Yuan and Dollar

Obama has long signaled his unhappiness with the valuation of the Yuan relative to the Dollar, and his Treasury nominee further emphasized that today.

Timothy Geithner, President Barack Obama’s nominee for Treasury secretary, said the new U.S. administration believes China is “manipulating” its currency.

As I wrote in an earlier post, Obama's political power base is different than other recent presidents, being geographically located in the Upper Midwest and Chicago. Economically, this means agriculture, domestic manufacturing, and unions. Protectionism does not have a negative connotation in these circles.

It does seem there is a power struggle among the political class in regards to the American - China relationship. An editorial by the war-criminal Kissinger represents the view that "the Sino-American relationship needs to be taken to a new level". However, if Kissinger is writing editorials, it indicates that he is on the outside looking in.

If international trade curtails substantially, I think it's quite likely that China will attempt to establish a regional trading bloc, with the Yuan as the dominant currency. It seems to be starting this process with the ASEAN countries, who surround a strategic choke point to the Indian Ocean. Kissinger mentions this in his editorial; "A frustrated China may take another look at an exclusive regional Asian structure, for which the nucleus already exists in the ASEAN-plus-three concept."

The unwinding of the current over-leveraged, unbalanced model, means that many countries will be looking twice at 'globalization'.

No One Could Have Known

About the housing bubble, and the over-leveraged U.S. consumer.

The Coming Financial Tsunami

By George Mullen
June 9, 2005
World economies, including that of the United States, have been built not only on a house of cards, but on a foundation of beach sand as well. The tide, which had been going out for some time, convinced us of the soundness of our financial structure and the brilliance of our government stewardship and individual decisions. However, the tide is now coming in again (via the Federal Reserve), and we are failing to grasp the magnitude of the danger before us. It is a tsunami.
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According to the National Association of Realtors, 36 percent of all new homes purchased in 2004 were secondary homes either for investment (23 percent) or vacation (13 percent). This is evidence of rampant speculation.

I knew many middle-class people in California that were buying houses as 'investments', using cheap credit and the equity on their primary residence.

Over the three years of this "supposed" economic recovery, wages have increased a meager 4 percent, a startling 10 percentage points behind the 14 percent average wage gain of the five preceding cyclical recoveries.
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By February 2005, Americans were carrying a record $803 billion in revolving credit card debt, up $40 billion in the past year alone. (Note: debt levels typically do not increase in economic recovery periods.)

Long-term wage stagnation is one of the key factors to this unwinding. The only way to grow an economy with stagnant wages is to make credit cheap and accessible. But eventually, if the money is not paid back, there will be a period of liquidation to cleanse the system.

This article is still one of the best primers for explaining the housing collapse and its domino effect on an over-leveraged consumer, and economy. Not a surprise that it was written from San Diego, which was probably the first housing market to peak and begin crashing.

Clean Up Crew for the Inauguration

After the party ...

For those serving the general public, however, this author found that poverty-wage day labor is being used to clean up the massive outdoor events. The job description recruiting for this work, seen through the window of a Labor Ready temporary staffing office in Richmond, Virginia, is worth quoting in full:

Time to be in branch: Will know Friday (Probably 5 am)
How Long Job Lasts: With travel time—15 hours plus / Please be aware travel time is not paid
Pay: $7.55 an hour
Job Duties: trash pickup / horse manure pickup (no joke!)
Dress Attire: Must dress warm—gloves/hats/scarves/extra liners/jackets. You will not be able to go if you don't dress warm.
LONG HOURS / TEDIOUS WORK / OUTSIDE IN FREEZING WEATHER / HIGH SECURITY / NO BAGS ALLOWED / PLEASE BE AWARE

I have actually worked for the above organization, but thankfully, not for long. In my experience, they were bottom-of-the-barrel for temp agencies, in terms of wages, conditions, and how the workers were treated.

The New President

The inauguration of Obama is a milestone in the history of the United States. One does feel a relaxing of racial tensions, and an enthusiasm for the country and the political process that has been absent for the last number of years. His presidency gives a measure of esteem and respect to people of oppressed cultures around the world, a world even more divided by skin color than the United States.

But, political popularity can turn quickly. It was stunning to watch Schwarzenegger's endorsed ballet propositions go down to defeat, two years after his successful recall of Grey Davis. And George W. Bush had a 75 + % approval rating for what seemed like a year, only to see it fall to the lowest rating, upon leaving office, of any U.S. president.

Leaving the pageantry of the next few weeks aside, it is interesting to think about what Obama's policies in the White House will be, as he works with the Democratic Congress.

Though as a politician he is brilliant, in terms of policy, Obama is a fairly mainstream centrist-liberal Democrat. Chicago is the source of his political upbringing, and a such, he has a different power base than recent presidents. Chicago is a union town, and the Upper Midwest in general is built around domestic manufacturing and agriculture. Unions and domestic manufacturing are pushing for protectionism against China, and I expect Obama will move in that direction in his first year.

"I don't think just jawboning will be the approach of this administration," Rep. Sander Levin, a Michigan Democrat who chairs a key trade subcommittee in the House of Representatives, told reporters.

"I think it will look at all options, including a (WTO case), including working through the IMF, including looking at present legislation," Levin said.

Protectionism will fit the mood of the U.S. by the time late 2009 rolls around, and Obama will be hard for foreign leaders to demagogue. But it does bring the risk of an international backlash, as the global economy contracts, and countries feel their backs against the wall.
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On the issue of Afghanistan, Obama has talked himself into a corner:

Despite plans to send up to 30,000 additional U.S. troops to reinforce the 32,000 already in Afghanistan, of whom about half serve in the 50,000-strong NATO-led International Security Assistance Force, the prospect of routing the Taliban is remote.

Afghanistan is landlocked and more isolated than Iraq, has a longer history of successful rebellion, and very little recent history as a functioning state. Obama has positioned it as the real fight in the so-called war on terror, but he risks sinking his presidency on what could be an interminable stalemate.

Space Race , Part II

NASA has been officially independent of the U.S. military since its founding, with a mission of science and space exploration. There has always been spillover and sharing between the two organizations, given the similarities in technology and personnel, but I think the original distinction is important. However, Obama might be merging many aspects of the two, in the name of cost control, and possibly to increase the military's influence. His probable selection of a retired Air Force general to lead NASA also signals this merger. The militarization of space has always seemed to me both like a bad idea, and inevitable. There also is a long-term trajectory of increasing tensions between China and the United States which is worrisome.

Debt

The economy is going to be moribund, at best, for a good long time. The U.S. consumer is tapped out, 'busted', and deep in debt. The total amount of debt can be debated, but in my opinion, a good amount of the world's economic growth since 2001 emanates from the burgeoning debt load of the United States.

Looking at world trade figures for 2008, the U.S. current account deficit was around $ 700 billion dollars. In second place was Spain, at about $ 166 billion. The top three surplus countries of China (378), Germany (266) and Japan (176) just overtop the U.S.'s deficit. More than the numbers, this fits with the facts on the ground.

It doesn't take unique insight to see that these three export dependent countries, and their smaller satellites, will face a dramatic unwinding as the U.S. consumer goes into deep freeze. It also belies claims that the middle-class in the BRIC countries, Japan, or the E.U., was or is capable of soaking up the extra demand needed for world economic growth. This is because of the dollar's reserve status, and government policies in surplus countries that have been entrenched a very long time.

South Korean Blogger Arrested

I don't think this has gotten enough 'play', so to speak. Governments do this sort of thing as a warning to dissidents, especially in times of economic vulnerability.

"A South Korean blogger pleaded not guilty Saturday to charges that he spread false economic information on the Internet, a news report said, in a case that drew heated debate over freedom of speech. The blogger, identified only by his surname Park, gained prominence among South Koreans because some of his dire predictions about the global economy, including the collapse of Lehman Brothers, later proved to be correct."

I also find it interesting that he was largely self-taught. One can learn a lot with leisure time, a library, the internet, and interest in a subject.

"Park described himself in Web entries as a former securities firm employee with a master's degree earned in the United States and experience in the field of corporate acquisitions and takeovers, according to local media. His deeply analytical style and sometimes prescient forecasts made Park a star on the Web, earning him the nickname 'economic president on the Internet'. But prosecutors said Park was an unemployed resident of Seoul who studied economics on his own after graduating from a vocational high school and a junior college with a major in information and communication."

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Update: It looks like this guy was acquitted, which is great news.

Rowing Across the Pacific

Saw this last month, and it caught my eye.

An Italian adventurer who spent 10 months rowing more than 9,500 nautical miles across the Pacific has been rescued a mere 65 nautical miles short of his goal — Australia — after rough weather sapped him of his final shreds of energy. Alex Bellini, who began his voyage off Peru in February, contacted his wife Friday to say he was too exhausted to row his 25-foot boat any further, despite being nearly in sight of the eastern Australian town of Laurieton.

It reminds me tangentially of the Polynesian mariners, who were some of the greatest explorers in recent human history. They settled the vast Pacific Ocean, including the most remote islands in the world, Hawai'i and Easter Island, in long dugout canoes. This was done without modern technology, but rather, accumulated knowledge passed through the generations. A complex knowledge of the stars, ocean currents, animal migrations and weather patterns. Based on this, it's not a huge leap to guess that small groups of Polynesians landed in the Americas, and indeed it's a hypothesis :

From a single chicken bone recovered from the archaeological site of El Arenal-1, on the Arauco Peninsula, Chile, recent research of a radiocarbon date and an ancient DNA sequence indicates that Polynesian navigators may have reached the Americas at least 100 years before Europeans (who arrived after 1500 AD), introducing chickens to South America.

The need to explore, invent, and be creative, is a fundamental element of human culture, and has been going on a long time.

The Bestest and the Brightest

Princeton making budget cuts. Harvard's endowment down at least 22 %.

"None of the schools gave data on performance to date of their holdings of more exotic and illiquid investments, such as real estate, commodities and private equities. The expected losses in those categories have led to the bigger, full-year loss estimates"

Like the banks, they are probably hiding loses far beyond what is reported.

Which brings me to an interesting article , by Chris Hedges, called "The Best and the Brightest Led America off a Cliff". I post excerpts below, with comments.

"Harvard, Yale, Princeton and Stanford, along with most other elite schools, do a poor job educating students to think. They focus instead, through the filter of standardized tests, enrichment activities, advanced placement classes, high-priced tutors, swanky private schools and blind deference to all authority"

I've long thought that the low status of arts in our schools stems from an authoritarian distrust of people in that milieu. People in the arts are generally perceived as being free-thinking and suspicious of authority figures.

"The established corporate hierarchies these institutions service—economic, political and social—come with clear parameters, such as the primacy of an unfettered free market, and with a highly specialized vocabulary. This vocabulary, a sign of the “specialist” and of course the elitist, thwarts universal understanding. It keeps the uninitiated from asking unpleasant questions."

If someone can't explain an idea simply, then there's a good chance they don't fully understand it.

"The elite schools, which trumpet their diversity, base this diversity on race and ethnicity, rarely on class."

Our current conception of diversity seems limiting. Diversity does not mean equality, and a different skin color does not represent a diversity of class. Silicon Valley is one of the most diverse places in the United States, and one of most unequal places as well. Its tech workers are made up of a recruited elite, from around the world, and the service sector is largely made up of the poor from rural Mexico.

"The tutor told him things like “stop thinking about whether the passage is true. You are wasting test time thinking about the ideas. Just spit back what they tell you.” His reading score went up 130 points."

Teaching to the test. Any teacher whose job depends on it, will encourage it. Parents usually place an inordinate value on high test scores, as well.

"These elites, and the corporate system they serve, have ruined the country. These elite cannot solve our problems. They have been trained to find “solutions,” such as the trillion-dollar bailout of banks and financial firms, that sustain the system. They will feed the beast until it dies."

It takes a massive crisis before long-standing institutions of authority crumble. It took the 'Black Death' to ravage Europe, with a mortality rate of 30%, before the institution of the Church was weakened. Our current crisis , while not comparable (of course), will shake the institutions and conventions of thought in the United States.

Thoroughly Ridiculous NYT Headline

According to the Paper of Record: "Oakland Turns Violent Over Shooting".

The violence started when a cop killed an unarmed man who was lying face down. It didn't start when some windows got smashed.

And, at the end of the article:

"Federal law enforcement were also reported to be looking into whether Mr. Grant’s civil rights were violated in his killing".

Seems like an oddly detached way to phrase it.

I used to live in this area, from the Fruitvale district to downtown. It's really diverse culturally, with an interesting working-class Oakland vibe that underlays everything.

Overheard at the Dinner Party

"We don't need all the stuff we buy" (Heads Nodding)

Thrift will become the new cool in America over the next few years, mixed with the environmentally friendly notion of 'reducing and reusing'.

Doesn't sound like good news for export dependent countries.

And 2009 Begins

Back to posting ...

Talking to my fellow musicians, this was the worst December they could remember in terms of free-lance gigs. Similar to retailers, the holidays are usually a busy season for us.

It's going to be a rough year for the U.S. and global economy.