Devalunistas and Germany

It has become standard faire to blame the United States' trade deficit on low wages in the developing world, and Asian currency manipulation. The argument then goes - the U.S. must find ways to devalue its currency.

But even with a devalued currency, a nation needs something to sell. It means an industrial policy, and government support for industry. This does not happen on a consistent basis in the United States, except in a few sectors. The most obvious sector of American global export dominance, backed by government support, is in military hardware and weaponry.

Germany's success as an exporter is a fairly strong refutation of the devalunista strategy of reviving U.S manufacturing. It's not all about wages; it's also about skill and making quality products. Germany managed to be the world's top exporter (though soon to be replaced by China) despite a steadily strengthening Euro from 2002-2008. In many industries, it is Germany that has the high-end niche brands ; for instance, in the highly visible automotive industry, no American product has the reputation of a BMW or Mercedes Benz.

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1 "Berlin's warning: only exports can save Germany" - The Economist
2 "NYT Gets U.S. Imbalances Wrong" - Dean Baker
3 "On the G-20 Agenda" - Economist's View

Venice, Holland, England, USA, ?

"Along with national debt there arose an international credit system, which often conceals one of the sources of primitive accumulation in this or that people.Thus the villanies of the Venetian system of robbery formed one of the secret foundations of Holland's wealth in capital, for Venice in her years of decadence lent large sums of money to Holland. There is a similar relationship between Holland and England. By the beginning of the eighteenth century, Holland's manufacturers had been far outstripped. It had ceased to become the nation preponderant in commerce and industry. One of its main lines of business , therefore, from 1701 to 1776, was lending out of enormous amounts of capital, especially to its great rival England. The same thing is going on today between England and the United States..." - Marx, Capital, p.920

One could place FDI in the developing world within the context of this described 'international credit system'. And China has been the largest nation-state recipient of FDI over the last 20 years. The point being, this story has been told before.

But there are good reasons to believe it will not end the same way. Greater amounts of accumulated capital require exponentially larger pools of labor in order to sustain profit. And there is simply not enough surplus labor, within a system of developed infrastruture, to continue on indefinitely. This was the importance of China to begin with. But there are no more China's left, if and when wages increase there to the point where they impinge on profitability. The end of cheap resource extraction will also put constraints on profit rates, and discourage the productive (rather than speculative) investment of capital.

The Pearl of the Orient

Leaving behind a path of destruction and 240 dead and climbing in the Philippines, hurricane Ketsana has now become a full-scale typhoon as it barrels down on central Vietnam, raising fears of another catastrophic downpour.

The storm is stronger now than when it ripped through the Philippines, with winds of more than 100 miles per hour. The eye of the storm, with even stronger winds of 126 miles per hour, was expected to touch down at 1 p.m. local time in Vietnam.

But authorities there appeared ready, with 100,000 people from flood prone villages already evacuated, and residents in Central Vietnam advised to stockpile food, water, and medicine. Vietnam is hoping to avoid the calamity that caught the Philippines largely off guard.

Few of the common people in the Metro Manila area even knew about this storm before it hit, or were aware of its potential for damage. There was apparently no concern within the government, no system of early warning, no system of evacuation, no system of relief. There has been no attempt over the years to build a decent municipal drainage system, which exacerbated the urban flooding. It really is appalling. The human toll that natural disasters inflict is, to a large extent, determined by the capability of the government.

1 "Storm that flooded Philippines gathers strength, heads to Vietnam" - Christian Science Monitor

2 "Relief efforts overwhelmed" - Phil Star

Maoists Gaining Influence Within China's Government ?

So says 'Market Wu' - Wu Jinglian, one of Deng Xiaoping's leading neo-liberal economic advisors:

"In interviews, Mr. Wu says he feels compelled to speak out because conservatives and “old-style Maoists” have been gaining influence in the government since 2004. These groups, he said, are pressing for a return to central planning and placing blame for corruption and social inequality on the very market reforms he championed."


A dispersal of political and economic power, particularly to the coastal regions, was an inevitable consequence of normalizing trade relations with the capitalist world. A reaction to this within the central government should also not be a surprise. "Old-style Maoists", or proponents of a strongly centralized state, will gain even more leverage if growth rates dwindle and China faces any type of banking crisis.

1 "China's Wu Jingliang Keeps Talking" - NYT

No 'Asian Century' Without an Asian Currency

As Forbes recently editorialized :

"With 90% of the world's reserve assets in euros and dollars, it is the monetary policy of a handful of central bankers in Europe and America that will ultimately matter most to the economy, despite the pledges of the (G20) leaders in Pittsburgh."

In the battle of global elites, Asia will remain second fiddle as long as the region is unable to mount a common currency. It already starts in a weak position due to the Western domination of world gold reserves; G7 lightweight Italy has 2.5 times the amount of gold reserves as China.

Incoming Japanese prime minister Yukio Hatoyama has recognized this, as well. In a recent magazine article, he wrote : "We should aim to unify currencies in the region and realise an Asian common currency".

The problem is, there are good reasons there is no common Asian currency. Income and development differences that exist and cause disruptions in Europe are much greater in Asia. Nearly every economy is still export-oriented, and manipulates their own currency in relation to the dollar. And there are unresolved nationalistic antagonisms in the region. Europe more or less blew itself up in World War 2, and the nationalistic impulses that fostered centuries of warfare were catastrophically discredited. This is less the case in Asia; a good portion of the Japanese population still thinks positively of the World War 2 leadership, for instance. No German leader could go to a shrine of Goebbels the way Japanese politicians visit the shrines of their war criminals. These visits inflame relations with the two other major economic powers in the region, China and South Korea.

It is much more likely that the yuan becomes the dominant currency within a Chinese sphere of influence, or trading bloc. This would leave Japan and Korea on the outside looking in, and it is perhaps to counter this possibility that sections of the Japanese elite are pushing for a pan-Asian currency.

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1 "G-20's Wishful Thinking" - Forbes
2 "Japan PM frontrunner calls for single Asian currency" - AFP
3 Related Post: "Asian Exporters Turf Battles"

Poland as the next South Korea

A formerly poor country, long dominated by powerful neighbors, that becomes a lynchpin of U.S. foreign policy. This gives it defense security, access to the highest level technology in the U.S. military arsenal, and the leverage to negotiate favorable trade relations. Thus laying the conditions for rapid growth.

Maybe in a generation, as with Koreans - it will be 'accepted wisdom' that Poles are smarter than most, and have naturally high IQ's.

1 "US planning missile bases in Poland: report" - AFP
2 "Lockheed Martin, Poland Air Force Celebrate Arrival of Most Advanced F-16 Multirole Fighters in Europe" - Lockheed Martin Press Release

Home Sales Flat

The housing crash was the most visible leading indicator of the slide into recession. Another leg down in the market would forecast the famed - and oft predicted - double dip.

1 "New Homes Sales Data Are Mixed" - LA Times

More Political Economy , less Economics

The main problem with Economics as a field is that it is about myth-making. If only we could have a free-market, think about how wonderful things would be. If only we could have pure free trade...etc.

The real world is shaped by political concerns, and different national and regional factions jockeying for power.

An economic analysis fails to grasp the reasoning and significance behind the recent tire tariffs against China. There are frets about Smoot-Hawley and union influence. Unions are always a good bogeyman for the neo-liberal economist and his dream of 'free markets'.

Political economy looks at other factors, and places the tariffs in the context of US-China geopolitical struggles. A large one at the moment being Iran. China has been the most reluctant national power to endorse sanctions against Iran, due to business ties, and a policy of non-interference. Any Western blockade of gasoline imports to Iran would be diminished by the fact that Iran imports about a third of that product from China.

U.S. tariffs on products made in China could be legally applied to a wide sweep of industries. And they would be pleasing to countries such as Mexico, Vietnam, Korea and the like.

They can best be understood as a direct threat to China - stand out of the way of American interests in Iran.

1 "Obama: Iran's secret nuke facility 'inconsistent with a peaceful program'" - USA Today
2 "China Firms Selling Fuel to Iran as U.S. Sanctions Loom" - NYT
3 "US "confident" tires action on China WTO legal-aide" - Reuters
4 "Is Iran gas ban a step toward war?" - Asia Times

Af-Pak Policy in Chaos

It's hard to put a pretty face on the type of brutal military force necessary to contain resistance in Afghanistan. This is one of the reasons for the current 'indecisiveness' in the White House. But since Obama was 'Marketer of the Year' in 2008, according to Advertising Age, the White House will probably come up with something to sell the public.

The generals want to escalate, and are getting restless at the delay:

Three officers at the Pentagon and in Kabul told McClatchy Newspapers that the McChrystal they know would resign before he would stand behind a faltering policy that he thought would endanger his forces or the strategy.

"Yes, he'll be a good soldier, but he will only go so far," a senior official in Kabul said. "He'll hold his ground. He's not going to bend to political pressure."

Time to 'Fact Check' Michael Moore

This is so ridiculous...

Why the Liberal Obsession with Sarah Palin ?

She is usually the most prominent butt of jokes at the typical liberal, creative-class (TM), house party.

I think it's a class thing. She's a redneck, country, and therefore 'stupid' - an easy target.

Meanwhile, people like Hank Paulson are 'smart', even if Big Finance is what drove the economy into the gutter. But he got good grades in high school, and therefore was able to go to a nice college with nice people.

The AFL-CIO Flirts With Insolvency

At the moment the AFL-CIO has more liabilities than debts. And a significant source of income - credit card royalties - has an uncertain future as the consumer retrenches. Consider that the organization earned $ 35 million from the so-called 'Union Plus Advantage', as compared to $ 74 million in dues, for the year ending June, 2008.

Meanwhile, the SEIU has liabilities that are 80 % of assets.

None of this would matter too much if the organizations were engines of dynamism. However, increased public sector membership has come through legislative fiat, in exchange for the tacit promise of weak contracts. The wages of SEIU California home health care workers are disgraceful. Their leader, Andy Stern, seems determined to bring this model into the private sector, where unions are pretty much in a death spiral in terms of organizing.

For instance, Boeing recently bought a major assembly plant in South Carolina, and promptly - and easily - got the IAM de-certified. This is high skilled domestic manufacturing following auto assembly to the South. It didn't go to the bogeyman of China.

1 "Unions in Debt" - WSJ
2 "Trumka Takes Over AFL-CIO" - Counterpunch
3 "Boeing buys half of South Carolina 787 assembly plant" - Seattle Times
4 "Boeing workers in South Carolina reject union" - Reuters