China Inc., Part Two Why We Must Prevail

CHINA INC, PART TWO

We Americans are deep in debt to a brutal regime that is fully capable of executing dissenters in the thousands. They think we can be bought because many of our political leaders already have. But there is hope. More below….

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China Inc., Part Two

Why We Must Prevail

America, the shining hope of the world, stands diminished by our government’s deep indebtedness to a predatory corporate entity. This “corporation” has proved itself fully capable of executing dissenters in the thousands, of enslaving men and women in the hundreds of thousands – even millions, all without the least tremor of conscience. This huge corporate entity plans to back us into a corner where its leaders hope to force us to choose between economic oblivion and our own political subordination. Their style is stealth and gradualism. Our subordination has already begun. Our weakness has already generated policy rationalizations for submission among the intellectual class, while our friends on Wall Street are still hypnotized by tomorrow’s transaction.

This is your wakeup call.

If you have read the companion article (www.jaygaskill.com/ChinaInc.htm) you already know that the corporate entity is China, the world’s oldest empire. This is the country with the uniquely long view and the long history. China is the country whose collective memory of its former humiliation by the West is as vivid as yesterday.

I began my first article in this series by praising the economist Paul Krugman for the insight that Chinese economic behavior is predatory, and criticizing him for taking economic analysis beyond its range of competence. His solution (see the original article) is to persuade the Chinese regime that the revaluation of Chinese currency against the dollar and the Euro is to the rational economic self interest of everyone concerned. I’ll return to Krugman’s ideas in a moment, but let me first record my belief that the Chinese won’t do it. Moreover, I believe I know why they won’t do it.

The quaint notion that people and nations are only motivated by rational self interest, especially as seen through the lens of a civilized chat at Yalta in 1943 or at Versailles in 1919 or Helsinki in 1975 has been belied by the human experience. The Yalta, Versailles and Helsinki discussions were preceded by bloody and protracted armed conflicts.

People are capable of coolly rational appraisals, but we are not moved by them: When I hear advice about China from the “all people are rational in the same way that we are” crowd, a vivid set of counter examples comes to mind, among them:

The .2 million joyfully screaming soccer fans at Maracana Stadium in Rio De Janeiro in 1950;
The huge and frightening hordes of resentful Nazi thugs-in-uniform marching through the streets of Weimar Germany in 1923;
The Chinese women weeping at the (still continuing) state-ordered abortion of their babies ( http://www.npr.org/templates/story/story.php?storyId=9766870 )
The hollow-eyed Jewish prisoners being herded to their mass executions, too many of them to count, far too horrible to recount by the deniers (1941-44);
The exultant crowds at a Dave Brubeck concert in 1963 New Deli and 1970 Warsaw;
The throngs of Chinese soldiers invading Tibet in 1950 and the tanks crushing freedom-seeking students in Tian'anmen Square in 1989.

Mere economics does not explain the full range of human behavior because it is a derivative discipline: Economics tells us that if a mass of people want a certain thing, they will be presumably willing to trade X or Y for it, but the values traded within of various transactions always depend on psychological intangibles.

In fact, there are some things people will kill for. And there are goals that involve values and objects that excite passions that are well outside mundane market analysis. China’s behavior is one of those non-mundane intangibles, understandable through a study of history, but not predictable in the sense that the price of milk will go up in a shortage.

This is why economics fails over and over again as a predictor of human behavior.

The ineluctable fact of our predator natures colors everything, including the current Chinese regime’s behavior over the last several decades. We need to remind ourselves that the Chinese people achieved total hegemony over an entire continent. Where were the original peoples? They escaped, first to Taiwan, then by canoe to the Pacific (as chronicled in the classic Guns, Germs and Steel by Diamond). Had these peoples not escaped, there would be no trace of them in China, not a single one. Make no mistake: Humans are the world’s alpha predators and the Chinese civilization is humanity’s most venerable alpha predator organization.

China wants the USA to fail as a system, as a country and as an example to the world. Alternatively, they want us to play the boot-licking role assumed by little Finland in the shadow of Soviet power. Predators will cooperate with other predators but not with prey. Our first priority as Americans is not to become prey. Our second priority is to make sure our co-predator friends do not become Chinese prey.

It would be irresponsible of me to have outlined our folly and peril in my earlier piece (China Inc and the American Future) without offering a solution. I will suggest that in this piece and present the solutions in more detail in Part Three.

If you are ever tempted to underestimate the growing psychological weakness that is infecting American policy makers and advisors, your complacency can be nipped in the bud. Read in the current (January-February 2010) issue of Foreign Affairs, by the Journal of the Council on Foreign Relations, a piece titled, “NOT SO DIRE STRAITS, How the Finlandization[1] of Taiwan Benefits U.S. Security”, by Professor Bruce Gilley.

Until now, Taiwan has remained an island of economic vitality and political freedom, a constant irritant (but not a threat) to the Mainland communist regime because it has remained within the zone of American strategic protection. In predator terms, this means “this is not your prey”. In geopolitical terms, this is a protected zone of democratic political processes and economic freedom, a living laboratory of a successful model to be protected and copied,

The entire Foreign Affairs article would have been rejected out of hand ten years ago. How economic dependence and weakness changes one’s “strategic perspective”!

Professor Gilly makes the classic “prey argument” while trying very, very hard not to admit that it is just the same thing as “appeasement”. I believe that this piece is the foreign policy establishment’s trial balloon, an attempt to float something chillingly like the inapt advice some “hip’ men in the 70’s gave to potential female rape victims: “Relax and enjoy it; it’s the rational thing to do”. I recommend that ladies in danger take self defense training and carry firearms.

We will see more and more of this kind of thing. Our negotiating leverage with the Chinese has been blown; the secret is out and the media are on the case: [http://abcnews.go.com/Politics/International/story?id=1867118&page=2 ]

We must proactively address the Chinese debt problem, and soon, or we will suffer the Finandization of the USA.

Consider (but do not be intimidated by) the scope of the problem:

For decades the US government has been living on borrowed money. This is behavior that normally ignites an inflationary bonfire because it recklessly expands the money supply. But inflation was held back by a devil’s bargain: The Chinese lent us the money to buy their manufactured goods at ridiculously low prices. This was money lent to us at very low interest rates. The Chinese regime approved this arrangement, in part, because our banking system was backed by the new fools’ gold standard, highly leveraged, greatly overpriced American real estate. But I believe the Chinese regime really did this for an entirely unrelated reason. After all, the Chinese are not fools: They have already been paid.

The influx of their underpriced goods postponed our great inflationary reckoning, lulling us into bubble after bubble, and bust after bust, while our key industries were being hollowed out.

What did the Chinese get out of this? They were able to use this credit and fire-sale shipment arrangement to loot our intellectual property and industrial skills.

Walk through any store and start reading the labels. It is a chilling exercise. I spent 30 minutes a few days ago in my favorite hardware store ago trying to find any tool, machine or useful artifact that was made in the USA. I rejoiced when I found a drill assembled in Mexico.

Everything else was made in China.

Thirty years ago, all those hammers, drills and saws were made in factories on American soil.

The Chinese thirty year plan has succeeded: They have cloned our factories, rebuilt them in China and driven their American competitors out of business.

Now we are in a hostage situation of our own bipartisan making. Withdrawal from cheap Chinese manufactured goods will be traumatic because the cost differential is close to three to one. But at this point, severe inflation is almost inevitable because of the huge frontload of federal fiat money chasing a limited inventory of goods and services.

And we still owe the Chinese almost a trillion dollars. That number is growing as I write this. Well before the current president’s first term is over, the trillion dollar mark will have been exceeded. We continue to borrow.

Even if we repudiated our entire debt held by the Chinese regime and its agents (not likely), we’d still be under water. No other lender will be willing to finance the lunatic binge spending of the US Congress and the runaway costs of our “non-discretionary” entitlements. If the Chinese ever do inflate their currency and we ever devalue ours (the hoped-for scenario by many economists), our trade balance will improve (but not our income!). Our unpaid debt will not go to zero, and – all other things equal – we’ll still be insolvent.

As I said, the Chinese were not fools. They have already been paid.

You will recall that President Obama was recently stiffed by Chinese leaders in a celebrated face to face series of meetings that out stage-managed our Politician in Chief.

“President Obama and Chinese leader Hu Jintao discussed a wide range of issues during the president’s visit to the communist nation, including climate change and Iran’s nuclear program. But there’s one issue aides say the two leaders didn’t talk about: China’s holding of $800 billion in U.S. treasury bonds.”

[ http://www.foxnews.com/politics/2009/11/17/obama-hu-avoid-discussions-indebtedness-china/ ]

No. We wouldn’t want to talk about the elephant in the room, would we?

Arguably the US might have been better in the long run, if we had used the stimulus package to pay back the Chinese. But that was not possible, because the stimulus was financed with borrowed money, too.

We need to change direction. I believe that will actually happen. The open question is whether we will act quickly and decisively enough to be effective. Here is an outline of our situation and the direction any real solutions will necessarily take:

Like the former Soviet Union, modern China is riddled with contradictions that will eventually lead to a collapse of the communist regime.  This collapse will be followed by profound internal changes that will eventually produce one of two outcomes: (a) China reemerges as a federation or collection of smaller nations, that in terms of peaceful behavior and civilized conduct are on a par with contemporary Europe and Japan; (b) The whole process devolves into World War III (or IV), a conflict that will threaten the survival of civilization itself.
China’s transition process may take a very long time, during which its current regime will attempt to perpetuate itself by bringing America down into ruin and irrelevance or by fully subordinating us as an underpaid supplier and political vassal.
Only a strong, prosperous and independent America, recommitted to our founding revolutionary principles can provide the bulwark against the very worst of these alternatives.
Therefore we need to extricate our selves, on both the private and governmental level, from the current excessive debt load, and entirely from indebtedness to the Chinese regime and its puppet enterprises.
We must also, and in roughly the same time frame, reverse our negative trade balance with the rest of the world, and in particular we must wean ourselves from any dependence on Chinese products, the inflow of which in the present circumstances is like loss-leader priced heroin.

As difficult as the last three goals might seem, the advantage of pursuing them intelligently and relentlessly is that our economy can be restored to stable, sustainable prosperity in the bargain. And this can readily be accomplished within the lifetimes of the current generation of middle-age adults, done in more than enough time to provide our children and grandchildren with the America that, once again, is the light of the world and the foundation of the American dream.

I promised early in this piece that I’d explain my prediction that the Chinese will not revalue their currency to comply with Paul Krugman’s notion of their economic self interest. From the predator perspective, China needs to “conquer”, i.e., politically subdue all of the other predators who represent a potential competitive threat within the intended scope of the “prey field” over which the Chinese regime needs secure control. China is about 20% of the world population and we are about 5%. China’s interior is not capable of feeding its own population, most of which is rapidly migrating to the cities. The largest proven agricultural resources in the world are in the Americas, particularly in the US.

China, as a predator civilization, has embarked on a full industrialization strategy, one that requires unfettered access to all the resources and food needed to support its huge and increasingly demanding population. If we let them, China hopes to accomplish the deindustrialization its American competitor and the reconfiguration of the American economy as its agricultural supplier and recreational venue. Failing that, China would be comfortable with our demise, leaving the rest of the planet, including South America, as unprotected prey. China will not do anything to ameliorate our situation, including revalue its currency, until and unless that step is necessary to achieve the territorial and political market control (read hegemony), that it seeks.

Is this irrational behavior from a genteel economic perspective? Yes. But is it the reality we face? Yes, again. No student of history should be the least bit surprised…..

In China, Inc. Part Three, I’ll outline the concrete steps we must take when we choose to meet the challenges raised in points 4 and 5. I believe this will be one of those unique times in our history when it may feel like a war, but not a shot need be fired.

Stay tuned and do not despair….

JBG

[1] During the height of the Soviet Union’s power, Finland lived in a shadow, fully subordinate to Soviet power, unable to exercise an independent foreign policy or even an untrammeled domestic policy. It was a Russian satellite one steppe removed!

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