China Called “The Biggest Risk to the World Economy” But History Shows that War Can Always Straighten This Sort of Situation Out (Update 1X: China Missile = “No-Go Zone” for U.S.?)

~~By InsightAnalytical-GRL

We’ve be writing later about the strength of China, but lately there has been some talk rising about a possible bubble being created in China.  In the Telegraph (U.K.),  Ambrose Evans-Pritchard has written a piece which looks at what’s going on titled China has now become the biggest risk to the world economy.

This article shed a totally different light on the views of Larry Kudlow that I wrote about in my previous post, Larry Kudlow Has a Fit as Obama the “Declinist” Opens His Mouth in Japan; Says Obama is “Not His President”.

Evans-Pritchard argues that China is not going to take over as the growth engine of the world economy.  I’ve heard quite often that China cannot pull the world out of its economic troubles.  The stats that I’ve seen indicate that China, no matter how robust, simply is still too small an economy to accomplish this.

Evans-Pritchard has concluded that China’s policies” continue to play havoc with global trade and risk tipping the world into a second leg of the Great Recession.”

Why?  According to the piece, there’s plenty of overcapacity in China.  I saw a report the other day showing empty structures, built for basically no use.  The article explains:

“The inherent problems of the international economic system have not been fully addressed,” said China’s president Hu Jintao. Indeed not. China is still exporting overcapacity to the rest of us on a grand scale, with deflationary consequences.

While some fret about liquidity-driven inflation, Justin Lin, World Bank chief economist, said the greater danger is that record levels of idle plant almost everywhere will feed a downward spiral of job cuts and corporate busts. “I’m more worried about deflation,” he said.

Paul Krugman is quoted in this piece and he explains that China’s policy to hold the value of the yuan down versus the dollar is basically “stealing American jobs” as it relies on cheap exports to stave off massive unemployment. And other Asian countries must do it, too.

Of course, our capitalists use the cheap labor in China and, as the author says, “then lobby Capitol Hill to prevent Congress doing anything about it. This is labour arbitrage.”

But, China doesn’t hold all the cards, although it seems that way.  Evans-Pritchard writes:

Washington can bring China to its knees at any time by shutting markets. There is no symmetry here. Any move by Beijing to liquidate its holdings of US Treasuries could be neutralized – in extremis – by capital controls. Well-armed sovereign states can do whatever they want.

So, what’s the situation in China?  Their much-heralded stimulus has been spent building up more capacity to ship more goods and they’ve been investing in property and stocks. There is a huge credit explosion and production is booming.  BUT, Evans-Pritchard reveals:

Once you know that Hunan authorities have torn down two miles of modern flyway so that they can soak up stimulus by building it again, or that the newly-built city of Ordos is sitting empty in Inner Mongolia, you know what must come next.

A crash, right??

The Chinese consumer is supposed to be the solution to all this overcapacity and oversupply, but it won’t happen overnight.  Meanwhile, China’s central bank is tightening and fewer loans are being issued.

Evans-Pritchard concludes:

The world economy is still skating on thin ice. The West is sated with debt, the East with plant. The crisis has been contained (or masked) by zero rates and a fiscal blast, trashing sovereign balance sheets. But the core problem remains. The Anglo-sphere and Club Med are tightening belts, yet Asia is not adding enough demand to compensate. It is adding supply.

My view is that markets are still in denial about the structural wreckage of the credit bubble. There are two more boils to lance: China’s investment bubble; and Europe’s banking cover-up. I fear that only then can we clear the rubble and, very slowly, start a fresh cycle.

In my earlier post, I included the quote by Obama that Kudlow ridiculed:

While he also talked of multilateral cooperation and human rights, he came to Asia to deliver the message that the rapidly growing export-driven economies can no longer count on the U.S. consumer to keep them afloat.

It seemed a bit arrogant, particularly because Obama hasn’t really been pushing China much:

As for Obama, during the presidential campaign Obama promised to “crack down on China” but during the primaries there was chatter: “But his commitment to that point of view was thrown into doubt during the primaries when a Canadian official said an Obama adviser had privately characterized his tough stance on the North American Free Trade Agreement as political posturing.” (As an example, see: U.S. to Impose Tariff on Tires From China, Wall Street Journal, September 12, 2009.  Detractors figure that “the tariff won’t result in more jobs. Tires will simply come in from other low-cost countries, they say, and U.S. manufacturers, keep making their cheaper tires in China.”) Of course, this is classic Obama…all that “get-tough” talk and “insisting” while we have to go “hat in hand” to China…more blowing smoke.

But Evans-Pritchard comments (above) about Washington’s ability to really shove are food for thought. To repeat, “Well-armed sovereign states can do whatever they want.”

Now, I’m not suggesting Barack Obama is going to start a “real” war with China.  I don’t even think a sane Repbulican would.  (Then again, the Chosen One may just be arrogant enough????)

But, what about an INSANE Republican or Democrat, for that matter, since the elite in Washington are all about the same?  George W. Bush and his oil buddies decided to mess around in Iraq and look what we’re stuck with.  (George and his father were too busy with their long-time ties to China, so Iraq filled the bill for George II.) Barack Obama is worrying about that pipeline in Afghanistan that’s attacked so often by the Taliban that it hasn’t even been able deliver any oil yet.

But, there are lots of INSANE Republicans and Democrats around and who can trust ANY of them?

And, there’s history which shows a link between trade and wars.

Over at the RGE Monitor, Kevin O’Rourke wrote in a 2008 piece  titled “Lessons of 1000 Years of Trade History“: (my bolding)

Even more fundamentally, the continuation of a broadly liberal international trading environment will require that the geopolitical system adapt to the rise of China, India and other ‘Third World’ giants.  In a historical context, this represents of course the restoration of the status quo ante, the end of a “Great Asymmetry” in international economic and political affairs caused by the Industrial Revolution, which was itself in large part a product of the interactions between early modern Europe and the rest of the world.  But that is not to say that such an adjustment will be easy.  The international system has historically done a pretty poor job of accommodating newcomers to the Great Power club. German unification and industrialisation during the late 19^th century led to tensions with Britain and France over colonial and armament policy, while Japan’s rise to regional prominence during the interwar period, and its search for secure sources of raw materials, ended in war against United States and its allies.  Both precedents are worrying, in that similar questions are posed today, both in terms of the rights of emerging nations to rival the established powers’ military capabilities (notably with regard to nuclear weapons), and in terms of the strategic importance to countries like China of ready access to oil supplies and other natural resources.

The last point should cause us to reflect that, Cobden and Montesquieu notwithstanding, interdependence and trade do not necessarily guarantee peace.  The world economy of the late 19^th century was extremely interdependent, to the point where Norman Angell famously felt able to pronounce, on the eve of World War I, that major conflict was now unthinkable.  Interdependence implies vulnerability, and vulnerability can lead to fear, with unpredictable consequences, as Anglo-German rivalry in the run-up to the Great War, and Japanese reactions to the Great Depression and Smoot-Hawley, both indicate.

Impermanence appears to be the most enduring feature of the human condition, and if there is one lesson which we can safely learn from history, it is that history has not ended.  Hopefully it will not repeat itself.

We know that Barack Obama knows nothing about history (in fact, dismissing the entire Viet Nam experience), and I’d bet that none of our future leaders will know it either. And, even if they DO, I doubt they’d actually pay any attention to any lessons to be learned.

***

UPDATE 1

Looks like China isn’t missing this military angle:

Related Story from Bloomberg News, November 17, 2009 (excerpt):

China’s New Missile May Create a ‘No-Go Zone’ for U.S. Fleet

China’s military is close to fielding the world’s first anti-ship ballistic missile, according to U.S. Navy intelligence.The missile, with a range of almost 900 miles (1,500 kilometers), would be fired from mobile, land-based launchers and is “specifically designed to defeat U.S. carrier strike groups,” the Office of Naval Intelligence reported.

Five of the U.S. Navy’s 11 carriers are based in the Pacific and operate freely in international waters near China. Their mission includes defending Taiwan should China seek to exercise by force its claim to the island democracy, which it considers a breakaway province.

The missile could turn this region into a “no-go zone” for U.S. carriers, said Andrew Krepinevich, president of the Center for Strategic and Budget Assessments in Washington. (MORE)

If You Don’t Take Care of Women in Your Party (and Don’t Respect Those in the Other Party), How Can You Be Trusted with Issues Affecting Women–Or Anything Else, For That Matter? (It’s the Loss of Credibility, Stupid!)

It’s the LOSS OF CREDIBILITY, STUPID!

That’s all I have to say now.  The Democratic Party has ZERO credibility with me now.

Oh, it was hanging by a thread even before this primary season.  In 2005, Nancy Pelosi and Harry Reid were going to “Drain the Swamp.” Except that the Democratic Party itself turned into “The Swamp.” on their way to achieving the lowest Congressional approval ratings ever in Gallup poll history . The first 100 hours went by in a flash with nothing much happening.  Harry Reid kept mailing me about how he was “giving them hell” but I never saw any flames.

And my criteria for “results” was pretty low. Did I expect a wave of programs sailing through and a rollback of the Bush agenda? No! All I expected were a few signs of life and SOME FIGHT!!  Did I get any? None that stick with me.

I wasn’t a Hillary Clinton supporter in the beginning. The only one who appealed to me was John Edwards, because he was mentioning corporatism and how its tentacles affected every aspect of American life.  The media ignored Edwards out of the race, which turned out to be a good thing as his pants had been unzipped unbeknownst to us who really were hoping for a fighter.

Obama never really made a great impression on me. From the get go, I didn’t trust him.  He had no experience and I knew early on about his questionable connections.  Being an old hag, I wasn’t buying all the hopey dopey stuff.

I saw a book event by Obama biographer Shelby Steele in Berkeley, California and listened to his discussion of Obama’s life and how his followers would be disappointed.  It sure made a lot of sense to me.

Once Obama opened his mouth saying that the Viet Nam war held no lessons to be learned and then launched into his admiration for the operating system of the Reagan Era (all in the same interview) he was pretty much over for me.

His version of “change” didn’t look like change to me as he voted for FISA and it was revealed that he was going to vote for John Roberts for the Supreme Court but was advised otherwise because it wouldn’t look right.  He caved on his nuclear safety bill and accommodated the GOP. Well, he also accommodated himself since Exelon was one of his biggest donors. His flip flops would later come at such breakneck speed that I couldn’t figure out when he had the time to stick his finger into the wind to even see which way the wind was blowing.

Then there was the crap he started dishing out to Hillary Clinton.  “You’re likable enough,” uttered with his head turned down and away from her, was a complete turnoff. His strutting around the stage like a bad imitation of a nightclub comedian bugged me.  When he flicked Hillary off his shoulder and gave her the “street finger” I was appalled at his cocky arrogance. With this behavior, you knew he and the Party weren’t about to stand up to the misogyny being dished out to Hillary by the media.

The man swung between intoning platitudes with forced gravitas and acting like a street thug.  It was like he couldn’t make up his mind whom he was talking to.  One minute he was talking like a preacher, the next he was posing for a “crotch shot” for women reporters on his plane. And, oh, that plane. Just the type of plane that Sarah Palin would love to put on Ebay…

But the crowning achievement of Barack Obama was to re-create Bill and Hillary Clinton as a racists.  It took all of his own talents as a whiner and faux victim, coupled with the same qualities in his wife, to accomplish this.  The surrogates waved paper around on Meet the Press and off they went, leaving the wreckage of Bill Clinton’s legacy and the old guard of the civil rights movement behind.

I didn’t like the people he hung out with.  Rezko, Rev. Jeremiah Wright, Nadhmi Auchi, a boatload of “mega-pastors, ” William Ayers…but not too many real people.  And Axelrod…the guy who cleverly gave Obama Deval Patrick’s speech to read and was emulating every Rovian trick in the book.

You know what really appalled me? That comment about women and late-term abortion: “”Now, I don’t think that ‘mental distress’ qualifies as the health of the mother,” said Obama.   And NARAL and even Planned Parenthood are still on board. Was it the money promised or the threats of no money that got them there?

And then his crew got to humiliate Hillary Clinton at the RBC Meeting and the Democratic Convention and the next week, stood by as Obama followers trashed Sarah Palin.

Threats. Intimidation. Lack of respect. Acceptance of misogyny. Divisiveness. That seems to have replaced reaching out…especially to many in his own Party!

I’m recalling the lovely black woman whom CNN caught on tape…She wept as she expressed what Hillary Clinton represented to her.  Beside her was a young man, whom I thought was a guard of some sort.  Well, it turned out he was…an enforcer from the Obama camp, who spoke sharply to her as she finished speaking.

The hallmark of the Obama campaign has been the lack of caring for anybody but Obama. I don’t see much evidence of his really caring about much else…and that includes the people in Rezko’s slums

Last night I caught a rerun of “The Best Man” on TCM. The older Secretary of State (played by Henry Fonda) confronts the ruthless Joe Cantwell (Cliff Robertson) with this hard truth:

“You have no sense of responsibility to anyone or anything…and that is a sad thing for a man and a disaster for the country.”

Seems to sum it up perfectly.