies are a bit wide of the mark. When automation is introduced the cost of production falls, prices decline dramatically, demand rises and employment increases. Technological advance is characteristic of industries associated with rapid job creation rather than rising unemployment.

Socialist production in the USSR was associated with far worse environmantal damage than occurred anywhere else.

Charles Moreira expressed concern about "un-fettered, neo-liberal (libertarian), globalised, open-borders capitalism with total faith in the power of market operation to redress all ills". While there is no agreement about what 'neo-liberalism' refers to, market liberalisation was introduced widely in the 1980s in advanced economies in oder to speed up economic change which was being forced by the success being achieved by emerging economies (mainly in East Asia) in high productivity industries. Their new-found success, and the shift out of poverty by large segments of the world's population, was a product of the globalization to which Moreira objects. Market liberalization was sought as a response, because political control (though the influence of interest groups determined to protect earlier industries) had the effect of slowing changes that were widely seen to be essential.

Reply (Peter M.):

You (like Tony Ryan and like myself) grew up the Australia of the 1950s & 60s, with its public ownership of much of the "means of production".

Yet use use a two-category dictotomy (Liberty, Socialism) to skew the debate. As do the Marxists, and the Hard Right in the US.

> impossible for the collective to know
> what to produce.

This applied to Communist systems; not to Australia's Socialism of the 1950s & 60s. Partly because we had a Private Sector, and partly because managers in the Public Sector were often recruited from the Private Sector.

> market liberalisation was introduced widely in the
> 1980s in advanced economies in oder to speed up
> economic change

It was orchestrated by a secret society, the Mont Pelerin Society, set up by Friedrich Hayek with the support of Karl Popper. The name was chosen to sound innocuous; in fact it was the Comintern of Big Business.

Privatization of the people's assets is theft on a grand scale. I believe that we'll get them back one day.

Hayek in his book The Road to Serfdom identifies commonalities between Nazism and Communism, and bundles Socialism of the New Deal type with those totalitarian systems, using the word "Socialism" to apply to all of them.

The term "the Road to" was a way of castigating the Socialism (public ownership) of postwar Britain, Australia etc, by implying that they were on the slippery slope to Communism or Nazism.

(4) For US, China is the financial bogeyman

Sep 18, 2009

By Benjamin A Shobert

A casual observer of American culture could be forgiven for the mistaken conclusion that the country is now in the midst of yet another election year. Evenly spread across a variety of television programming is a host of new political advertisements that take up familiar, if tired, arguments primarily regarding health-care reform.

Their tone, content and frequency make them indiscernible from traditional electioneering. But one ad in particular, "Defeat the Debt", has a different objective, to warn against the long-term consequences of America's debt, a debt China now disproportionately holds for the United States.

Against the backdrop of bracingly large new government expenditures over the past nine months, Americans are easily awakened on this matter. As has happened in the past during periods of coordinated government spending which makes large amounts of public debt necessary, this awareness has traditionally made its way into popular consciousness in the form of sporadic, and usually cloyingly bad TV ads, as some sort of cultural touchstone (recall the Times Square debt clock, born in 1989 amongst the fear of former president Ronald Reagan-era deficits and the rising national debt). Along with a family of jarringly constructed books promising insight into the coming debt-fueled American economic apocalypse.

Most of the people behind such assertions share a greater sensitivity to debt in general, regardless of the social policy behind it. They are convinced that debt levels are becoming unsustainable, and our ability to function as a government and society is in peril if we continue in this way. In what is perhaps an attempt to make the same point, but by taking a different approach, the new "Defeat the Debt" advertisement now attaches the Chinese government to the conversation.

Like the 2008 holiday season ad campaign from Wake Up Wal-Mart, "Defeat the Debt" is well-funded, and has purchased several million dollars worth of time in national markets on channels ranging from CNBC to Fox News. The ad begins in a run-of-the-mill American classroom, with the ubiquitous ritual which starts the day of millions of American children, the Pledge of Allegiance.

The kids, all with hands over hearts, solemnly begin a somewhat modified oath: "I pledge allegiance to America's debt ... and to the Chinese government that lends us money ... And to the interest ... for which we pay ... compoundable ... with higher taxes ... and lower pay ... until the day we die."

Towards the end of the commercial, the screen shows the following highly contrasted words: "America's Debt $500 Million in Interest Daily." The visual backdrop to this frightening and inhuman statistic is a still globe, the camera sharply focused on China, as the voice-over reminds viewers that "much of that debt is owed to foreign governments".

It seems possible, and perhaps even appropriate, to be sensitive to the matter of America's collective public and private debt, how it is likely to hamper future generations by making the country unattractive to business, stifling innovation, and limiting our ability to respond forcefully to future crises, without agreeing to the not-too-subtle head nod in the direction of the Chinese, as if they are somehow complicit in our feared future misery.

Admittedly, the organization behind this TV ad - the Employment Policies Institute (EPI) - seems willing to make use of a variety of jarring graphics, including an image of the Titanic in its print advertisements, immediately below the headline "Think America is 'Unsinkable'?", as well as the libertarian dog-whistle headline from a separate advertisement "Who Is John Galt?" It might be forgivable to mark these all up to advertising and the use of jolting mental images as way to get people to pause and think, if one finished the commercial with less an unpleasant aftertaste that smacked so directly of China.

The commercial is not absent a quantitative footing, as even the Barack Obama administration has found it necessary to incorporate references to the debt and the need to think prudently about paying for future government programs without expanding its size.

But talking about the American national debt has always been tricky: the mind-boggling size of government expenditures makes most observers queasy, the sheer size feels immeasurable while also imparting a strange sense of permanence, as if the nation's debt somehow can and should be equated to our way of life. Because the scale of perception problems persist, wrestling with what causes the national debt can be made easier if one particular point is found and pushed on; this is, after all, a basic insight from advertising, to focus the mind's eye on a primary push-point. Over the past two decades, victims of this tactic have ranged from seemingly frivolous Pentagon purchases, to welfare queens, and now the Chinese government.

In each case, short-term reactions were predictably snarky, but had very little bite when measured against what one would think is the primary objective: meaningful reduction of the nation's debt. The lasting results were less fiscal prudence and more a hand-slap to whatever policy had been successfully equated in people's minds with the problem of our collective debt. This may make the after-effects of the EPI campaign that much more troubling. Rather than pointing towards internal problems, matters of profligate political spending or misdirected social priorities, this TV ad very directly brings the Chinese government into the discussion, and not in a flattering way.

It is almost as if viewers are asked to believe the Chinese government is somehow complicit in America's debt problem, an idea not without some contemporary support from economists who believe an excess in savings from China is part of the supply side problem to this largely misunderstood liquidity trap from last year. In an advertisement that should crisply advocate personal responsibility, and at its better moments does just that, the specter of China is thrown into the mix.

Tactically, this disengages the viewer from a message of accountability and throws into the mix someone with mixed motives, a government that may have responsibility to bear. This is unhelpful, as the ad seems designed to stop short and only hint at a particular question upon which much of the tension rides: what will the Chinese government ask of America to continue servicing this debt? As worded, the children's pledge is not only to America and its debt, but also the "Chinese government that lends us money". Together, these constitute a powerful choice of words, and one seemingly calculated to fuel a fire through the use of patriotic symbolism and oaths of allegiance.

This is certainly not China bashing; no, it appears to be something more subtle, a sincere but misguided attempt to remind people that certain spending principles and priorities matter, that no one can outrun economic history forever, and that debt is a matter viewed too casually in American politics. But if we take the EPI's assertion seriously, as we have every need to, neither what America must do in the short term nor within the world we seek to peacefully operate and do business inside of, is made any easier if we misallocate our frustrations towards those who are not the cause of our problem.

Amid the very real social upheaval that is taking place in much of the American Midwest, as manufacturing towns are devastated by plant closures and layoffs, these sort of ads, which casually link collective economic fears to China, are likely to have very negative repercussions. They are the foundation to national economic populism, an outcome which could not be more divergent from the flat globalized world much lauded over the past two decades.

One can be largely sympathetic to the ideas behind the "Defeat the Debt" campaign, even hold a shared belief that current levels of public debt are unsustainable, and that history does provide uncomfortable clarity about what is likely to happen next, without introducing China to the conversation. Fixating on China might feel good, but is likely to accomplish very little meaningful towards debt reduction or fiscal conservatism, and holds the potential to destabilize too much America needs for its own future and economic development.

Benjamin A Shobert is the managing director of Teleos Inc (, a consulting firm dedicated to helping businesses bring innovative technologies into the North American market.

(5) Ishihara Shintaro (Mayor of Tokyo) on the Asia Crisis


Japan must help the region resist American control


October 16, 1998

Ishihara Shintaro is best known for his book, A Japan That Can Say No.

Excerpts from his new critique of the global economy

LOOKING BACK ON THE panic triggered by the currency crisis in Thailand and the inroads made by the International Monetary Fund (IMF), we can see the subtle strategy America is employing to dominate the world. And we can discern the pathetic role that Japan is made to play. If things continue as they are, Japan and the other nations of East Asia will be nothing more than financial slaves to the U.S. The problem is, most are unaware of it.

Once America had overwhelmed its Soviet rival in the arms race, it came up with a plan to supplement military superiority with control of energy resources. This involved singling out Saddam Hussein of Iraq as the fall guy to win control over the world's largest oil reserves. The U.S. lured him into making a conquest of Kuwait, crushed the invasion and succeeded in its real objective - stationing over 100,000 U.S. troops in the region, mainly in Saudi Arabia.

Now America is embarking on a new phase of its conquest, this time by financial means. Besides its overseas ambitions, there is an important consideration which prompted the U.S. to come up with this step - the crisis in its economy. This was demonstrated a couple of years ago when then Japanese prime minister Hashimoto Ryutaro stated that Japan wished to sell off its U.S. treasury bonds. The next day Wall Street stocks went down on the news. But rather than follow up [its advantage], Japan deferred to its rival. Experts calculated that if Japan sold its entire T-bond portfolio, the dollar could plummet to a mere 50 yen.

What America fears most is a fall in the value of the dollar and its stocks. One of the reasons is that the U.S. government has sidestepped its social security obligations, shifting the pension burden to the private sector. Due to this change, [many Americans] are joining plans managed by private enterprises and buying into mutual funds via their pensions. People assume that such investments are sound, but that's far from the case. Investing in a mutual fund is no safer than purchasing stock. To ensure this dangerous shift ends with a soft landing, the U.S. is advocating "Big Bangs" that are really only attempts to prevent the dollar and U.S. stocks from falling.

Economic activities around the world can be classified into two broad types: one dealing with [tangible] products, machine-made or agricultural; and another involving invisibles such as negotiable instruments and futures. In terms of capital movement in the world, the money economy, which trades in these vague financial products, is 25 times the size of the other. So international economic trends today are driven not by traditional activities, but by operations that are simple yet not easily grasped by the uninitiated. This is the trade in derivatives: warrants, options, swaps and other instruments that involve uncertainty. Derivatives - or risk - will be a key concept in understanding the world economy. To condemn such operations as immoral is fruitless. Inasmuch as derivative dealing has appeared as a new economic activity, we have no choice but to come up with ways of competing in this dimension.

There's no reason to think that Japan, the second-largest economy in the world, can't give the U.S. a run for its money. But to do that, it has first to locate its weak points. America's Achilles heel is its pension myth, which, once exploded, could easily lead from social instability to wholesale disintegration. Another related chink in the armor is the rapid decline in America's middle class. Then there is the growing gap between the middle and upper classes. The rise in prices means wages are dropping in real terms, and many Americans are putting up with low-wage, dead-end jobs just to get by.

[Now that] the euro has appeared, Japan has to ponder how best to profit from this. Its huge holdings in American T-bonds means the yen is at risk when the dollar drops. Not only that, when U.S. interest rates go up, potential T-bond buyers will wait for a new, higher coupon rather than buy bonds pegged at a lower rate. This reduces the demand for existing bonds, sending down the value of T-bond portfolios. Thus, Japanese holders are exposed to the double risk of falling currencies and falling bond prices. If Japan were to protect the yen by raising domestic interest rates, there would be a shift from dollars, and a correspondingly large, adverse impact on U.S. stock and T-bonds. That's why America is dead set against it.

TO SAVE [LOCAL] FINANCIAL institutions on the verge of crisis, the Japanese government allowed them to [lend] at old, high rates while driving down interest on deposits. This made it possible for banks to pay next to nothing on deposits while boosting profits from their loans. But the resulting credit crunch has made it hard for Japan's mid-sized firms, the dynamos of its economy, to find financing. Meanwhile, the largest depositors - senior citizens who depend on their pensions and interest on savings - are forced to live in insecurity. Since their deposits yield almost no return, pensioner consumption isn't going to give much of a boost to its economy. I believe Japan's best chance of revival lies in a reversal towards higher rates [on deposits].

In retrospect, we can see how [East Asian] nations were enticed into America's con game. The first step was to pour in huge quantities of intentionally short-term capital from America and Europe. Since this is perfect funding for a developing nation with a will to succeed, everyone jumped at the opportunity. Such funding is most effective when invested in production, but local businesses grew intoxicated as their economies took off, and were drawn into speculations that created bubbles in real estate and other areas.

In the next step, [hedge-fund managers] cried "Danger!" and triggered a panic by arbitrarily withdrawing short-term capital. At a single stroke, the Japanese banks which had managed to penetrate local markets were saddled with huge portfolios of bad debt. The severe downgrading credit-rating agencies gave to Japanese financial institutions and local manufacturers only heightened the sense of crisis.

The short-term capital that Western financiers injected into East Asia was really like the opium that the British brought into China. But this time the object of plunder is the economic potential that Japan and the other countries in the region have toiled to create. Japanese firms which had teamed up with local enterprises were forced to withdraw and take stock. This provided an opening for American capital to move into the markets that Japan pioneered. Men like [George] Soros merely make way for the arrival of other elements in America's overall strategy. Not knowing this, East Asian countries accepted their financial opiates and ended up addicted.

But it' s not enough to condemn America's outrageous behavior. The real point is whether [Japan has] any response. This being an era of interdependent economies, the targets of its new strategy should be countries that suffered the greatest damage in the recent crisis - East Asian nations with which Japan has been actively engaged.

[When the various] governments were in paralysis, the IMF came in and, like an army of occupation, placed whole countries under its jurisdiction. The IMF will never deviate from the prescription laid down by the contingencies of U.S. self-protection, which commands fiscal austerity and control of inflation. But this isn't a remedy that works for every patient. Indiscriminate application ignores the dynamics of economic reality. Each country has a different political landscape, a society with special features. To do as the IMF does, ignores this diversity.

It's time that Japan asks what are the options in using its funds to benefit itself and East Asia. But first let's assess the financial assets of the Japanese people. They turn out to be about $6 trillion after personal debts are subtracted. Add to that the financial assets held by private companies, and the figure reaches $12 trillion.

INSIGHT INTO THE REAL reasons behind the recent economic panics ought to bring a new sense of solidarity to Asian countries. And if Japan moved forward in a big way, providing, among other things, more sophisticated technology than it ever has, there would no doubt be an economic revival and expansion in East Asia.

South Korea's top steel producer, Pohang, is in trouble, and American industrialists have set their sights on it. It's obvious that Japan should take the lead in helping out when a basic industry in a neighboring country is threatened like this. Given the region's economic situation, this sort of assistance will be one basic pattern in the cooperation Japan extends to other Asian countries in anticipation of a better future.

There could be financial products which make use of the characteristics of Japan's economy. For example, Japan, being one of the largest oil importers in the world, suffers every time oil prices rise, while the producing nations benefit. On the basis of this structure, Japan could issue utility bonds whose coupon would rise whenever oil prices fell and vice versa, a product that producers would be only too happy to purchase.

Japan should create a fund to absorb the bad debts that are a product of U.S. strategy in the region. One has been set up to cover the debt burden of domestic banks, but it's important to realize that a large portion of that money has been flowing overseas to service bad debts incurred in their East Asian operations.

Japan should put its glut of financial capital to good use by transforming it into an effective investment. There are numerous ways of creating products more attractive than U.S. treasury bonds. Under a sort of Marshall Plan for Asia, an Asian Recovery Bank could be established on Japan's initiative. As East Asia has more energy than any other developing region, it ought to be possible to get people to buy into its future, especially if the Japanese government showed confidence by guaranteeing investments in [the bank].

I believe that such efforts will also bring about a yen-denomination zone in Asia, which in turn will lead to a flow of yen back to Japan. The real question is whether the Japanese political system can forge ahead with its implementation. There are sure to be people who ask why a new bank is necessary when there already is an Asian [Development] Bank; but that is being led by the Japanese Ministry of Finance, whose World Bank and IMF devotees would never dream of taking steps contrary to America's wishes.

This is a battle of minds and money. Japan has a historical responsibility toward the East Asian countries which, as America's prey, are being slaughtered en masse. It needs a new strategy. We should challenge Asia with an Asian standard that exists within a fair and free framework.

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