Free Markets, Free People

China

Keystone XL pipeline: Energy security held hostage

One of the arguments you consistently hear from the left is we can’t become “energy independent”, or said another way, we can’t become independent from “foreign oil”.

Well, there’s foreign oil and then there’s “foreign oil”.  While it is true, at least at the moment, that we’re unable to fully develop and use our own national fossil fuel assets to make us independent, there is certainly a way we can pick and choose from whom we buy our oil to lessen the possibility that we’ll become hostage to unfriendly foreign powers.   Friendly neighbors who are close are the solution to our energy security.  But only if we recognize that fact and understand how strategically that lessens our energy vulnerability markedly.

Obviously two close neighbors, Mexico and Canada, fit that profile.  So it seems a no-brainer to exploit those relationships and do all that is possible to make sure it is the US that secures the bulk of what they’re willing to produce and offer on the world market, no?

No, apparently.

It seems there’s an expectation on the part of the left that President Obama and his administration will block the Keystone XL pipeline that would transport oil taken from Canada’s oil sands to the US.  A means of tying up secure oil from a safe, secure and friendly neighbor are in the air because of absurd environmental concerns.   And those protesting the pipeline fully expect Obama to back their demands.

Of course, unsaid, until now at least, is Keystone XL isn’t the only pipeline Canada will build, and it certainly isn’t going to wait on the US to make up its mind:

Considering geography, exporting oil from Canada to a non-American market doesn’t sound easy; Canada’s tar sands are close to the U.S. border, but not much else. So we asked John Baird — Canada’s new foreign minister, who was in Washington recently to speak with Ms. Clinton — which nations would buy oil that America decided not to take. His answer was quick and unequivocal: the Chinese. New pipeline infrastructure will transport oil between the tar sands and Canada’s west coast, from which tankers can ship it across the Pacific Ocean. And, even now, Chinese firms are buying stakes in Canadian tar sands.

Ron Liepert, energy minister of Alberta is crystal clear about which nation is most interested:

He noted China is poised for action, investing $15 billion in the province over the past 18 months. "There is a long-term plan to get oil to the East," he said.

That investment isn’t being made for grins.  It is being made by China to secure their energy future at the cost of ours.

As usual, when it comes to this administration, we dither about our energy future and security, while others act aggressively. Another reason to have them join the growing ranks of the unemployed in 2012.

~McQ

Twitter: @McQandO

Green jobs? There’s just no market

If you don’t believe me, look at the California experience to this point.   If there’s any state in the union more amenable to and focused on providing green jobs, it has to be the Golden State.   Governor Jerry Brown pledged to create 500,000 of them by the end of the decade.

But as often the case when the central planners make their pledges, they are woefully ignorant of what the market wants.  And so rarely does what they envision ever come to fruition.  Green jobs in CA is a good example.

Remember Van Jones?  Well, when Jones left the Obama cabinet as his “Green Jobs Czar” he landed in California and has been what the NY Times calls an “Oakland activist” apparently pushing for the creation of green jobs.   And it’s not like California hasn’t tried.   It has simply failed.

For example:

A study released in July by the non-partisan Brookings Institution found clean-technology jobs accounted for just 2 percent of employment nationwide and only slightly more — 2.2 percent — in Silicon Valley. Rather than adding jobs, the study found, the sector actually lost 492 positions from 2003 to 2010 in the South Bay, where the unemployment rate in June was 10.5 percent.

Federal and state efforts to stimulate creation of green jobs have largely failed, government records show. Two years after it was awarded $186 million in federal stimulus money to weatherize drafty homes, California has spent only a little over half that sum and has so far created the equivalent of just 538 full-time jobs in the last quarter, according to the State Department of Community Services and Development.

So a “stimulus” program that spent over $93 million dollars to create 538 jobs.  Why so little in terms of takers?  Well it seems the market wasn’t interested.

The weatherization program was initially delayed for seven months while the federal Department of Labor determined prevailing wage standards for the industry. Even after that issue was resolved, the program never really caught on as homeowners balked at the upfront costs.

“Companies and public policy officials really overestimated how much consumers care about energy efficiency,” said Sheeraz Haji, chief executive of the Cleantech Group, a market research firm. “People care about their wallet and the comfort of their home, but it’s not a sexy thing.”

You don’t say … the government didn’t have a clue at what the market potential of their boondoggle actually had, so they ended up spending $172,862 for each job.  And you wonder where the money goes?

Example two:

Job training programs intended for the clean economy have also failed to generate big numbers. The Economic Development Department in California reports that $59 million in state, federal and private money dedicated to green jobs training and apprenticeship has led to only 719 job placements — the equivalent of an $82,000 subsidy for each one.

“The demand’s just not there to take this to scale,” said Fred Lucero, project manager atRichmond BUILD, which teaches students the basics of carpentry and electrical work in addition to specifically “green” trades like solar installation.

Richmond BUILD has found jobs for 159 of the 221 students who have entered its clean-energy program — but only 35 graduates are employed with solar and energy efficiency companies, with the balance doing more traditional building trades work. Mr. Lucero said he considered each placement a success because his primary mission was to steer residents of the city’s most violent neighborhoods  away from a life of crime.

You see you can fund all the job training centers in the world and run umpthy-thousands through it.  But if there is no market for the jobs, you end up spending a whole lot of money for nothing.   Again, ignorance of the market and its demands means expensive mistakes.  Of course Mr. Lucero thinks the program is a success – he got to spend free money, was employed and it didn’t cost him squat.  It cost you.

Example three:

At Asian Neighborhood Design, a 38-year old nonprofit in the South of Market neighborhood of San Francisco, training programs for green construction jobs have remained small because the number of available jobs is small. The group accepted just 16 of 200 applicants for the most recent 14-week cycle, making it harder to get into than the University of California. The group’s training director, Jamie Brewster, said he was able to find jobs for 10 trainees within two weeks of their completing the program.

Mr. Brewster said huge job losses in construction had made it nearly impossible to place large numbers of young people in the trades. Because green construction is a large component of the green economy, the moribund housing market and associated weakness in all types of building are clearly important factors in explaining the weak creation of green jobs.

Market timing is pretty important too, isn’t it?  If you introduce a product into a market in the middle of a market downturn, chances are slim you are going to be successful.  While it may all look good on paper and sound good in the conference room, the “buy” decision is still made in the market place, and in this case it is obvious that the market has no room for these workers.  Something which should have been, well, obvious.  In fact, there is precious little market for traditional construction jobs in a “moribund housing market”.   Yet there they are spending money we don’t have on job skills that are simply not in demand.

Finally there’s this bit of word salad to feast upon:

Advocates and entrepreneurs also blame Washington for the slow growth. Mr. Jones cited the failure of so-called cap and trade legislation, which would have cut carbon pollution and increased the cost of using fossil fuel, making alternative energy more competitive. Congressional Republicans have staunchly opposed cap-and-trade.

Mr. Haji of the Cleantech Group agrees. “Having a market mechanism that helps drive these new technologies would have made a significant difference,” he said. “Without that, the industry muddles along.”

You have to admire someone who tries to cloak central planning jargon in “market speak”.  Imposing a tax on thin air to drive, from above, a behavior government wants is not a “market mechanism”.  And beside, California passed it’s own version of this “market mechanism” with AB 32 in 2006.  How’s that working out?

This is how:

A SolFocus spokeswoman, Nancy Hartsoch, said the company was willing to pay a premium for the highly-skilled physicists, chemists and mechanical engineers who will work at the campus on Zanker Road, although the solar panels themselves will continue being made in China. Mayor Reed said he continued to hope that San Jose would attract manufacturing and assembly jobs, but Ms. Hartsoch said that was unlikely because “taxes and labor rates” were too high to merit investment in a factory in Northern California.

Irony … central planning fails in CA while jobs end up in increasingly capitalistic China.  Again, ignorance of the market causes disappointing results.  Somehow I feel this came as a surprise to Mayor Reed … after he’d spent whatever of your money he’d committed to this project.

~McQ

Twitter: @McQandO

Our major creditor’s name also ends with a vowel

One of the irritating things about being deeply in debt is dealing with your creditors. Happily, if your creditor is, say Wells Fargo, they tend to stay within strict legal bounds when dealing with you. If you’ve been unfortunate enough to seek credit from fellows whose last names end in vowels, they tend to be more…forceful in delivering their messages to you. As it happens one of the United States’ creditors also has a name that ends with a vowel: China.

And they have a message. The more or less official organ of the Chinese Communist Party—which is to say the Chinese Government—is the newspaper People’s Daily. So, it is with much interest that I read an op/ed piece in that fine journal with the title, "China must punish US for Taiwan arm sales with ‘financial weapon’". As messages go, this one’s pretty simple.

Now is the time for China to use its "financial weapon" to teach the United States a lesson if it moves forward with a plan to sale arms to Taiwan. In fact, China has never wanted to use its holdings of U.S. debt as a weapon. It is the United States that is forcing it to do so.

The U.S. House of Representatives just passed a debt ceiling bill on Aug. 1. On the next day, a total of 181 members of the House of Representatives signed a letter sent to U.S. President Barack Obama stating that the federal government should approve the sale of F-16 C/D fighter jets to Taiwan as soon as possible to help ensure peace and stability across the Taiwan Strait…

Despite knowing that major creditor countries, especially China, would be the main buyers of its new debt, certain arrogant and disrespectful U.S. Congress members have totally ignored China’s core interests by pressuring the president to sell advanced jets and even an arms upgrade package to Taiwan.

U.S. treasuries will lose value if China stops or reduces its purchases of them on a large scale, which will also affect the value of China’s U.S. treasury holdings. However,as the situation has gotten out of hand, allowing Washington politicians to continue their game might lead to more losses.

U.S. arms sales to Taiwan can only create more jobs for the United States but cannot improve the ability of Taiwan’s military force to compete with the Chinese mainland. The essence of the problem is that some U.S. Congress members hold a contemptuous attitude toward the core interests of China, which shows that they will never respect China. China-U.S. relations will always be constrained by these people and will continue along a roller coaster pattern if China does not beat them until they feel the pain.

I am mildly amused by the claim that such sales both threaten "China’s core interests", but "cannot improve the ability of Taiwan’s military force to compete with the Chinese mainland." Both of these arguments cannot simultaneously be true.

Less amusing is the common attitude of loan sharks to their creditors displayed here using much the same language that Tony "The Shark" would use: Namely, if creditors don’t do what they’re told, you have to "beat them until they feel the pain."

With the recent rise in bond prices and drop in yields, the Chinese have a number of options. The least damaging to the US would be to sit out a few bond auctions, which would force interest rates up. But they’ve also got the nuclear option of selling off as much paper as the market could bear. Yes, they’d forego some yield payments, but they’d probably make a nice tidy premium over the original purchase price to make up for it. Rising interest rates now, at a time when the economy is weak, and short-term rates are already effectively zero, would slow the US economy. At the same time, a massive repatriation of renminbi to China would cause a steep drop in the value of the dollar in foreign exchange markets. This would raise the price of imports equally steeply. This would cause something very similar to the oil price shocks of the 1970s, that plunged the US into stagflation.

Naturally, the Chinese would be hurt by the reduction in their export capability. The question then becomes, "Which of the two political systems, China or the US, is more concerned about democratic pressure to change policy in order to improve the economy?" Who is more responsive to public pressure: our government, or the government that initiated the Tiananmen Square massacre?

I don’t know about you, but I wouldn’t expect Hu "The Kommissar" Jintao to be the one that blinks first.

Of course, if we weren’t $14 trillion in debt, we wouldn’t be very vulnerable to this sort of thing.

~
Dale Franks
Google+ Profile
Twitter Feed

Oxfam predicts world food shortages by 2030 mostly because of “climate change”

In advance of the December climate summit in South Africa this year, the scare-factory is ramping up its efforts to sell the need for “drastic action” to prevent “climate change”, the current euphemism for AGW.   The stories are beginning to flow.

Last year, a record 30.6 gigatonnes of carbon dioxide poured into the atmosphere, mainly from burning fossil fuel – a rise of 1.6Gt on 2009, according to estimates from the IEA regarded as the gold standard for emissions data.

"I am very worried. This is the worst news on emissions," Birol told the Guardian. "It is becoming extremely challenging to remain below 2 degrees. The prospect is getting bleaker. That is what the numbers say."

Of course the not-so-hidden premise here is that any increase in temperature is driven by our carbon dioxide emissions, even when the science doesn’t support the theory and models which make such a claim (about CO2 amplification) have been shown to be wildly inaccurate.  That doesn’t stop the scare-factory from ignoring the discredited nonsense to make their claims:

Professor Lord Stern of the London School of Economics, the author of the influential Stern Report into the economics of climate change for the Treasury in 2006, warned that if the pattern continued, the results would be dire. "These figures indicate that [emissions] are now close to being back on a ‘business as usual’ path. According to the [Intergovernmental Panel on Climate Change's] projections, such a path … would mean around a 50% chance of a rise in global average temperature of more than 4C by 2100," he said.

Except the IPCC’s report, as anyone who has read this blog knows, has been mostly discredited, thereby yielding this result:

Added to that, the United Nations-led negotiations on a new global treaty on climate change have stalled. "The significance of climate change in international policy debates is much less pronounced than it was a few years ago," said Birol.

Consequently, the scare-factory must crank up its stridency to new levels.  So expect to see more of this as December approaches.  The formula is pretty predictable:

By 2030, the average cost of key crops could increase by between 120% and 180%, the charity forecasts.

It is the acceleration of a trend which has already seen food prices double in the last 20 years.

Half of the rise to come will be caused by climate change, Oxfam predicts.

Can you guess what the other cause is?

In its report, Oxfam says a "broken" food system causes "hunger, along with obesity, obscene waste, and appalling environmental degradation".

It says "power above all determines who eats and who does not", and says the present system was "constructed by and on behalf of a tiny minority – its primary purpose to deliver profit for them".

It highlights subsidies for big agricultural producers, powerful investors "playing commodities markets like casinos", and large unaccountable agribusiness companies as destructive forces in the global food system.

Oxfam wants nations to agree new rules to govern food markets, to ensure the poor do not go hungry.

Or “capitalism”.  Oxfam’s “solution” is no different than the AGW alarmist’s solutions:

It calls on world leaders to improve regulation of food markets and invest in a global climate fund.

Of course it does.   And those “improved regulations” and the “global climate fund” will shift power where?  To centralized authorities.  And we all know how well central planning works don’t we?  After all, under the USSR and Maoist China, central planning adequately fed their citizens for years, didn’t it?

~McQ

Twitter: @McQandO

[ad] Empty ad slot (#1)!

China drives the price of commodities and inflation waits in the wings (update)

As China’s middle class expands and as its business and manufacturing sector continue to grow, it is driving the price of commodities higher because of increased aggregate demand for relatively scarce commodities:

While China’s GDP is only 9.4% of the global economy, and its population is 19% of the world population…

  • Cement demand represents 53.2% of global demand
  • Iron ore = 47.7%
  • Coal = 46.9%
  • Pigs = 46.4%
  • Steel = 45.4%
  • Lead = 44.6%
  • Zinc = 41.3%
  • Aluminum = 40.6%
  • Copper = 38.9%
  • Eggs = 37.2%
  • Nickel = 36.3%

Some of that demand is relatively stable, like food consumption. The world’s largest country has a middle class that can afford meat for the first time…..

Obviously this means that competition for these commodities will push prices higher and higher.  It is these sorts of numbers that cause me to doubt seriously those who claim inflation is not a threat.  Certainly the price for commodities is going to go up based on nothing more than China’s demand.   And if it costs more for those commodities, that means costs for products based on them are going to rise as well – everywhere.    Add in the money supply woes (i.e. literally dumping trillions in dollars into the economy to no real effect) and debt problems and you have a mix of reasons why, while it may not be evident just yet, inflation seems to be a certainty in our near future.

UPDATE: More on food commodities.  Interesting article.  Much that is produced in China in terms of grain is going toward feeding livestock.  So that puts even more pressure on costs for grain, etc.

China was until recently self-sufficient in soybeans, for example.  But now they are producing the same amount as they always have (15 million metric tons) but importing 3 times that to keep up. Corn, wheat and rice are headed in the same direction:

Xiaoping said that most of the land in China that can be farmed profitably is already under cultivation and that available land is actually shrinking in the face of development. In addition, yields are beginning to plateau, he said, with little expectation of major gains.

He said he expects China to increasingly import corn to keep up with demand resulting in part from dietary changes and its use in producing biofuels.

That means upward pressure on prices for everyone.

~McQ

Twitter: @McQandO

[ad] Empty ad slot (#1)!

Obama no leader and would prefer "easier" job as president of China

John Hinderaker at Powerline hits on something I’ve been saying for quite some time about the man in the White House:

Last night Col. Ralph Peters was on Bill O’Reilly’s show, talking about Libya. Peters thinks we should act on behalf of the rebels there, but he expressed skepticism that President Obama will ever do anything. "Obama loves the idea of being President," Peters said, "but he can’t make a decision."

I think there is a lot of truth to that, even in domestic policy, where Obama has passively deferred to Harry Reid and Nancy Pelosi on all legislative matters. One can debate whether action is appropriate in Libya or not, but Peters is certainly right when it comes to foreign policy–it is a safe bet that Obama will do nothing, because doing something would require a decision.

Now it just so happens that I think we ought to stay out of Libya, so this is a stopped clock moment for me.  I essentially agree with Obama’s non-decision.

However, to the larger point.  I agree with Peters completely when he says “Obama loves the idea of President, but he can’t make a decision”.  I might have said it a little differently.  Obama loves the idea of being President and the trappings and perks.  What he doesn’t like is the job.

I think that should be abundantly clear to anyone who has closely observed the man and taken a look at his background.  I always remember the words of the managing editor of the Harvard Law Review who said that Obama loved the title of Editor of the Law Review, but he didn’t want to do the work.  The managing editor said he rarely saw him except when it was to glad hand or take credit (and praise) for what was being done.  Additionally, Obama never wrote a thing for the review during his tenure, something almost unheard of.

In all cases, his problem is a leadership problem – a familiar topic for regular readers here.  He’s simply not a leader.  He has no idea how to be a leader.  But that doesn’t keep him from wanting leadership roles that offer him prestige, perks and pleasure derived from simply from being in the position. 

The reason Obama can’t make a decision is he can’t reason like a leader must.  He has no experience.  And he doesn’t understand the decision making process as practiced by a leader.  He’s never really had to make leadership decisions. So he simply tries to avoid making them.  One way he does it is to ignore the problem.  Another way he does this is to appoint commissions and panels concerning problems the country faces in order to defer the problem (and decision).  He also like to defer to the “international community” on foreign policy or the Democratic leadership in the legislature on domestic things.  Again, the avoidance of decision making.

And, in the end, he lets them make the decisions for him and then he jumps on the bandwagon with a speech full of rhetoric about how they (whichever party he is deferring to on whatever issue) have listened to him and decided on a course much like he recommended.  Or something like that.

Even the Democrats are noticing how poor a leader he is.  They’ve been hollering for weeks, some of them very vocally, that he needs to step up and show some leadership in the budget process.  To this point he’s done much of nothing.   Today he gave a press conference on energy because gas prices have increased.  Essentially his line of argument, concerning domestic oil, is we’re doing fine and we shouldn’t worry.

And where has he decided to try to take a little leadership? 

School bullying.

Umhmmm.  That boiling, roiling top tier controversy that threatens to tear the world apart.  On the turmoil in the Middle East, yeah, uh, not so much.  France is doing just fine and besides, Hillary will be by to see you soon.

Instead of a leader, we’re stuck with this:

Mr. Obama has told people that it would be so much easier to be the president of China. As one official put it, “No one is scrutinizing Hu Jintao’s words in Tahrir Square.”

Amazing. "Easier". See Peters’ words above.

I say we cut him loose in 2012 and let him take the “hope and change” show to China to make his case.  They’ll be bankrupt inside of 2 years.

~McQ

Communism kills–always has, always will

I know – once again I’ve managed to shock you haven’t I?

Not.

All that’s really happened is there is now proof that is hard to ignore or deny. Communism (simply a brand of "totalitarianism") kills and China is – I was going to say "living proof" but that would be inappropriate – is proof.

Remember the Mao inspired "Great Leap Forward" launched in 1958 Communist China? It was the forced "communization" of the population which had resisted it up until then. I.e. the people were pushed into communes where, they were told, life would be infinitely better because, well, because Mao said so.

Now it appears some initial estimates may have been a little low about the number of lives that forced move cost.

Historians have known for some time that the Great Leap Forward resulted in one of the world’s worst famines. Demographers have used official census figures to estimate that some 20 to 30 million people died. But inside the archives is an abundance of evidence, from the minutes of emergency committees to secret police reports and public security investigations, that show these estimates to be woefully inadequate.

Yes, I agree, that’s criminal. It is monstrously criminal.  Why?  Well obviously the force used to make people do what the state decided to do makes it criminal.  What makes it monstrously criminal?  Well the number of people that died from it and this:

In all, the records I studied suggest that the Great Leap Forward was responsible for at least 45 million deaths.

Between 2 and 3 million of these victims were tortured to death or summarily executed, often for the slightest infraction. People accused of not working hard enough were hung and beaten; sometimes they were bound and thrown into ponds. Punishments for the least violations included mutilation and forcing people to eat excrement.

They were tortured to death or summarily executed because they disagreed with who should run their lives or for doing something that those who had assumed control of their lives (by force) decided was deserving of capital punishment.

Like these:

One report dated Nov. 30, 1960, and circulated to the top leadership — most likely including Mao — tells how a man named Wang Ziyou had one of his ears chopped off, his legs tied up with iron wire and a 10-kilo stone dropped on his back before he was branded with a sizzling tool. His crime: digging up a potato.

When a boy stole a handful of grain in a Hunan village, the local boss, Xiong Dechang, forced his father to bury his son alive on the spot. The report of the investigative team sent by the provincial leadership in 1969 to interview survivors of the famine records that the man died of grief three weeks later.

Yes, these are the brutal and criminal acts of a ideology that holds the “rights” of the state far above any rights for individuals.  An ideology that many collectivist fellow travelers right here in the US used to defend as the humane answer to capitalism and the “cult” of the individual.  And make no mistake the USSR was no better.  It too resorted to forced collectivization.  In the Ukraine alone, it is estimated that 3.1 to 7 million died from the famine the forced collectivization induced.  In the Soviet Union, almost 2 million kulaks – probably what we would describe as “middle class farmers” were transported to the Gulags or executed.  All their land was confiscated and collectivized.  It wasn’t hard to become an “enemy of the people” just by being born to the wrong people or having worked hard to get ahead.

And as the artificial shortage they call “famine” worsened, what do you suppose those who represented the state did in China (and most likely the USSR)?  They used it to continue the oppression of the people and extend their control.  It became of tool of dominance and it cost many, many people their lives:

Starvation was the punishment of first resort. As report after report shows, food was distributed by the spoonful according to merit and used to force people to obey the party. One inspector in Sichuan wrote that “commune members too sick to work are deprived of food. It hastens their death.”

Imagine that – purposely starving people to death if they wouldn’t cooperate or were too sick to work.   Any guess as to what that drove some too?

One police investigation from Feb. 25, 1960, details some 50 cases in Yaohejia village in Gansu: “Name of culprit: Yang Zhongsheng. Name of victim: Yang Ecshun. Relationship with Culprit: Younger Brother. Manner of Crime: Killed and Eaten. Reason: Livelihood Issues.”

‘”Livelihood issues?  Good lord.  And what did the icon of the collectivist fellow travelers have to say about all of this?

At a secret meeting in Shanghai on March 25, 1959, he ordered the party to procure up to one-third of all the available grain — much more than ever before. The minutes of the meeting reveal a chairman [Mao] insensitive to human loss: “When there is not enough to eat people starve to death. It is better to let half of the people die so that the other half can eat their fill.”

Freakin’ amazing.  For those who continue to wear their Mao T’s there’s your hero and his accomplishments in spades.  And he’s absolutely no different than Che or Fidel or any of the rest of the murdering scum that brought the collectivist, murderous totalitarian socialism known as communism to power.

They should forever be relegated to the same status as Adolf Hitler because in every way they were as bad, if not worse, than he was.

~McQ

[ad] Empty ad slot (#1)!

Congress throws fuel on a raging currency war fire

In case you missed it, there’s a currency war going on. It may not be the sexiest thing in the world to talk about, but it is important to understand. Probably the most important thing to understand is, in the midst of all this financial upheaval, it’s not healthy for anyone. In fact that best thing right now would be to back off and let things chill for a bit.

That’s why the US Congress passed a bill calling China a “currency manipulator.” So much for cool heads. Blame it on election year politics and the need to seem to be sticking up for America … even if what you’re really doing is adding more heat to an already ferociously hot situation.

The baseline here is the US believes the Chinese yuan is undervalued by about 25%. And it has been on China’s case for some time to get them to revalue their currency upward. That would make US exports more competitive against China.

But, there’s more to the story than just that.

First thing to know is because of the horrific global financial climate, “Japan, Brazil, Peru and countries all over the world are trying to beggar thy neighbor (just as happened during the 1930s) and gain a leg up for their exports by cheapening their currencies,” according to The Market Oracle. So we have any number of countries trying to boost exports at the expense of their currencies.

You have to then dial it back to June of this year to understand the second part that makes this so complex.  June 19th specifically. Jack Perkowski explains:

That is the day that China, by far the world’s largest currency trader, announced that it would no longer peg the yuan to the U.S. dollar, but would instead peg it to a basket of currencies. What China’s announcement meant in practice is that at the margin, beginning on June 19, China would tilt its purchases in favor of buying assets denominated in the euro, the Japanese yen, the British pound or some other major currency, rather than those denominated in the U.S. dollar. When an investor with $2.5 trillion of buying power makes such a statement, markets tend to listen.

Here is what has happened since.

As of the September month-end, the euro has increased in value by 10.3% against the U.S. dollar since June 19, the pound by 6.3%, and the yen by 7.8%. In fact China’s purchases of yen-denominated securities has heightened trade tensions between Japan and China to the point where the Japanese have complained publicly that China is effectively pricing Japanese products out of the market with its yen purchases, threatening to derail Japan’s economic recovery.

In the broadest measure possible, the United States Dollar Index (“USDX”) has declined by over 9.6% percent since June 19. The USDX measures the value of the US dollar against a basket of currencies that includes the euro, yen, pound, Canadian dollar, Swiss franc and the Swedish krona — exactly the currencies that China is most likely including in its own basket and which are now appreciating as a result. The USDX began in March 1973 with a value of 100.000 and has since traded as high as the mid-160s. At its current level of 78.691, the USDX is approaching its 33-year low of 70.698, which was reached on March 16, 2008.

On the one hand you have countries everywhere trying to cheapen their currencies to sell their exports (China wants theirs to stay right where it is) in order to boost GDP growth. And on the other you have China’s move away from pegging the yuan to the US dollar to pegging it to a basket of other currencies, and driving those currencies higher and making their exports less competitive.

Unpegging from the US dollar has also driven the dollar down relative to those  other currencies but still much higher than the yuan, which has only appreciated 2%.

Back to the point about the bill just passed by Congress. It doesn’t really help:

But the former U.S. trade representative, Susan Schwab, says that – while there’s a very real problem in terms of China artificially keeping the renminbi low, this isn’t the way to solve anything. Schwab calls it "a signal-sending exercise during an election season". She says that the bill won’t really do anything, even if the Senate passes it and it is signed into law. Schwab says it "makes no sense", won’t solve any problems, will escalate tensions, and will only divert attention from the real trade problems between the U.S. and China.

In fact the “election signals” may blow up in our face:

Indeed, Schwab warns that other countries might decide that this U.S. bill means that it’s open season for addressing currency manipulation, and that other countries believe that the U.S. is manipulating our currency. She says there could be a "boomerang effect" from the legislation.

All we’d need now to kill our recovery as weak as it is, is to have a full blown, open season, take no prisoners currency war where the dollar would be weakened even more than it is now. And that’s especially true if the “quantum easing” (printing more money) the Fed has been hinting about is about to take place.

What no one seems to want to admit is now is not the time for any country to be revaluing its currency upward. The US is demanding of China what it wouldn’t do itself.  Until the financial crisis has passed, these demands that China push the value of the yuan up should be on hold. Then, as Zachary Karabell explains, it is in China’s best interest to see the value of the yuan eventually increase:

China has been revaluing its currency, nearly 20% between 2005 and 2008 and now nearly 3% since June when the government resumed that policy having shelved it during the midst of the global financial crisis. It is in the domestic interest of the Chinese government to raise the value of their currency because they are focused on building up on internal, domestic consumption market. They have no wish to be dependent long-term of the vagaries and whims of American consumers, and higher purchasing power for Chinese consumers is the answer. They are not revaluing quickly enough to suit an America stuck in second gear and looking for someone to blame, but revaluing they are.

And there’s the bottom line – the US recovery isn’t going as well as we’d like it and as seems to be the penchant among US politicians, they have to have someone else to blame for the problem.

Solution: throw gas on a raging fire. I sure hope China has cooler heads at the helm.

~McQ

[ad] Empty ad slot (#1)!

Fidel Castro – Socialism doesn’t work

We could have told him that 50 years ago:

Fidel Castro told a visiting American journalist that Cuba’s communist economic model doesn’t work, a rare comment on domestic affairs from a man who has conspicuously steered clear of local issues since stepping down four years ago.

[...]

Jeffrey Goldberg, a national correspondent for The Atlantic magazine, asked if Cuba’s economic system was still worth exporting to other countries, and Castro replied: "The Cuban model doesn’t even work for us anymore" Goldberg wrote Wednesday in a post on his Atlantic blog.

[...]

The state controls well over 90 percent of the economy, paying workers salaries of about $20 a month in return for free health care and education, and nearly free transportation and housing. At least a portion of every citizen’s food needs are sold to them through ration books at heavily subsidized prices.

Of course the "Cuban model" only “worked” while the USSR existed. It was essentially based in heavy subsidies paid Cuba by the USSR for being its main proxy in the Americas. And the USSR’s woes most firmly underlined the problems with a centralized demand economy run by the state. Even so, Cuba continued on along that vein even after their greatest benefactor and financial supporter collapsed like a wet paper box. Now, finally, after pushing Cuba into poverty, Castro admits socialism is a bust.

China, while still totalitarian, recognized the economic problems soon enough to avert a similar disaster by loosening up economically. Cuba and North Korea, though, have continued to use the disastrous economic model and are basket cases (Cuba has instituted some modest economic changes, but not enough to break the dependency on the state the government of Cuba had ingrained on multiple generations of its population).

Of course Castro’s admission comes to late for the people of Venezuela who’ve been roped into a Cuba-style socialist government by strong man Hugo Chavez. Predictably, the Venezuelan economy is in shambles.

You have to wonder how many more ruined economies it will take before the socialists of the world (or wannabes) recognize that their brand of government and economics is a disaster and has probably ruined more lives than any other economic system in history.

~McQ

[ad] Empty ad slot (#1)!

Turkey continues to sell gasoline to Iran despite sanctions

So now what?

We had the tough talk from Obama and the State Department about “new” sanctions designed to bring Iran to its knees over the development of nuclear weapons.

But now the administration is face with walking the walk concerning those sanctions.  And apparently Turkey isn’t at all worried or concerned about the US’s reaction:

Ankara will continue to permit Turkish companies to sell gasoline to Iran, despite US sanctions against fuel exports to Islamic regime, Reuters reported on Wednesday.

"If the preference of the private sector is to sell these products to Iran, we will help them," said Turkish Energy Minister Taner Yildiz.

Tupras, Turkey’s sole oil refiner and gasoline exporter, expressed little fear of retribution from US Treasury officials who have the power to ban sanctions violators from accessing the US banking system or receiving US contracts.

"For us, Iran is more important than America because we get crude oil from them. We don’t get anything from America," a Tupras official was quoted as saying.

It seems that Turkey has figured out that our new motto is “Speak loudly and carry no stick”.  No fear and certainly no respect is shown in the statement by the Tupras official.  And Minister Yildiz is obviously waving away any official concern with his statement.

Two things are demonstrated by their stance.  A) Turkey is “all in” in it’s support of the “Islamic world”.  It has obviously made a choice between the being a part of the coalition of Middle Eastern Islamic countries and the West and NATO.  B) Turkey has been given absolutely no reason to believe we’ll actually enforce our sanctions and thus demonstrates no respect for them or the US.

I’m not sure that would have been the case 2 short years ago.  While Turkey was certainly moving away from the Western orbit at the time, their overt hostility to the US wasn’t at all evident.  And my guess is they knew the US would enforce sanctions then.  However, they have deduced that the US is a weak horse right now, and they plan to build their credibility in Middle East at our expense.  Defying the “Great Satan” is a great way to do that. 

And, of course, there’s the China problem.  China too is shipping in gasoline.  So in order to enforce sanctions against Turkey the US would have to do the same against China.  Oh – and our “good friends” the Russians as well.  Yeah, that’s right, Russia and China are both selling gasoline to Iran, and have come to no harm.  What’s the risk of bucking the US?  Turkey figures it to be nil.  And, it appears, they’re right.

The tough “new” sanctions, it appears, are a farce and our “friends” see no risk it flouting them.  It sort of boils down to the old western adage of “if you’re going to wear a gun, you have to be ready to use it”.  Apparently these three have figured out the gun the administration is wearing is empty.

There’s something to be said for respect and fear in foreign policy – but you have to actually do something (or be willing to do it) before the world community will heed what you say.  This administration’s weapons are words, not deeds.  And the expected result is on display in this little scenario, a scenario that you can expect to see replayed over and over and over again as long as it is in power.

~McQ

[ad] Empty ad slot (#1)!

[tweetmeme only_single="false"]