Looks Like the U.S. is Headed for Default

And not for lack of money, or 'being broke'. There's plenty of money, but the political system is damaged probably beyond repair. If there is no problem referring to the Social Security trust as 'IOU's' that are intrinsically worthless, if debt owed to the American public might be defaulted on, then certainly America's international creditors will receive far less deference if the U.S. ruling class is pushed against the wall.

Martin Wolf puts it better:

Finally, with one party indifferent to deficits, provided they are brought about by tax cuts, and the other party relatively fiscally responsible (well, everything is relative, after all), but opposed to spending cuts on core programmes, US fiscal policy is paralysed. I may think the policies of the UK government dangerously austere, but at least it can act.

This is extraordinarily dangerous. The danger does not arise from the fiscal deficits of today, but the attitudes to fiscal policy, over the long run, of one of the two main parties. Those radical conservatives (a small minority, I hope) who want to destroy the credit of the US federal government may succeed. If so, that would be the end of the US era of global dominance. The destruction of fiscal credibility could be the outcome of the policies of the party that considers itself the most patriotic.

In sum, a great deal of trouble lies ahead, for the US and the world.

1'The political genius of supply-side economics' - Martin Wolf

If China Bordered the United States

	Mexico	China
School Life Expectancy	14	11
Female Life Expectancy	80	76
Male Life Expectancy	75	72
Infant Mortality Rate	14	20
Sanitation Coverage	85	55
Per Capita GDP/PPP	14,337	6,675

American stereotypes of Mexicans and Chinese are mostly based upon immigration patterns and proximity. For one, the reason Chinese (and Indian) professionals immigrate to the United States in large numbers is because of their country's low wages. Professionals in Mexico have less reason to immigrate to the U.S. because they make enough in their home country. For another, self-sufficiency requirements in our immigration process make it all but impossible for the Chinese worker, with a per capita salary in the $ 3-5,000 year range, to get into the U.S. We are seeing a select group, a sample bias.

IMF Politicking

On IMF governance, another area of disagreement between the United States and Europe, the draft gives no indication that the EU is willing to give up seats on the IMF's executive board in order to give greater voice to fast-growing emerging economies such as China.

The draft showed the EU supports shifting slightly more than 5 percent of IMF quota shares to "underrepresented" emerging and developing economies, but wants to keep the size of the executive board unchanged.(1)

It will be darkly humorous to watch US aligned mouthpieces bash the EU on IMF over-representation; the US is the only country that has veto power over major decisions. With the IMF already unofficially expelled from East Asia, a breakdown in EU-Washington relations will further diminish its imagined mandate.

1'EU prods China for faster yuan rise: G20 draft' - Reuters

Floods in China Kill 1,400

China remains a country with critical domestic needs and wide swaths of poverty in the interior provinces. It's GDP PPP is around 90th in the world, or basically about average, even including wealthier coastal cities. Nascent superpowers don't have 70,000 people die in an earthquake or take this loss of life in flooding. The ability to project imperial power requires a degree of domestic stability and dispersed wealth that China will never have. As the U.S. declines, China will not be able to take its place - it will remain a regional land power.

We are living through the collapse of the post World War 2 US dominated capitalist order and there is nothing to replace it and no government or political organization poised to. Expect the world's regional powers to prop up the U.S far longer than would be supposed possible, because elites rarely do well when there is a political breakdown. They most definitely know this.

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1'Severe Flooding Hits Northeast China' - New York Times; Barboza

Don't Expect China's Consumption Share to Increase

Consumption share is not just a function of repressed wages but of heavy infrastructure investment , i.e. the denominator. And it is clear from this picture of the traffic jam saga that China needs more infrastructure investment, not less. So despite a rising standard of living, we will not see a significant increase in China's consumption share any time soon.

Links

About the Chinese housing bubble that will crash their economy:

1'China property plunge would barely dent CCB -report' - Reuters

A state directed banking sector surely has been disastrous for the PRC.
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2'Pakistan flood aid from Islamic extremists' - UK Telegraph

It appears some political groups are serious about winning hearts and minds. But Pakistan's president has his kid at Cambridge so all is well.
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3California to Issue IOU's - Zero Hedge

Sounds like money printing to me, illegal for states under the U.S. Constitution.
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4Consumers Dropping Pay TV Services' - Investor's Business Daily

The internet will end up wiping out more modes of profitability than it engenders.
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5'US forges closer military ties with Vietnam' - WSWS

Why Does Google Want Our Cell Phone Numbers ?

Don't be Evil - my ass.

China Moves Closer to Challenging American Dominance in Computer Processors

As has been repeatedly written about on these pages, once a country gives up production, it gives up employment and tax revenue, and eventually everything. People laughed at Japanese cars once, even in the early years of my life, before they drove two of the Big Three to bankruptcy.

Computer processing giants AMD and Intel represent the cutting edge of technology where United States-based companies still command dominance in world markets. But that will probably change in the next decade, and it appears that the Chinese Loongson processor could even leapfrog these companies. Powering it is money; the fact that China dominates world production has given its government enormous resources in order to finance research. And very little technological research these days can thrive without state support, something the Washington Consensus cannot grasp and whose failed philosophy is driving the U.S. into the ground.

As for Loongson, it is not what is called a x86-based chip, which Windows is programmed from, but a MIPS chip which is compatible with open source, or free software systems. Therefore, if Loongson processors prove viable both Intel and Windows will all together be shut out of the Chinese market based on price alone.

1'China's Loongson Processor Effort' - OS News
2'China's Loongson Processor Could Power First Natural-Born Chinese Supercomputer' - Gizmodo

Peak Empire: July 20, 1969

Consider how far the U.S. was ahead of the world technologically at this time; where was China, where was India, where were the smaller countries of East Asia ? The U.S. still represented 30 % of global manufacturing output. Even so, the post war expansion of Western Europe and Japan meant that a few years later the dollar was unable to hold the gold standard, and Nixon capitulated. The continuing story has been of eroding account balances and the long slide from the world's largest creditor to the largest debtor. At this point, the U.S. can no longer even hold a fiat reserve currency without eviscerating its middle class and large sections of its meritocracy. The decline is irreversible and there is no country that can take over the role of global arbiter. We will see chaos in the elite ranks, much like 1917 - when World War I terminally discredited the European ruling class and their global rule.

Marx on Equilibrium Theory and Crisis in Capitalism

"Nothing could be more foolish than the dogma that because every sale is a purchase, and every purchase a sale, the circulation of commodities necessarily implies an equilibrium between sales and purchases. If this means the number of sales is equal to the number of purchases, it is flat tautology. But its real intention is to show that every seller brings his own buyer to market with him. Sale and purchase are one identical act, considered as the alternating relation between two persons who are in polar opposition to each other, the commodity owner and the money owner. They constitute two acts, of polar and opposite character, considered as the transactions of one and the same person. Hence the identity of sale and purchase implies that the commodity is useless if, when it is thrown into the alchemist's retort of circulation, it does not come out again as money; if, in other words, it cannot be sold by its owner, and therefore bought by the owner of money.This identity further implies that the process, if it reaches fruition, constitutes a point of rest, an interval, long or short, in the life of a commodity. Since the first metamorphosis of a commodity is at once a sale and a purchase, this partial process is at the same time an independent process in itself. The buyer has the commodity, the seller has the money, i.e. a commodity which remains in a form capable of circulating, whether it appear on the market at an earlier or later date. No one can sell unless someone else purchases. But no one directly needs to purchase because he has just sold. Circulation bursts through all the temporal, spatial and personal barriers imposed by the direct exchange of products, and it does this by splitting up the direct identity present in this case between the exchange of one's product and the acquisition of someone else's into the two antithetical segments of sale and purchase. To say that these mutually independent and antithetical processes form an internal unity is to say also that their internal unity moves forward through external antithesis. These two processes lack internal independence because they compliment each other. Hence if the assertion of their external independence proceeds to a certain critical point , their unity violently makes itself felt by producing - a crisis."

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Capital I 208-209

Can the Center Hold ?

The sharply different unemployment trends between Germany and the other big three economies of continental Europe does not bode well for the future of the Euro currency.


From a purely geopolitical perspective - it's one thing if Greece is falling apart, because they can be bullied around if the larger economies are all on board. It's another story if a country like France, with the world's 5th largest nominal economy, isn't happy.

I can't see this trend continuing, and the Euro surviving.

Obama: On the Road to Another Failed Presidency

After eight disastrous years of Bush, it appears the Obama presidency is sliding into oblivion as well. His approval rating has been sinking for months and just hit over 50% disapproval on Gallup tracking for the first time.

The underlying context is a sputtering economy. And Washington has no answers because the political and ruling elite cannot imagine giving up empire. Their only answer for crisis is a reduction in the living standards of the general population, and a narrowing of the rather shaky meritocratic base that supports them. The moat is getting deeper and wider, the drawbridge going up.