Friday, November 20, 2009

Those "interesting times" you've heard of

The economic news this week is much as you would expect it to be, that would be grim news, but something more happened that few people appreciate magnitude of the potential consequences. The usual news is that new unemployment claims remain over half a million for the week, 200,000 jobs were lost last month (really many more than that) and fourteen percent of US homes are deliquent on payments or in foreclosure on top of millions lost already. The really serious news is that the next world war has started to heat up. Peace talks appear to have failed and a clash of empires is under way for world domination. Much of this is not apparent on the surface but the events now set in motion will bring profound changes across the planet.

Japan has declared that its economy is officially in deflation after seven months of declines in consumer price. Demand for services dropped sharply last month and the new liberal government is preparing a new stimulas package. The falling USD has made imports into Japan too cheap and fully a third of their factories stand idle. Price wars are starting to ramp up between retailers, something Japan’s economists see as alarming. While not as apparent as the flood of Dollars in the world, there is an awful lot of yen in circulation and it needs to find a home.
Japan’s central bank has cut the interest rate effectively to zero in an attempt to boost their equities market after disappointing corporate earnings are threatening to crash their stock market. So Japan, who is for now still the second largest economy in the world has gone full in on the monetary war between the US and China. The Chinese Yuan is still pegged to the USD and this is driviing up the Yen and driving down Japan’s economy.

Medium sized economies like Brazil are trying to protect themselves from the tsunamis of Dollars and Yen from washing them away by restricting and taxing foreign capital coming in to their countries. The question is will China blink? Even while Obama was still in China ,they were calling on the rest of the world to do something about the US weak Dollar policy. Does this mean China is being hurt by this or are they just positioning themselves to take over after the worldwide market collapse?

The assumption is that the world will flee back to the Dollar after a market collapse as they did last year and as they always have. Increasingly though it’s China that has the goods, literally. If you want to buy anything you need a currency that China will accept. Oil producers are the key and they would like nothing better than to get off the USD. The US has always had the added benefit of offering military security and shock and awe if you didn’t play ball. But China’s military is far larger and their spending is now second only to the US and you can buy a lot more bang for your buck with a Yuan than with a Dollar.
Russia has the experience and an increasing capability to project military power. The Russians are cozying up to China as a model of modern capitalism after a decade of disasters brought on by the Chicago School of unregulated theft (I mean economics).
China has let it be know that any embargo of Iran will bring Chinese ships to supply Iran. China is already projecting power around Africa and Russian ships have been protecting Venezuella from US aggression.

China Bears and I mean market short sellers and not the fuzzy pandas are telling everyone who will listen that China is near collapse. This is probably not true but China will not fade quietly into the sunset either way. If either empire were to collapse they will only become more dangerous. These are about to be the "interesting times" the Chinese curse refers to.


Ronmac said...

A conflict between China and the U.S. could prove embarrassing. What was I reading a couple years ago about some plant in Indiana that manufactured sensitive missile parts for the U.S. Navy shutting its doors (throwing 400 out of work) and relocating to China.

prairie2 said...

It would be possible to supply the military with nothing but US produced materials if they supply nobody else. The never ending war on terror would be replaced with never ending martial law. They would prefer to rachet us slowly into poverty but they may not have any choice. From their point of veiw.