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The Chinese Come Calling

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Posted on Jul 28, 2009
China visit
AP / Gerald Herbert

Chinese and American officials sign a memorandum of understanding at the State Department during the U.S.-China Strategic and Economic Dialogue.

By Robert Scheer

What a hoot. The Chinese Communists invaded Washington on Monday demanding not that we sacrifice our freedoms but rather that we balance our budget. Creditors get to make that kind of call. And the Marxists of Beijing, who have turned out to be the world’s most prudent bankers, are worried about their assets invested in our banana republic. 

“China has a huge amount of investment in the United States, mainly in the form of Treasury bonds. We are concerned about the security of our financial assets” was the way China’s assistant finance minister put it. Briefing reporters at the U.S.-China Strategic and Economic Dialogue, he added, “We sincerely hope the U.S. fiscal deficit will be reduced, year after year.” Quite sincerely, one suspects, given a U.S. budget shortfall this year that is slated to reach $1.85 trillion.

Suddenly, it was U.S. officials who were promising deep reform to their disgraced economic system rather than demanding it from incompetent foreigners. President Barack Obama’s economic team of Clinton-era holdovers, who a decade ago had hectored China on the virtues of fiscal responsibility, now were falling over themselves to reassure the Chinese that their $1.5 trillion stake in U.S. government-issued securities is safe, and that they should buy more at this week’s $200 billion Treasury auction.  If they don’t, we’re in big trouble.

U.S. Treasury Secretary Timothy Geithner promised to behave, saying the U.S. is “committed to taking the necessary measures to bring our fiscal deficits down to a more sustainable level once recovery is firmly established.” Now let’s hope that the Chinese Communists and their natural allies among congressional deficit hawks will be able to keep him to his word. 

And don’t blame any of this on peacenik liberals. The new conciliatory—nay, deferential—tone toward China precedes the Obama administration, having begun in bilateral talks during the last years of the Bush administration as the U.S. economy began its ignominious downfall. It was George W. Bush’s treasury secretary, Henry Paulson, who set the course when the former Goldman Sachs chairman realized how dependent were his Wall Street buddies on Chinese goodwill.

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But from all of this adversity may come something good: recognition that the United States is not the repository of all wisdom. Maybe the Chinese have found a model different from ours that also works? Might there not be an Arab, Latin or Indian one that also qualifies and need not be overthrown? 

The tone of this week’s talks, ironically held at the Reagan Building and co-chaired by Geithner and Secretary of State Hillary Clinton, finally signaled the end of the Cold War assumption that regimes with labels like communist and capitalist could not form profitable partnerships. On the contrary, as Secretary Clinton noted, it is time to move from “a multipolar world to a multipartner world.” And President Obama in opening the conference made clear that the partnership between China and the U.S. is decisive: “The relationship between the United States and China will shape the 21st century, which makes it as important as any bilateral relationship in the world.”

Mark it as a historic Rip van Winkle moment. For those who recall the rhetoric of the Cold War, the idea that we would someday be cooperating with Chinese Communists because they had humbled us economically rather than militarily is a startling turnabout. How did they get to be better capitalists than us, and being that they are good capitalists, why are we still spending hundreds of billions a year on high-tech military weapons to counter a potential Chinese military threat when the weapons they are using are all market-driven deployments?

A recognition that our tension with China is not military in nature came at this week’s conference in an announcement by Adm. Timothy Keating, commander of the U.S. Pacific Command, that agreement had been reached with his Chinese counterparts on improving relations: “A statement was made by a Chinese delegation official yesterday [Monday] that no country can develop sound policy if they try and do so in isolation. And I think that’s a great way of addressing the sense that all of us feel, the desire, to get back together again and discuss exercises, discuss personnel exchanges, discuss responses to humanitarian assistance crises and the provision of disaster relief.”

Not bad for a start, and maybe we can help solve our economic problems by selling our latest high-tech weapons to China as we do to the rest of the world. Or better yet, we could do some serious damage to our deficits, and our dependence on the Chinese, by sharply cutting expensive weapons programs now that the Cold War is finally over.

Click here to check out Robert Scheer’s book,
“The Great American Stickup: How Reagan Republicans and Clinton Democrats Enriched Wall Street While Mugging Main Street.”


Keep up with Robert Scheer’s latest columns, interviews, tour dates and more at www.truthdig.com/robert_scheer.



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By cognitis, August 4, 2009 at 8:22 am Link to this comment
(Unregistered commenter)

Many Bloggers here have observed the US Governing Class’ despoiling of both the US’ capital and future tax receipts; this class has long used instruments such as off-shore bank accounts, occult and opaque off-shore hedge funds, bribes for bureaucrats and politicians for cause of this despoiling. Many here have also observed the Governing Class’ contempt for and neglect of all other classes. Recently, though, US authorities seem to have hebetated these instruments: US has menaced the Swiss about their Bank Secrecy Laws, US has prosecuted bureaucrats and politicians for bribery, US even now seems to be assaulting that heretofore omnipotent institution Goldman Sachs. As the Governing Class has long either bribed pertinent authorities or occupied themselves bureaucrats’ offices, what force now compels authorities to assault these media of the Governing Class? As the US Governing Class has long disenfranchised all other classes, the force would necessarily be alien and sovereign; what alien sovereign both possesses the influence and also holds an interest in restricting the despoiling of tax receipts? China. Both China and Japan possess the funds to bribe every bureaucrat or politician, and both hold an interest in US tax receipts through their Treasury holdings; but Japan has for decades promoted US deficit financing and also assisted the Governing Class for cause of accepting markets for Japan’s exports; China, unlike Japan, predicts for decades both increasing domestic consumption and also continued construction of China’s infrastructure. China now doesn’t only convey its desires regarding matters such as currencies or deficits or tariffs, but already seems to make policy and mandate to our bureaucrats. Expect much change, since US is no longer an independent sovereign.

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By Inherit The Wind, August 3, 2009 at 7:21 pm Link to this comment

Yeah, well…“common sense” said.
Man can’t fly.
The world is flat.
The universe goes on forever.
Matter is matter and energy is energy.
Something that weighs 100x something else falls 100x faster.
Nixon will be a better President than McGovern.
Reagan will be a better President than Carter.
White people are inherently superior to other races.

All of ‘em are wrong.

You should actually read up on the CPI.

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By Anarcissie, August 3, 2009 at 7:11 pm Link to this comment

Inherit The Wind:

Anarcissie:
Just thought I’d ask—I wouldn’t want to flame you if you didn’t deserve it.

You don’t need to flame anybody.  Those who need to be insulted insult themselves.

Now, as to this index—don’t you see what’s wrong with it?  It’s like trying to do carpentry with a rubber ruler.  Or am I being too common-sensical?  I was just reading an article that explained why common sense was always wrong and opposed to truth.  I guess I’m not in much danger, but you never know.

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By M Henri Day, August 3, 2009 at 3:09 pm Link to this comment

Robert Scheer has chosen le mot juste - this development is indeed a «hoot», at least for those of us who recall the steady train of bankers and economists from the United States who were dispatched to teach those backward Chinese to «modernise» and «open up» their economy in ways, it was said, which would benefit them and the whole world (not least, although this was never made clear, these advisors’ principals in Washington, Chicago, and New York). And now the Chinese come to Washington and ask pointed questions about the stability of the US economy. Will this lead to the «recognition that the United States is not the repository of all wisdom» ? Somehow, I doubt it - at least not until the Empire’s military adventures abroad have led to a situation in which bankruptcy can no longer be avoided by printing fiat dollars which others must accept willy-nilly in order to purchase goods like oil, and chastened US officials are forced to confront their creditors and request the equivalent of Chapter 11 protection. The question is whether the US ruling class will accept the fall of its Empire or whether they will attempt to maintain it using military means. The present course of the Obama administration does not bode well….

Henri

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By Inherit The Wind, August 3, 2009 at 2:30 pm Link to this comment

P. T., August 3 at 12:22 pm #

“the CES, which you never heard of until a few days ago”


I could also add that you make stuff up—and I don’t mean the CES.

******************************

You could but it would be false. That’s OK. Lots of people make up shit about me and post it here all the time.

Anarcissie:
Just thought I’d ask—I wouldn’t want to flame you if you didn’t deserve it.

It’s called a Laspeyres index and has been in use for the CPI for many decades.  What it’s TRYING to do is quantify price changes across thousands of goods, each of which contributes to the economy.  The price of Bugatti automobiles could triple and have no effect on the CPI..because the original price of a modern Bugatti was $1.25 million—if you could get one.  More likely you’d pay 3-5 million for this car that does 250 mph and has 1000hp.

Anyway, Laspeyres indices are best at capturing smaller national movements, rather than larger ones.  It’s a known and well-documented warning that the bigger the value of the rise (or fall) of inflation / deflation is exaggerated as the change gets bigger.

Since the idea of the CPI is get an idea of the AVERAGE increase in price, it makes sense that your market basket should only include those items than can have significant effect on the index.  So, if hamburger goes up to $200/lb, people WILL stop buying it and its lack of purchase no longer can have an impact on the CPI.  Therefore it is dropped.

Trying to cook the CPI is much harder than you think.  It’s like a machine with 10,000,000 gears and switches.  You can’t just yank a few out randomly ‘cuz you think they’re ugly, without it all crashing.

Even Ronald Reagan left it alone—and left a Commissioner of BLS who was not a Republican.  More recently, though, the Bush regime had their stampolit in every agency…...

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By P. T., August 3, 2009 at 1:52 pm Link to this comment

Of course I knew.  If the price of lamb goes up, people may buy more steak—or vice versa.  If people buy more pork, the price may be driven up.  Pork becomes a bigger component.  You try to capture what people are buying, in the CPI.  No point capturing the price of buggy whips if people do not buy buggy whips.

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By Anarcissie, August 3, 2009 at 12:30 pm Link to this comment

P. T.:
’... Once again, we were talking about the CPI.  I am still waiting to hear what and when something got dropped because it became too “pricey.”’

Well, if this CES is in effect, it’s a continuous process, which I already delineated in its exquisite simplicity.  To quote myself:

1.  The price of something goes up.

2.  People buy less of it.

3.  The significance of the item is reduced or eliminated from the CPI calculation.

Now I’ll give an example, cribbed in fact from the MSM:

1.  Steak was $5 a pound.  It goes to $25 a pound.

2.  A lot of people switch to eating beans, because they can’t afford steak any more, or they’re just frugal cranks.

3.  Now the CPI is calculated weighting beans more and steak less, thus significantly reducing the influence of the rise in the price of steak on it.

This is my understanding of what was said here.  I had a different picture of the way the contents of the mythical basket were changed; I figured the procedure was a bit more arbitrary.  I think it’s extremely clever to find a politically correct algorithm.  I could look all day for a specific thing being dropped or added and never find it because everything would be automatic and incremental.  But if I’ve still got this wrong, let me know.  I don’t work at the BLS or wherever the magic takes place; I just know what I read, and the differences I observe between what I read in the media and the prices I see in the stores, and continuously changing the method of measurement as described would certainly do the trick.

Of course, one can say that the CPI doesn’t have anything to do with measuring the value of money, and that COLA has nothing to do with the amount of money necessary to maintain a certain standard of living.  Then constantly changing the measurement reference is perfectly okay.  It’s just some kind of academic abstraction that has been unaccountably presented to the public as something relevant to their lives.

So did you know about this CES stuff before we started our current conversation?

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By P. T., August 3, 2009 at 9:22 am Link to this comment

“the CES, which you never heard of until a few days ago”


I could also add that you make stuff up—and I don’t mean the CES.

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By P. T., August 3, 2009 at 9:07 am Link to this comment

“Pricing doesn’t cause demand curve shifting, at least not in the short term”


Demand curve shifting can cause a price change.  By the way, the reason price may have increased is because demand increased.  An item now needs to be weighted more heavily.

Once again, we were talking about the CPI.  I am still waiting to hear what and when something got dropped because it became too “pricey.”

Hope that helps.

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By Anarcissie, August 3, 2009 at 5:32 am Link to this comment

No, Inherit, I would never suspect you of being a con artist.  I’m calling the BLS method of constantly shifting the contents of their “basket” a con.  It is obvious that if you’re measuring two things, say the value of money at time one and later at time two, you have to use the same measuring instrument or two measuring instruments which have been calibrated to one another.  That’s just elementary logic.  However, according to what I’ve read here, the people computing the CPI use in effect a different instrument every time they measure.  And they regularly throw off their instruments in the direction of reducing the amount of inflation measured.  I knew something like this was going on—it is something widely perceived in the disparity between the experience of daily life and the reports of the CPI one reads about in the media—but I didn’t realize they had automated the con.  That’s very impressive.  I thank you for explaining the CES, which seems to be the key to the trick.

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By Inherit The Wind, August 3, 2009 at 4:54 am Link to this comment

P. T., August 3 at 1:37 am #

You’re still confused.  As I already explained to you, the elasticity is beside the point.  Try to pay attention.  What matters is the relative weights of what people are buying.  By the way, examples I gave illustrate not simply movement along a demand curve but shifting of a demand curve.
************************************************

I’m sorry but you simply do not know wtf you are talking about.  Pricing doesn’t cause demand curve shifting, at least not in the short term.  Weighting is determined by the consumption patterns laid down in the CES, which you never heard of until a few days ago, but I worked at the CPI systems shop for BLS at one time.

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By P. T., August 2, 2009 at 10:37 pm Link to this comment

You’re still confused.  As I already explained to you, the elasticity is beside the point.  Try to pay attention.  What matters is the relative weights of what people are buying.  By the way, examples I gave illustrate not simply movement along a demand curve but shifting of a demand curve.

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By Inherit The Wind, August 2, 2009 at 7:26 pm Link to this comment

Yeah, I’m confused.

Magic decisions are made about the “Market Basket” weighting based on FT’s cognitive dissonance and fantasies of the dialectic that a scurrilous cabal of capitalists cook the market basket to benefit the corporations.

Not.  Not even with FT’s cognitive dissonance.

The <1>1 thing is just a way of EXPRESSING elasticity.  It’s been a long time but I think it’s the Slutsky-Hicks formula, if I’m not mistaken.  But it still basically is a way of describing the slope of the demand curve—the steeper it is, the less elastic demand is.  It’s really not rocket science, you know.

But the weighting in the “market basket” is based,in part, on the CES—the thing you never heard of—housing is a separate, and large component.

If you are going to do economic analysis, the “what” is necessary to figuring out the “why”.  And understanding how the average household reacts to price and other changes is critical to expanding that up from a micro level to a macro level.

Or you can just ignore all that and say (in your best George Carlin/Tommy Chong voice) “It’s a conspiracy, man!”

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By Yossarian666, August 2, 2009 at 3:59 pm Link to this comment
(Unregistered commenter)

I’ve been following this debate between PT and Anarcissie about whether inflation is harder on the rich or poor.

Sorry PT, but you sound like a PR guy for Ben Bernake or something. Anarcissie’s logic is spot-on.

With inflation, the rich can shift their assets from cash to gold, Chinese currency, etc. (which they are doing now), while the poor are stuck in the evaporating dollar. Meanwhile, with deflation, the working guy’s dollar goes a little further, making his minimum-wage job actually count for something. The rich, who get their money via transactions, don’t like deflation for obvious reasons.

Inflation has a further negative effect. It spits in the face of thrift and hard work, two important values that keep our society functioning. Devalue the currency enough, and civil unrest will be the result.

Give me deflation over inflation any day.

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By P. T., August 2, 2009 at 1:28 pm Link to this comment

Inherit,

You are confused.

I was giving some alternatives.  Elasticity can be measured when the price changes, by determining the ratio of change in demand to the change in price.  In general terms, >1 = elastic, <1 = inelastic.

But for a change in the prices of substitute goods or for the buggy whip example, there need be no change in the price of the relevant good and yet demand will still change.

All beside the point though:  What matters is the weighting of the items in the market basket of goods—not the reason for the change.

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By Folktruther, August 2, 2009 at 12:46 pm Link to this comment

Inherit, I thought that China investing 40% or so of its annual GDP had something to do with their economy growing at 10% rather than at 2% or so of the Western economies.  One would think that even the magical cretinism of your Ayn Rand analysis would include it.

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By Inherit The Wind, August 2, 2009 at 12:26 pm Link to this comment

Anarcissie, August 2 at 3:22 pm #

You don’t see the con here?  I am really surprised; I thought it would be hidden behind five or ten pounds of partial differentials.
*************************************

Do you have a point I’m missing or are you just being obnoxious?  Sounds like you are calling me a con artist.  If I’m wrong tell me.

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By Anarcissie, August 2, 2009 at 12:22 pm Link to this comment

You don’t see the con here?  I am really surprised; I thought it would be hidden behind five or ten pounds of partial differentials.

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By Inherit The Wind, August 2, 2009 at 12:22 pm Link to this comment

P. T., August 2 at 2:21 pm #

No.  Elasticity is beside the point.  Demand could have fallen due to a price rise.
**********************************************

Huh?  How much demand falls due to a price rise can be plotted and calculated and that is a component of elasticity of demand.  I guess you are unfamiliar with what the term means, because you are using it incorrectly.

*************************************************
Or perhaps the price of substitute goods fell.
*************************************************

Again, elasticity of demand will measure how much consumers will be willing to reduce demand and substitute for an “inferior good”.

***************************************************
Or maybe there is no longer demand for the good (think of buggy whips now that people use cars).
***************************************************

A shift in the fundamentals will either shift the demand curve or make its slope shallower, making demand for it more elastic.

***************************************************
What the reason is is beside the point.  What matters is how it is weighted in the market basket of goods.
***************************************************

Now you’ve gone around in a circle.  You claimed an item is never removed from the market basket for getting too pricey. This is true only in the sense that nobody at the CPI sits there and says “Oh, XYZ-type widgets have gone up too much in price so we’ll remove them.”

Instead they’ll say “Oh, with the increasing price for XYZ-type widgets, demand has fallen below the pre-determined threshold quantity set for these widgets and now will be removed.”

That’s part of their analysis of the change.

What’s the difference?

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By P. T., August 2, 2009 at 11:21 am Link to this comment

No.  Elasticity is beside the point.  Demand could have fallen due to a price rise.  Or perhaps the price of substitute goods fell.  Or maybe there is no longer demand for the good (think of buggy whips now that people use cars).  What the reason is is beside the point.  What matters is how it is weighted in the market basket of goods.

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By Inherit The Wind, August 2, 2009 at 10:46 am Link to this comment

You haven’t proven anything and neither have I.

All we’ve shown is there is not a DIRECT mechanism by which something is dropped from the CPI because it’s price gets too high. Rather, it’s dropped because consumption of it falls too low—and that is, fundamentally, in economic theory, almost always due to the price being too high.

Which is pretty much the same thing.

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By P. T., August 2, 2009 at 7:51 am Link to this comment

You just conceded my point:  Items are not dropped from the CPI because they become too “pricey.”  The relevant factor is the relative role played by an item in the market basket of goods.

Adjustments also could be made for improvements in the quality of an item whose price may have remained unchanged or fallen—a consumer is now getting more for his money.

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By Inherit The Wind, August 2, 2009 at 5:47 am Link to this comment

Anarcissie, August 2 at 8:28 am #

Let me see if I’ve got this right.

1.  The price of something goes up.

2.  People buy less of it.

3.  The significance of the item is reduced or eliminated from the CPI calculation.

Is that what you’re saying?
**********************************************

Not necessarily.  It depends on the elasticity of demand. Let’s have an extreme thought experiment:

Say Chevy full-size SUVs rise in a quarter from $40,000/unit (just a guestimate) to $675,000/unit.  Purchases of Chevy SUVs falls from, say, 10,000 units to 3 units.

It this case you can reasonably expect Chevy SUVs to be dropped from the CES and therefore the CPI.

But say gas prices go precipitously from $2/gallon to $4.75/gallon over three quarters.  Consumption of gas falls by, say, 20%.  Of course, gas would remain as a component in both the CES and the CPI.

It all depends on how much consumption falls, the “why” of which can be measured as the elasticity of demand.

No, I don’t know what the thresholds are where an item is dropped.  But items being added and dropped is normal.  One may well assume that items are dropped if their price rises too much in relation to their elasticity of demand—the more elastic, the more consumption drops with a small price change. The less elastic, the less consumption changes. 

An example of a HIGHLY inelastic item is cigarettes.  No matter HOW the price goes up, smokers continue to buy them.  Cartons are now between $75 and $95 dollars generally, when a few years ago they were less than $30.

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By Anarcissie, August 2, 2009 at 5:28 am Link to this comment

Let me see if I’ve got this right.

1.  The price of something goes up.

2.  People buy less of it.

3.  The significance of the item is reduced or eliminated from the CPI calculation.

Is that what you’re saying?

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By Inherit The Wind, August 2, 2009 at 5:20 am Link to this comment

P. T., August 1 at 11:25 pm #

We were talking about the CPI.
**********************************************

Obviously, then, you are unaware that the CPI is the final outcome of a series of systems, which create published outcomes as well. 

One of those contributory systems is the Consumer Expenditure Survey, the CES.  This functions by surveying a “market basket” of durable and non-durable items to see what percentage of their budget people are spending on them.

This survey process is used to weight the various items.  Otherwise, how would you compile the effect of a change in the price of eggs with a change in the price of SUVs? 

To capture both the intermittent durable expenditures (you don’t buy SUVs every week) with non-durable expenditures (you probably DO buy eggs every week) the CES is divided into two surveys: 

One is a quarterly interview where the subject is queried about all the purchases made in the last 3 months—this mainly picks up durable purchases. 

The other is a 2-week diary that the subject keeps of all purchase—and that picks up non-durables.

The purchase patterns of the CES are used to create the weights used in the monthly CPI so that those purchases of SUVs and eggs can be correctly balanced to create the final index—the monthly CPI that is reported.

The CES and its sister surveys (like the Housing Survey) have been critical components of the Consumer Price Index since at least the 1970’s and probably the 1960’s.

Therefore, your statement and assertion

“What I need is an example of what and when something was dropped from the Consumer Price Index because it became too pricey.

The examples do not exist.”

cannot be supported by someone who has no idea what the Consumer Expenditure Survey is or how it factors into the CPI, nor that it is TOTALLY relevant and critical to the discussion of the Market Basket items of the Consumer Price Index.

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By P. T., August 1, 2009 at 8:25 pm Link to this comment

We were talking about the CPI.

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By Inherit The Wind, August 1, 2009 at 7:19 pm Link to this comment

Are you expert in the Consumer Expenditure Survey?  Durable and non-durable goods are added and removed all the time.

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By P. T., August 1, 2009 at 7:18 pm Link to this comment

I hate to be skeptical but what is needed is a date something was dropped from the CPI because it got too “pricey.”

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By Anarcissie, August 1, 2009 at 6:33 pm Link to this comment

I thought the real estate change was pretty significant.  Food and energy were taken out of the CPI-U a few years ago because they were “too volatile”, i.e. they went up.  I forget what was taken out some years before that to produce a good figure for GDP growth.  Had I known I was going to run into someone with your level of faith in the Federal government, I might have kept better track of these things.

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By P. T., August 1, 2009 at 8:36 am Link to this comment

What I need is an example of what and when something was dropped from the Consumer Price Index because it became too pricey.

The examples do not exist.

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By Anarcissie, August 1, 2009 at 6:35 am Link to this comment

P.T.—the Federal government’s CPI web pages can be found here: http://www.bls.gov/cpi/.  Allegedly, they contain a “history of the CPI”.  Amusingly, they also include a FAQ refuting the many charges of manipulation which have been made against CPI.  If you read between the lines, that is, for actual meaning, you will see that the CPI has, in fact, been jiggered on several occasions.  This page is at http://www.bls.gov/cpi/cpiqa.htm.  As anyone with the most basic grasp of numerical reality knows, you cannot keep changing your methods of measurement and come up with a series of numbers which means much of anything.  I take it, though, that now that criticism of the CPI has become widespread enough among the less than totally faithful to occasion this defense, future jiggering will be done in a less grotesque manner.

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By Inherit The Wind, August 1, 2009 at 5:11 am Link to this comment

China’s rise is not too difficult to figure out. Of course, devout Socialist like FT have troubles with these concepts because they cannot bend them to fit their doctrinaire dogmatic dialectic.

But I see 3 main factors for China’s rise and the USA’s fall:

1) China uses slave labor.  True slave labor and this was prevalent during the early turn-around years.  The sweatshops of the Triangle Fire era have nothing on Chinese factories, especially the smaller ones.

2) But China’s slave labor system would NOT have worked if the US corporations hadn’t force-fed it money in the 80’s and 90’s.  Remember: In 1982, Reagan signed the HUGE tax break for companies moving their production off-shore.  China was ideal with its cheap, docile slave labor.  Plus, from the Reaganites’ perspective, it had the bonus of busting the unions, being the major portion of the 3.5 million union jobs lost.

3) Then came the ultimate Bush disaster: Turning the US budget surplus into a deficit.  Before 9/11 even happened, Bush and the neocons in the House and Senate had agreed on huge tax cuts, primarily to the wealthiest Americans, supposedly to offset the mild recessionary movement of the dot-com bubble bursting.  It was like drilling holes in the bottom of a boat to let the water out!

Deficits have to be funded with borrowing or inflation (printing money). We borrowed, and China, having had its pump primed for 20 years or more, was awash in dollars it needed to do something with…

That’s really all there is to how China ended up “owning” us.  I’m not usually one for simple solutions but this is just so blatantly obvious a chain of events I’m not sure what isn’t clear about it.

Of course, my pal FT and others of “The Contingent” will spew a pile of dialectic gobbledygook with lots of buzz words and jargon, and we can expect “Mr. Xerox” to come up with an absurd article showing that it’s all the fault of, and a plot by AIPAC, Mossad and Jewish Zionists—like Sepharad and Inherit The Wind.

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By P. T., July 31, 2009 at 10:24 pm Link to this comment

“I myself have noticed real estate, education, energy, and food being moved in and out of various cost-of-living calculations in recent years.  A notable case was producing a jump in the GDP by changing the way the CPI was calculated several years ago.”


That’s vague.  What’s needed are specifics (like the dates) that can be checked and verified.  Thanks.

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By Anarcissie, July 31, 2009 at 8:31 pm Link to this comment

P. T.:
‘Economists can and do argue about the components of the CPI, but it is not a sham.  And pricey stuff does not just get tossed out—any examples? ...’

Here are some people who think the CPI is manipulated:
http://www.investopedia.com/articles/07/consumerpriceindex.asp
http://www.marketoracle.co.uk/Article3135.html
http://www.financialsense.com/fsu/editorials/2008/0923b.html
http://www.shadowstats.com/article/consumer_price_index
http://www.safehaven.com/article-1458.htm

I myself have noticed real estate, education, energy, and food being moved in and out of various cost-of-living calculations in recent years.  A notable case was producing a jump in the GDP by changing the way the CPI was calculated several years ago. If you think the CPI is reliable, you have unusual powers of faith and I recommend a career, or at least an avocation, in one of the more fanciful religious as a worthy exercise for this talent.

The fact that capitalist employment must be brought about by debasing the currency and defrauding the less wealthy holders of currency and currency-based assets or entitlements is both interesting and ominous, but examining the situation requires more time and space than I have here.

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By P. T., July 31, 2009 at 5:21 pm Link to this comment

Economists can and do argue about the components of the CPI, but it is not a sham.  And pricey stuff does not just get tossed out—any examples?

And I suggest you talk to people who are unemployed or who fear losing their jobs.  Ask them what concerns them more, inflation or a job?

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By skyblu5555, July 31, 2009 at 5:16 pm Link to this comment
(Unregistered commenter)

The US Congress and President Clinton should never have granted China “Most Favored Nation” trade status.  Commercial greed and liberal support for globalization policies ruled the day. The Chinese government is no capitalist nation; it is savage….the Chinese government can do whatever it wants…it can kidnap and kill dissidents…it can manipulate the value of its currency or not to destroy other nations(which is why we have such a disgusting trade); it can lower gas prices at will; while we were paying up to $4.00 a gallon in 2008, the Chinese were paying less than half..as it chooses…

These has been zero accountability in the USA for the outsourcing of all manufacturing and theft of the best jobs; best know-how; best innovation; and best-technology..here are the results of educating the elite of the PRC at our best universities instead of investing in our own young people The liberal policies of the USA have resulted in its own destruction.

If you believe the USA is not a satellite of the PRC, you must also believe you can make a silk purse from a sow’s ear.

We have been taken over not by the shot of a gun nor by the drop of a bomb; but due to the unsatiable greed
of the mercantile/financial class.

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By joe, July 31, 2009 at 2:57 pm Link to this comment
(Unregistered commenter)

welcome to the america the ABSURD. welcome.

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By gerald4, July 31, 2009 at 10:48 am Link to this comment

The US government is living like some families that charge all expenses to credit cards, buy new autos, take expensive vacations, buy new designer clothes, eat out at expensive restruants, rent instead of buying a house, pay the minimum credit card payments every month, and quit working at their jobs.  Why should anyone work if they can live off of borrowed money.

This is the new American Way.

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By Anarcissie, July 31, 2009 at 9:53 am Link to this comment

P.T.—I suggest that you talk to some actual poor and working-class people who lived through the inflation of the 1970s.

The CPI is a sham—when something becomes pricey it’s eliminated—so the cost-of-living adjustments to such as Social Security are also a sham.

It was the inflation of the ‘70s that allowed the ruling class to bust the workers back down to pre-World War 2 levels in effective pay.  (Now they are even worse off.  How do you think this is accomplished?)

The fact that unemployment results from a lack of inflation shows that something is seriously wrong with the structure of the economy, maybe with capitalism itself, which (following the theory) doesn’t work unless it’s goosed by booms and busts provoked by government monetary policy, in a sort of rotating con game.

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By Louise, July 31, 2009 at 9:46 am Link to this comment

By bluelori, July 29 at 11:37 am #

“They are not Capitalists they are Marxist/Communist Dictators whose people have no Human Rights and are forced to work like Slaves or pay the price!”

~~~

Well actually the Chinese ARE Capitalists. In fact, they have been described as the fastest growing Capitalist society in the world! And whether or not they are actually Marxist is questionable. Communist perhaps. Capitalists for sure. Marxist ... I’m not so sure.

Do the working have fair and equitable jobs, wages, a decent working environment, or labor protections? No, else why would Walmart love them so? (Why does Walmart lead the battle to do away with unions in the U.S.?)

I think theres an underlying problem here. Namely the notion that Capitalism is Democracy and Democracy isn’t Marxist. Seems to me if we’re going to sling labels around we need to understand what they mean. Which reminds me, I need to amend my previous comment. The Marxists are not firmly in control. Marxism puts forth the concept of class struggle in understanding society’s allegedly inevitable development from bourgeois oppression under capitalism to a socialist and ultimately classless society.

So in reality bourgeois oppression under capitalism is the best definition of our current state, and that of China. Which may explain why we work so well together. smile

Personally I like a level playing field. But that is neither in China or the United States, although in spite of “Conservatism” the United States comes closer.

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By P. T., July 31, 2009 at 8:49 am Link to this comment

“The people who make light of inflation tend to be politicians, bureaucrats, academics, media flacks, and businesspeople who have the energy, aggression, and reserves to profit from it.”


Wrong.  Those are the people who make light of the unemployment that results from their inflation fighting.

As for people on Social Security, they get cost of living allowances.

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By Anarcissie, July 31, 2009 at 5:57 am Link to this comment

P. T.:
‘Those people you saw in late 1970s were victims of stagflation, not just inflation. ...’

They were victims of inflation.  They couldn’t buy food, or pay the rent, because they were on fixed incomes, as a lot of poor people are.  The stagnant business climate had little or nothing to do directly with their condition because they weren’t wage-earners (although the lower layers of wage-earners suffered as well because they couldn’t raise their wages as fast as the inflation).

The people who make light of inflation tend to be politicians, bureaucrats, academics, media flacks, and businesspeople who have the energy, aggression, and reserves to profit from it.  You won’t hear it made light of among the poor or the working class.

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By P. T., July 30, 2009 at 9:17 pm Link to this comment

Those people you saw in late 1970s were victims of stagflation, not just inflation.  And their suffering was small compared to what they endured during the recession (induced by Paul Volcker to fight inflation) of the early 1980s.

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By Anarcissie, July 30, 2009 at 8:49 pm Link to this comment

Well, I know only what I observe.  The last time the U.S. had really strong inflation, in the late 1970s, I saw people crying and stealing food in the supermarkets, whereas skilled laborers like myself, and the well-off people that I knew, made out like bandits.  My general theory is that the strong are better able to manage rapid change than the weak, and that is what I observe, regardless of the conventional wisdom.

The looseness of money and credit does not necessarily lead to inflation.  If the money represents value, that is, labor—if something is done or produced for the money, and subsequently paid for—then loosening credit is not inflationary.  However, the post-2000 antics of the Federal Reserve Bank caused strong inflation in the housing and equity markets which would have eventually spread to the commodities and labor markets because the money produced by the easy credit didn’t represent anything real.  The present administration is now attempting to revisit the conditions which led to the crash.  If they succeed, I believe you’ll see the inflation which you find so admirable and this time I hope that you will take notice of what actually happens to poor people.  In fact, it may even eat up the middle classes—check the Weimar Republic for the results of that.

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By P. T., July 30, 2009 at 7:41 pm Link to this comment

“Most of China’s oil comes from Saudi Arabia, which is why they need US dollars.  They don’t buy US bonds out of kindness.”


Buying U.S. bonds does not get China dollars.  It costs them dollars.  Besides, China can get dollars on foreign exchange markets.

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By P. T., July 30, 2009 at 7:34 pm Link to this comment

Wrong.  Inflation hurts the rich the most because they hold the interest bearing assets (bonds).  Tight money policies hurt workers because they increase unemployment and so drive down wages as workers compete for fewer jobs.  That is why you never hear labor union economists advocating tight money (the cross of gold)—just the opposite.

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By Anarcissie, July 30, 2009 at 4:15 pm Link to this comment

P. T.:
Inflation is a petty concern right now.  The opposite is the big concern.  Worrying about inflation now is like worrying your lawn needs mowing when your house is on fire.

A lot of the claimed concern over inflation is really because rich people are worried their taxes will eventually be raised to pay off the debt.  Notice that when there is talk about raising taxes the supposed concern over deficits and debt suddenly evaporates.  It’s social spending they target…’

On the contrary, it is the relatively well-off who suffer the least from inflation, and the poor who suffer the most.  Those who have fixed incomes, those who have savings accounts and cash, those who live on the mercy of the welfare state, those who have bad jobs—these are the people who cannot easily raise their incomes or invest in real estate, foreign stocks and bonds, collectibles and hard goods to protect their wealth from melting away as the value of the currency evaporates.

The truly rich and powerful, of course, care nothing about inflation or taxes.  They aren’t affected by them; they can always squeeze more money out of those further down the economic food chain to compensate themselves for any loss.

However, inflation, credit inflation, did play a major role for the ruling class in the run-up to the recent crash.  The expansion of credit and debt engineered by the Federal Reserve Bank fueled a false semi-prosperity and thus had an important political utility in gathering support for various imperial wars and the re-election of Bush in 2004.  I believe the current plan is to patch things out for another couple of years with a more general inflation, and hope something turns up.  After that period, the new powers of surveillance and police control which have been established in recent years (and by no means rescinded by the current administration) may come in handy to keep order.

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By doublestandards/glasshoues, July 30, 2009 at 1:04 pm Link to this comment

Most of China’s oil comes from Saudi Arabia, which is why they need US dollars.  They don’t buy US bonds out of kindness.

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By P. T., July 30, 2009 at 10:58 am Link to this comment

Inflation is a petty concern right now.  The opposite is the big concern.  Worrying about inflation now is like worrying your lawn needs mowing when your house is on fire.

A lot of the claimed concern over inflation is really because rich people are worried their taxes will eventually be raised to pay off the debt.  Notice that when there is talk about raising taxes the supposed concern over deficits and debt suddenly evaporates.  It’s social spending they target.

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By capt rick, July 30, 2009 at 10:33 am Link to this comment
(Unregistered commenter)

really good article , I got a lot out of it.
China will contract much lie japan did in the 1990s.

they owned a lot of America bought up in the 1980s
at that time. Tish will happen to China as well. They will face a deep depression, because their growth and population are unsustainable.They will then sell off their American assets.Get you check book ready…......

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By Yossarian666, July 30, 2009 at 9:16 am Link to this comment
(Unregistered commenter)

Gerald: What do we do? you say. Well, your tariff idea makes sense—on two levels. For one, it could put US and Chinese goods on a level playing field price-wise; and it would also ultimately be better for the planet. It’s crazy that we spout all this green rhetoric, but we buy everything from China, where environmental laws are a joke.

And we also can’t forget the country’s human rights abuses—including its big box store-affiliated sweatshops. Isn’t it sad that we’ve become so dependent on a country that our leaders should be scolding daily? Did you see Geithner the other day? He was groveling before the mighty Chinese leaders.

I’ll say it again—the US in the race to the bottom to win.


About the 666 tag—it’s good for getting people’s attention. And though I don’t subscribe to Biblical thought, it seems appropriate for our times.

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By Folktruther, July 30, 2009 at 8:53 am Link to this comment

No, prole, the class war isn’t over, but it is being combined with the war against nationalism.  Classical marxism orginally focused on the capitalism of the West, where socialism was to be established.  Since that time it has spread to the whole world and the world has only the snycranism of marxist-leninism to think about it. The destruction of our traditional climate and thermonuclear war have since become real possiblities, and economic ineequality and domination has become much more intertwined between nations as well and within nations, more than they were in the past.

China is a class society like the US, and will presumably become worse as it develops, as the monstrous economic inequality of the US has done.  But now its coercion is being used to urbanize the country, getting people from the farms to the cities.  This will only take a few more decades.  It is being done in a mure humane and effcient fashion than other capitalism.  And it is helping other developing countries do so, especially in Asia, but in Africa and Latin America as well, where most people live.

This has been the problem of siege socialism, getting people into cities while capitalism was threating to invade, bomb and otherwise terrorize them.  It is not possible historically to go from a peasant society to a socialist society until one first has an urban capitalist society.  Now the whole world is being urbanized, and China and East and South Asia, where half the world’s people live, are leading and becoming the historically dominant economiic poliies.

It is now world socialism that is on the agenda AFTER this process is well underway.  Instead of socialism being initiated in one country at a time, or a number of countries of Europe, as marx enivisioned a century and a half ago, a world socialist movement is possible within the newly industrialized countries, an earthperson socialism.

But this involves a different ideological worldview than classical marxism.  It is necessary to destroy the excessive nationalism of ruling classes as a world ruling class develops, and attack the world ruling class from a number of homelands.  This will be done primarily by the non-White people of the world, a transformation of the initial socialist movments begun in the White West.

Since historically the US has been very racist, the US White ruling class allying with the White population against Af-Americans, Latinos, Asians, and AmerIndians to rule, in forming a world socialist movment it is necessary to emphasize racism more than when socialism was envisioned as a European pheneomena.  And therefore national homelands more, since it is conceivable that these may not be national homelands. 

It is necessary to combat nationalism as well as class in a new movement, because socialism has been nationalized because capitalism didn’t develop enough.

but this can’t be done effectively until the world has enough to eat and a minimum economic security under capitalism.  therefore world socialism is a post-Chinese phenomena, although of course it must be fought for now.  But the major world problems now are pollution, war and hunger.  the US being the main national agent fostering all three. And, despite American media comments, China is combating all three.  These problems must be solved before a civlized world culture can evolve, and the people of the earth shake off the nightmare of history.

And this is the agendea of the 21st century.

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By Anarcissie, July 30, 2009 at 5:23 am Link to this comment

P. T.:
‘Investors do not seem too worried about the U.S. government defaulting. ...’

Default seems unlikely.  Inflation seems very likely.  But major investors (like the Chinese) do not yet have any alternative.

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By ardee, July 30, 2009 at 5:13 am Link to this comment

I suspect that, as long as the US GDP is over eleven trillion dollars a year, there will be no shortage of investors in this nations future.

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By P. T., July 29, 2009 at 11:46 pm Link to this comment

Investors do not seem too worried about the U.S. government defaulting.  They are willing to hold hundreds of billions of dollars in long-term government debt at a return of just 3.5%. By contrast, they demanded a return of more than 5% in 2000, back when the U.S. government was running a large budget surplus.

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By Folktruther, July 29, 2009 at 10:12 pm Link to this comment

Anarcissie, the chinese use economic trades for power purposes.  They will take an economic loss if it gives them a long range power adavantage.  they are very nervious about taking over as the major power from the US.  When China has a lot of American paper, which they convert to material goods, they have a handle over the US power system.  the US is more reluctant to piss them off.

The world is increasingly using economic conflict to substitute for military conflict.  europe, Japan and China spend only a very small fraction of their GDP on military expenditures.  The sole exception is the US, whose neoliberal power system makes in impossible to compete effectively economically in the new world.

China is using economic means to neutralize US military means.  The sole exception is the Chinese pacific navy, which is very expensive.  They will extend it to the Indian ocean as well, militarily dominating two thirds of the world’s people.  But what they want to dominate by is economic.

They are also a much older culture and look further ahead than the US.  The money that the US is now using on military expenditure is not available for investment, leaving the future economic, and thus military power, deminishing.  If China can survive the next decade without a thermonuclear war, they can ten dominate economically.

Prole, I’ll respond to your post as soon as I have time.

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By Bruce Cain, July 29, 2009 at 8:33 pm Link to this comment
(Unregistered commenter)

We are soooooo close to a World War.  Certainly what is going on behind the scenes, in both China and the US, would give most humans an instant heart attack.

Prepare, for “it” is coming from either China, or the Middle East or Blackwater . . . or perhaps all of the above.

Keep your powder dry and keep your body in fighting shape.  Even then your chances will be slim.

That is the Zen of it all on 07/29/2009.

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By Anarcissie, July 29, 2009 at 6:54 pm Link to this comment

There are plenty of people to buy oil from besides Saudi Arabia.  No, I think the dependence on the dollar was a mistake which the Chinese are now making the best of.  I think they got took, as we used to say in Brooklyn.

The big issue now, though, is the balance of between the desire of Obama and company to print a lot of money and hand it out to everyone, but especially bankers, and reinflate the stock and real estate markets, which this time will almost certainly cause strong inflation, on the one hand, and their desire to keep borrowing lots of money from the increasingly suspicious Chinese and Japanese, who will not lend it or will demand very high interest rates if they think serious inflation is going to take place.  Obama, Geithner, Summers, Wall Street—they’re all on the razor’s edge now.  Hard to guess which way they’ll jump or what will get cut off when they do.

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By doublestandards/glasshoues, July 29, 2009 at 6:07 pm Link to this comment

The reason China has so much “American paper” has to do with their need for oil.  Saudi Arabia made a deal with the US that their oil could only be purchased with US dollars.  China’s energy needs are enormous and therefore they buy all the US bonds they can in order to insure that they will have the money to buy oil from the Saudis well into the future.  Meanwhile they are always negotiating with the Saudis to allow them to buy oil with their own currency.

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By bg1, July 29, 2009 at 6:07 pm Link to this comment
(Unregistered commenter)

“by selling our latest high-tech weapons to China as we do to the rest of the world. Or better yet, we could do some serious damage to our deficits, and our dependence on the Chinese, by sharply cutting expensive weapons programs now that the Cold War is finally over.”

The trade deficits are a result of a US trade policy in which Wall Strret moved our manufacturing (AKA wealth creation) to Asia and particularly China, whose trade policies are blatently mercantilistic.  Also, the Chinese are going full blast to achieve military parity with, and even superiority to, the US.  Cutting our military would also eliminate whatever is left of our manufacturing base.

I’ve lost all confidence in your judgement or honesty.

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By gerald4, July 29, 2009 at 5:19 pm Link to this comment

The US dollar is losing value and will become worthless after we have sold all of our assets to industrial manufacturing countries, and then US citizens spent the money on imported products and government expenses.

One US Dollar that would buy about 8 Mexican pesos in 1960 can now exchange for as much as 15,000 (1960) Mexican pesos today. This is equivalent to about 187,500% inflation over that period. A $2.00 loaf of bread would then cost $3,750.00 if the USA implemented Mexican economic monetary type policies.

The International Trade Deficit must be corrected by any means possible!  This is the basic structural problem that can destroy the USA.

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By ChaoticGood, July 29, 2009 at 5:06 pm Link to this comment

The best hope we have is to simply drop all tariffs and taxes on all countries in the western hemisphere. Replace all their worthless currencies with dollars and drop all border restrictions.  Then we will have access to teeming millions of low cost workers whose labor will allow us to compete with the Chinese monolith.  Otherwise well be consumed by them.  We must become TOO BIG TO FAIL.
The Chinese fear this more than anything and that is why they have been trying desperately making deals with anyone they can in South America.
America needs to form a Western Hemisphere trade union.  Nationalism must evolve from country to hemisphere.  Call it the New World Order LOL

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By ardee, July 29, 2009 at 4:59 pm Link to this comment

As to why China holds our paper:

When Reagan broke the record for largest deficit in US history he borrowed exclusively from US banks and financial institutions.

When Bush 43 broke Reagan’s record he borrowed almost exclusively from foreign sources, China holds 24.07% of our debt, Japan 20.66%.

http://en.wikipedia.org/wiki/United_States_public_debt

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By gerald4, July 29, 2009 at 4:50 pm Link to this comment

Dear yossarian666:

I agree, but what do we do now???  Is 666 the mark of the beast in Revelations? 

After the American revolution, the USA instituted high import tariffs to encourage the industrialization of the USA, and it was successful in establishing a positive balance of trade, accumulating Gold reserves, creating a manufacturing base, creating a technical data base, and making the USA independent from England for technology.

One way or another we must stop the selling of title to everything of value in America as required to pay for excessive government expenditures plus things that we import and then consume. We must create a positive balance of trade by any means possible. If not, we will destroy the purchasing power of the US dollar.

Without import tariffs, most all products will be purchased for less money if they are manufactured in foreign countries where labor costs are minimized. The US labor force has no future without high import tariffs to prohibit foreign imported products.

Without high import tariffs, US workers must compete with foreign workers at or below foreign wage scales for employment in the USA. Most USA citizens do not want to work for wages that the same job in a foreign country would pay.

Until we re-industrialize and correct our foreign trade imbalance, and eliminate our federal government borrowing to pay expenses, we cannot afford to have free trade because it will destroy the US Economy.

After the American Revolution there were probably many shopkeepers that imported goods from England and they probably objected to having to deal in more expensive US manufacturer goods.

The WalMart, Home Depot, NTB, GM, Ford, GE, Chrysler, GE, Westinghouse and etc. will probably object strenuously when and if the US Government prohibited them from importing the products that they sell to US consumers.

Until the USA can re-industrialize and correct our foreign trade deficit, and eliminate our federal government borrowing to pay for government expenses, maybe we cannot afford to have free trade because it will continue to totally destroy the US economy.

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By yossarian666, July 29, 2009 at 3:45 pm Link to this comment
(Unregistered commenter)

We joined the race to the bottom when we hooked up with the slave-exploiting Chinese government and its big businesses. And in the end, it looks like we’re going to win that race.

Good job America!

Here’s how it went down: (1) our corporations got to big and too powerful (2) they then bought off our politicians to allow them to move jobs and operations to China (3) said losses hurt the wages and job outlook of the working poor and middle class (4) credit—fueled largely by Chinese borrowing—made up for the losses temporarily (5) credit bubble then bursts, making us the soon-to-be servants of the Chinese.

All the while, the working poor and middle class don’t notice what’s going on—because they’re distracted by the purdy Chinese-made trinkets being sold at Wal-Mart.

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By gerald4, July 29, 2009 at 3:22 pm Link to this comment

Chinese people know that the US dollars that they are paid to manufacture the things that we consume have been declining in value since the US government required de-industrialization of the USA in the past decades for environmental and economic reasons.  Without re-industrialization of the USA, the US dollar will decline in value to Zero.

Maybe the Chinese will buy into a Wall Street created limited partnership to acquire Shangra La!

We are running out of things to sell to the people that work and supply us with the things that we consume.

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By TAO Walker, July 29, 2009 at 2:59 pm Link to this comment

Ah so!  What do you suppose will be the new mandarins’ reaction to the fact americans have no indenturable interest at all in Turtle Island or in any “wealth” derived from its institutionalized industrial exploitation.  All that “paper” isn’t worth….well, the paper its printed on.

So when the real Winds-of-Change blow over the Earth most of the Chinese will be in for as big of a shock as all the other deluded members of the sup-species homo domesticus.  They, too, ‘ve strayed just as far from The Way as as their slightly more juvenile fellah ‘n’ gal inmates.

HokaHey!

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By gerald4, July 29, 2009 at 2:30 pm Link to this comment

The Chinese are not holding very much of the freshly printed US government Bonds, T-Bills, and etc.  They are exchanging these items for title to US located real estate, farms, agri-businesses, food supplies, dairies, forests, industries, breweries, hotels, factories, casinos, financial institutions, retail businesses, and etc. as fast as they can. 

Foreign entities owned 25% of the USA in 2007 according to:

http://economyincrisis.org/articles/show/1072

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By Anarcissie, July 29, 2009 at 2:05 pm Link to this comment

If the Chinese are so brilliant, why are they holding so much American paper?

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By doublestandards/glasshoues, July 29, 2009 at 1:41 pm Link to this comment

About four or five years before last year’s economic meltdown I heard an economist on an alternative radio talk show predicting an economic catastrophe for the US.  I don’t recall his name but he was asked what signs we should look for as an indication of the end for the US economy.  He said, “When the Chinese come calling you’ll know that’s it.”

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By gerald4, July 29, 2009 at 1:39 pm Link to this comment

I think that “Mercantile Tyranny” is a good possible description for the Chinese Communist Economy, but not the USA economy.  The USA economic policy is to close down all of out industries, fire all of the employees, and then borrow money to pay for our consumables and our high living lifestyle until no one else will loan us any money.  This is acting with similar financial responsibility of a drunken sailor on shore leave.  What would be the name of the kind of government acts like a drunken sailor?

The only thing that will create/save US jobs, preserve/restore the buying power of the US Dollar is reversing the trade deficit, reducing government borrowing, and reducing government spending to start re-building the USA gold reserves which is the basis of the buying value of the US dollar. Only a positive balance of trade will eventually restore the value of the dollar, and we must accomplish this by any means possible, or we shall have to accept third world poverty for the majority of our citizens. The only way to do this is to produce and export more (dollar value of) things than we import. The only way that we can accomplish exporting US made products is to re-industrialize and make these products, hopefully with mostly US materials & Labor. The only way that our products will be sold abroad is if these products are either technologically superior, or cheaper. US citizens must manufacture things to get currency from foreign nations in order to buy back the US assets owned by foreigners.

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By gezelda, July 29, 2009 at 1:20 pm Link to this comment
(Unregistered commenter)

We’ve been selling ourselves down the river for years—ever since the military-industrial complex got hold of our financial jugular.  All we are now is a weapons vender.  Bigger and better bombs.  How lovely is that?

But we still haven’t caught on:  Now it’s UAVs—unmanned aerial vehicles that are computer-operated by guys in Nebraska, made to kill people they can’t even see.  In fact that’s the idea—to “project force without projecting vulnerability.” 

So we’re not only depending on wars for power and money.  We’re becoming cowardly as well!

Sic transit common sense.

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By Mary Ann McNeely, July 29, 2009 at 1:06 pm Link to this comment

China is no longer a Marxist or communist nation.  Someone accurately described it as a mercantile tyranny. That seems to be our fate as well.

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By prole, July 29, 2009 at 11:38 am Link to this comment

“Maybe the Chinese have found a model different from ours that also works?”!!! Yeah, maybe they have. But finding a “model different from ours” doesn’t mean finding a more humane or egalitarian system. Substituting one kind of ‘police state’ for another is not necessarily popular progress.“Might there not be an Arab, Latin or Indian one that also qualifies and need not be overthrown?” There might, but once again, it’s a question of who’s doing the overthrowing. Is it being overthrown from sinister imperial forces without, or by populat insurecction from below within. In the case of China as well as some Arab, Latin or Indian regimes it could be either - not to mention the American police state. Obviously ‘China” is not China and “America” is not America, and likewise many other nation states. It’s once again the Chinese and American ruling classes cozying up to one another to protect their common power interests and defend themselves from their own populations as much as from one another. To remain paramount is always the paramount objective of any ‘Paramount Leader’, be they American or Chinese or any other natioality. “The tone of this week’s talks… finally signaled the end of the Cold War assumption that regimes with labels like communist and capitalist could not form profitable partnerships.”  And that, of course, with delicious irony, is precisely the point, i.e to “form profitable partnerships” for profit-making corporations, be they privately-controlled or state-controlled. Never mind that both the American and Chinese “models” - or anti-models - have created two of the most class-divided societies in the world or that America and China are the world’s two greatest producers of climate-change emissions. None of that should stand in the way of “profitable partnerships”. And “for those who recall the rhetoric of the Cold War, the idea that we would someday be cooperating with Chinese Communists”...should not come as any great surprise. After all, “we” have often enough done it before to try and squelch truly ‘different models’ of development. America and China cooperated for years during the Ray-gun regime and later, in attempts to ‘punish’ Vietnam and to overthrow the Vietnamese-backed government in Cambodia that had replaced the Khmer Rouge despots favored by the U.S./China axis. Nation-state bullies always have a lot in common, so there’s no reason to jeopardize their common class interests with self-defeating ideological struggles that they don’t take very seriously themselves to begin with, and that are mainly intended to deceive their own populations into submission. Chinese and U.S rulers can’t risk a direct confrontation, so they’ll divide up the world between themselves and cooperate in making every effort to suppress indigenous insurgencies at home or abroad that might threaten their hegemony. And until resistance movements around the world do some “serious damage”  to this kind of hegemonic cooperation, the democracy defecit will continue to grow. The so-called Cold War may be over - however real it may have been in the first place - but the class war isn’t.

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By gerald4, July 29, 2009 at 11:16 am Link to this comment

Everything of value in the USA will very soon be owned by China and other industrialized nations. The purchasing value of the dollar will then approach zero as the US government speeds up the printing presses to cover US government expenses freshly printed paper bonds and T-Bills that will be sold for next to nothing. Our military, police, firemen, and etc will get paid in freshly printed US dollars that will be accepted in grocery stores and other retail venue, but at many times the number of dollars expected for each item. Public servants will probably walk off of the job, and try to find another way to feed their own families. This will be the cause the callapse our USA governments at all levels.

How can we ever possibility restart our industries (re-industrialize) to generate a positive balance of trade that will restore our economy? Most of the people who knew how to operate the US basic industries and factories were fired decades ago and are probably now long dead and buried. There are no books that completely tell everything about how to do most of the things that we knew how to do years ago when we created the industries that won WWII and then gave us this bountiful way of life.

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By Folktruther, July 29, 2009 at 9:55 am Link to this comment

The political implications of this economic meeting in an unalloyed blessing for the world and the American and Chinese peoples. The Chinese power system has morphed into a from of party capitalism, with the party substituting historically for mandarans in Chinese feudalism, that is an astonishing power innovation in the world.  this is not detailed in the US learned and mass media because the US neoliberalism cannot compete with it economically.

So the dangerous temptation is to compete militarily, the usual case historically when a rising power replaces a declining power.  Germany and Japna during WW2 were rising powers economically.
So the Chinese have been very cautious militarily until their economic advantage is so great than even American leaders will recognize it.  Since imperialaism always suffers power delusion, especially when it is declining, this must be done subtly.

The Chinese loved Bush because he destroyed US power in ways that greatly faciliated their power transformation, the US still bogged down in the military and economic quagmires he initiated.  So now they feel confident enough to exert a little pressure, since they hold so many cards.

Especially as it turns out that Obama is a political lightweight, put in power as a public relations effort to put a nicer face on Bush’s disastrous policies,  Which he is continuing, extending and in crucial cases expanding.  He is an intellectual totally bereft of policy ideas, and just wants to get elected next time.  Granted, he was left with a miserable position by Bush.

So the present meeting indicates that China can assume the ascendant position without thermonuclear war. This is by no means a foregone conclusion. 

Obama is not as bad as Gorbichev, destroying his own country, but he is continuing to weaken it through the inablity to change its military, economic and political policies so as to nuetralize US world power.  And that is good enough for the Chinese.  And, probably, for the world.

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By knobcreekfarmer, July 29, 2009 at 9:37 am Link to this comment

“The American capitalist imperials recognize that we’re on our way to a diminished role in the new world order.  They’re selling everything off now to better their situations before they let the rest of us go down with the ship.  Someday, and its looking sooner rather than later, the Chinese will call to collect on this unsustainable debt, and when we can’t meet our required debt service, this period of financial crisis will look like the best of times to the starving masses.” - Big Wes

bingo!

“They’re selling everything off now…” strange how China’s oil interest got the first big cherry of Iraqi oil contracts. Kinda like a hat tip, a bow and a few steps step back for “American elitism.” There will be more.

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By gerald4, July 29, 2009 at 9:12 am Link to this comment

China is winning the War for Scientific and Technical Superiority! “China is going to achieve tremendous progress in the world science and technology in the next 30-40 years.” This is a remark by eminent scientist and Nobel laureate Chen Ning Yang in his speech on “Science and Technology of the 21st Century” delivered at the opening ceremony of the 6th World Chinese Entrepreneurs Convention in Nanjing on September 17, 2008. In his speech, Yang said that modern science and technology were introduced into China only in the 20th century.

Within a time span of just one century with efforts by merely several generations, China has started from scratch to having attained the level of being able to launch and recover its Shenzhou Spaceship, an incredibly rapid development with no precedence in history. So he believes China’s scientific and technical level will surely reach the foremost front of the world advanced level by the year 2030 or 2040.

China is stepping up research of particle accelerator on its own, according to reports from the ongoing 2nd Asia Accelerator Conference. It is said that the Institute of High Energy Physics under the Chinese Academy of Sciences is making an active effort in design and research of positive-negative electron impinging machine in Beijing, and hopes for a 100-fold increase in the brightness of the machine.

As China increases their Nuclear Research, China will soon surpass the USA in Nuclear and other advanced scientific technologies and capabilities.

China is using their hard earned and newly created wealth to accelerate their scientific capabilities, including their nuclear and rocket delivery systems. 

This is real scary. The Chinese nuclear capabilities will soon surpass the USA scientific technology. The Chinese have had the Rocket Guidance technology (purchased from Hughes Aircraft in the 1990’s in return for a political campaign contribution) for intercontinental ballistic targeting anywhere in the USA (and anywhere else around the world).

The USA must fight and then win the war for Scientific and Technological Superiority! If we lose the scientific and technology lead to China or any other country, the USA will rapidly decline into a third world nation, and our citizens will have to work for the Yuan equivalent of US pennies per hour after the total economic collapse of the USA and the buying power of the US dollar goes to zero.

The US government elected to cease construction if the US super collider at Waxahachie, Texas a few decades ago, but to spend many times that cost to bailout various Wall Street financial failures. As China increases their Nuclear Research, China will soon surpass the USA in Nuclear and other advanced scientific technologies and capabilities.

The USA is no longer the engineering, scientific and technology world leader that it once was just a few decades ago.

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By Stephen Smoliar, July 29, 2009 at 9:11 am Link to this comment

I found it interesting that, while the Chinese were playing the role of sensible creditors in the United States, they were expanding their role as sensible lenders in Great Britain:

http://therehearsalstudio.blogspot.com/2009/07/wall-street-main-street-and-china.html

Their moves into the home loan business there strike me as a sign that they recognize how Wall Street has failed Main Street (or the British equivalents thereof) and see investment value in compensating for that failure.  Does that make Marxism Main Street’s “last best hope” for survival?  grin

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By gerald4, July 29, 2009 at 9:02 am Link to this comment

Other countries view the United States of America as borrowing and spending huge amounts of freshly printed paper money with the careless abandon of a drunken sailor on shore leave. This is very disturbing to those very same foreigners that the US government hopes will buy some more of our freshly printed US securities (hopefully at not too much of a discount and/or of high interest rates) to pay for our economic stimulation, our trade deficit, our wars, our environmental activities, and other various government expenses.

The discounts/interest rates offered at public bid for our freshly printed US securities by industrialized manufacturing nations that have acquired US dollars will depend and reflect upon the confidence that the USA instills these foreigners by our economic actions.

Many countries are losing confidence in the dollar as the benchmark for world trade and currency values. Other currencies, like the Chinese Yuan with a more stable value, are now being talked about as a replacement for the US Dollar as the benchmark for international currency values.

The Chinese Yuan might be the last man (currency) standing after the US government destroys the value of the US Dollar.

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By gerald4, July 29, 2009 at 8:53 am Link to this comment

How did China and other foreign countries get so much of our US currency, Dollars, T-Bills, Bonds, and other government securities? The USA importers and distributors (WalMart, Home Depot, NTB, GM, Ford, GE, Chrysler, Dell, and etc.) paid the Chinese Companies with US currency to manufacture the things that they imported and then sold to the US consumers.

After we have sold title to all of our US real assets that have any value to foreigners as required to settle our foreign trade obligations, there will not be anything left for the foreigners will want to buy with their freshly printed paper US T-Bills, US bonds, etc. The US government will then not be able to raise any funds for any future re-industrialization of the USA, and the US citizens will not have any possibility of employment in their future. The money passed out to the financial industries did nothing to create any jobs or to eliminate the foreign trade deficit problems with the US economy.

Foreign entities will very soon own everything of value in the USA and then become the major source of employment for US citizens. The USA population will then become employees; possibly indentured servants; or maybe even beg to become slaves owned by the foreign countries and/or foreign individuals that will own everything of value in the USA in the very near future.

We are selling of our children’s legacy to foreign owners, and the US government calls it “Investing in America”. We are racing to sell title to everything in the USA in order to keep from re-industrializing and/or working to produce the things that we consume. This is “sort-of like” US citizens selling our body parts to keep from working!

Green jobs are nice, but paying US citizens with US dollars borrowed from industrial producing nations for raking leaves, environmental cleanups, wars, government payrolls, social programs, digging a hole in the ground and then filling the same hole. and etc. to stimulate the economy just does not correct the basic economic structural foundation problem that is the Foreign Trade Deficit.

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By gerald4, July 29, 2009 at 8:44 am Link to this comment

Real wealth and real monetary value is created only when a country (or an individual family) sells something to parties outside of that country (or family) in return for a net transfer of gold or currency from other countries to that country (or family). The citizens of that country reflect their real wealth with the accumulation of grain, gold, cattle, jewels, land, commodities and/or other marketable products for reserve use in times of emergency and/or also to raise the standard of living for the citizens of that country.

The USA has created a situation that US gold, US currency, stocks, title to US properties, businesses, and other US assets are leaving the USA to pay people in foreign countries to manufacture the things that US citizens consume in amounts of annual value that are greater than they would be if US citizens were manufacturing more of the things in the USA that US citizens consumed in the USA. We must change this situation or we will become a post WWI Germany economically. This could happen overnight when we have sold title to all of our real estate, farms, agri-businesses, food supplies, dairies, forests, industries, breweries, hotels, factories, casinos, financial institutions, retail businesses, and all of the other assets located in the USA for freshly printed US Bonds and T-Bills to foreigners in return for their US dollars they earned making things for us to consume, and have nothing of value left to sell. The USA is almost completely de-industrialized, and the government pressure is being applied to eliminate the remainder of our industries with the “Cap and Trade” legislation. Our businesses know that even if they can economically survive this current proposed environmental legislation, more and more environmental legislation will be piled onto them in the future.

The US government also “borrows” US dollars or actually they sell freshly printed-paper T-Bills, US Government Bonds, and other US securities that can be redeemed for title to US real estate at public auction to China, private individuals, and other industrialized countries that earned US dollars (mostly by manufacturing things for international trade) to pay US government expenses including negative balance of trade, wars, military jets with active duty military USAF pilots for the personal use of specially privileged members of congress (Pelosi), employee payrolls, government retirement checks, courts, federal police, failed business bailouts, cash bonuses to the various Wall Street forgers of SEC documents that contributed to political campaigns, Las Vegas corporation junkets for failed corporation employees, foreclosed house mortgages for big spenders with bad credit, new multi-million dollar French manufactured personal corporate jets for political contributor’s bankrupt corporations, pork barrel projects, research contracts, Welfare, Social Security, Medicare, Medicaid, SSI, expensive corporate vacations, new infrastructure, wealth re-distribution, mental health services, imported consumer goods and any other thing that congress and the president decides to use taxpayer money to acquire, build or just give to their political contributors and various other privileged individuals with borrowed US dollars. If taxes taken in each year are not sufficient to pay these expenses, then the government just prints more paper T-Bills, Government Bonds, etc. and sells them at auction for US dollars from people who are holding US dollars (foreign industrial manufacturers) in exchange for these freshly printed T-Bills, Government Bonds, etc.

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By bluelori, July 29, 2009 at 8:37 am Link to this comment

Yes that is a real hoot all right I can hardly contain my laughter at the thought of our own Traitorous Public Officials like the clinton’s selling their souls and our country and people down the river for a few (well ok millions) of pieces of silver!

I laugh everytime I think about the jobs Americans no longer have and the delight I feel about the filthy clintons making tons of $$$ off their china gate deals and just chuckle out loud over how they made sure Ruthless Chinese Dictators can now reach us with missiles when we do not pay up.

Have you gone Insane Scheer?  They are not Capitalists they are Marxist/Communist Dictators whose people have no Human Rights and are forced to work like Slaves or pay the price!

http://archive.newsmax.com/archives/articles/2003/5/26/214938.shtml

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By loneagle, July 29, 2009 at 8:10 am Link to this comment
(Unregistered commenter)

I see that lone figure facing down the tank now, not as a Chinese dissident but as one of us, saying, “forgive us our debt…”

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By Mark Coats, July 29, 2009 at 7:41 am Link to this comment
(Unregistered commenter)

Mr Shearer, you stated that, “If they (the Chinese) don’t, (purchase our treasuries) we’re in big trouble.”  I take issue with Blue Dog talking points like that, which warn that big deficits require us to depend on the beneficence of China to loan us more money.  Dean Baker, one of the few economists who not only warned about the housing bubble but also recognized the Clinton era shenanigans of the Rubin/Summers cabal, has been continually pointing out that China’s treasury purchases are part of a deliberate policy of propping up the dollar against the renminbi.  This makes their exports cheap and is an indirect subsidy of their export market.  As Mr. Baker points out, we have other options if they decided to stop loaning us money.  If the Chinese, “stop buying U.S. government bonds, long-term interest rates would rise. This is not good, but the Fed could offset the increase by buying long-term bonds itself. Will that lead to inflation? We should hope so. Modest inflation (3-4 percent a year) would be an extremely effective way to reduce the indebtedness of households.”  Additionally, “the fall in the dollar would also boost exports, which could provide a substantial lift to the economy.”

http://www.prospect.org/csnc/blogs/beat_the_press_archive?month=07&year=2009&base_name=if_we_dont_reduce_our_deficit

And Paul Krugman has been saying that at 9.5% unemployment, inflation is not our prime concern, especially when you take into consideration the fact that unemployment is expected to peak well above 10% and will likely to be followed by a jobless recovery.  These are not inflationary pressures.

Let’s leave deficit hawkishness to the Chinese and the Blue Dogs.  The Chinese knew exactly what they were doing when they bought our debt and the back stabbing Blue Dogs are the greatest enemies that progressives face.

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By Louise, July 29, 2009 at 6:55 am Link to this comment

Sometimes I wonder, what would the world be like today had we never wasted generations on the Cold War?

Never mind. We know what it would be like ... the Marxists would be firmly in control. Thank goodness we fought that war, eh?

Oh wait a minute, the Marxists are firmly in control ... duh.

Another good lesson in what to expect when the whacko right runs the nation.

Will we ever learn?

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By Big Wes, July 29, 2009 at 5:47 am Link to this comment

@ardee

You make an interesting point.  Instead of a benevolent multinational organization like Starfleet from “Star Trek” working together to advance the human cause, the world will be ran by one or more ruthless profiteering operations like OCP from “Robocop” or the company from the series of Alien movies.  This is, of course, what our corporate overlords have always wanted.  However, their plans didn’t include the Chinese or Middle Eastern oil cartels that now own a large portion of America. 

The American capitalist imperials recognize that we’re on our way to a diminished role in the new world order.  They’re selling everything off now to better their situations before they let the rest of us go down with the ship.  Someday, and its looking sooner rather than later, the Chinese will call to collect on this unsustainable debt, and when we can’t meet our required debt service, this period of financial crisis will look like the best of times to the starving masses.

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By Chris Fretwell, July 29, 2009 at 5:37 am Link to this comment
(Unregistered commenter)

The word protectionism is like a cross in the face of a vampire to politicians but now that we have turned into a country of petty beggars reality kicks us in the ass and we realize protectionism simply means pro-America. This country was fleeced to death.

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By pt109, July 29, 2009 at 4:39 am Link to this comment
(Unregistered commenter)

Do you want to talk about National security? This is even a bigger threat to national security than dependence on foreign oil. When you don’t own your country anymore you become slaves to your creditors.

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By ardee, July 29, 2009 at 3:40 am Link to this comment

A perhaps unintentioned bi-product of globalization is the interdependence of the worlds economy. China has far too great an investment in the US to wish to see its economy continue to falter.

As a sci fi buff I have always pondered the evolution of a world government. As a citizen I now see that governance coming from the boardrooms of giant multi national corporations, whether private or state run.

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By Howie Bledsoe, July 29, 2009 at 2:05 am Link to this comment
(Unregistered commenter)

Nothing warms my heart like seeing these wall street bastrds grovelling to their real masters.

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