Central-planning manipulation “works” by closing all the safety valves of market feedback, creating a dangerous but politically appealing illusion of stability and “growth.”
If we see the economy as a system, we understand why removing or suppressing feedback inevitably leads to financial crashes. The essential feature of stable, robust systems (for example, healthy ecosystems) is their wealth of feedback loops and the low-intensity background volatility that complex feedback generates.Sponsored Ads
The essential feature of unstable, crash-prone systems is monoculture, an artificial structure imposed by a central authority that eliminates or suppresses feedback in service of a simplistic goal–for example, increasing the yield on a single crop, or pushing everyone with cash into risk assets.
Resistance seems futile, but the very act of suppressing feedback dooms the system to collapse.
We may be entering an era of creeping de-globalization. It is one thing to be generous with the perceived foibles of your trading partners when your economy is growing and jobs are plentiful. It is quite another to decide to be tolerant when your economy is struggling, and domestic political pressure to create jobs and raise wages is increasing.
Which is the case both in China and the United States. America is in the midst of a drawn-out election campaign, with candidates vying for the China-basher-of-the-year award. Eager to shift blame for high unemployment and to appease an electorate that believes the country to be headed in the wrong direction, President Barack Obama is letting it be known, most especially to his trade union allies, that he is going to get tough on China for its currency manipulation, export control on rare minerals, buy-China policy, and theft of intellectual property. To which Republican candidates respond with even tougher statements.
The U.S. middle class is still incredibly wealthy by international standards.
After 30 years of greed being good and rising tides lifting all boats, inequality — or “class warfare,” if you prefer — is back on the political agenda.
The Occupiers who camped out in central squares from Melbourne to Oakland, denouncing the “1 percent” for its supposedly ill-gotten gains, have a point: Inequality is out of control. But these mainly middle-class complainers are an incredibly coddled bunch by any international reckoning. This is good news, because we’re going to need to tax them more if we’re ever going to solve the world’s real inequality problem: the estimated 900 million people who live on less than $1.25 a day.
If you thought the fight was about the 1 percent in the US, then you would be wrong. The entire US is in the 1 percent. Let’s go global with that concept. The top 1 percent of countries needs to redistribute their wealth to the other 99 percent of countries.
Ever wonder why liberals were never concerned about all the lying and manipulation of global warming data? Because it was never about global warming or climate change. It was about establishing a carbon tax on the rich countries in order to redistribute their wealth to the poorer countries – socialism on a global scale. Who cares if global warming is man-made or part of the natural cycles that the Earth goes through?
The reason Presidents Barack Obama and Hu Jintao went to such great lengths during Wednesday’s White House lovefest to declare that the U.S. and China can get along in peace and prosperity for years to come is that neither man is convinced they will. In fact, the U.S. and China are entering a dangerous two-year period during which the pressures for confrontation are as likely to build as they are to abate.
But top U.S. officials fear that the next two years could generate more trigger points for confrontation as both the U.S. and Chinese political systems gear up for a transition of power. In China, Hu is to be replaced as President in 2012, and everyone’s job is on the line, including those of reformers who would like to move the economy in the direction of freer market reforms. Toughness rather than accommodation to U.S. demands will be the order of the day.
In the U.S., candidates looking to focus their campaign rhetoric on jobs will find an easy target in China’s manipulation of the value of its currency….
China’s currency manipulation represents the largest protectionist measure maintained by any major economy since the Second World War. China has intervened in the foreign exchange markets by an average of $1 billion a day for the last five years, buying dollars to keep them expensive and selling renminbi to keep them cheap, building a gigantic reserve of $2.5 trillion in the process. Largely as a result, the renminbi is undervalued by at least 20 percent relative to economic fundamentals. The largest trading country in the world is therfore subsidizing all exports by at least 20 percent and imposing an additional tariff of at least 20 percent on all imports.
China’s primary goal is social stability. The focus on social stability above all else means that China is limited in its ability to strengthen the yuan. Paradoxically, this focus on social stability will ensure that China experiences a major crash at some point. That crash might be sooner than we think if China enters into a trade war with the US. Also, remember that many of China’s real estate markets are vastly overheated and at a tipping point.
Trade war fever is rising in Washington. Slapping China with unilateral tariffs would feel good—and make matters worse
There’s a dangerous fantasy taking hold in Washington: The U.S. can force China to strengthen the yuan. Since the beginning of September the Chinese currency has appreciated about 1.8 percent against the dollar; China may be allowing it to drift higher to stave off American retaliation. Bills pending in the House and Senate would push the Administration to penalize Beijing through tariffs if it doesn’t let the yuan rise further. “At a time when the U.S. economy is trying to pick itself up off the ground, China’s currency manipulation is like a boot to the throat of our recovery,” Senator Charles E. Schumer, a New York Democrat and sponsor of one of the bills, said at a congressional hearing this month.
This economic Ponzi scheme is what I have labeled the asset-based economy. As with all things Ponzi, it must come to a spectacularly bad end. One can only Inflate asset prices to perpetuate a debt-fuelled consumption binge so far. At some point, the Ponzi scheme collapses. And we are nearing that point. We still have zero rates, massive amounts of liquidity, manipulation of short-term rates, manipulation of long-term rates, and bailouts galore a full 15 months after Lehman Brothers collapsed. This is pure insanity.
The reason economists failed to anticipate the crisis is because they were fixated on avoiding downturns and driving the economy to unsustainable growth rates by using debt to consume today what will be earned in the future. Debt is the central problem. When debt to income or debt to GDP doubles, triples and quadruples, it says you have doubled, tripled and quadrupled the amount of future earnings you are consuming in the present (see the charts here and here). That necessarily means you will have less to spend in the future. It’s not rocket science.
Insight: More capitalism, less regulation – Derek Scott, FT
How Did Economists Get It So Wrong? – Paul Krugman, NY Times
Deflation: Making Sure “It” Doesn’t Happen Here – Ben Bernanke, Federal Reserve Board
The vote for the Moscow City Duma, or parliament, is the most high-profile test of United Russia — the party that overwhelmingly rules Russia — since the financial crisis hit last year. That has not been lost on the authorities: Parties challenging United Russia’s dominance have complained of an unprecedented degree of pressure and manipulation as the party tries to show an increasingly disgruntled populace that its grip on power remains strong.
A key distinction between Russian and American attitudes towards Islamic terrorism is that while for America terrorism is largely seen as an exterior menace, Russia uses terrorism as an object as a tool of the state for manipulation in and outside the home country. Islamic terrorism is only part of the world of terrorism. Long before Islamic terrorism became a global threat, the KGB had used terrorism to facilitate the victory of world Communism.
This leads to the logical connection between Russian and Islamic terrorism.
Russia’s increasing belligerency is of great concern to U.S. and NATO leaders. The invasion of Georgia comes on the heels of such actions as the resumption of nuclear-armed bomber patrols off the U.S. coast, the planting of the Russian flag under the Arctic ice, the manipulation of natural gas supplies to the Ukraine and a massive cyber attack on Estonia.
The Kremlin also has initiated an enormous arms buildup that includes new ICBMs and ballistic missile submarines as well as advanced tactical aircraft and armored vehicles.