10/22/2013

I semi-promised to start up my blog again.  Face it  Ken...  You go through cycles of what you think is worthy to consider by the readers, and worrying that what you say is not valuable to anyone.  Even worse is when you think you have no credibility to say what you believe. 

So today, I will write a blog entry, and over the next few days and weeks, I will observe how it goes.

Yesterday I wrote an interim update to my newsletter.  I stressed China.  Today I will add commentary to the bullet points I put in that newsletter.

China

What is happening in China and China to the outside world is huge, and it appears to an outside observer that the Obama Administration is totally clueless on how important what is going on is to the competitive position of the USA as a country.  However, Ken, answer the question of why as a commentator you should be concerned about the competiveness of the USA?  Answer: Because I'm a USA citizen.  Because I am sixth generation USA born.  Because I was brought up to believe in Christianity and the belief in freedom of religion, and this was one of the few countries (until recently) that practiced what it preached about separation of church and state without persecution.  Because if my country falls, I fall along with my family along with all my family.

When one goes to China mainland you are struck that there are no European or races from European descent visible.  That is certainly true as I toured the factories just north of Hong Kong, and the financial districts of Shanghai and Beijing.  Racial prejudice in countries outside the US is very difficult to overcome.   They of course do not call it racial prejudice, but that is only a difference between how country leaderships want to define racial discrimination, exacerbate it, and set up programs to deal with it.  The USA may want to accept all foreigners and integrate.  China (nor Japan) want to do copy the USA on that. 

Of course, what the USA needs now is two-fold - 1. manage our debt 2. Increase jobs.  Both of these "huge?" areas have humongous headwinds as the USA faces competition for those jobs outside the USA.  Greenspan is proving to be wrong when he said countries that received our jobs would soon come to equal levels of expenses such that the jobs moved back.  That is so wrong on so many levels it is incredibly naive (I think) for someone at his level.   None-the-less, putting barriers in place to protect jobs does not work either, but that is a subject for a long discussion in my newsletter.

General Comments

I will not rehash what I put in my interim update.  I'll make some general points.

• ·         The Chinese are staking many small steps to remove the USA dollar as the standard for settling International Trade.  These steps accelerated with the USA debt crises.  (For We, the People, the foreign affairs and economic leadership of this country is non-existent.  Each party blames the other, when our very survival as a country competing in the Global Market is at stake.)
• ·         Last weekend China and the UK agreed to "direct conversion" between the Yuan and pound sterling.  The UK then is added to the list of countries that have removed the relevancy of the dollar in International Trade.  
• ·         To add to that line of reasoning, London in the UK will be set up as currency conversion center for Europe.  Not only that the BOE (Bank of England) announced they will allow Chinese banks to set up wholesale branches, and in a reciprocal process the UK will set up wholesale branches in China. 

o   (Note: For those who are not familiar with the banking sector, the big five in the US have 3 -- I don't know what to call them - divisions?.    These are Retail, Wholesale and Investment banking.  Wholesale banking is the set of services that deal with large finance (big business), international trade finance business, institutional customers [such as pension funds], and (but not limited to) services offered to other banks.)

• ·         This is HUGE, HUMONGOUS dear readers...  This is something good leaders of the country would educate the constituency on the consequences, the plan to compete, and how the plan would be put in place.   
• ·         The European Union has also signed a Currency Swap Deal with China.  That leaves only the Swiss Franc as one of the majors that does not have an agreement in place.
• ·         Soon, Canada and the USA will also sign a swap agreement with China.  The US will drag their feet, and they will push Canada not to sign an agreement.  In general, why would the US help China remove the US dollar as the Reserve Currency? 
• ·         The US will give in because the Chinese have become rich, and the US is in debt so far it is very difficult to believe that it won't just fall into the abyss as every other country who has had or has fiat currency devalued by debt.  In other words, when you are sitting at the poker table with someone who knows how to play (and assuming you know how), and that someone has 10 times the amount of money as you, you will lose over time unless lady fortune smiles upon you.  Of course, if you have ever gambled, you know lady fortune is fickle, and she changes places with the player in power. 
• ·         Lack of competitive power is what happens when a country, state, local, business and people get into too much debt.  You know that.  I know that. The only ones that do not know that is The Head of the Federal Reserve, The Secretary of Treasury, All the Congress (except the Tea Party), and the President of the United States. 
• ·         We are sitting here watching China move into everything across the emerging countries.  My perception is that no one in Washington D.C. is doing anything about it.  I'm sure there is some Bureaucrat 70 layers down that is wringing her hands, but if the Central Bankers are worried about China's competitive position (and its effect on investment and employment), they are certainly not talking about it.  I find it hard to believe (and so far almost everyone who cares concurs to some degree) QE is NOT helping anything at this point. QE is just keeping the country's nose above water, and the jobs report this morning shows it.  (Discussion of that report will be left to the talking heads on TV.  If you watch the liberal bent talking heads, it will be blamed on the Republican's shutdown of the government.  If you listen to the conservative talking heads, they will just shout "we told you Obama's economic plan is not working.  All this liberal/conservative BS is not helping.  We are freaking noncompetitive and becoming more so every single day, and not one of you so-called-leaders are giving us a whole-listic plan.  (OK, Ted Cruz fans... While I can't study his plan, apparently he has one, but from what I heard of his plan, I would suggest he go back to Texas and suck up to George W. Bush.)

·         Mr. Alasdair Macleod of goldmoney.com on China:  Behind this turn of events is a weaker dollar," writes Mr. Macleod -- pointing to several developments we covered last week. "There is little doubt that as a brand the U.S. dollar has taken a beating. Not only did the U.S. suffer the indignity of airing its washing in public, not only did a ratings agency threaten to downgrade U.S. government debt, but also the Chinese, through their official news agency Xinhua, are calling for an end to dollar and U.S. supremacy. They have backed this up by freezing New York out of the internationalization of the renminbi, choosing London instead. The full implications of all this have not yet been reflected in financial commentary and will no doubt be debated in the coming weeks."

·         

      One can observe the results over time as gold continues to rise and the Dollar continues to fall in value against every currency but Japan.  This set of events (the dollar's fall in value and the gold's rise) is fairly understandable in the context of currency "value" where value in this case is what the US dollar can buy in terms of products abroad.  (Please note: I'm fully aware that gold is vacillating from its bottom 1251 to currently about 1340 per ounce.  If one looks at a daily chart, while that move means a lot of money to some of us, price is chopping between 1366 and 1300 approximately. However, the current rise is impressive off the bottom, which came about after the temporary debt resolution.)

Overall, the Obama Administration's leadership in foreign affairs looks disastrous for long term competitiveness.  What has changed since the USA led the world is that we have gone from a "lender" to the uber-borrower without ever considering there would be a pay-back someday from some competitor out there.  If any reader believes that the USA military can control the world they are sadly wrong, and it becomes even more wrong as the dollar devalues and the price of purchasing military products rise; along with no money in the budgets to let it rise.  Common sense of the common woman/man in the street realizes in general you have to have a lot of money to support the military, and while the common person may not know where the military gets all that stuff, they know it must get more expensive as the dollar devalues.  It all just gets so muddled up with all the other things.  Conclusion: our days of using the military to bully our way into guarantying cooperation is nearly over as Russia and China move to protect themselves from what they view as a threat to their sovereignty .