Tuesday, October 19, 2010

Yes! Yes, I am!

The New York stock markets were down between 1.5 and 1.8% today on news that China has raised domestic interest rates to cool inflation. They were also down from reports that Bank of American maybe on the hook for 50 billion in bad mortgages that they pledged as security sometimes two and three times to different investors, a classic ponzi scheme.

Then the really bad news came out after the markets closed although the dim bulbs on Wall Street probably don‘t grasp its significance. China is flexing its muscle again over rare earth metals. We had been led to believe that China had relented on its embargo against Japan after Japan completely folded and ceded any claims it had in the South China Sea but this seems to not be true. More importantly, as of Monday China has stopped all rare metals shipments to the US as well.

These metals aren’t really rare but difficult to extract and China now controls 97% of the world’s supply and it will take the better part of 15 years to change that. Even to increase the output of the 3% of production that is outside of China will take five years and we’re not talking enough of an  increase to matter. Japanese companies have been stock piling the metals and US manufacturers have not but there certainly isn’t a enough on hand to make much difference. Recycling may take an importance it has never had before. That old pc in the attic might actually be worth something.

As the world leader in manufacturing and high technology the US used to dominate the mining and production of rare earth metals. Everything that was developed in the 20th century requires one or more rare earth metals and most of what we take for granted in the 21st requires them in large quantities. Things like computers, green energy equipment and high tech weapons use large quantities of these metals that China controls completely.

How could we have put ourselves in such an dire position from a national security stand point? Does the phrase “A guy you’d like to have a beer with” come to mind? In 2003, at the height of the “national security” frenzy when FOX News was running the color code alert at the bottom of the screen 24/7 is when it happened.  At a time when the Bush Administration said they made every decision as a matter of NATIONAL SECURITY but they didn‘t even blink when China not only bought all our rare earth metal capacity but crated it up and moved it to China.

But hey, the earth is flat, it’s a free market and the markets decide everything, we just need to have faith in the markets. Of course the godless Communists don’t act on faith, they act on smart planning and hard numbers. They don’t believe in free markets either and they are eating our lunch.

It boils down to this, China can do as it pleases and we have to do what pleases China. This could go on indefinitely as China can use its leverage to keep us from doing anything about it. Your lesson today: "nǐ è le ma", are you hungry? And your response is, "shì de". You can guess if that means yes or no.