Tuesday, December 28, 2010

Aqueducts and bullet trains

In another move to consolidate their economic power, China is cutting rare earth exports by 10% and will impose a higher export tariff on raw materials. And in order to end interference from the dominate power from the last century they are moving ahead with military hardware programs years ahead of outside estimates.

According to Admiral Robert Willard, the top US commander in the Pacific, the Dongfeng 21 D missile is now operational. This land-based missile system is designed to track and target aircraft carrier groups with the help of satellites, unmanned aerial vehicles and over-the-horizon radar. Aircraft carriers and their accompanying ships are completely defenseless against this type of hypersonic attack.

The missile itself is not a huge leap forward but it is the super computers that direct them that make them so deadly. It’s no coincidence that China now has the most powerful computers in the world. This kind of system is able to input high volumes of data from multiple sources making any attempt to silence the system fruitless.

To further frustrate aggressors this level of computing power renders stealth aircraft obsolete as it is not necessary to paint the target with radar but simply observe the hole in background EM radiation that the stealth technology creates.

To project their power still further into the world, China is now building its own aircraft carriers to add to a mushrooming fleet of ships and submarines. This allows China to provide military protection to its trading partners like perhaps Venezuela and Iran who have been getting nominal protection from Russia.

Rather than just strip mining the third world China has been building infrastructure and improving the economies of their trading partners like no empire since the Romans. The Romans built aqueducts and roads in conquered lands, China is building steel mills and high-speed rail lines in countries like Brazil.

 As America fades away under the weight of Reaganomics, the world has a new dominate force and it’s time to learn to adapt. Practice saying, “wǒ búhuì shuō zhōngwén” which means, “I can’t speak Chinese“.  www.prairie2.com

Monday, December 27, 2010

Black Friday, Black Monday, Black Crude or Black Thursday (1929)

A lot of noise is being made about how retail sales will set a new record or at least match the last year before the collapse. They point to empty shelves for some items as if this were proof while not mentioning that retailers slashed inventory drastically for this season from past years to avoid doing any real discounting. Saying something is half off from a price that was doubled to begin with, well you know how this works but most people never really catch on.

Some electronics are down sharply but this has to do with what is considered normal reduction in prices by manufactures as new product innovations “mature” into yesterday’s old hat. There is also an over supply of flat screens as production facilities that began construction right before the collapse are coming up to full speed.

While retailers were building consumer confidence early in the fall by announcing how many thousands of temps they were hiring for the Christmas season the November jobs report showed retail sector jobs actually declined by 26,000. This fits into the current corporate practice of firing staff and replacing them with low paid temps. This is what keeps the weekly jobless claims high despite total employment numbers remaining fairly steady or even gaining a few thousand jobs each month.

The retail sales numbers trumpeted in the news not only reflect higher prices but are also getting a boost from rising gasoline prices. The higher prices are being driven by speculators using the free money they are getting from the Federal Reserve. It’s the increase in the money supply and not any decline in supply or increase in demand. We actually have always produced more gasoline in the US then we can use and export billions of barrels to Africa. If the oil refineries didn’t have that market they would need to burn it. 40 to 50% of a barrel of oil is gasoline depending on the source, refineries could be built to convert gasoline into other products but this type of refining isn’t cheap.

We are actually more dependent on the other elements in oil like diesel and jet fuel as well as heating oil and trace chemicals. Even the Obama stimulus for shovel ready projects had to scaled back because of a shortage of asphalt. Ending our dependence on oil is more complicated than plugging in a bunch of electric cars, that would just mean we would export or really re-export more gasoline. This would likely make oil more expensive and not cheaper, not that we shouldn‘t move ahead, but it requires a much broader changes (this revamping might even create some jobs).

So what will the New Year bring? Higher profits for large retailers most certainly. They are keeping prices up and wages down, a capitalist success story. Very soon a lot of temps will be out of work again and probably not eligible for unemployment. The number of retail units sold wasn’t up all that much so there will be no real boost for manufacturing jobs, not in China where most retail goods are made but especially not here. Expect higher prices for food and fuel thanks to the Federal Reserve. There will also be continuing pressure to cut wages and at best a flat jobs market.

The new talking point from the Republicans is to change Federal law to allow the states to go bankrupt as well as local governments. The purpose of this would be to void all union contracts and renege on pension plans all in the name of austerity. There are about a dozen conservative Democratic Senators so this is a real possibility if enough panic can be generated over deficits. Cutting wages in half was how President Hoover solved his economic crisis. Everything would have been rosy if FDR hadn’t plunged us into the Great Depression by spending too much money and by imposing his protectionist trade policies. (No really, ask any Republican)   www.prairie2.com