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Saturday, November 27, 2004

China: The Yuan Rate 

Beijing could let yuan appreciate

By Tung Chen-yuanFriday, Nov 26, 2004,Page 8

At the APEC summit, Chinese President Hu Jintao for the first time declared that China would allow a floating Chinese currency on the condition that it would not have a heavy impact on the economy. Is this the prelude to an adjustment of the Chinese yuan? Or is it superficial talk to deal with international pressure?

First, according to economist Frank Gunter's estimates, the total sum of capital leaving China between 1994 and 2001 reached US$69 billion, while in the period between 1997 and 2001, the sum was US$100 billion. This shows that there are big loopholes in China's capital controls. We can no longer define China as a closed economy, and must give full consideration to the relationship between China's domestic economy and the international economic situation.

From early January 2002 to early January this year, the US dollar lost approximately 40 percent of its value compared to the euro, 23 percent compared to the yen, and between five and 12 percent compared to the New Taiwan dollar, the Singaporean dollar and the South Korean won. From the beginning of this year to the middle of November, the US dollar continued to add between two to eight percent to these losses, and it seems it will continue to fall.

Because the yuan is pegged to the US dollar, its nominal value has fallen by the same amount as the US dollar compared to the above mentioned currencies. This is one very important factor behind the imbalance in the yuan's value.

In order to maintain exchange rate stability, China's central bank has been forced to buy more than US$10 billion per month since last year, and this has seriously affected the independence of its currency policies. The trend has continued this year, which has built strong pressure on the yuan to appreciate.
In the third quarter, China's central bank bought an average of US$14.6 billion per month, and the sum purchased in September was US$18.4 billion. The increase in interest rates by 0.27 percent will probably not be sufficient to cool down the overheating economy. Instead, it may add further pressure to appreciate the yuan.

In fact, the main reason China's money supply increased so sharply last year and this year, thereby creating domestic economic imbalances and overheating, was that foreign exchange reserves increased sharply.

Last year, the base currency increased by 748.8 billion yuan, and the total amount of foreign exchange transactions for the year contributed 91.5 percent of that increase.

For the first three quarters of this year, the base currency increased by 670 billion yuan, while the total amount of foreign exchange transactions for the year increased by 553 billion yuan (following write-offs on the open market), still contributing 82.6 percent of the increase in the base currency.

In addition, the US trade deficit with China is continuing to grow, and China is coming under heavy pressure from the US goverment to appropriately adjust the yuan. According to official US statistics, by the end of September, the US' trade deficit with China had reached US$114.4 billion, or 24.4 percent of the total US trade deficit, which was 27.5 percent higher than for the same period in the previous year.
The US treasury secretary has on several occassions requested that China implement a more flexible exchange rate system, causing increased market expectations for an appreciation of the yuan and a flow of hot money into China.

China's continuing economic overheating and the US dollar's continued fall have strengthened international market expectations for an appreciation of the yuan. For example, the discount on one-year yuan non-deliverable forward contracts (NDF, a "synthetic" forward contract on a non-convertible or thinly traded currency) has increased further, reaching 3,750 points on Nov. 6. This is a sign that the market expects the yuan to have appreciated by 4.6 percent one year from now. On Nov. 15, the discount for the same forward contract hit 4,000 points.

International institutional investors generally expect the yuan to appreciate in the short term. Citibank Group predicts that the yuan exchange rate will have increased by 3 to 5 percent to the US dollar by next spring; Merrill Lynch predicts an appreciation by 10 percent before the end of the year, and that there is room for a 20 percent appreciation; Morgan Stanley predicts an appreciation by 3 percent during the first half of next year, and by 7 percent by the end of next year; while Lehman Brothers predicts an appreciation by 5 percent in the coming quarters.

Based on the expectations on the yuan to appreciate, international speculative money continues to flow into China, constantly increasing the pressure on the yuan to appreciate to the point where there is no more room for apprecation. This is a self-fulfilling prophecy displaying the awesome power of international financial markets.

The yuan exchange rate has been imbalanced for three years, and this has led to a severely imbalanced and overheated Chinese economy. Unless China effectively stems the inflow of international speculative money, the adjustment to the yuan's exchange rate may occur within the next few months.
Tung Chen-yuan is an associate research fellow at the Institute of International Relations, National Chengchi University.
Translated by Perry Svensson

Friday, November 26, 2004

China, the Superpower - and India 

Arno,

One very interesting development is not only the way in which the United States - and other Western countries - persist in self-destruction - one deficit that gets little attention is the extent of the DISinvestment in the Unites States - and Australia - in public infrastructure - but the extent to which the beneficiaries of our wrong policies are now cooperating among themselves. They are, to an extent, pulling up the ladder already and saying they don"t need us any more.Of course, that is an exaggeration; and the collapse of the United States economy, which will be difficult to moderate with a re-elected Bush and an almost inevitably slumping US dollar, will hit the whole world economy - and probably hit it very hard.However, one thing that must impress is the way that countries like China and India are moving on.They are now way past the mass production of T-shirts. They are well into the IT and services territory that the "advanced" countries are supposed to occupy while the NICs persist with their T-shirts, cute toys for kids and the rest..And, within this impressive shift, they are working together. For example, China and India - the old enemies - are said to have increased their trade from about $300 million ten years ago to $10 BILLION right now. That seems to me - I hope my arithmetic is correct - to be a more than thirty times increase in just ten years.What other trading partners have achieved such an increase? Probably there are some but it is very impressive - particularly as it is continuing.Perhaps even more impressive are the contents of the trade. Aggregate trade seems to have increased threefold in the last three years and much of this increase has been in the field of IT, with China providing the hardware and India providing the software.So we seem to be seeing very fundamental changes - while the United States and Australia are still stuck in their own huge miscalculations and Europe - bless its heart - is throttling itself to death, though more slowly than the United States, in the toils of the idiotic Maastricht rules and an ECB which still hasn't the faintest idea of where it should be going.We're not yet at the point where India and China - with their 2.5 billion people or thereabouts, can thumb their noses at the United States and the rest, and get on with their own development - which includes raising living standards while most of the people in the United States - and much of the West otherwise - stagnate or see their living standards fall. (There are some very wealthy people in Australia but the seriously impoverished seem to be increasing all the time - in a country whose social-democratic, pluralistic, and mixed-economy traditions and well-tried institutions should never have allowed it to happen.) However, they could well be on the way to thumbing their noses - a notion that, just a few years ago, would have seemed a total fantasy.The United States has spent thirty-five years doing its best to destroy itself and each time, during that period, that it has made some adjustment to its fundamental foolishness, it has made things worse. We are now at the point at which the United States - and, I repeat, other Western countries - must review their policies promptly and fundamentally or they must accept massive shifts in the architecture of the world economy - with the political, social and strategic consequences that go with it.James Cumes"Uncle Rupert is beautifully narrated, with a wonderful sense of warmth and detail". Order your copy at -http://www.magellanbooks.com/jamescumes.htmlhttp://www.authorsden.com/jameswcumes----------From: "Arno Mong Daastoel" To: , "CPDS" Cc: "'David Chiang'" , 'p. jakob förg' , "'andre gunder frank'" , "'pietro p.masina'" , , , "'virginia rainesco'" , "'qasim kz'" , "'william engdahl'" , "'abe killian'" , "'peter kirsch'" , "'henry c.k. liu'" , "'peter myers'" , "'gavin oughton'" , "'peter wakefield sault'" , "'israel shamir'" , , "'gunnar tomasson'" , "'stephen zarlenga (e-mail)'" , "'peter g. spengler'" , "'tausch, arno'" , "'kristen nordhaug'" , "'jeffa'" , "'ip austin'" , "'norie huddle'" , , Subject: [gang8] Re: China, the SuperpowerDate: Thu, Nov 25, 2004, 11:52 pm
James, I certainly agree with the points in your two commentary letters, e.g. that the US and the West has brought the demise upon themselves, and that only the Asian countries have seen the chance offered and grasped it The Chinese could possibly win a little in the short run by loosening the peg, but the longer they are able to keep the peg, the more they will win n the long run by sucking productive power from others. It may be a sensible investment to starve themselves a little in the short run. One might argue that the capital invested in China is Western etc, but in the longer run, capital has no fatherland and will move as it sees fit. Companies may therefore make China their new headquarters after some time, like a few centuries ago when capital moved from Italy to the Netherlands and to England. Concerning "Mercantilism", it is an animal with as many heads as there are nations and years. Mercantilist practice was followed from at least the Phoenicians in the 20th Century BC until today, which means it has been practiced over 4 Millennia. This means that there are many opposite practices within this tradition, and in many instances we see were intelligent adoptions of hard won experience to the different situation at hand. I think Mercantilism is best characterised as Ian Austin characterised the South East Asian policies, as intelligent "Pragmatism". Even Liberalism is a kind of Mercantilism, namely that of the leading nation. The trouble for the leading nation(s) started when they started to believe in the propaganda which was made for export only, by people like Adam Smith. So, I think John in wrong when he writes that, "The mercantilist policies that China / Japan and others are using (ie accumulate a stock of 'treasure' by building state-supported production capacity while supressing demand) have an ancient history - being what 'everyone' in Europe did in the 18th century. And the lesson of history seemed to be that this was not the winning strategy. This was the basic message presented in Adam Smith's 'Wealth of Nations' " This is the main stream text book onion. I rather think that the winners pursued precisely the Mercantilist policy until they reached the top of the ladder. Then it became time to pull up the ladder by starting the Liberalist propaganda mill. Concerning what John says of Chinese financial collapse etc. I think I will go with James on this and just say that it depends on the Chinese ability to make the right decisions and 'keep the right balances'....

Arno

----- Original Message ----- From: cresscourt@chello.at ...Sent: Thursday, November 25, 2004 9:43 AMSubject: Re: China, the SuperpowerJohn,The key to economic strength and, ultimately, to political and strategic power is fixed capital investment that enhances productivity and production.It was that which drove the United States to its position as the world's superpower. That is what it has forgotten in recent decades.United States policies have provided China - and other countries, of course - with opportunities for economic growth and power that are unprecedented. Not only China but a collection, especially of South and South-east Asian countries have grasped this opportunity in the last thirty years or so. However, China is tha largest beneficiary and the only one that would seem capable of taking over the number-one mantle from the United States. That does not - or should not - ignore India but, at this stage, it would seem that the betting is most reasonably on China for the top spot.Does that mean that it is a "can't-lose" deal for China?No, of course not. They can still make a lot of mistakes: in the mix of private and public investment; in the mix of domestic and export demand; in interest-rate and fiscal policies; in a host of things that raise problems to which China is not immune. What is important for China is that it now has an industrial structure and a public infrastructure on a scale and of a quality that it could never have hoped to have but for the extraordinarily inept policies of the United States and other governments since 1969.This is a huge accomplishment - reflected in the progress of Singapore, Malaysia, Taiwan, South Korea, but greater for China than any other single Tiger or, I suppose, all combined.That accomplishment will remain unless the Chinese Government, in its turn, self-destructs as the United States and others have so expertly done.When we reflect on the "others", we should not forget our own country - yours and mine, Australia.We began the same policies as the United States way back in 1969. With some divergences here and there, we have pursued basically the same policies ever since.And what has happened to us?We have the same chronic trade/payments deficit. We have gutted our industries Local economist Quiggin - a Queenslander, I think - posted some formidable data the other day showing just how far we have gone in exporting our industries overseas in the last few decades.We don't have the massive defence expenditure of the Americans - but even that is extraordinarily high for "peacetime."There are a number of similarities and a number of differences. The $Aust is not a reserve currency. We do not have the huge budget deficit that the Americans now have etcHowever, we have pursued basically the same policies and we have damaged our fixed capital investment, our productivity and our production in much the same way. Instead of taking advantage of the opportunity that the Americans offered us - just as they offered it to China and the rest - we joined the Americans in expanding the opportunities for others. We are a good market for Chinese industry while we gut our own industry and are content to be the mine, the wheat-field, the raw-material producer for those who have left us far, far behind.To call the Asian Tigers' and China's policies mercantilist might do them less than justice. Some of those countries have already raised living levels and their domestic consumer demand very considerably - to challenge standards in the West, in some cases. China has a more formidable challenge because of the sheer size of her territory and its complexity, as well as the complexity of its people.They've got a lot of problems ahead. However, while United States - and Australian - policies look like a certain loser, the policies of the Tigers and China seem to stand a fair chance that, despite some tough times and hard choices possibly in the short and medium term, they're on the road to winning in the long haul - in economic, political and strategic terms.I wish I could see Australia join the likely winners instead of stay with the certain losers.

James Cumes----------

From: "CPDS" cpds@cpds.apana.org.au ...Subject: RE: China, the SuperpowerDate: Wed, Nov 24, 2004, 2:02 pm
James I really don't believe that China is being offered an opportunity at all - because its economic and business methods have (and are likely to continue) to lead to insolvent financial institutions - and this will lead to disaster the moment its foreign exchange reserves are depleted by a decline in US import demand. The likely trend from this point on is presumably towards (a) a weaker $US (b) higher interest rates (c) a deflation of asset bubble in US (d) a consequent significant decline in US demand (e) a blow out in China's current account into large deficit - combined with slow growth / recession and increasing politically destabilizing unemployment and (f) an eventual financial crisis. The US is at risk of losing its ability to consume. China is at risk of losing its political and economic stability. [Two items on my web-site consider this in more detail] The mercantilist policies that China / Japan and others are using (ie accumulate a stock of 'treasure' by building state-supported production capacity while supressing demand) have an ancient history - being what 'everyone' in Europe did in the 18th century. And the lesson of history seemed to be that this was not the winning strategy. This was the basic message presented in Adam Smith's 'Wealth of Nations' Regards

John Craig Centre for Policy and Development Systems CPDS supports leaders developing enterprise, economic, community and governance systems Visit CPDS website - which emphasises, but is not limited to, Queensland issuesNote: Web page references in this email are encoded in HTML tags. If your email client can't handle this, please ask for details.

Thursday, November 25, 2004

China, the Superpower (2) 

John,

The key to economic strength and, ultimately, to political and strategic power is fixed capital investment that enhances productivity and production.It was that which drove the United States to its position as the world's superpower. That is what it has forgotten in recent decades.
United States policies have provided China - and other countries, of course - with opportunities for economic growth and power that are unprecedented. Not only China but a collection, especially of South and South-east Asian countries have grasped this opportunity in the last thirty years or so. However, China is tha largest beneficiary and the only one that would seem capable of taking over the number-one mantle from the United States. That does not - or should not - ignore India but, at this stage, it would seem that the betting is most reasonably on China for the top spot.Does that mean that it is a "can't-lose" deal for China?No, of course not. They can still make a lot of mistakes: in the mix of private and public investment; in the mix of domestic and export demand; in interest-rate and fiscal policies; in a host of things that raise problems to which China is not immune. What is important for China is that it now has an industrial structure and a public infrastructure on a scale and of a quality that it could never have hoped to have but for the extraordinarily inept policies of the United States and other governments since 1969.This is a huge accomplishment - reflected in the progress of Singapore, Malaysia, Taiwan, South Korea, but greater for China than any other single Tiger or, I suppose, all combined.That accomplishment will remain unless the Chinese Government, in its turn, self-destructs as the United States and others have so expertly done.When we reflect on the "others", we should not forget our own country - yours and mine, Australia.We began the same policies as the United States way back in 1969. With some divergences here and there, we have pursued basically the same policies ever since.
And what has happened to us?
We have the same chronic trade/payments deficit. We have gutted our industries Local economist Quiggin - a Queenslander, I think - posted some formidable data the other day showing just how far we have gone in exporting our industries overseas in the last few decades.We don't have the massive defence expenditure of the Americans - but even that is extraordinarily high for "peacetime."There are a number of similarities and a number of differences. The $Aust is not a reserve currency. We do not have the huge budget deficit that the Americans now have etc
However, we have pursued basically the same policies and we have damaged our fixed capital investment, our productivity and our production in much the same way. Instead of taking advantage of the opportunity that the Americans offered us - just as they offered it to China and the rest - we joined the Americans in expanding the opportunities for others. We are a good market for Chinese industry while we gut our own industry and are content to be the mine, the wheat-field, the raw-material producer for those who have left us far, far behind.To call the Asian Tigers' and China's policies mercantilist might do them less than justice. Some of those countries have already raised living levels and their domestic consumer demand very considerably - to challenge standards in the West, in some cases. China has a more formidable challenge because of the sheer size of her territory and its complexity, as well as the complexity of its people.
They've got a lot of problems ahead. However, while United States - and Australian - policies look like a certain loser, the policies of the Tigers and China seem to stand a fair chance that, despite some tough times and hard choices possibly in the short and medium term, they're on the road to winning in the long haul - in economic, political and strategic terms.
I wish I could see Australia join the likely winners instead of stay with the certain losers.

James Cumes

----------From: "CPDS" To: Cc: "'David Chiang'" , 'p. jakob förg' , "'andre gunder frank'" , "'pietro p.masina'" , , , "'virginia rainesco'" , "'qasim kz'" , "'william engdahl'" , "'abe killian'" , "'peter kirsch'" , "'henry c.k. liu'" , "'peter myers'" , "'gavin oughton'" , "'peter wakefield sault'" , "'israel shamir'" , , "'arno mong daastoel'" , "'gunnar tomasson'" , "'stephen zarlenga \(e-mail\)'" , "'peter g. spengler'" , "'tausch, arno'" , "'kristen nordhaug'" , "'jeffa'" , "'ip austin'" , "'norie huddle'" Subject: RE: China, the SuperpowerDate: Wed, Nov 24, 2004, 2:02 pm
James I really don't believe that China is being offered an opportunity at all - because its economic and business methods have (and are likely to continue) to lead to insolvent financial institutions - and this will lead to disaster the moment its foreign exchange reserves are depleted by a decline in US import demand. The likely trend from this point on is presumably towards (a) a weaker $US (b) higher interest rates (c) a deflation of asset bubble in US (d) a consequent significant decline in US demand (e) a blow out in China's current account into large deficit - combined with slow growth / recession and increasing politically destabilizing unemployment and (f) an eventual financial crisis. The US is at risk of losing its ability to consume. China is at risk of losing its political and economic stability. [Two items on my web-site consider this in more detail] The mercantilist policies that China / Japan and others are using (ie accumulate a stock of 'treasure' by building state-supported production capacity while supressing demand) have an ancient history - being what 'everyone' in Europe did in the 18th century. And the lesson of history seemed to be that this was not the winning strategy. This was the basic message presented in Adam Smith's 'Wealth of Nations' Regards John Craig Centre for Policy and Development Systems CPDS supports leaders developing enterprise, economic, community and governance systems Visit CPDS website - which emphasises, but is not limited to, Queensland issues

China, the Superpower (2) 

John,

The key to economic strength and, ultimately, to political and strategic power is fixed capital investment that enhances productivity and production.It was that which drove the United States to its position as the world's superpower. That is what it has forgotten in recent decades.
United States policies have provided China - and other countries, of course - with opportunities for economic growth and power that are unprecedented. Not only China but a collection, especially of South and South-east Asian countries have grasped this opportunity in the last thirty years or so. However, China is tha largest beneficiary and the only one that would seem capable of taking over the number-one mantle from the United States. That does not - or should not - ignore India but, at this stage, it would seem that the betting is most reasonably on China for the top spot.Does that mean that it is a "can't-lose" deal for China?No, of course not. They can still make a lot of mistakes: in the mix of private and public investment; in the mix of domestic and export demand; in interest-rate and fiscal policies; in a host of things that raise problems to which China is not immune. What is important for China is that it now has an industrial structure and a public infrastructure on a scale and of a quality that it could never have hoped to have but for the extraordinarily inept policies of the United States and other governments since 1969.This is a huge accomplishment - reflected in the progress of Singapore, Malaysia, Taiwan, South Korea, but greater for China than any other single Tiger or, I suppose, all combined.That accomplishment will remain unless the Chinese Government, in its turn, self-destructs as the United States and others have so expertly done.When we reflect on the "others", we should not forget our own country - yours and mine, Australia.We began the same policies as the United States way back in 1969. With some divergences here and there, we have pursued basically the same policies ever since.
And what has happened to us?
We have the same chronic trade/payments deficit. We have gutted our industries Local economist Quiggin - a Queenslander, I think - posted some formidable data the other day showing just how far we have gone in exporting our industries overseas in the last few decades.We don't have the massive defence expenditure of the Americans - but even that is extraordinarily high for "peacetime."There are a number of similarities and a number of differences. The $Aust is not a reserve currency. We do not have the huge budget deficit that the Americans now have etc
However, we have pursued basically the same policies and we have damaged our fixed capital investment, our productivity and our production in much the same way. Instead of taking advantage of the opportunity that the Americans offered us - just as they offered it to China and the rest - we joined the Americans in expanding the opportunities for others. We are a good market for Chinese industry while we gut our own industry and are content to be the mine, the wheat-field, the raw-material producer for those who have left us far, far behind.To call the Asian Tigers' and China's policies mercantilist might do them less than justice. Some of those countries have already raised living levels and their domestic consumer demand very considerably - to challenge standards in the West, in some cases. China has a more formidable challenge because of the sheer size of her territory and its complexity, as well as the complexity of its people.
They've got a lot of problems ahead. However, while United States - and Australian - policies look like a certain loser, the policies of the Tigers and China seem to stand a fair chance that, despite some tough times and hard choices possibly in the short and medium term, they're on the road to winning in the long haul - in economic, political and strategic terms.
I wish I could see Australia join the likely winners instead of stay with the certain losers.

James Cumes

----------From: "CPDS" To: Cc: "'David Chiang'" , 'p. jakob förg' , "'andre gunder frank'" , "'pietro p.masina'" , , , "'virginia rainesco'" , "'qasim kz'" , "'william engdahl'" , "'abe killian'" , "'peter kirsch'" , "'henry c.k. liu'" , "'peter myers'" , "'gavin oughton'" , "'peter wakefield sault'" , "'israel shamir'" , , "'arno mong daastoel'" , "'gunnar tomasson'" , "'stephen zarlenga \(e-mail\)'" , "'peter g. spengler'" , "'tausch, arno'" , "'kristen nordhaug'" , "'jeffa'" , "'ip austin'" , "'norie huddle'" Subject: RE: China, the SuperpowerDate: Wed, Nov 24, 2004, 2:02 pm
James I really don't believe that China is being offered an opportunity at all - because its economic and business methods have (and are likely to continue) to lead to insolvent financial institutions - and this will lead to disaster the moment its foreign exchange reserves are depleted by a decline in US import demand. The likely trend from this point on is presumably towards (a) a weaker $US (b) higher interest rates (c) a deflation of asset bubble in US (d) a consequent significant decline in US demand (e) a blow out in China's current account into large deficit - combined with slow growth / recession and increasing politically destabilizing unemployment and (f) an eventual financial crisis. The US is at risk of losing its ability to consume. China is at risk of losing its political and economic stability. [Two items on my web-site consider this in more detail] The mercantilist policies that China / Japan and others are using (ie accumulate a stock of 'treasure' by building state-supported production capacity while supressing demand) have an ancient history - being what 'everyone' in Europe did in the 18th century. And the lesson of history seemed to be that this was not the winning strategy. This was the basic message presented in Adam Smith's 'Wealth of Nations' Regards John Craig Centre for Policy and Development Systems CPDS supports leaders developing enterprise, economic, community and governance systems Visit CPDS website - which emphasises, but is not limited to, Queensland issues

Wednesday, November 24, 2004

China, the Superpower 

China, the Superpower

James Cumes Nov 24, 2004 02:04 PST

China, the Superpower

"It seems to me that as long as the pegging goes on, the US is sucked dry of power and becomes less of a threat to an emerging China etc"

As I've said so many times before, it is the United States, through its own ill-considered policies, that has brought about its own approaching self-destruction as the world's dominant economic power and the world's single superpower.
Those policies go back to 1969.
The trade and payments deficit dates from the early 1980s when inflation began significantly to shift from domestic consumer-price inflation to trade and payments deficits.
Although there have been some fluctuations in the size of the deficits, the basic policies and the basic consequences have remained constant.
Very few , if any, in the United States have identified this situation - or identified it early enough to take effective remedial action. Does anyone there identify it, in all its ramifications, even now?
Very few OUTSIDE the United States identified it either and are only imperfectly beginning to see it even now - and to draw the consequences for their own policies.
However, the Chinese must be aware - aware very clearly - of the great opportunity - the great deal - they've been offered - on a platter.Just how long they've been aware is difficult to say and their understanding might still be imperfect even now.
However, it seems a fair bet that they're not going to do anything that would surrender the great chance they've been given, not only to become, much sooner than anyone might have anticipated, the world's number-one economy but also the world's leader politically and strategically, in other words, to take the place of the United States as the single superpower.
There will of course be a dangerous interstice between the United States as the effective superpower and the takeover by China of the number-one spot.
The United States is now effectively paralysed. To recover - if it does recover - will take years.
China cannot, for some years at least, be an effective world stabilising force. Indeed, we cannot assume that she can and wants to be such a stabilising force, rather than recklessly pursue her own national interests and ambitions.
So the United States has not only self-destructed to its own detriment but to the detriment of economic, social, political and strategic stability for all of us.
Will China unpeg? Will China revalue her currency?
That seems a mundane question; but the answer almost certainly is that she will manage her currency in a way most effectively to grasp - or continue to grasp - the fantastic opportunity that the United States policymakers, in their unwisdom, have offered her over the years, to make China great again.

James Cumes
________________
"Uncle Rupert is beautifully narrated, with a wonderful sense of warmth and detail". Order your copy at -http://www.magellanbooks.com/jamescumes.htmlhttp://www.authorsden.com/jameswcumes

Saturday, November 13, 2004

A Better Mix for the Mixed Economy 

Jeffa

Please see my piece on "The Death of Public Investment."What we need is a better mix in the mixed economy. The communism of the Soviet Union had obvious and glaring weaknesses, covering an extensive field.Equally, the "free" economies - and the "free societies" - of the West today have glaring weaknesses, injustices, inequalities, instabilities and the rest.There will have to be a move back to a more mixed economy - mixed between public and private enterprise, public and private ownership, public and private investment.There will have to be a move back to a more mixed economy in which the right of the society to "earn" for its own betterment is more fully recognised and the privilege of private exploitation of the society's resources is more limited.We will have to move back to a more mixed economy willingly, legally and in timely fashion or -There will be an unholy crash for the economy, the society and the political system, with all the dire consequences that that will entail.I hope we will choose the wise, moderate option rather than the reckless, extremist, certain-to-crash alternative.

James Cumes

Jeffa wrote:> > I know a few people in Russia who say things were better during the > Soviet times, almost exclusivly pensioners. It's fairly rare where I > live here in Moscow, but many other small towns and villages in Russia > and CIS have fallen from 2nd world back into 3rd world. I think he's > right, Russians were more spiritually advanced then their western > counterparts.> > Most everyone in Moscow over the age of 30 and would be more then > annoyed if you tell them their USSR days were a paradise. We heard > storys of people who were lucky enough to see the Western World; who > manged to witness the West doing complicated things like food > distribution so easily. Westerners were permitted so many freedoms we > longed for, like to travel the world, buy a beautiful house, buy what > you needed and even have them be high quality products. Fear of > government was justified and strong especially if you liked to talk > politics. I think Mr. Shamir's memory has warmed greatly with time.> > What a successful German business man once explained to me, and I have > found it to be true in almost every case, is it all comes down to > culture. Soviet citizens didn't live very well then, and they don't live > all that well now.> > > > >
James Cumes wrote:> > >Our Happy Bygone Days - "We lived in a communist paradise and weren't> >aware of it." [shamireaders]> >> >Date: Fri, 05 Nov 2004 11:09:46 +0200 From: Israel Shamir > ><shamir@home.se>> >> >Our Happy Bygone Days> >> >By Israel Shamir> >> >- "We lived in a communist paradise and weren't aware of it."

The Death of Public Investment 

Economic boom wasted by states
By Mike SteketeeNovember 13, 2004
CAPITAL spending by governments on hospitals, schools, railways and electricity has sunk to record lows, despite strong economic growth producing soaring revenues from stamp duties and the GST.The fall, revealed in Australian Bureau of Statistics figures released yesterday, means Australians will have to cope with substandard infrastructure for years before services improve.
The states are using the money to reduce debt but also to fund large pay increases for public sector employees.
The jump in nurses' and teachers' salaries alone will cost NSW taxpayers an estimated $500million this financial year, as the Government offered significantly more generous pay rises than other states. And the Carr Government also faces turmoil as railway workers demand a 25 per cent pay rise.
Even though state governments and their trading enterprises have started responding to crises in transport and electricity by spending more on maintenance and replacing crumbling equipment, capital spending is still falling as a share of the total economy.
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Experts warn it will take years to reverse the neglect of infrastructure.
"It may get a little worse before it gets better because there are some quite lengthy lead times required," Australian Council for Infrastructure Development chief executive Dennis O'Neill told The Weekend Australian.
A report commissioned by the council estimates $24.8billion is needed for roads, rail, water, gas and electricity just to make up for infrastructure deficiencies to adequately meet present demand.
he new ABS figures show capital spending by all levels of government - federal, state and local - falling from 5.2per cent of gross state product in NSW in 1994 to 3.7per cent in the middle of this year.
The trend is similar in the other states. In Victoria, the figure is down from 4.1per cent to 3per cent, in Queensland from 5.4 to 4.2per cent, in South Australia from 4.2 to 3per cent, in Western Australia from 4 to 3.7per cent and in Tasmania from 6.9 to 5per cent. Only in Western Australia and South Australia has capital spending started rising in recent years.
Part of the fall in capital spending by governments is accounted for by privatisation of government assets, such as electricity generation in Victoria, and private funding of road projects such as CityLink in Melbourne and the Sydney Harbour tunnel.
But the bigger reason for the fall, according to a report by Allen Consulting last year for the Property Council, is because governments have moved from budget deficits to surpluses by reducing their capital spending rather than outlays for recurrent or day-to-day purposes.
The result had been an under-investment in infrastructure, according to experts, who say the chickens are coming home to roost with problems such as failures in the train system in NSW, blackouts in Queensland and inadequate port facilities in Melbourne and Adelaide.
Even ratings agencies such as Standard & Poor's now say state governments can afford a modest rise in their debt levels, provided it is used for high-quality infrastructure projects.
Labor state governments have focused on sound economic management, in a reaction to the bad reputation Labor developed during the 1980s and early 90s after financial crises in Victoria, South Australia and Western Australia. But even Liberal politicians are now prepared to argue they have gone too far.
The Carr Government in NSW has promised to reduce general government debt to zero by 2020. Opposition Leader John Brogden told The Weekend Australian a state Coalition government would review the debt elimination target and make it subservient to infrastructure investment.
"(Treasurer) Michael Egan's manic desire to reduce debt to prove the Labor Government's financial credentials has been blind to the need to maintain basic infrastructure in rail, energy and water in particular," Mr Brogden said.
"What is the use of having no debt and the worst rail system in the country? No business would say 'Let's eliminate our debt but run down our infrastructure'."
In another reversal of normal politics, Victorian Opposition Leader Robert Doyle has pledged to use government funding to buy out the tolls on Melbourne's Scoresby freeway. The Australian

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