Thread: Obama's China Junket

Obama's China Junket: "We're Opening Doors for Wall Street and Nothing More"


by Mike Whitney
information Clearing House
2009-11-17


Barack Obama took Hu Jintao to task this morning, scolding the dejected-looking Chinese leader at a press conference held in Beijing. Obama delivered one ferocious jab after another, claiming that China's dollar-peg has cost the US millions of high-paying manufacturing jobs while creating gigantic trade imbalances which have destabilized the global economy and thrust the world into severe economic contraction. Obama demanded that the Chinese government convert to market-oriented exchange rates immediately to preserve jobs in America and to end the de facto tariff that China applies to US goods through its persistent currency manipulation. Obama's sharply-worded prepared statement left the Chinese President gasping for air while the assembled members of the western media snapped to their feet in raucous applause.

Hard to believe, isn't it? Hard to believe that an American president would stand up for his own people and act in the national interest.

The aforementioned press conference never took place. It's a fairy tale. Barack Obama made a few innocuous comments about repricing the renimbi, but it was all just meaningless blather concocted for the American audience. US policymakers have no intention of rocking-the-boat and upsetting their Chinese benefactors. The system works just fine as it is...for the Big money guys, that is.

Do you know the real reason that Obama is in China?

Obama is carrying on the work of George W. Bush and Henry Paulson. He's trying to pry open Chinese markets to US financial services. That's right, the lavish executive junket doesn't have anything to do with human rights, climate change, or dollar/yuan rebalancing. That's all just public relations mumbo-jumbo. 100% bunkum.

True, China's dollar-peg creates an unfair advantage for China's manufactured goods, but so what? The Congress could change that in a minute by applying trade sanctions. But they won't. Because Congress is owned by Wall Street, and Wall Street thrives on the current system. Here's how it works: China sells the US cheap lead-based widgets, and then recycles the dollars into US Treasurys and "complex and utterly worthless" financial products. This provides the gargantuan investment banks with an endless flow of cheap capital to goose stocks and fatten the bottom line. Of course, the process does have it's shortcomings, like the fact that it crushes the domestic work-force, but that's how it was designed to work anyway. What economists call "unsustainable imbalances" are praised at the big brokerage houses as "windfall profits". The total destruction of the US labor movement is just an added perk for these well-heeled, flag-waving, uber-patriots.

And here's another item that might be of interest to curious readers. This is an excerpt from an interview with Morgan Stanley's Stephen Roach: (read full interview below)

Question: How big are China-based multinational corporations now and how do they factor into this issue of global imbalances?

Stephen Roach: "They're a big deal. Over 60 percent of export growth over the past twelve years has come from growth by Chinese subsidiaries of Western multinationals, but again the problem I have is that too many in the United States, especially the Congress but also Washington, focus on the bilateral trade imbalance between the United States and China. That's just a fundamental economic mistake that's being made."

Hmmm. So, a large portion of China's industrial capacity is actually "China-based multinational corporations". Now that's interesting. So US workers are actually competing with US industries that are using sweatshop labor to enrich themselves while savaging the American middle class. Great. I wonder how many of these "industry leaders" affix the stars-n-stripes to their lapel each morning before they trundle off to work?

This just proves that the outsourcing of jobs, the off-shoring of businesses, and the "free trade" laws are mainly the work of cutthroat American corporatists not the "rascally Chinese" as the media would like everyone to believe. China is not destroying America; blue-blooded, brandy-guzzling, Harvard-educated Americans are. It's just good-old-fashioned class warfare....and our class is losing.

For those who want to know what Obama's trip is really all about, ignore Obama altogether and read Treasury Secretary Timothy Geithner's article in the Wall Street Journal, "The Road Ahead for Asia's Economies." It tells the whole story. Geithner candidly admits that US markets will remain stagnant for years to come and that other emerging nations (ie China) will have to develop their own domestic markets so that Wall Street speculators can attach themselves parasitically to a more succulent host.
(read full article below)

Timothy Geithner: "As U.S. households save more and the U.S. reduces its fiscal deficit, others must spur greater growth of private demand in their own economies......We also must keep our sights on maximizing the potential of global markets. Both exports and imports remain critical stimulate the flow of knowledge and innovation that is enabling emerging economies to catch up with developed-world living standards....To achieve durable growth, all of our economies must have flexible labor markets."

In other words, more lowering of trade barriers, more lost jobs at home, more unemployment.

Geithner again: "Each of us has recognized the importance of strong financial regulation and fiscal balance, and is pursuing these goals in ways that reflect our own circumstances but complement each others' efforts."

Check.

The article concludes with a spirited appeal from Geithner to China to open its markets to the gaggle of financial pirates and bank-vermin who just blew up the global system and are looking for new prey.

Geithner again: "Among other things, emerging economies must strengthen their social safety nets through sustainable health and retirement-benefit schemes,(re: Wall Street) thus reducing the need for high precautionary saving that contributes to global imbalances. Regulatory frameworks conducive to competitive markets will support private enterprise, investment and innovation. (re: MBS, CDOs, CDS and other debt-backed exotica) In the emerging economies, deeper and more efficient financial markets will enable better intermediation of savings and enhance investment productivity.(re: "Please, let G-Sax and JPM hang their shingles in Tienanmen Square. We promise we won't blow up your financial system like we did ours.")

Reforms are also necessary to promote cross-border private investments, while ensuring an institutional capacity and prudent regulatory framework to enable markets to absorb capital flows ... finance ministers of our respective countries, we are keenly aware that our future prosperity will be founded on a continued commitment to globalization." (Timothy Geithner, Wall Street Journal, "The Road Ahead for Asia's Economies")

Summary: Geithner and Co. see the US economy languishing in a low-grade Depression for the foreseeable future, therefore, Wall Street must progressively move its base-of-operations eastward.

This is the real reason behind Obama's trip to China. There's no truth to the rumor that US policymakers care about "currency manipulation" or the ongoing looting of the American middle class. That's rubbish. China's "dollar-peg" essentially serves the interests of the giant multinational corporations and Wall Street speculators who own the media, the courts, the congress, the White House and most of the country.

http://www.globalresearch.ca/index.php? ... &aid=16152

Avoiding a US-China Trade Showdown


Interviewee: Stephen S. Roach, Chairman, Morgan Stanley Asia
Interviewer: Roya Wolverson, Staff Writer, CFR.org

Council on Foreign Relations
October 22, 2009


U.S. Federal Reserve Chairman Ben Bernanke has warned that the global imbalances between the United States and China must be addressed immediately to prevent future economic crises. U.S. policymakers and experts have asserted that an undervalued Chinese yuan is largely to blame for these imbalances and that China's currency should be revalued to help close the U.S.-China trade gap. Stephen Roach, chairman of the Asia branch of U.S. banking giant Morgan Stanley, says that argument is flawed. He says the undervalued yuan is a political "red herring," since currency adjustment or trade sanctions against China would not help reduce the U.S. deficit but shift the U.S. demand for imports to other more costly exporters. Instead, the United States should be pushing China to create a social safety net that would encourage its population to spend more savings on domestic consumption. Roach expresses concern the United States will enact more protectionist policies against China in response to domestic political pressure over rising U.S. unemployment and slow growth.

In the past you've argued that a significant revaluation of China's currency would prove ineffective in resolving global trade imbalances because of the country's fractured political and banking systems. Has your view changed?

This whole exchange rate issue is a red-herring. It won't help the world deal with global imbalances, let alone China. It's true, in the U.S. we've been in a down-trend with the dollar now for seven-and-a-half years and apart from this recent cyclical reduction in our trade deficit, it's had virtually no impact on the structural savings deficit that the United States has. The same thing is true on the Chinese side of the equation. China needs to stimulate internal private consumption to deal with its piece of the global imbalance equation and the currency adjustment of the renminbi is really a relatively insignificant part of that adjustment process.

To what extent does China have the means to reduce its domestic savings and wean itself off of an export-based economy? If not through the exchange rate, then how?

It's got a lot of options to pursue. The one that is potentially most significant would be to build out the social safety net in terms of investing significantly in social security, private pensions, medical insurance, [and] unemployment insurance. There are other things that China can do on the private consumption front like boosting rural incomes, and fostering the development of domestic consumer product and service providing industries. But the safety net is the single most important thing that can be done, rather than focus on the currency.

How big are China-based multinational corporations now and how do they factor into this issue of global imbalances?

They're a big deal. Over 60 percent of export growth over the past twelve years has come from growth by Chinese subsidiaries of Western multinationals, but again the problem I have is that too many in the United States, especially the Congress but also Washington, focus on the bilateral trade imbalance between the United States and China. That's just a fundamental economic mistake that's being made. We don't have a bilateral trade problem with China. We have a multilateral trade problem with over one-hundred different trading partners. Last year, the United States ran bilateral trade deficit with almost one-hundred countries. And the reason for that is that we have a savings problem. And when you have a major savings problem, you have to import surplus savings from abroad in order to grow and you run multilateral trade deficits with a broad cross-section of a number of economies. The Chinese piece is the biggest because of the outsourcing decisions made by U.S. multinationals that you alluded to. But if we were to close down trade with China through some ill-begotten trade legislation or currency adjustment, we don't save the deficit. It just goes somewhere else. And they usually go to a higher-cost producer, which taxes the American public.

Do you expect the United States to take more protectionist measures with China in the future, and if so, how will that affect global imbalances?

I hope not, but I wouldn't rule it out. There's a risk in 2010 that narrow-minded U.S. politicians could contemplate once again bipartisan trade sanctions imposed on China. The unemployment rate is extremely high. The discontent from the American work force is extremely high. The inclination for politically inspired China bashing is extremely high, and so [although] trade sanctions against China are wrong [and] not well thought out, there's at least a 30 to 40 percent change they could happen.

Analysts worry that ballooning U.S. debt levels could lead to a devalued U.S. dollar, inflation, and stifled economic growth. Meanwhile, China is worried about its U.S. debt holdings losing value over time. Which country has more to lose from the U.S. debt problem?

It's a much greater risk for China than it is for the United States. The United States is dependent on Chinese exports because we're living beyond our means. We don't save. And when you don't save, you need savings from abroad to close the gap, and you have to run massive current account and trade deficits to [do] that, which means you become reliant on goods made outside the United States. This is the choice that we've made. If we want to redirect our economy away from excess consumption towards more of a savings-based economy, then and only then, can we wean ourselves off of Chinese products. China certainly has gotten the message loud and clear that the external demand underpinnings of the old export-led model aren't going to work the way they used to and that's a critical outgrowth of what's likely to be a multiyear shock to consumer demand growth in the United States. So China knows what's going to happen. The question is do they believe it and are they now formulating strategy on the basis of that possibility. The United States right now is probably operating under the misguided assumption that China's going to be there to just buy Treasury debt for years to come. And the odds are that that will probably not occur, at least [not] on the financing terms the United States has been able to get for selling its debt to international investors for the last several years.

Is China putting policies in place to induce domestic consumption?

No, they're not. They're sort of talking the talk, but they're not walking the walk. When they realize that the U.S. consumer is not going to come back with the vigor the sector has displayed over the last twelve years that will be their wakeup call to do more in the way of heavy-lifting on these pro-consumer policies. I think right now, the policies they put in place have been rather disappointing.

There's a lot of speculation about the demise of the U.S. dollar and whether another currency could take its place internationally in future. Do you see that happening? If so, when?

Reports of the demise of the dollar are greatly exaggerated. The dollar is under downward pressure. Over the last seven and half years, the average annualized decline has been about 3.5 percent, which is hardly a disaster. Like any secular downtrend, there's always a crisis scenario that you could worry about. And to me, the biggest reason to worry about a more precipitous decline of the dollar would be if the U.S. Congress were to enact bipartisan trade sanctions against China and President Obama were to let them go through and go into law. That would be much more consistent with a dollar collapse scenario.

Will the dollar be replaced in the long term?

The dollar's role as the dominant reserve currency is going to remain intact for several more decades. There will come a time, hopefully gradually, where the world is more advanced down the road of globalization, [when] economic power is spread more evenly around, not just in the supply side of the world but in the demand side of the world. At that point, it would appropriate to think more about a multi-currency reserve system. It could be along the lines of the IMF's Special Drawing Right, but this is going to take I'd say fifteen to twenty years at a minimum.

Do you see Chinese government shifting toward greater support of entrepreneurship or state-run industry?

No, they're moving much more toward privatization [or], as we say in China, the corporatization of state-owned enterprises. From time to time, there's an ebb and flow in terms of their commitment, but I don't buy the notion that because of a big surge in bank lending you have to call China a more statist economy today than it was going into the crisis. They've been pretty much a government-directed policy machine since the inception of the People's Republic of China sixty years ago. They've backed away from some of that, but you know, there's still an important legacy of public sector involvement and control. It's been shifting [toward liberalization] for the last fifteen years under the guise of state and enterprise reform. It'll continue to shift in the years ahead, but the shifts are uneven. There are periodic setbacks because of the business cycle, such as what we're seeing right now. But I think the direction is set.

http://www.cfr.org/publication/20486/av ... er%20Roach

The Road Ahead for Asia's Economies
The U.S. and its trading partners together can plot a course for robust growth.


By TIMOTHY GEITHNER, SRI MULYANI INDRAWATI AND THARMAN SHANMUGARATNAM
Wall Street Journal
November 11, 2009


We have just lived through the greatest challenge to the world economy in generations. In acting together, policy makers have shown that they understand the most important lesson of this crisis: Our economies are inexorably linked. We must now work together to ensure strong, stable and balanced growth in the future.

That is why we will be working together at this week's Asia-Pacific Economic Cooperation (APEC) meeting in Singapore to couple adjustment in deficit countries like the U.S. with the more rapid growth of domestic demand in surplus countries. As U.S. households save more and the U.S. reduces its fiscal deficit, others must spur greater growth of private demand in their own economies.

We also must keep our sights on maximizing the potential of global markets. Both exports and imports remain critical stimulate the flow of knowledge and innovation that is enabling emerging economies to catch up with developed-world living standards.

APEC will play an indispensable role in establishing strong, sustainable and balanced growth. Our 21 members—which include nine members of the G-20—account for 40% of the world's population, over half of global GDP and nearly half of world trade. Our ranks include the world's largest and fastest-growing economies. In the past two decades, we have promoted open markets by lowering tariffs among member economies by two-thirds and expanding trade by five-fold. No group is better-positioned to carry forward the principles for rebalancing global growth that the G-20 leaders agreed to in Pittsburgh in September.

Each of us already has adopted fiscal and monetary policies that are helping to revive growth in our individual economies and reinforcing each others' efforts. Each of us is working to keep our markets open and to avoid retreating behind trade and financial barriers. Each of us has recognized the importance of strong financial regulation and fiscal balance, and is pursuing these goals in ways that reflect our own circumstances but complement each others' efforts.

APEC members' priorities have to be focused increasingly on strategies to sustain private demand growth as fiscal stimulus measures are gradually unwound. Depending on individual economies' circumstances, a combination of macroeconomic policy adjustments and structural reforms will be needed. Market-oriented exchange rates in line with economic fundamentals will be essential in assuring the resource and sectoral shifts to match and foster the new patterns of demand.

To achieve durable growth, all of our economies must have flexible labor markets and an educated labor force. Among other things, emerging economies must strengthen their social safety nets through sustainable health and retirement-benefit schemes, thus reducing the need for high precautionary saving that contributes to global imbalances.

Regulatory frameworks conducive to competitive markets will support private enterprise, investment and innovation. Advanced economies are working hard to improve their financial regulations, to ensure that a crisis of this magnitude cannot happen again. And in the emerging economies, deeper and more efficient financial markets will enable better intermediation of savings and enhance investment productivity.

Reforms are also necessary to promote cross-border private investments, while ensuring an institutional capacity and prudent regulatory framework to enable markets to absorb capital flows that may be large and volatile. We remain committed to APEC's work to combat money laundering and terrorist financing. And as finance ministers of our respective countries, we are keenly aware that our future prosperity will be founded on a continued commitment to globalization.

The events of the last year have shown that our economies are bound together inextricably, and in more complex ways than we previously recognized. APEC members must forge a partnership of common interests to produce strong and balanced growth among our economies. We must reinvigorate the framework of cooperation to ensure that relations between our nations are as positive and mutually productive in the future as they have been in the past.

Mr. Geithner is the U.S. Treasury secretary. Ms. Mulyani and Mr. Shanmugaratnam are finance ministers of Indonesia and Singapore, respectively.

http://online.wsj.com/article/SB1000142 ... 38822.html