Tag Archives: China

What is Henry Kissinger Up To? — Paul Craig Roberts

This new post by Paul Craig Roberts is the best, most authoritative assessment I’ve seen of the current geopolitical situation and explains how the Trump administration is shaping up to possibly be in opposition to the neoconservative agenda and what Roberts refers to as The “military/security complex.”

He says, “Clearly, the military/security complex and the neoconservatives see Trump and Tillerson as threats, which is why the neoconservatives and the armaments tycoons so strongly opposed Trump and why CIA Director John Brennan made wild and unsupported accusations of Russian interference in the US presidential election.”

Read the entire article here.

Time to pay the piper: Who gets stuck with the bill?

Prior to his recent visit to China, Vice-president Joe Biden tried to assure investors that U.S. Treasury bonds are still a good investment, saying that the US administration “is deeply committed to maintaining the fundamentals of the US economy” to “ensure the safety, liquidity and value of US Treasury obligations for all of its investors”.

Good try, but the Chinese are not buying it, nor, it seems, is anyone else. The Federal Reserve has become of late the biggest buyer of treasury bonds, and Standard and Poor recently announced that they have downgraded the U.S. debt rating from AAA to AA+. Dollar denominated securities are now becoming a “hot potato” as loss of purchasing power of the dollar seems assured.

An August 19, 2011 article in China Daily titled, Experts urge China to trim US T-bond holdings, quotes both Chinese and American authorities and concludes thatChina should reduce its holdings of US Treasury bonds to protect the value of its massive foreign exchange reserves.” Here are some excerpts:

“China should move progressively to cut its holdings of US Treasury bonds and use it as leverage to ask Washington to further open its markets, including the high-technology sector, to Chinese investment,” Xiang Songzuo, deputy director of the Center for International Monetary Research at Renmin University of China, said at a forum.

“Washington should provide a guarantee on the safety of China’s assets,” while it is creating global inflationary pressure through quantitative easing to stimulate its economy, Xiang said

Zhu Chao, assistant dean of the School of Finance at the Capital University of Economics and Business, said Biden’s promises were more symbolic than meaningful.

Stephen Roach, the non-executive chairman of Morgan Stanley Asia, said that the US debt crisis has shaken China’s confidence in Washington but the pro-consumption shift in its economic structure will help reduce the pace of its foreign-exchange accumulation.

“The US debt crisis has taken a serious toll on China’s confidence in Washington’s economic stewardship,” Roach said in a research note.

“China is no longer willing to risk financial and economic stability on the basis of Washington’s hollow promises and tarnished economic stewardship.”

The situation suggests some major policy questions that could have far-reaching effects on the American economy and on the American middle-class. China has, up to now, been willing to accept America’s i.o.u.’s in exchange for all those computers, TVs, shoes, clothing, and other goodies that Americans have been gobbling up at bargain prices. Now the piper must be paid, one way or another. Will Washington “further open its markets, including the high-technology sector, to Chinese investment,” as the Chinese are demanding? Will the U.S. government allow Chinese companies to buy up American companies, real estate, and infrastructure?

You can’t blame the Chinese for wanting real value in return for what they have already delivered. The fault lies with the policies of the past 30 years that, in the guise of “free trade,” have promoted the interests of the few at the expense of the many.—t.h.g.

Money, “Free Trade” and “the China Problem”

Professor Antal Fekete is an expert on the real bills doctrine and the gold standard. He is someone whose knowledge and insights I respect. This article, which appears on the SilverSeek.com website, draws important parallels between the opium wars of the 18th and 19th centuries and the current trade imbalance between the west (especially the US) and China. It’s the same game of looting but with somewhat different details.

While I don’t agree that a new gold standard is the solution, I recommend Prof, Fekete’s article because it provides the kind of historical perspective that is necessary for understanding what is really going on between China and the west. Rather than a gold standard, I think the world needs an objective, non-political standard of value based on a defined assortment of basic commodities. That is something I’ve written about in all of my books.–t.h.g.

Silver and Opium

By: Professor Antal E. Fekete

— Posted 16 February, 2011 Source: SilverSeek.com

The opium wars do not belong to the glorious episodes of Western history. Rather, they were instances of shameful behavior the West still has not lived down. Mercantilist governments resented the perpetual drain of silver from West to East in payment for Oriental goods (tea, silk, porcelain) that were in high demand in the Occident, facing low demand in the Orient for Occidental goods. From the mid-17th century more than 9 billion Troy ounces or 290 thousand metric tons of silver was absorbed by China from European countries in exchange for Chinese goods.

The British introduced opium along with tobacco as an export item to China in order to reduce their trade deficit. Under the disguise of free trade, the British, the Spanish and the French with the tacit approval of the Americans continued sending their contraband to China through legitimate as well as illegitimate trade channels even after the Chinese dynasty put an embargo on opium imports. Because of its strong appeal to the Chinese masses, and because of its highly addictive nature, opium appeared to be the ideal solution to the West’s trade problem. And, indeed, the flow of silver was first stopped, and then reversed. China was forced to pay silver for her addiction to opium smoking that was artificially induced by the pusher: the British.

Thus silver was replaced by opium as the mainstay of Western exports. In 1729 China, recognizing the growing problem of addiction and the debilitating and mind-corrupting nature of the drug, prohibited the sale and smoking of opium; allowing only a small quota of imports for medicinal purposes. The British defied the embargo and ban on opium trade, and encouraged smuggling. As a result, British exports of opium to China grew from an estimated 15 tons to 75 by 1773. This increased further to 900 tons by 1820; and to 1400 tons annually by 1838 — an almost 100-fold increase in 100 years.

Something had to be done. The Chinese government introduced death penalty for drug trafficking, and put British processing and distributing facilities on Chinese soil under siege. Chinese troops boarded British ships in international waters carrying opium to Chinese ports and destroyed their cargo, in addition to the destruction of opium found on Chinese territory. The British accused the Chinese of destroying British property, and sent a large British-Indian army to China in order to exact punishment.

British military superiority was clearly evident in the armed conflict. British warships wreaked havoc on coastal towns. After taking Canton the British sailed up the Yangtze River. They grabbed the tax barges, inflicting a devastating blow on the Chinese as imperial revenues were impossible to collect. In 1842 China sued for peace that was concluded in Nanking and ratified the following year. In the treaty China was forced to pay an indemnity to Britain, open four port cities where British subjects were given extraterritorial privileges, and cede Hong Kong to Britain. In 1844 the United States and France signed similar treaties with China.

These humiliating treaties were criticized in the House of Commons by William E. Gladstone, who later served as Prime Minister. He was wondering “whether there had ever been a war more unjust in its origin, a war more calculated to cover Britain with permanent disgrace.” The Foreign Secretary, Lord Palmerston replied that nobody believed that the Chinese government’s motive was “the promotion of good moral habits”, or that the war was fought to stem China’s balance of trade deficit. The American president John Quincy Adams chimed in during the debate by suggesting that opium was a “mere incident”. According to him “the cause of the war was the arrogant and insupportable pretensions of China that she would hold commercial intercourse with the rest of mankind not upon terms of equal reciprocity, but upon the insulting and degrading forms of the relations between lord and vassal.” These words are echoed, 160 years later, by president Obama’s recent disdainful pronouncements to the effect that China’s exchange-rate policy is unacceptable to the rest of mankind as it pretends that China’s currency is that of the lord, and everybody else’s is that of the vassal.

The peace of Nanking did not last. The Chinese searched a suspicious ship, and the British answered by putting the port city of Canton under siege in 1856, occupying it in 1857. The French also entered the fray. British troops were approaching Beijing and set on to destroy the Summer Palace. China again was forced to sue for peace. In the peace treaty of Tianjin China yielded to the demand to create ten new port cities, and granted foreigners free passage throughout the country. It also agreed to pay an indemnity of five million ounces of silver: three million to Britain and two million to France.

This deliberate humiliation of China by the Western powers contributed greatly to the loosening and ultimate snapping of the internal coherence of the Qing Dynasty, leading to the Taiping Rebellion (1850-1864), the Boxer Uprising (1899-1901) and, ultimately, to the downfall of the Qing Dynasty in 1912.

The present trade dispute between the U.S. and China is reminiscent of the background to the two Opium Wars. Once more, the issue is the humiliation and plunder of China as a “thank you” for China’s favor of having provided consumer goods for which the West was unable to pay in terms of Western goods suitable for Chinese consumption. The only difference is the absence of opium in the dispute.

Oops, I take it back. The role of opium in the current dispute is played by paper. Paper dollars, to be precise. In 1971 an atrocity was made that I call the Nixon-Friedman conspiracy. To cover up the shame and disgrace of the default of the U.S. on its international gold obligations, Milton Friedman (following an earlier failed attempt of John M. Keynes) concocted a spurious and idiotic theory of floating exchange rates. It suggests that falling foreign exchange value of the domestic currency makes it stronger when in actual fact the opposite is true: it is made weaker as the terms of trade of the devaluing country deteriorates and that of its trading partners improves. Nixon was quick to embrace the false theory of Friedman. No public debate of the plan was permitted then, or ever after. Under the new dispensation the irredeemable dollar was to play the role of the ultimate extinguisher of debt, a preposterous idea. The scheme was imposed on the world under duress as part of the “new millennium”, shaking off the “tyranny of gold”, that “barbarous relic”, the last remnant of superstition, the only remaining “anachronism of the Modern Age”. The ploy was played up and celebrated as a great scientific breakthrough, making it possible for man to shape his own destiny rationally, free of superstition, for the first time ever. Yet all it was a cheap trick to elevate the dishonored paper of an insolvent banker (the U.S.) from scum to the holy of holies: international currency. The fact that fiat paper money has a history of 100 percent mortality was neatly side-stepped. Any questioning of the wisdom of experimenting with is in spite of logic and historical evidence was declared foggy-bottom reactionary thinking.

The amazing thing about this episode of the history of human folly was the ease with which it could be pushed down the throat of the rest of the world, including those nations that were directly hurt by it, such as the ones running a trade surplus with the U.S. Their savings went up in smoke. The explanation for this self-destructing behavior is the addictive, debilitating and mind-corrosive nature of paper money, in direct analogy with that of opium. The high caused by administering the opium pipe to the patient (read: administering QE) had to be repeated when the effect faded by a fresh administration of more opium (read: more QE2).

If the patient resists, like China did in 1840, then a holy opium war must be declared on it in the name of the right of others to free trade. 170 years later a New China once more demurred against the paper-torture treatment it was subjected to by the American debt-mongers and opium pushers.

But beware: if the West starts another Opium War, this time it is not China that will be on the losing side.

Reference: Opium Wars, Wikipedia, June 29, 2010.

China dumping dollars—but slowly

An Associated Press story reported in Forbes magazine indicates that China has for the past two months been  reducing its holdings of  U.S. Treasury debt. ” The $24 billion decline in China’s holdings in June followed a $32.5 billion drop in May. China’s holdings had hit a high for this year of $900.2 billion in April.” And this was down from their record high holdings of $939.9 billion reached in July 2009.

This seem to confirm my expectation that China would be diversifying its foreign reserve holdings away from dollar denominated securities.

The slack is being taken up by Japan and Britain so the immediate impact on the dollar in foreign exchange markets may continue to be minimal– for a while.

Central banks collude to advance their common objectives, but given the astronomical budget deficits and continued monetization of U.S. government debt by the banking system, it is unlikely that they will continue to support the dollar in the future as they have in the past. At some point, they will allow the dollar to slide into the void as they roll out their new plan for a global reserve currency. –t.h.g.

The days of dollar dominance are coming to an end

An article in The Financial Times reports that Brazil and China are working toward an agreement that will enable the use of their own currencies in trade transactions rather than the US dollar. This will be a major step that will encourage other countries to do likewise, thus reducing the longstanding dependence upon the US dollar as the international payment medium. As foreign dollar holdings stop increasing or are reduced, the US government will have a harder time selling its bonds. The buyer of last resort, of course is the Federal Reserve.  As the Fed and the banking system monetize ever greater amounts of US government debt, the purchasing power of the dollar will drop precipitously.

The only thing that has supported the value of the dollar thus far has been the “great recession” in which the business sector is starved for credit and ordinary people are starved for cash; that and the abiding myth that the dollar will always be “as good as gold.” — t.h.g.