Cracking China's Banking System

Entering and ultimately controlling China's banking and finance sector has long been the dream of Western finance capital. As part of their admittance into the WTO, China agreed to fully open up their markets to foreign enterprises. Of particular interest to Wall Street were the mammoth 'Big Four' of Chinese banking.

This process has been stalled for many years, and was delayed further by the financial crisis of 2008. Yet it is an underlying dynamic to the geopolitical relationship between the two countries. The United States has become finance capital based economy over the last generation. To an extent, it doesn't matter how much industry is given up to East Asia, as long as U.S. finance capital interests feel they will ultimately control the levers of that region.

With China now experiencing 'The Biggest Bubble of Them All', Andy Xie recently warned that "Property prices could drop like Japan has experienced in the past two decades, which would destroy the banking system."

A destroyed Chinese banking system could very well be forced into concessions with the West. Whose largest banks, while having tremendous problems with debt and leverage of their own, have been propped back to profitability through government bailout. Alternatively, it could force Beijing to break or alter their relationship with the WTO and the international capitalist system.

Sources of U.S. Corporate Profits by Percentage, 1970-2008

The Business Cycle and Restoring Profitability

Profitability increased in the U.S. financial sector during the 1st Quarter, indicating a new phase in the Great Recession.



Business cycles are part of the process of eliminating excess capacity, debt, and generally cleansing the system under capitalism. Less profitable, or less connected, businesses go bankrupt or are consumed through takeover - and the survivors increase their profitability by taking the extant market share. This restoration of profitability is part of what creates the conditions for new private investment, and the creation of new private sector jobs. Lehman Brothers, Bear Stearns, Merrill Lynch and Washington Mutual represent just a partial list of major financial institutions who were either consumed, or liquidated, in 2008.

Overall aggregate demand must not collapse as various sectors cleanse themselves of overcapacity. 'Rolling' recessions are therefore more desirable. Systemic collapse means there will be no demand anywhere; to prevent this possibility, government can step in to provide demand Keynesian-style, through stimulus and the like.

The 'liquidationist society' inherent in capitalism is not particularly pleasant, and fairly destabilizing. Attempts to ameliorate it have left excess capacity and mounting public debt throughout the world economy. Public bailouts and guarantees of debt, along with liquidation and consolidation, have helped the U.S. financial sector restore a measure of profitability.

Ballmer : Government Needs to Invest, But No New Taxes (On My Company)

The perspective of Steve Ballmer, CEO of Microsoft, best sums up the disorganized state of the U.S. ruling class today.

From his remarks before Congress on February 7th:

We need to pursue breakthroughs over the coming years in green technology, alternative energy, bioengineering, parallel computing, quantum computing. Without greater government investment in the basic research, there is a danger that important advances will happen in other countries. This is truly I think not only an issue of competitiveness, but also in a sense of national security. Companies like ours and others can do our fair share in terms of funding of basic research, but government needs to take the lead.

For the government to take the lead, it needs money, which takes revenue. Taxes.

But when there is an actual proposal to raise revenue, through taxes, Ballmer leads the protest:

Microsoft Corp. Chief Executive Officer Steven Ballmer said the world’s largest software company would move some employees offshore if Congress enacts President Barack Obama’s plans to impose higher taxes on U.S. companies’ foreign profits.

“It makes U.S. jobs more expensive,” Ballmer said in an interview. “We’re better off taking lots of people and moving them out of the U.S. as opposed to keeping them inside the U.S.”

This type of greed, and dichotomy of thought in the sphere of private wealth, has led to a vast expansion in public sector borrowing over the last generation. Without the ability to necessarily tax wealth, the government must borrow.

David Gergen on the Health Care Town Hall Mob Scenes

Gergen, on CNN:

This is -- this is very discouraging for people who want to see the democracy work. We've had two presidents in a row now, George W. Bush and Barack Obama, come to Washington promise to change, make this our discourse, make it more civil. And it just gets worse.

I mean, we saw last night, Erica, in the "200-Day Report Card." There is a tremendous polarization that's now taking place that equals that of what we saw under George W. Bush. And there's anger growing on both ends of the spectrum at the other end.

That makes governing very hard. It makes -- and the real question facing us as people right now, are we a self-governing people or not? Can we face the large challenges we have as a country? And health care is clearly one of them.

And I think this is putting democracy to a real test and leadership on both sides, leaders on both sides need to step up and put an end to these disruptive kind of brawling, physically violent sessions...

Gergen has worked for presidents of both parties for many years, and perhaps more than any voice today, promotes what could be called a Washington consensus.

He is not a wild-eyed radical or a perennial doomsayer. Someone who is at the heart of the political power is speaking of the possibility that bourgeoisie democracy in the United States is failing - i.e. "are we self-governing people or not? "

As with the fall of the Roman Republic, it is unchecked greed amongst the ruling class - both towards the general population and each other - that is rendering political compromise and practical solutions almost impossible.

Is the American Republic on the verge of collapse ? No. But strains are being felt, and there clearly is a trend towards degeneration in the governing institutions that make up the post-World War 2 capitalist order.

How the Unemployment Rate is Determined

There are many myths and misconceptions, and Krugman does a nice job summing it all up.

The U-3 unemployment rate does not measure the number of people receiving unemployment benefits. The rate is determined by a household survey. The main problem with the survey, as far as I can tell, is that it is based upon receiving answers to a sensitive and personal question. Cultural and gender differences in talking about, and admitting to, being unemployed may be shifting data in ways we don't fully understand.

The payrolls report is separate of the unemployment report, and based upon a survey of businesses.

Steel Industry Under Stress

The steel industry remains a ground zero in determining the effects of the current recession, in all their economic and political forms. The industry is simply too huge, employs too many people, and is too vital to military and infrastructure concerns, for governments not to take a strong stand in protecting their domestic interests.

On the back of its government's domestic spending, China's 2009 steel production has increased 6 % against a worldwide decline of 21 % . This, despite chronic profitability problems in China, where there is an estimated capacity utilization rate of 75 % within the industry. In China, as with many of its industries, steel is about employing people.

Rival steel companies in the developed world are losing money and warning that demand will not recover for years. ArcelorMittal recently estimated that in 2009, apart from China, demand will fall by around 20 % worldwide, and not recover to pre-recession levels until 2011. And for China, the preferential treatment of domestic companies has led to the recent WTO disputes flaring up over steel 'dumping' , and the threat of tariffs by the E.U.

Related :1,2,3

23 Trillion Dollars

A series of bailouts, bank rescues and other economic lifelines could end up costing the federal government as much as $23 trillion, the U.S. government’s watchdog over the effort says – a staggering amount that is nearly double the nation’s entire economic output for a year.

If the feds end up spending that amount, it could be more than the federal government has spent on any single effort in American history.

This 23 trillion dollar bailout, or guarantee of loans, is poised to be paid for with cuts in domestic social programs - those which primarily benefit working class people. Publicly, these cuts will be triggered by 'worries over the deficit', and market threats from bond holders, most of whom are domestic - and the vast majority, wealthy.

The great financial crisis of 2008 will end up being one of the greatest transfers of wealth in recent history, if politics as usual is not challenged or even fundamentally threatened.

Cybersecurity Talent Shortage

Feds suffer from 'serious' IT security talent shortage:

The United States government faces a serious shortage of skilled cybersecurity specialists, according to a new report, which estimates the country may need an 8-fold increase in the number nationally sponsored graduates with security degrees.

I suspect this type of issue is the primary reason for the sudden focus on math and science in the public school system. Businesses have no problems with simply importing skilled labor if there is none to be found domestically. But from a government perspective, this would create security and espionage issues.

If one goes into the field of hard sciences, there is a high likelihood that one’s labor will be used – directly or indirectly – in supporting the military apparatus. And if not that, then in fields dominated by monopoly profit – such as the pharmaceutical industry.

The association of science and math in the United States with militarization, and private profit, is one that is deeply demoralizing, and behind the generational decline in interest for these fields in the domestically educated population. The public push towards ‘green research’ (even as private companies such as BP abandon it) can be seen as an attempt to introduce an aspect of utopianism, or idealism, back into these fields.

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Related: Why Young Americans Have Been Avoiding Math and Science

Workers in Jilin Province, China, Riot and Kill Boss Over Layoffs

The Chinese working class is the great "Invisible" to the West, whose contact with Chinese people mostly comes through its professional class. Given that the world's production lies in the hands of this "Invisible" working class, it has a tremendous amount of unrealized power. My guess is that they are quite a bit more militant then imagined by most Western commentators.

Some 30,000 angry Chinese workers staged a riot at a steel factory in China that resulted in its boss getting beaten to death, underscoring just how quickly economic problems can stoke social unrest. The workers were protesting the sale of state-owned Tonghua Iron & Steel in Jilin province to a private group which they feared would lead to the loss of jobs.

Note: Jilin Province borders North Korea.

The Commodification of Art

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Van Gough Credit Cards !

Traveling and Playing Music

Am playing at a music festival through early August , so posts will be less frequent and/or less detailed.