"The most significant threat to our national security is our debt," Admiral Michael Mullen, Chairman, Joint Chiefs of Staff, August 27,2010


Wednesday, August 26, 2015

China obfuscation? Or just our Fed?

These days one would think that China is our blood enemy.  The accusations against them are plentiful:

·         Currency manipulation – people with not a smidgen of economic/trade/monetary policy knowledge or curiosity are bandying that indictment around
·         Trade imbalance
·         Trade deals.  This one is now hot due to one well media covered candidate who has used it as part of his “traction” campaigning – building the vote
·         Stupid American trade dealing (see above)
·         Economy slowing.  This one we get quite the kick from – our own economy stinks; has stunk for years; so all we do is rearrange the numbers; the statistics, the metrics and measurements to make it look better
·         Pictures of unoccupied buildings, some brand new, and other indications that China growth is a Hollywood set – shiny and new and pretty but nothing behind it
·         Control of information.  Closed society.  Have to pry out each tiny piece of data or report and then still need to worry about its consistency or accuracy
·         And finally, let’s face it, they still are commies and we know we can’t trust commies.  Look different, act different, etc., etc.
Had we structured this essay a bit differently – listed some of the above characteristics but posed them as questions without identifying the source/culprit we could very well have been speaking about America.  With one very notable difference.  We know that we owe them – China and many, many others a pile of money.  We know that we send much more money and intellectual know-how and designs and expertise to China than they send our way.  We know that what we get from them is output – lots of output, quality questionable.
Back home, where we pride ourselves on our high standards, we know this:
·         We have no clue how much money we, as a nation, owe.  Never been tallied.  We don’t know how much some of our cities and counties; our school and park districts; our very largest states owe much less how they will be able to repay the amounts we do know about
·         We know that we have an official “territory” in our country that is in a state of default.  Missed interest and principal payments on its debt
·         We know that many of our other states and their own political subdivisions must borrow more, increase their debt, to meet current obligations for debt service as well as ongoing, repetitive operations items such as payrolls and pension payments.   This is the classic definition of “insolvency”
·         We know that the last time our own national bank (Fed) raised interest rates was about ten years ago.  Raising interest rates is a routine monetary policy move indicating the economy is strong
·         We also know that the Fed has dropped rates as low as possible and they have been as low as possible for seven years.  Low rates means the economy is not strong
·         We also know that our own unemployment rate has been jiggered to make it appear strong vis-à-vis past measurement periods.  For political reasons.  Apparently it is okay when we jigger numbers or obfuscate facts or simply don’t address problems.  But it’s a big no-no for others to do the same
·         And we have no clue as to what happens next given our own economic situation because the Fed refuses to be specific about what happens if our economy gets even worse than it is
·         Oh, we overlooked one thing.  China is building and growing an economy – actually in a state of the most significant economic transition in the world’s history.  Similar to our situation in the early and mid 20th century.  How good were our statistics and reporting 75 or 100 years ago?
·         Last, we know this – Keynesian economics, based on the so-called “General Theory?  Doesn’t work.  Either the theory is flawed or the theorists are flawed or the practitioners are flawed.  Most likely, all of the above
We doubt very much that what is going on; the uncertainty that is now rampant; with the market taking away wealth rather than building it, a task normally reserved solely for our beloved government and its tens of millions of well paid, well benefited and very, very well pensioned bureaucrats, will end well.  We also know that these many governments across our land, today, are stronger, bigger than ever and gearing up for elections in a year.  So we know we are sure to get some very interesting observations with a much greater than usual smattering of finger pointing and, isn’t it strange, we are pointing our finger(s) at China instead of the outfit right here at home?  The one with the log in its eye.  The Fed.  And its endless, live for today, pandering to these governments.

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