In a rush to explain the current economic conundrums facing the United States, an increasingly popular rationale is to shield policy makers and collectively blame Asia’s huge rate of savings and large productive capacity.
For instance, former Treasury Secretary Henry Paulson thinks that global trade imbalances with Asia pushed interest rates down and drove “investors towards riskier assets.” FULL ARTICLE
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January 29, 2009
Paulson Has A New Role – Bashing Others.
We were all wondering what role Paulson would play now that he has transitioned the seat of Treasury Secretary to one his underlings. It was unprecedented that a member of the inner circle of the unConstitutional coup would be put in such an exposed position in the first place but things were out of control and required forceful adjustments to keep the veils that concealed the unConstitutional coup from falling away.
After strengthening the unconstitutional powers of the Fed and the Treasury and to give the appearance of a ‘change’ it was time for Paulson to return to the inner circle clandestinely. But he still has the role of being the most active, the most exposed, and the most ‘prominent’ member.
There are pluses and negatives to being ‘out there.’ One plus is that the unConstitutional coup can continue to try to add a voice of authority to its propaganda. The big negative that will ultimately expose the underbelly of the beast is that Paulson is one of the members of the inner circle and that he knows who the other members are.
Will he be able to fend off the inquiries? Will he be able to hide from the accusations? Will the intrigue thicken? Will he be eliminated by the unConstitutional coup itself to protect their dirty little secrets?
The people victimized by the economic terrorism of the unConstitutional coup will soon want to ask Mr. Paulson some poignant questions.
Are these people ever going to blame themselves and the policies they pursued? I mean, they really can’t be THIS deluded, right?
Americans are discouraged to save and encouraged to assume debt, lots of it. To save is to be taxed heavily on monies that were taxed already. Double-taxing we the people.
The Treasury Secretary is an unelected official with elected powers over the taxpayers. Yup, inside recycling of members with shady and unethical records (Greenspan, Paulson & Geithner).
Those bast–ds!
The nerve of those Asians! Studying, working hard, and living within their means. When will someone do something about such madness?!
Sociopaths/psychopaths rarely blame themselves for anything. We’re all to blame. They’re not. Those silly azns are the problem!
Has another member of the inner circle of the unConstitutional coup surfaced? The newly designated “Weapons of Mass Destruction Czar” is Gary Samore, a vice president at the Council on Foreign Relations, a New York-based non-partisan foreign policy think tank that has intimate connections to the unConstitutional coup.
Hopefully the people terrorized by the unConstitutional coup will begin to ask “Gary” questions about the members of the inner circle of the unConstitutional coup.
Let’s not forget that previous panics have been caused, in part, by foreign investment combined with fractional reserve banking. The panic of 1837 was arguably caused by the combination of an inflow of Mexican silver and the multiplier effect that increase in specie had on currecy because of fractional reserve banking. In our efforts to pin the Fed for their culpability, let’s not lose sight of the other players.
Any dramatic increase in savings could have a bubble effect because of our fractional reserve system, whether that savings comes from American or foreign investors.
That being said, there must always be some kind of increase in the money supply to support a bubble. Either the Chinese are buying dollars and putting them in U.S. banks where they are multiplied, or the treasury is printing dollars and selling them to the Chinese so that they can buy T-bills.
Even if the Chinese were directly investing in Fannie Mae by buying their bonds, every additional Yen invested would increase the price of the dollar making further investment more difficult. Additionally, there would have to be some reason why the Chinese would overwhelmingly pick the housing industry to invest in, and the answer to that question is that there was already a bubble taking place in that industry which was being caused by artificially set interest rates.
Take note of this tactic: Blame the productive savers for exploiting the unproductive consumers.
Right now, they are using this tactic against a safe target: the yellow foreigner. Soon, they will use this against domestic targets. They won’t just come after your current income with higher tax rates; they will tax or outright seize your assets, claiming that they were gotten through dishonest means, exploiting the “little guys”.
401(k)s will probably be the first seized since they are the easiest targets. They can be confiscated with the click of a mouse.
This is the path the country has taken.
Blaming people who are acting prudently–that’s government for you.
Steve, I think you are right. Except perhaps on the 401(k)s, I’m guessing that instead of seizing them outright they’ll pull some sort of scam like “borrowing” from them and putting useless “IOUs” in their place…that way, people will keep feeding money into them and they’ll be a constant cash cow, rather than a one-time robbery.
The real question is does it work for them to blame others.
That they remain in power and just shift jobs seems to say they are quite successful. The peacock may look silly to some, but it works by the only measure of success that counts: survival.
Everyone is looking for a scapegoat right? Taking responsibility for one’s actions seems to be a fleeting concept.
At no point in the article did you mention the “carry trade” where Japanese borrowed money in Japan at 2% and bought T bills here at 5%.
On China, they are not allowing their currency to float in an effort to make exports more attractive to the US. And it worked, we imported from China rather than produce it at home.
What the Chinese failed to see was that as the oil pushed transportation cost higher, they had to take further measures with their currency to offset the loss of exports due to the fact it became cost effective to buy domestic. The end result was to buy more T bills.
And just like we must thank some Arab investors that returned oil money to us through the collaspe of Citi, we will have to thank the Chinese for their money when the price of t-bills fall when interest rates come off their current record lows. I believe a good move would be to short T bills when the Fed is at the top of their buying spree.
Correction: I meant the Panic of 1819, not the Panic of 1837.
Great article. Don’t forget how Asia is demonized for the collapse of the United States’ manufacturing sector.
China and its central bank are no more well run than the Federal Reserve or any other central bank. The Chinese have made the same formulaic errors as the Fed, they have just made them on a smaller scale because they don’t control world’s reserve currency.
China’s increase in production and high savings rates are commendable, and in a truly free market economy with hard money they would be benefitting marvelously. They SHOULD be experiencing a steady, mild, beneficial deflation that comes from increased savings and productivity. Instead they are experiencing inflation both in the money supply and prices at rates that only a stagnant, dying economy with decreasing productivity should experience.
Unfortunately, the significant savings of the Chinese workers are being squandered by the their goverment propping up the US government and it’s dying shell of a currency. This capital would be put to much better use improving it’s productive capacity, something it largely imports capital to do.
China is a mercantilist house of cards built on fiat money, just like the rest of the world. The fact that it has a productive working class that saves it’s money is a good thing, but it didn’t save Japan and it won’t save China. As long as the Chinese central bank keeps playing the fiat money game, it will end badly.
One reason for high savings in China, is actually the lack of any real or credible form of social security, either private or public (am not arguing for public here!!), combined with the effects of the unfortunately necessary one-child policy. The Chinese have traditionally always saved extensively for a rainy day and for old age and in overseas Chinese communities are big believers in gold as at least one protector against uncertain futures (witness the predominantly overseas chinese boat people’s use of bullion to purchase their escape from Vietnam in the 80′s).
Can argue hard and long on the fixed exchange rate, but not here. Great article Tim.. thanks.
One of the virtues of a libertarian or classical liberal analysis of the state is it underscores how state intervention can foment racism. Often though it obscures the white supremacy associated with American nationalism when it assumes sound economics explains all factors. This is why the photo of the Dr. Fu Manchu stereotype of “Orientals” attached to this article is so crucial. Its implications need to be examined more. The US government has repeatedly in history labeled Asians as menacing and evil for supposedly having diabolic intelligence. Not suggesting Asians are inferior as such, what is being argued is that they are not human and where possible should be conquered. Just as certain Leftists are missing something when they suggest Rodney King was beat up so badly because he was a member of the proletariat (he was of course abused like that because of his color) so too we cannot reduce opportunistic arguments about economics to the idiocy of the state alone. As should be clear, many ordinary Americans, who are not state bureaucrats, fear Asians for their supposed racialized inhumanity as well–on their own independent motivations. We should be critical not just of false economic policies but an American (white) nationalism which seeks to unite all around a dangerous and false “national” or “fascist” interest. Many who imagine a republic and not an empire, and who oppose state capitalism in theory, in practice also are threatened or which to denigrate Asians in racial terms. Defense of the free market does not all resolve questions. “Freedom NOT to associate” can have a pernicious and double meaning in the libertarian tradition even though its anti-state content is correct. Think about it.
DS is right IMO.
This will end badly for everyone.
Certainly Asian countries do practice currency exchange rate manipulation. Having made a conscious decision to build up their economies on the Japanese model, that is, mainly upon manufacturing and exporting activities, they see this ‘moneypulation’ as a natural way to stimulate those activities. They don’t see the long-term harm they are doing to themselves.
To believe that these Eastern countries don’t have ‘dirty exchange rates’ belies their growing productivity and wealth over the past 3 or 4 decades — if nothing else, their success as export-machines would be reason enough to cause their currencies to rise into higher valuations vis-Ã -vis Western currencies — absent any artificial intervention, that is.
It would be absurd to claim — not that Tim Swanson is doing this — that China’s Central Bank, for example, does not penalize its own country’s workers by artificially keeping China’s currency low against the American dollar. So DS is correct in this as well.
Tim’s thesis is sound. No one held a gun to our heads.
One result of the Asian exchange rate ‘moneypulation’ was our benefiting from lower prices for imported goods here in the West, than would otherwise have been the case.
This observed lower price inflation for consumer goods gave the Federal Reserve under Greenspan the ‘cause’ for which and by which he was able to keep interest rates so low on this side of the Pacific for so long. That was a grievous error on his part. He misread the Money System and what was actually going on. As did Paulson. And as are some others today.
Greenspan looked at American CPI and not only did he not see inflation; he instead saw the ‘danger’ of deflation. So he thought to himself, “Omigod, better get those monetary fire hoses out to put out any danger of the dangerous deflation flame here at home!â€
To what end?
We see the ‘wisdom’ of that policy now. Our consumers and investors went on a spending binge not due to anything done by Asian savers, but due to our own monetary authorities’ idiocies.
Our asset prices went through the roof (sorry). Our auto industries were in a cloud. Our investment and gaming industries went berserk. Sorry, I guess ‘investment and gaming’ is redundant?
Meanwhile, in China, workers were not given the chance to fully and fairly participate in the wealth they were earning for China — China was able to move most of the expropriated ‘surpluses’ into American Treasury bonds — thus achieving both political and economic ends. This was a miscalculation by the leadership of China — so at least IMO time will show this to be the case. So DS is right here also IMO.
Now China somewhat belatedly is deciding to spend some of those past surpluses for ‘stimulation’ at home. For China’s sake, I hope it helps. I agree with DS. It probably is too late, just like with Japan in the 1990-s.
Let’s see what happens when China starts to cash in some of those accumulated U.S. Treasury bonds — maybe Bernanke will fulfill his “credible threat” to start buying those newly liberated bonds with newly printed Federal Reserve ‘notes’ (i.e., cash). What a world and time we are living in! Mind-boggling. Incroyable. Inconceivable.
We should not be surprised that Chinese goods stayed so inexpensive for so long. And we should not be surprised that the FED (taking advantage of the Chinese Central Bank’s faux pas and the FED’s own ignorance) facilitated over-consumption and under-saving conditions here at home in the West.
In the case of China, it made sense. I cannot account for what Social Engineering objectives Greenspan was reaching for. That is only something he can say, with those inscrutable words he always comes up with.
But China’s Central Bank (and China’s authorities) at least thought it was doing a good thing for its own country — what was our excuse?
Our over-consumption and under-saving was most certainly not caused by Asian under-consumption and over-saving — just go to Asia and you will see little evidence of that.
But maybe we did over-party and under-learn. Were these deficits also caused by the Asians under-partying and over-learning?
There are the continuing ramifications from our political and institutional leadership class’ misty thinking back then. This foggy thinking continues to the current day.
We will pay too heavy a price for this ignorance.
There is no excuse. I have always thought that our civilization had already had the Depression to end all Depressions. We were too smart to let that happen again. We had all the tools and safeguards to prevent such a reoccurrence. I guess I will have been proven wrong.
In Argentina the de facto confiscation of private pension funds has already happened.
Some time ago the funds were forced to “invest” some of the savings in government bonds – and now the whole lot has been nationalized in order to be “invested in public works” (i.e. to employ a lot of people before election time).
Even the establishment “Economist” magazine was critical of this scheme – and that is the sister publication of the leftist “Financial Times” (it of no delay/dissent regarding Comrade Obama’s government spending binge should be tolerated).
People who have their savings in things government can grab are being unwise in the current climate.
Sell stocks (and other such) and invest in things you can hide.
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