For years I’ve heard people say that China isn’t an expansionist military threat on the par of, say, the old Soviet Union. And for the most part, I believe that. I do believe they’re a regional expansionist military threat and I also believe they’re building their military with unprecedented spending to fulfill that role. That’s fairly obvious in their dealings with other Asian countries within the China sea area.
But are they an international threat to peace?
In some ways, absolutely. For instance, their relationship with Iran threatens to make the unstable Middle East even more unstable. And they’re blatantly disregarding UN sanction and breaking promises to the US about weaponry they are exporting:
China is continuing to provide advanced missiles and other conventional arms to Iran and may be doing so in violation of U.N. sanctions against the Tehran regime, according to a draft report by the congressional U.S.-China Commission.
“China continues to provide Iran with what could be considered advanced conventional weapons,” the report of the U.S.-China Economic and Security Review Commission says.
According to the report, which will be made public Nov. 16, China sold $312 million worth of arms to Iran, second only to Russia, after Congress passed the Iran Freedom Support Act in 2006 that allows the U.S. government to sanction foreign companies that provide advanced arms to Iran.
So, essentially China is calling the US bluff and ignoring the UN. And it is actively trading with a self- declared enemy of the US (and a country which has killed Americans in both Iraq and Afghanistan).
Speaking of the US, China has even gone further:
Most of the weapons transfers involved sales of Chinese anti-ship cruise missiles, including C-802 missiles that China promised the United States in 1997 would not be exported to Iran.
China also built an entire missile plant in Iran last year to produce the Nasr-1 anti-ship cruise missile.
While the article goes on to say that technically the sale isn’t a violation of the Iran, North Korea and Syria Nonproliferation Act of 2006 because the payload and range are below the specified minimums, what it doesn’t say is the value of the advanced technology such a sale brings a country like Iran. Obviously what they learn from the C-802 will be incorporated in their own types of missiles.
The report in which these findings were contained makes a valid conclusion based on them:
The report concludes: “Despite Beijing’s stated claim to be acting as a responsible major power, China continues to place its national interests ahead of regional stability by providing economic and diplomatic support to countries that undermine international security.”
Of course China waves it all away. I mean, what are we going to do about it?
Chinese Embassy spokesman Wang Baodong denied China violated U.N. sanctions.
“When it comes to the issue of nonproliferation, China has been strictly adhering to the relevant U.N. resolutions and faithfully carries out its international obligations while strictly implementing its relevant domestic policies and regulations in the field.”
He said the commission “should cast off its Cold War mentality, respect the facts and stop making unwarranted allegations against China.”
Of course what sales like the ones China has been making to Iran do indeed undermine international security, or, at least Middle East regional security. Iran now brags about missiles it has that can hit its avowed enemy, Israel, and most of the world believes they’re pursuing nuclear weapons. These sorts of sales only aggravate that situation.
Israel has to take them seriously and has:
Israel’s test launch of a ballistic missile at Palmachim Air Force Base on Wednesday, in an apparent show of military strength, has ensured the threat of Iran’s nuclear capabilities remains firmly on the public agenda.
International sources quoted in the Israeli media said the test appeared to have been conducted with a ”surface-to-surface” missile known as the Jericho 3, which has a range of between 3000 and 7000 kilometres and is capable of carrying a nuclear warhead.
Of course Israel has never publically admitted it has nuclear weapons (but most believe they do) and until this launch never publicly admitted it had a missile with this range. It was indeed a show of force to make it clear to the Iranians that they had best mind their p’s and q’s. But it certainly indicates in increase in tensions and a decrease in stability in a region already dangerously unstable.
So we have China ignoring or circumventing international sanctions to trade critical weaponry with a rogue nation with military and regional aspirations and essentially telling the rest of the world to bug off.
The question is “why?”
Is it because it perceives weakness in the US? Europe? The UN? All three? China has weathered the recession in relatively good shape. It’s economy is still doing well. It has been the recipient of a wealth transfer through trade that has enabled it to spend much more freely on its military and it seems to be recognizing a growing vacuum in the world power balance as the US is perceived to be withdrawing some from its position of dominance.
Is China just interested in a regional role, or does Iran signal that China hopes to expand into much more of an international power player? China watchers who’ve been claiming that it is only regional power which interests the country may have to recalibrate their thinking. It seems, at least to me, that China sees a much broader role for itself (and its self-interest) in the world and may be beginning to make moves internationally to fulfill that role.
Of course time will tell, but Iran (and some of its activities in Africa and the China sea) seems to be a good indicator of a larger desired international role for China than that which was previously assumed for the country.
This may surprise you, but it is the US. In fact, it probably does surprise you, given all the whining about our dependence on foreign oil. You’d think that we were a poor nation when it comes to petroleum resources and the amount we import.
Quite the contrary. And you’d think that it would be in the best interests of the US to exploit its resources to a) give us a larger percentage of secure oil and b) employ oodles and bunches of Americans in an industry that has some pretty good and high paying jobs.
First the news:
The study released Thursday by the National Petroleum Council, a collection of industry, academic, government and other officials convened by the secretary of energy, touted how advanced technology has unlocked vast formations of natural gas previously deemed uneconomic to tap.
But the report also said the same drilling and production techniques that opened up shale gas – combined with success in the deep-water Gulf of Mexico, the Canadian oil sands and even surges in conventional oil onshore – are improving the nation’s potential to be more self-reliant for oil, according to the report.
"Contrary to conventional wisdom the North American oil resource base also could provide substantial supply for decades ahead," the report said.
FYI, this isn’t just some industry group turning out reports that favor drilling.
The National Petroleum Council, a collection of industry, academic, government and other officials, convenes several times a year to gather information, give advice and issue reports on topics for the secretary of energy. The most recent report was a 2007 study on global energy supply and demand.
In 2009 Energy Secretary Steven Chu asked the group to look at U.S. natural gas and oil resources based on four concepts: economic prosperity, environmental sustainability, energy security and prudent development.
Optimistically, the Council believes that the US and Canada combined could produce 22.5 million barrels a day when the new resources are added in. Secure oil.
And, if we’d just get to work and try to tap these assets, Goldman Sachs believes we’ll surpass Russia and Saudi Arabia as the largest oil producer in the world by 2017:
And earlier this month, Goldman Sachs said in a note to investors it expects the U.S. – now the No. 3 oil producer behind Saudi Arabia and Russia – to take the top spot by 2017.
This, given the current economic (and political) conditions, should be a no-brainer, shouldn’t it?
Well shouldn’t it?
Today’s little economic snapshots:
A sharp drop in oil prices reduced import prices by –0.4%. Export prices, conversely, rose by 0.5%. On a year-over-year basis, import prices have risen by 13%, while export prices have gone up by 9.6%.
For the sixth straight month, business confidence has fallen as the NFIB Small Business Optimism Index fell 1.8 points in August to 88.1.
The Ceridian-UCLA Pulse of Commerce Index fell 1.4% in August, with the index reading at 94.62, as nationwide trucking activity dropped slightly.
In weekly retail sales, ICSC-Goldman Store Sales rose 1.3% on a post-Hurricane Irene burst of sales last week, with year-over-year sales up 3.3%. Redbook, meanwhile, reports year-over year sales were up 4.5%.
James Pethokoukis writes, "Goldman Sachs drops this H-bomb on the Obama campaign:
We have lowered our forecast for US real GDP growth further and now expect real GDP to grow just 2%-2½% through the end of 2012. Our forecast for annual average GDP growth has fallen to 1.7% in 2011 (from 1.8%) and to 2.1% in 2012 (from 3.0%). Since this pace is slightly below the US economy’s potential, we now expect the unemployment rate to be at 9¼% by the end of 2012, slightly above the current level.
Even our new forecast is subject to meaningful downside risk.
So, we got that goin’ for us.
Yes, that’s what’s up … I’m looking at ways to further expand my ability to blog from various platforms and apps.
So far, so good with this one.
– Posted using BlogPress from my iPad
In this podcast, Bruce, Michael, and Dale discuss the fight over the debt limit again.
The direct link to the podcast can be found here.
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I have to admit, I sometimes get tired of being the voice of doom. Sadly, our political class–Republicans and Democrats alike–seems determined to follow the worst policy options available. So, doom slouches closer. The proximate doom they’re fiddling with this time is the approaching debt limit. Now, I yield to no man in my hatred for ever-increasing government spending, but this debt-limit battle is pointless. We will increase the debt limit. We have no choice.
Here’s the current situation:
OMB estimates federal revenues for 2011 will hit $2.17 trillion. Granny, our servicemen, and other such untouchables — by which I take him to mean Social Security, Medicare, national defense, and debt-service payments — will add up to $2.21 trillion, meaning that even if we cut the rest of the federal budget to $0.00 — no Medicaid, no food stamps, no Air Force One — revenues still would not cover these untouchables, according to OMB estimates…
Our deficit is about 40 percent of spending this year; continued recovery, if the estimates hold, will do some of the work for the 2013 regime, but even under current forecasts that are arguably too rosy, we’ll still be running a 26 percent deficit in 2013.
Even if we eliminate every penny of spending this year except for Social Security, Medicare, and Defense, we still can’t cover this year’s spending. And next year’s spending projects an economic recovery will save us, and reduce the deficit to 26% of spending. Absent such a recovery, next year we’ll be back to another 40% deficit.
And the politicians of both parties are nowhere near to making the appropriate cuts in the budget in years farther out than that. The biggest deficit reduction package currently on the table is for $4 trillion over the next 10 years. Which sounds impressive, until you remember that the actual projected budget deficit over the next 10 years is $13 trillion. So, we’re still $9 trillion short of closing the budget deficit for the next 10 years.
But, wait! It gets better! This $13 trillion figure assumes that interest rates will remain stable where the currently are. If interest rates for treasuries go up by 1%, that wil add 1.3 trillion to the deficit over the same period. As the moment, the Office of Management and the Budget (OMB) projections are for a stable average interest rate of 2.5%. Of course, the current 20-year average is closer to 5.5%, so a return even to normal interest rates will add up to $3.9 trillion to the deficit.
But the magic doesn’t stop yet! OMB forecasts growth rates of between 4%-4.5% from 2014 to 2014. The average trend rate of growth is between 2.5%-3% however. So, if we don’t get the strong growth the OMB is predicting over the next three years, and the following years, we’ll need to add another $3 trillion or so to the deficit over the next decade. And, frankly, if you believe Goldman Sachs today, a return to trend rates of growth seems..unlikely, as they’ve lowered 2Q GDP growth to 1.5% from 2.5% and 3Q to 2.5% from 3.25%. They also forecast unemployment at end of 2012 to be 8.75%.
So, the best case scenario is that we’ll add $9 trillion to the deficit over the next decade. A return to historical growth and interest rates–even if we assume the $4 trillion of budget cuts will actually happen–means a 10-year deficit of $16 trillion. Essentially, we will more than double the National Debt, pushing the debt to GDP ratio to about 160% by 2021.
And that’s the good news.
The bad news is that, in the current debate over the debt ceiling, everyone involved seems determined to play chicken with a default–even if only a selective default–of US treasury obligations.
Tim Pawlenty even suggested that a technical default might be exactly what Washington needs to send a wake-up call to the politicians about how serious the situation is. Others, like Michelle Bachmann, and a not inconsequential number of Tea Party caucus members are steadfastly against raising the debt ceiling for any reason at all.
This is insanity.
Any sort of default, even a selective default that would suspend interest payments only to securities held by the government, while paying all private bondholders in full, will have completely unpredictable results. The least predictable result, however, would be business as usual. A technical default–i.e., delaying interest payments for a few days–or selective default, or any other kind of default is…well…a default. It is a failure to make interest payments.
The most obvious possible result of any sort of default will be to eliminate the US Treasury’s AAA rating, and push interest rates up sharply. If we’re lucky, we’d be talking about a yield of 9%-10%…and an additional $5 trillion added to the deficit (running total in 2021: $21 trillion added to the national debt).
And, again, that’s a best case scenario. Because it assumes that everyone will be willing to hold their T-Notes through all of this. If any major overseas institution or government–say, China–decides to unload their holdings, it could be the start of a flight from treasuries that will destroy the US Dollar in the FOREX, vastly increase the price of imported goods, like, say, oil, and spark uncontrollable hyperinflation in the US. The life savings of every person and institution would be wiped out.
Naturally, yields on interest-bearing instruments would then pull back on the stick and climb for the skies. Not that it’d matter much at that point, since the currency would merely be ornately engraved pieces of durable paper. Suitable for burning in the Franklin Stoves with which we will be heating our homes, in the absence of oil.
Flirting with default is extraordinarily reckless. I don’t even have the words to begin to describe how badly any sort of default might go.
The thing is, we don’t know–we can’t know–what the results of a technical or selective default might be. It might be the judgement of worldwide investors that there are no better alternatives to US-denominated securities, so they’ll just have to ride out a technical default, and accept their interest payments coming a few days late. It might be their judgement that unloading their US-denominated securities and losing a little money is better than the risk of losing everything through a currency collapse. It might be a lot of things, and we have no way of knowing which of those things might come to pass.
As Tim Pawlenty says, a default might be a wake up call. From an exploding phone filled with napalm and plutonium.
Whatever political points might be at stake, is it worth this level of risk?
The safe path here is a simple $500 billion debt limit increase. That’ll give us 6 months to figure things out, and try to discover some way to get our fiscal picture under control, and avoid a default. Government spending is out of control, but a default is really not the best way to impose fiscal discipline.
Obama says it’s time for us to “eat our peas“. Well, here’s the problem, jacka$$ – I don’t like peas.
I’m an adult. Been one for almost thirty years, in fact, so I have a lot of practice at it. I’m older than you, jerk.
So take your sage advice about how we adult citizens just have to suck it up and bend over for your political friends one more time, and shove it in Joe Biden’s cheek pouches.
If I were a political consultant for a Republican, tea-party-oriented candidate for president (or indeed for any federal office), I would suggest that a central campaign theme be “It’s time to start treating Americans like adults.”
I believe Obama’s condescending smarminess is grating and offensive to a lot of voters. The Republicans are fools if they don’t offer a counterpoint to it.
This “treat us as adults” theme encompasses many things. It means allowing us to make our choices about our lives and our jobs, and be responsible for the outcomes. That includes a whole host of areas that the federal government has completely screwed up in their attempts to treat us like irresponsible children.
— We need to be responsible for our own retirement. We don’t need to be treated like children who don’t understand the value of money, can’t see the future, and don’t have the self-discipline to save.
— We need to be responsible for our own healthcare. We don’t need to be treated like children who must be told what to eat, when to exercise, and what treatment they are to get when they are sick, without any thought to how to pay for it.
— We need to be responsible for our own businesses. The vast majority of business owners are adult enough to know what safety precautions to take, and what accounting standards to use. The small minority that doesn’t understand safety should have their butts sued off and lose their businesses when they are negligent. The tiny minority that commits accounting fraud should be put in prison.
— We need to be responsible for our property. That starts with allowing us to keep our own money, and spend it as we like. It also implies some stability that is not currently in evidence, so that we don’t lose huge sums in real estate and stock investments because of governmental incompetence and cronyism with the executives of large companies.
— We need to be more responsible for our own safety. Sure, there’s always a need for law enforcement, but it can’t be the first resort for personal safety. Any law enforcement that could do that would be indistinguishable from a police state. Therefore, we need the right to buy, possess, and use the weapons that provide that safety.
— We need to be responsible for raising our own children. We need to have more influence over their education, and we particularly need to stop wasting our time reversing the indoctrination they suffer at the hands of the educational bureaucracy.
— We need to be responsible for treating other people appropriately. If we are stupid or obnoxious in our treatment of others, we need to suffer social consequences, not legal ones.
I know transitioning to treating Americans as adults would be hard. We’ve now had a couple of generations of government dependents, and they have been actively discouraged from learning the skills and responsibilities of adulthood.
The problem is that we’ve reached the end of our rope on supporting this class, which has a natural tendency to grow.
The fundamental problem we face (and that all societies face) is that there are plenty of people who don’t want to be adults. They want to go on being children. It’s easier, at least superficially. Being an adult is hard; you have to make agonizing decisions sometimes. You sacrifice your own pleasures for your children. You deal with random outcomes, such as acts of nature. You have setbacks, and you only have yourself and those who will voluntarily help you to deal with those setbacks.
So these folks have made a pact with the devil. They get to go on essentially being children, with their housing, food, and healthcare guaranteed at a certain level. They can have children without the trouble of getting married and taking on a long term commitment. They can slough off their education. When things go bad, they can do the equivalent of a toddler’s temper tantrum by blaming any convenient third party for their own lack of capability to deal with life.
They never gain the satisfactions of being an adult, but they do get to avoid the responsibilities – at least, until the whole thing comes crashing down around them, leaving them completely unequipped to deal with the wreaked society into which they will eventually be thrust.
Some of them go one step up the ladder. They take jobs in the public sector. OK, at least they are willing to work, and a lot of public sector employees do work pretty hard. But they still exhibit many of the same childlike expectations. They expect that their job will always be secure, with no thought or concern for where the money comes from. They expect constantly rising compensation. They expect to be insulated from any real criticism by those outside the bureaucracy, i.e., the common citizens.
It’s no wonder that we’re having trouble as a society facing reality. We have created a large class of people whose entire daily existence is based on avoiding the real, adult world.
However, I believe that group is still a minority. At least, I hope it is. With its natural tendency to grow, however, it won’t be a minority for much longer.
So, while we still have a majority of people who prefer to be treated as adults, we need to appeal to that desire. We need to leverage it to shame some people into dropping their something-for-nothing expectations. For example, we need those archetypical self-sufficient farmers to give up every single subsidy they get, and run their farms like the self-sufficient adults they pretend to be. We need to shame businessmen to stop sucking at the government teat and provide goods and services that people will voluntarily purchase, without subsidies, special favors, or restrictions on their competition.
No society constituted with a majority of childlike adults is stable. Greece is the most obvious recent example.
Obama is never, ever going to treat American citizens as adults. He is psychologically incapable of it. Where Bill Clinton could give in and sign welfare reform, Obama can’t. It’s simply inconceivable to his leftist soul that society could move further from his leftist principles instead of closer to them.
The short term, then, is for Republicans to stand firm against his desire to turn more Americans into childlike adults. No more taxes. Insist on spending cuts, using whatever leverage comes to hand. Endure stalemate, if necessary, because it’s worse than the alternative. Giving in to Obama just means more ground to retake later.
The medium term is to realize that a complete turnaround is absolutely necessary in the relationship between American citizens and their federal government. Citizens must be allowed and required to be adults.
I believe if the GOP embraces this as a guiding principle, we would see a bigger electoral triumph than 2010, bigger than 1994, bigger than 1980. I believe there is latent demand in our citizens for being treated as equals instead of wards. I think they’re sick of condescending lectures on eating their peas from incompetent, smug Democrats who have failed at everything they have tried. I think many are disheartened that they want to take on the mantle of adult responsibility, but they can’t because they can’t find jobs.
However, if we get another Republican candidate who is from the same vein as authoritarian Democrats – say one that believes government control of healthcare is just fine and showed his true colors by implementing it in his state – then the GOP will forfeit a lot of that latent demand.
The GOP might still win with such an authoritarian-minded, political class approved, “to the manor born” candidate. Bill Quick thinks his Pomeranian could beat Obama, and it’s hard to argue with his reasoning.
But without sweeping majorities, clarity of mandate, and courageous, principled leadership at the top, the Republicans won’t be able to get anything of consequence done. They’ll fritter, attempt to look “bi-partisan” to please the mandarins at the Washington Post and New York Times, get gamed by the Democrats, and lose what is probably our last chance to make a real reversal before the debt resulting from our social welfare failures sends the economy into complete meltdown.
Are businesses sitting on their money in the hope of a change in the regulatory regime (i.e. an Obama loss in 2012)?
Marylin Geewax brings us the following story about the overall economic picture. And it isn’t pretty:
The latest surveys show that both business owners and consumers have been losing confidence in the U.S. economy. That pessimism is just the latest blow to hopes for a speedy recovery.
Last week, even Federal Reserve officials said they have grown more pessimistic about the economic outlook this year. The policy makers cut their forecast for 2011 to a growth rate of just 2.7 to 2.9 percent — down from their April estimate of 3.1 to 3.3 percent.
Economists say growing pessimism and a lack of confidence tends to depress spending. Chris Christopher, an economist with the forecasting firm IHS Global Insight, says the large cash reserves corporations are holding are evidence that our budding optimism is fading.
I’d only ask, “what budding optimism”? Most who’ve been following the so-called “recovery” have seen little, in terms of economic indicators to elicit “budding optimism”. As we discussed in yesterday’s podcast, part of the problem, in fact a big part of the problem is the unsettled regulatory regime. Businesses have no idea where the administration is going with regulations, but what they’ve seen thus far provides them with no incentive to expand and hire and every incentive not to do so. Consequently:
U.S. corporations have about $1.65 trillion in cash available to them, he noted. But managers are so wary about the near-term outlook that they are not spending that cash on hiring workers or expanding operations.
And that brings us to another factor one can’t help think is at least beginning to have an effect as well. As we approach the second half of 2011, the 2012 presidential election looms. Are businesses now factoring in the possibility of change in the White House (real change we could live with) and holding back until that’s settled? It is certainly something that would make sense. With the administration’s war on business these past two plus years, there’s no reason to commit to expanding a business or hiring new employees if doing so is going to end up being a net negative. So why not wait and see? Sit on the cash and have it ready to use if and when the current administration is shown the door and a less draconian regulatory regime is on the horizon?
That’s common sense business.
Of course that’s not the only reason business is hanging back. There are other factors:
Other concerns involve a spring slump in manufacturing activity and the ongoing problems in real estate. For example, last week, a report from the National Association of Realtors showed existing home sales fell again in May, down 3.8 percent to a seasonally adjusted annual rate of 4.81 million units, the lowest rate in six months. Even worse, the median price was down 4.6 percent from a year earlier.
Consumers, whose spending accounts for roughly 70 percent of all U.S. economic activity, also lost confidence this spring as gasoline prices rose to nearly $4 a gallon in early May and unemployment ticked back up last month. The unemployment rate had gotten down to 8.8 percent in March, but was back up to 9.1 percent by May.
All of that in combination have businesses reticent to do what is necessary to help the recovery. I just wanted to bring the other factor - unsettled regulatory regime – to the fore as it simply doesn’t get the coverage it deserves. Draconian regulations which cost businesses high compliance costs are a drag on economic expansion. The possibility of relief from such a regime is a legitimate reason to not expand or hire and incur those increased compliance costs. As I’ve said any number of times, the government can help the economy best by getting the hell out of the way. Instead it seems the inclination is to meddle and intrude even more and, as should come as no surprise, this sort of non-recovery “recovery” is the result.
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