Free Markets, Free People
China expresses some … um … “concern” about whether or not it will ever see its money back:
The Chinese prime minister, Wen Jiabao, expressed unusually blunt concern on Friday about the safety of China’s $1 trillion investment in American government debt, the world’s largest such holding, and urged the Obama administration to provide assurances that the securities would maintain their value in the face of a global financial crisis.
Speaking ahead of a meeting of finance ministers and bankers this weekend in London to lay the groundwork for next month’s G20 summit, Mr. Wen said he was “worried” about China’s holdings of United States Treasury bonds and other debt, and that China was watching economic developments in the United States closely.
“President Obama and his new government have adopted a series of measures to deal with the financial crisis. We have expectations as to the effects of these measures,” Mr. Wen said. “We have lent a huge amount of money to the U.S. Of course we are concerned about the safety of our assets. To be honest, I am definitely a little worried.”
Just a little? There’s an old saying to the effect of “if you owe the bank $1 Million, then the bank owns you; if you owe the bank $1 Trillion, then you own the bank.” China’s feeling pretty nervous because it knows it can’t sell its holdings except at a tremendous loss — both from the normal discount expected, and from the fact that it is by far the largest mover in the market (e.g. what do you think would happen to Microsoft stock if Bill Gates started selling off?) — and it doesn’t see a whole lot coming out of Washington to instill confidence.
But there’s no need to fret PM Jiabao! Unnamed economists are here to save the day:
While economists dismissed the possibility of the United States defaulting on its obligations, they said China could face steep losses in the event of a sharp rise in United States interest rates or a plunge in the value of the dollar.
Whew! That was close. Nothing but a little market risk to worry about there, Jiabao. Default? Pffft … never gonna happen.
Back in the land called “reality” however, default is plays a bigger part since, aside from reneging on the debt, there are only three other ways for the government to pay for its spending binge: higher taxes, printing more money, or borrowing. Higher taxes impedes growth and leads to less revenue. Printing money leads to hyper-inflation. So, even though those two choices will be used to a certain extent, further borrowing is the only viable alternative to default. But who’s going to lend to us?
The bulk of China’s investment in the United States consists of bonds issued by the Treasury and government-sponsored enterprises and purchased by the State Administration of Foreign Exchange, which is part of the People’s Bank of China … much of the Treasury debt China purchased in recent years carries a low interest rate, and would plunge in value if interest rates were to rise sharply in the United States. Some financial experts have warned that measures taken to combat the financial crisis — running large budget deficits and expanding the money supply — may eventually create price inflation, which would lead to higher interest rates.
This puts the Chinese government in a difficult position. The smaller the United States stimulus, the less its borrowing, which could help prevent interest rates from rising. But less government spending in the United States could also mean a slower recovery for the American economy and reduced American demand for Chinese goods.
It may just be the case that China’s best option is to support its investment by propping up its best customer with yet more loans. Unfortunately, that means that Washington will have little incentive to slow down spending (since it owns the bank). The nasty little cycle of borrowing > spending > inflation > rising interest rates > falling dollar, will continue necessitating even more borrowing. China, in turn, will have serious questions about the value of its investment, and the US will start having serious discussions about declaring a default.
In short, China’s not just “worried” about the current fiscal mess. It’s crapping its collectivist shorts.
No, I’m not referring to any stimulus bill, or deficit spending figures. This was no celebration of a CBO report or Obama budget figures. Instead, the House of Representatives decided that it needed to spend some time lauding that most infamous of all irrational numbers:
With the world swirling about it, the House took a moment Thursday to honor pi, the Greek letter symbolizing that great constant in mathematics representing the ratio of the circumference of a circle to its diameter.
Rounded off, pi equates to 3.14, hence the designation of March 14 as Pi Day under the resolution. Informal celebrations have been held around the country for at least 20 years, but Thursday’s 391-10 vote is the first time Congress has joined the party.
“I’m kind of geeked up about it,” Rep. Brian Baird (D-Wash.) told POLITICO. “It’s crazy, but I’m a whole lot more excited about that than congratulating the winner of last year’s Rose Bowl.
Well that’s reassuring. As long as the peoples’ representatives are happy, then we must all be happy, eh?
“It makes you realize how consequential you really are,” Rep. Bill Delahunt (D-Mass.) said with a smile.
By “you” Delahunt meant himself (“consequential” being defined as “self-important”). Unless, of course, he meant to say “inconsequential” in which case he was referring to the voters, and he was exactly right.
“We were never good at math in my family,” said Rep. John P. Murtha (D-Pa.). “I thought I was voting for p-i-e.”
Or reading and/or spelling? Hey, wait. Does Sara Lee have a factory in Murtha’s district?
That’s your congress-critters for you. only slightly less useful than Chia pets.
UPDATE: In the comments, Shark finds the silver lining: “It’s the least destructive thing they’ve done this year.”
President Obama and VP Biden are going to be watching you:
Obama and Biden both gave stern warnings yesterday about misuse of stimulus funds. “If we see money being misspent, we’re going to put a stop to it,” Obama told a gathering of state officials at the White House. How? Obama says “we will call it out and we will publicize it.” Biden, meanwhile, scolded: “If we don’t get this right, folks, this is the end of the opportunity to convince Congress that anything should go to the states.”
Of course, these were words spoken to representatives of states getting “stimulus” money.
Lost in the shuffle is the fact that there is no one to shout “BS” to the whole scheme and declare it all “misspent” money. A $787 billion dollar social spending scheme isn’t money “misspent?” Hah!
But other than that, I think Earl Devaney provides us with the ground truth about this upcoming spending debacle:
The chief watchdog for spending from the $787 billion stimulus package says it’s guaranteed there will be waste and fraud.
Earl Devaney, tapped by President Obama to track the giant spending plan, also said it will be at least a year before the government gets recovery.gov, the Web site the administration has touted as a key part of its transparency, up and running properly.
“I’m afraid that there may be a naive impression that given the amount of transparency and accountability called for by this act, no or little fraud will occur.
A “naive impression?”
Heh … nah, you don’t say?
The word “naive” seems to describe a lot of what is going on right now with the Obama administration.
Is homegrown terrorism the next problem? That’s the question being asked by some:
There is an increasing threat of homegrown terror stemming from segments of a deeply isolated and alienated Somali-American community, a U.S. Senate committee hearing concluded Wednesday.
The hearing, conducted by the Senate Homeland and Governmental Affairs Committee, focused on the attempted recruitment of young Somali-American men by al-Shabaab, “a violent and brutal extremist (Somali) group” with significant ties to al Qaeda, according to the U.S. State Department.
“Over the last two years, individuals from the Somali community in the United States, including American citizens, have left for Somalia to support and in some cases fight on behalf of al-Shabaab,” noted the committee’s chairman, Sen. Joseph Lieberman, I-Connecticut.
Al-Shabaab — also known as the Mujahedeen Youth Movement — was officially designated as a terrorist organization by the U.S. government in March 2008.
If you’ve been following this, Somali youths from all over the US have been “disappearing” to end up half-way around the world engaged in war in Afghanistan. This is pretty much the same model as has affected the UK (although their particular group consists mostly of Pakistanis). The obvious next step is, instead of radicalizing them and exporting them to far off places, to do what was done with the 7/7 bombers in the UK and do it here.
The recruitment is made easier by the apparent isolation of the Somali community. The extremists pick off clusters of dissatisfied youth and radicalize them. The apparent distance between the Somali culture and the American culture are so vast that some simply cannot overcome that – or so the theory goes.
This is a situation which bears very close watching (and, hopefully some remedial effects brought on by positive intervention) – this is where AQ could put together a group that could travel thorough America with little difficulty and help foment an attack or attacks.
On another terrorist front, we already have home-grown terrorists (besides William Ayers) operating here:
The recent fire-bombing of a university professor’s car here appears to be part of a trend of animal-rights activists targeting the personal lives of researchers, rather than just the labs or companies where they work. The idea is to scare the scientists into reconsidering using animals in their research work.
Despite tightening laws, California saw an uptick in attacks last year with 21 reported incidents – of 36 nationwide – ranging from vandalism to firebombs, mostly targeting University of California researchers, according to data compiled by the Foundation for Biomedical Research. By contrast, the state saw just four or five such incidents the previous two years.
“The tactics [of animal-rights activists] have changed. They’ve gotten very personal,” says Frankie Trull of the National Association for Biomedical Research, an organization that advocates for the responsible use of animals in research.
The latest incident occurred early last Saturday outside the Westwood residence of Dr. David Jentsch, a neuroscientist at University of California, Los Angeles (UCLA). The professor’s vehicle was engulfed in flames and destroyed, though no one was hurt.
If terrorism is “the calculated use of violence (or the threat of violence) against civilians in order to attain goals that are political or religious or ideological in nature; this is done through intimidation or coercion or instilling fear”, these acts fit.
So while we may have an international brand of terrorism on the rise, we already have our own domestic terrorists at work on the West Coast. My guess is, though, they’re considered a “law enforcement” problem, not one of terrorism.
Mark Sanford, the governor of South Carolina, said this the other day about the possible effects of all of the spending the Obama administration was doing and planning:
“What you’re doing is buying into the notion that if we just print some more money that we don’t have, send it to different states — we’ll create jobs,” Sanford said. “If that’s the case, why isn’t Zimbabwe a rich place?… Why isn’t Zimbabwe just an incredibly prosperous place. ‘Cause they’re printing money they don’t have and sending it around to their different — I don’t know the towns in Zimbabwe but that same logic is being applied there with little effect.”
A little oversimplistic, but this is “sound bite nation” so you have to condense. In effect his point is true to the extent it goes, and the example is a good and valid one, since Zimbabwe is printing money as fast as it can add zeroes to its demonimations. By now, the hyper-inflation it is undergoing from doing so should be well known to people versed in current affairs.
Unless, of course, you want to make a racial thing out of it. Rep. James Clyburn, Democratic Majority Whip, reacts to Sanford’s lesson and example of Zimbabwe:
“For him to compare the president of this country to Mugabe. … It’s just beyond the pale,” said Clyburn, who has sparred with Sanford over the Republican’s refusal to accept all the state’s stimulus funding.
“I’m sure he would not say that, but how did he get to Zimbabwe? What took the man to Zimbabwe? Someone should ask him if that’s really the best comparison. … How can he compare this country’s situation to Zimbabwe?”
Of course the “how” is fairly simple – if what is being touted as a solution here and was touted as a solution there, then Zimbabwe should be in great economic shape right now. But Clyburn would rather make a racial thing out of it. Obviously Sanford could have used Wiemar Germany of the ’30s, but it isn’t as relevant today as the case of Zimbabwe. And, he could have also used Venezuela. But Venezuela isn’t quite the basket case Zimbabwe is. Nope, in terms of a current example of what might happen, in terms of hyper-inflation from artificially pumping up he money supply, Zimbabwe is as good as it gets.
“Rep. Clyburn always plays the race card,” shot back Sanford spokesman Joel Sawyer, who said his boss has also compared the stimulus to failed government policies in Germany and Argentina. “This policy will result in hyper-infaltion. … [Clyburn] is ripping off the people he purports to represent.”
Round 2 to follow.
Or perhaps a better way to say that is this is a typical reason Democrats aren’t well thought of, for the most part, by the military community:
Several veterans groups “are lashing out” at the Obama administration over a policy proposal they say would “dramatically alter” how the Department of Veterans Affairs handles health insurance claims for veterans, The Hill reports. Under the policy, which is included in President Obama’s fiscal year 2010 budget proposal, VA would bill health insurers for treatment of injuries and conditions sustained as a result of veterans’ military service. Currently, VA covers those costs and bills health insurers only for treatment for conditions unrelated to veterans’ military service.
The “you got it, you pay for it” method of saving money on the back of wounded vets. This after all the rhetoric and promises about taking better care of our veterans than ever before because they’ve “earned it”?
Of course, as soon as this trial balloon is discovered, the mealy mouth nonsense begins:
According to OMB spokesperson Tom Gavin, although concerns about policy changes in coverage are understandable, no official proposal is on the table. He said, “The details of the VA budget are being worked out right now and the details won’t be available until April,” adding, “The administration is committed to providing the VA with substantial resources to provide for our veterans” (Tiron, The Hill, 3/9).
And, of course, with the federal government spending money on social issues disguised as “stimulus”, followed by a porked up spending bill and now an almost 4 trillion dollar budget, where is the one place that they decide they should try and save money?
On the backs of wounded vets.
Sorry, but that cost was prepaid by the terms of their service and wounds. But obviously, more interested in social issues within the military than keeping promises, the administration begins the ground work for backing out on another of its promises (to their credit, some Democrats, such as Sen. Patty Murray (D-WA), have declared such a proposal would be “dead on arrival” should it make it into the budget – a tip of the hat to her).