Sliding Towards a Trade War ?

The Financial Times states the obvious:

With US unemployment in double-digits and a huge trade deficit with China, complaints about Chinese currency manipulation are getting a ready hearing in Washington. If China appears to be actively initiating a trade war, the American reaction may well be: “Bring it on.”

The US public never liked the end results of 'free trade' anyway, especially in key electoral states such as Michigan, Ohio and Pennsylvania. It wouldn't take much of a push to whip up a protectionist fervor.

I do wonder about China's recent hysterics. I suspect they are for domestic consumption, but that indicates a somewhat weak internal political situation.

1'China overplays its hand on Taiwan' - Financial Times

Why California's Decline May Be Long-Term

At the heart of California's rise was not Silicon Valley, but its ports and trade with Asia. All things being equal, areas with large trade volumes will be wealthier than areas without. Athens versus Sparta, etc.

With the widening of the Panama Canal, there will probably be a surge in Asian trade with the Eastern and South Eastern seaboards that will bypass the West Coast. In the long-term, this will weaken California's economy.

1'Cheapest Route to Walmart From China May Skip Buffett’s Railway' - Bloomberg; Sabo and Park

On Obama's Warmongering

Nicely summed up:

Even as progressives were savoring Barack Obama's "masterful" – indeed, "brain-searing" – performance at the House Republicans' retreat last Friday, their dazzling champion was busy applying himself with renewed and reckless vigor to that most un-progressive of occupations: saber-rattling around the world. The last few days have certainly seen a remarkable display of bellicosity by the Obama Administration, putting almost every tool in the militarist kit to use: nukes, ships, missiles, money, proxies and war-profiteering.

Obama is a weak person. And weak people can act in erratic ways as a matter of overcompensation.

Speaking of militarism:

The US military began its largest war games in the Pacific region Monday -- an annual training exercise with troops from Thailand, Japan, Indonesia and Singapore, now joined by South Korea.

I wonder why China was not invited ? After all, this is just fun and games.

1'Obama's Wild Weekend: A Worldwide Surge in Warmongering' - Chris Floyd
2'US launches largest Asian war games in Thailand' - AFP

Lancet Retracts Paper Linking Autism with Vaccines

Far too many have forgotten the life improvements childhood vaccines brought to the population.

1'Lancet formally retracts 1998 paper linking vaccine and autism' -AFP; Ingham

Wanted: Leading Edge Technologies to Drive Investment

The U.S. has not yet recovered from the collapse of the IT and Internet driven investment boom. While the housing bubble was able to mask weakness in non-structural investment for a period of years during the aughties, that time is over with.



Innovation at the moment is evolutionary, not revolutionary, and businesses are finding increased investments in equipment and technology unwarranted given the benefits they bring in productivity.



On a personal consumption level this also makes sense. Everyone 'had' to have Windows 95 when it came out. Windows 7 might be a good thing to have, but there's no need rush in buying it unless it comes with a new computer.

These type of graphs are synonymous with flat private sector employment, such as existed in the aughties. Capitalism is very much dependent on private investment to lead growth, and non-structures investment is probably the most dynamic within an economy.

As a high wage capitalist country, the U.S. continually needs to find new technologies which increase productivity and encourage private investment. I suspect this is going to eventually require massive government support in research and development. I'm not sure the culture is ready for that and the political system surely isn't.

Incidentally, sections of the clean energy industry, such as solar panels or wind turbines, seem to be on the verge of market glut now that China has entered the game full bore. In general, that is the problem for private companies investing in R&D now. The information age makes copycatting much easier, which decreases the time in which a company can benefit from any technology innovations they may achieve. Their monopoly power quickly becomes a supply glut as other firms rush in.

The U.S. military does have such cutting edge technologies, particularly within equipment designed for their satellite systems. But those will not be brought into the marketplace anytime soon. National security, and all.

'Volcanic Specks in the Pacific'

From the CSM:

A handful of volcanic specks in the Pacific Ocean are sparking fresh diplomatic ruckus, as China and its neighbors tussle over the resource-rich and militarily strategic seas that lie off their coasts.

China is building a resort on the Paracel Islands, Vietnam is buying submarines from Russia, and Japan is turning rocks into permanent islands, in the middle of the ocean.

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1'Who cares about volcanic specks in Pacific? China, Vietnam, Japan.' - CSM; Ford
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U.S Oil Production

Even after domestic peak oil, the United States is the world's third largest oil producer. It's just the U.S. consumes so much it still needs to import, so people often don't remember how much it produces.

Extend Unemployment Benefits

Both the Congressional Budget Office and Mark Zandi agree that one of the best ways to improve the jobs picture is to increase and extend unemployment benefits. The question is whether capitalists are smart enough to support the system that supports them. A knee jerk reaction towards austerity will create a shock to private consumption levels and undermine demand within the economy. And the idea that people would rather stay on unemployment, when it pays 60 % of their previous wage without benefits and without retirement , is ludicrous. In many cases , it just serves to pay health benefits. Zandi is no radical, he was John Mc Cain's economic adviser during the presidential campaign.


From the CBO, via Econbrowser
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1Mark Zandi - 'More Stimulus Needed'
2'Policies for Increasing Economic Growth and Employment' - Econbrowser

Europe to Launch Space Solar Power Station

While harvesting solar energy in space has been discussed by scientists for more than 30 years, engineers at EADS Astrium, Europe's largest space company, now believe the technology is available to allow them to start building a working prototype.

They hope to have a small demonstrator of a full sized space-based power station, capable of beaming back 10-20kW of power, ready for launch in the next five years.

1'Lasers to beam energy to Earth from space' - UK Telegraph
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There is no doubt that there will be a full court press by developed nations into this technology. Future energy needs are going to be too great to be accommodated by the resources on earth.

China Moves Against Bank Lending

Apparently markets are shocked, just shocked, that China is trying to rein in its banks. It's a smart move on their part. China does not currently have the ability to replace OECD countries as a consumer market, and their 2008-09 expansion of bank lending was done for domestic reasons, not to save (or dominate) the rest of the world. It was deep credit and treasury markets that allowed the US to support the world economy on the consumption side, without massive inflation, for one. That model is now broken. China has a very small bond market; new money dumped into their system much more quickly becomes inflationary and speculative. Their private consumers basically do not take on debt.

1"Bank of China, Construction Bank Start Curbing Credit"; Bloomberg

The One Term Presidency of Obama

If the Republicans can field a marginally coherent candidate, that is.

Obama was put forth as an antidote to the Bush years. He was containment. With the Bush years fading and the financial crisis in Wall Street's rear view mirror, Obama probably senses in some raw political way that he has to turn right. If not, his masters will be done with him.

Forgetting About Mexico

When talking about the rise of the BRIC consumer, and forecasting power changes in the world economy, it's curious why Mexico is basically forgotten. It's a large country next to the world's biggest economy. Its per capita standard of living is far ahead of China and India, and surpasses Brazil. Its GDP is close to cracking the Top 10, and will probably creep into in it during the next generation. It has a proud history of both pre-Columbian civilization and revolution.

I suspect this forgetfulness has to do with American 'prejudices' about Mexicans, that are formed based upon immigration patterns. I will discuss this more at another date.