Could Boycotting GE Embolden America Against Globalization?

After having written extensively about the soulless, profit seeking nature of corporations that house their headquarters and claim “citizenship” within the borders of the United States, you will find no arguments here about the nationality of multinational corporations. Even though the Supreme Court of the United States ruled that corporations which spend $150 to file as “citizens” of the United States are indeed citizens, I would not be so naive as to believe its politically subjective error.

Even though America expects immigrants wishing to become citizens of the United States to exhibit patriotism for our beloved country, you will find no argument from me that corporations, attributed by our Supreme Court as “citizens”, should exhibit patriotism for our country. Patriotism, a devotion to one’s country, implies that “citizens” experience the love for and focus their attention on the needs of one’s country. For a corporation to be patriotic, it would put the needs of our country on par with the profit desires of its shareholders. Globalization has long since drowned the concept of shared stakeholders, save for one driving force, international shareholder profits.

My motivation for boycotting General Electric is not to punish GE for acting out its nature as a multinational corporation to create profits for its shareholders even when it harms the United States. My motivation for boycotting GE isn’t even to punish Jeffrey Immelt, who accepted President Obama’s appointment to work for American jobs while at the same time directing his corporation to drive jobs out of America. Corporations and their extravagantly paid CEOs act as one instinctual great white shark spreading throughout the world’s oceans, feasting on the most profitable of opportunities. No American boycott could lessen that profit motive, and no boycott could cause GE to have an epiphany of guilt, driving it to express an unnatural corporate patriotism.

My motivation for having America boycott GE is to have America wake up to the true nature of our modern multinational corporations. GE was the quintessential “American Corporation”, the darling of American business during the 1980s and 1990s, presiding over the silent gutting of America as 40,000 factories left our shores for the East. Now that the curtain has been lifted from the Wizard of Oz, we see Jack Welch’s progeny exposed in a lurid, multibillion dollar, one night stand with China, agreeing to a joint venture that not only takes jobs from America, but that competes directly with other American businesses and that gives American intellectual property of direct import to our national security to the Chinese.

By boycotting GE, I would hope that Americans could gain the understanding that corporations are not “citizens” of America and that they have singular profit motivations that do not necessarily align with the security and welfare of our nation. By boycotting GE, I would hope that Americans would challenge those politicians that dare to continue to provide cover for “free trade” and globalization through passage of lobbyist led anti-American legislation. By boycotting GE, I would hope to awaken our regulators to finally act on behalf of our country over the objections of great white sharks of profit that have found America such an easy victim over the past 30 years.

Once America is awakened, we can finally embolden our political leadership to act in the interest of all Americans, to create incentives for these profit motivated monoliths to reinvest in our country, to create a business environment that will help align their interests with those of the United States, and to disincentivize corporations from mindlessly making decisions on behalf of shareholders without cautiously considering America as an important stakeholder in their risk adjusted, profit motive decisions. Boycotting GE is America’s future displayed in effigy.

America Must Force Her Politicians to Acknowledge that American Factories are Better than Free Trade

China now commands a majority of all the hegemonic commodity relationships of the Earth, processing the following within her shores:
… 53% of the world’s cement
… 48% of the world’s iron ore
… 47% of the world’s coal
… And the majority of just about every major commodity.

In 2010, China produced 11 times more steel than the United States and set a new world record by manufacturing and selling over 18 million vehicles in 2010. These are not the statistics of a country on the heels of the United States, or even more naively, on the wane. They are the statistics of the greatest industrial strength of the world.

To prepare for this phenomenal level of production, China installed supporting infrastructure, taking on debt. Some experts have suggested that China’s governmental debt obligation now exceeds 150 percent of her GDP, much higher than the United States’ total governmental debt ratio at 122 percent and slightly higher than Greece’s 140 percent debt ratio. Since Greece is the whipping boy of the world right now, causing its government to incite riots as it attempts to curtail its governmental spending, why is it that the world’s credit rating agencies are not downgrading China’s credit rating when her debt ratio is worse?

Why is it that a week before S&P came out to disparage America’s credit rating, she was egged on by Dagong, China’s premier rating agency? A week before S&P gave Fonda like cover for China’s government to chastise America for our government’s debt, Dagong bypassed her own government’s sizable debt issue and downgraded the United States’ credit rating for having a debt that is 30 percent lower as a percentage of GDP than Dagong’s own country’s debt. The question is, did S&P get it right?

The answer may be better understood by looking at the reason for each country’s debt. During a business upswing, the debt a country takes on may be indicative of their future financial strength and not their financial straits. In the case of China, that has been experiencing three decades of meteoric rise in productive capacity, her government has been increasing debt to place infrastructure ahead of production. While China has played the edge of keeping her business cycle from turning down while greatly investing in infrastructure investment that at times significantly precedes production, China’s ability to eventually pay her debt is much greater than the United States, whose productive capacity has not been keeping up with our government’s spending for decades.

China’s surge of infrastructure and productive capacity has preceded government revenues, but will ultimately be covered by her rising private economy, even if inefficiently. However, in America’s stagnant economy that is not rising as fast as its government’s debt obligations, our rising government debt will ultimately choke off private business growth and cause an even greater debt ratio to occur.

China’s debt has been used for infrastructure to support productivity increases. However, the United States’ federal debt has been overwhelmed by military and entitlement payments, which ultimately takes from productive business growth. Our consumer debt is worse. Instead of investing in domestic long term efficient assets, our excessive consumer debt has left us with huge piles of plastic landfill rubbish and large tracks of unused, foreclosed, and obsolescing housing. However, some consumer debt, including home equity debt, was used to funnel money into the stock market, much of which found its way to China as equity for Chinese foreign direct investments.

China’s private economy is strapped with high debt that is susceptible to economic downturn. Variability of cash flow during the peaks and troughs of business cycles have historically set the amount of equity needed to sustain businesses in different industries. However, at the zenith of financial bubbles like we experienced, historical debt/equity ratios are thrown out in favor of getting the deal done. Many China deals were highly leveraged, 100 percent debt, non-recourse loans.

At the coming trough of this exaggerated business cycle, China may have factories that cannot pay their debt payments, tens of thousands that cannot be lifted off their foundations and returned to the equity investors. If this cycle, trends hugely negative, lenders will be forced to restructure loans causing Western equity investors not to receive the returns they had hoped and evaporating trillions of equity from the New York Stock Exchange, equity that was provided from the West.

Unlike equity in normal business cycles, this equity came from millions of Westerners hawking their home equity collateral for loans that were then reinvested as equity in China deals. If the business cycle makes an excessive swing, the debt acquired by Americans and other westerners to provide the equity for China’s deals will go into default and creditors will foreclose on the collateral of those assets to cover losses. In this world economic monetary retraction, all suffer but China has the best of the bad outcomes.

While China positioned herself to transition through this potentially worst upcoming economic retraction in history in much better condition than the West, this does not mean that the United States should sit idly by and waste whatever pre-trough time we have left. It is critical for America’s national security that we bring a few jobs back to America’s shores. America has the largest military power ever assembled. Yet China has the ability to re-supply her military at an alarmingly faster rate than we can re-supply ours. This made the difference in WWII as in most large wars of attrition, and America has left her manufacturing flank grossly unprotected.

So a critical factor for our national security and economy is to help businesses that employ the American workforce to improve competiveness. Ultimately, the differential cost of operating in America versus overseas, weighted for risks, has to be driven to zero to assist those companies that wish to remain in America to stay competitive and to survive. Yet businesses are continuing to leave America for China and other emerging countries, suggesting that in some cases the cost burden asked of our businesses is too high.

For the 40,000 factories that have left America for China, they have been driven by financial choices: (1) the cost of supplying America is less in China even including transportation back to the U.S. (2) the cost of supplying both the U.S. and China is reduced by building larger capacity in China to supply both countries or (3) the cost of not building in China is too great, because China will not give access to her market unless factories to supply it are built in China.

To stave off further loss of businesses to overseas locations and to entice others back to America, for the choices above (1) costs of factories to supply our domestic markets must be driven down to match leading edge international costs. For (2) if the market is greater in China (a huge advantage for her) the cost of building capacity in America large enough to also supply China, with the corresponding scale efficiencies, must overcome the much greater transportation costs of moving many more goods to China than the fewer goods consumed in America. For (3) the costs of building in the U.S. must now also overcome lost opportunity costs of losing China’s market.

Certainly (1) driving down costs to match international costs is fraught with political traps such as minimum wages that must be managed to succeed. (1) However, building capacity to fulfill local demand is much easier than (3) overcoming opportunity costs of being closed out of China’s markets. Yet, if we accept premise (3), we are accepting an unlevel playing field imposed by China.

Corporations understand China’s imposition and do not react as if it as unlevel. MNCs do not have loyalty to build in any one country and therefore do not see building in China to gain access to Chinese market as a detriment per se. MNCs see the opportunity to build mega factories to supply both China and the U.S. as an economic boon. However, that is because China’s building impositions have thus far not caused other countries to respond negatively with tariffs and other retributions. (Why?)

No, the detriment is to the government of the United States and to our working class. Our government’s politicians, who have not yet taken actions in favor of America’s working class, must finally be forced to acknowledge that America’s middle class and the American government that is supported by their taxes has different motives than the multinational corporations that fly our flag. We should do everything in our power to see that our government’s and corporations’ interests align but when they do not, we can no longer feign ignorance.

Will We Let Free Trade Finish Its Gutting of America?

Tariffs have long been both the nemesis and the whipping boy of the advocates of free trade. Whenever America falls into recession, advocates of jobs tout tariffs yet free traders nonetheless target them as enemies of consumers. They point to low cost goods that have helped American consumers during our recessions as a universal benefit. What they cannot show is whether the benefit of low cost goods offsets the millions of American jobs that have been lost as a result of free trade. But if free trade with the East has severely harmed America, free traders have somehow thus far escaped the scathe of America for having put free trade in motion and having failed to reverse direction when their message was proven hurtful to our national security.

A disciplined look at the use of tariffs would show that win-win free trading between nations of equals is indeed helpful to both nations and requires no tariffs. However, that same objective review would show that free trade between dissimilarly wealthy nations allows the less wealthy nation to extract the wealth and jobs of its trading “partner” and when this principle is put on steroids, the less wealthy nation can collapse the wealthier nation.

In the case of America, a lack of tariffs allowed China to create a lending practice of “live filleting”. She stripped the meat of America‘s economy right from our bones without even using western anesthesia. Instead she fed us our own dollars as loans to keep our interest rates down while artificially suppressing her currency to keep her product prices low for our consumers, a unique kind of Eastern financial acupuncture.

She is now setting about to pull the free trade needles from the pressure points of America’s political nervous system, having instructed her credit agency Dagong to start this credit downgrading slippery slope. When she does, we will all feel the stinging pain of a raw economy stripped bare of its future. The higher prices of American goods that we thought we escaped through our addiction to China’s low priced goods were just temporarily delayed through borrowing three billion dollars of debt from China. The price we will now pay for decades of higher interest rates as we struggle to rebuild our economy will more than offset the folly of our “free market” dalliances.

Could American’s rights to own property have combined with free trade to allow China’s gutting of our country? Property rights were as an essential capitalist core of our Constitution as they were for the ancient civilization of Rome. Property rights are critical for the creation of elite’s wealth and without them capitalism cannot exist, globalization cannot thrive, and a nation’s elite cannot transfer the wealth of their country to other nations for personal gain. Therefore property rights allow gutting.

How so? People that own the value of a country, let’s say U.S. capitalists, transplant that value as factories to another country, China, who uses them to create goods for the U.S.. That transplanting of capital transfers competitive advantage to China so that American jobs are lost and America’s middle class loses purchasing power. To buy China’s goods, Americans then borrow dollars from international banks and exchange the dollars for the goods created in China. Because jobs are lost, America’s government loses tax revenue and borrows dollars from China who then loans some of those dollars back to the people through their government. The U.S. government then gives the dollars to government employees who buy more Chinese goods.

Some of the dollars that are given to China are given back to the capitalist who then borrows more dollars from international banks who create those dollars from thin air. The capitalist then uses both the dollars given by China and those created by the banks to transfer them back to China as more factories which displace more American workers.

As this cycle repeats over and over, 40,000 factories are transplanted, 8 million workers are displaced, $3 trillion dollars are borrowed from China by the U.S. government, and $8 trillion dollars are borrowed by the American people from international banks who multiply this $8 trillion into $45 trillion of credit default swaps to extract even more capital from the capitalists to invest even more into factories in China.

In the end, China has a bunch of factories to make goods for their 1.3 billion internal customers and has hegemonic relationships with the world’s commodity suppliers because America no longer has factories that need them. China raises her currency’s value because she now needs her citizens to buy her factory goods and she stops funding America’s deficits so that our interest rates rise. The American government and American middle class are indebted to China and now must pay more interest.

The American capitalist has his net worth sitting along China’s shore in danger of being nationalized when China’s currency raises to the point that American people can no longer afford to buy China’s goods. The international banks have a good amount of value invested in these dangerously leveraged Chinese factories and their financial assets, loans to America’s middle class, are stretched wafer thin by Americans who borrowed more than they could afford and by corporate credit default swaps that also rest on a house of cards of American middle class debt.

Middle America’s debt is in danger of default as it is supported less and less by jobs that are pouring one by one as sand granules through the neck of an hour glass to China. When the last grain of sand needed to keep the cycle going slips through the neck, the Western financial system collapses, China retains the factories with over a billion internal customers, and America’s elite and middle class are left to fight over who will continue to pay the debt and who will escape financial calamity through default.

So when we talk of property rights, we are talking about the rights of a country’s elite and international bankers to create massive capital flow engines to drain the wealth of one civilization to another. Absent government intervention of tariffs and other financial tools or ultimately of war, when wealth differentials exist between civilizations, property rights and banking create the opportunity for wealth differential arbitrage. When nations of relatively equal wealth trade or exchange value through direct foreign investment, free trade creates a marriage of sorts. However, when wealth differential exists, arbitrage can destroy the value of the wealthier nation in favor of the emerging one.

This is the awesome power and the fatal flaw of capitalism when combined with international property rights. In 1871, Europe’s power was transferred to America through this frenzied flaw and they were left with a 20 year depression before recovering. Now it is America’s turn to suffer the flaw of property rights that were cemented in our rule of law by the Supreme Court of the United States. Most of the horses are already out of the barn. That does not mean we shouldn’t dust off a modern version of tariffs to reverse what outward flow remains.

Kyoto Protocols Would Have Accelerated China’s Plan to Reverse-Exploit EurAmerica

In 1978, the year China emerged onto the world stage with its four modernizations, China, a country with four times the population of the United States, had a paltry gross domestic product of $216 billion, less than eight percent of the United States. China exposed her strategy of four modernizations to the world as if to say,”Please invest in China and we will ensure that our workforce is educated, and that our business infrastructure is stable for your investment.” Yet, this openly expressed strategy, that may have seemed to the rest of the world as a difficult but noble goal for China to achieve, was only the tip of China’s Grand Plan, and only the part she wanted the world to see.

EurAmerica’s history with China was one of gunboat diplomacy, exploitation, and forced trading. When China opened her borders again in 1979, EurAmerica’s merchants were enthusiastic to exploit an opportunity once again. Yet, China had not forgotten EurAmerica’s role in the Opium War, the Sino-Japanese War, and the Boxer Rebellion. China would never open her border again to be exploited. When she finally opened her border in 1979, it was from a position of power, deep strategy, and long lived planning that suggested EurAmerica was finally ripe for reverse exploitation. China’s grand plan was to emerge as the 21st century world power.

What boldness of purpose China must have felt as she aligned her nation’s efforts to that decade’s long task. Looking back today on her impossible achievements, one must give pause to the monumental economic goal she set for herself in 1978, indeed greater than America’s technical goal of landing on the moon early in 1961. Yet, with such a miniscule $216 billion GDP and few material assets how could China possibly build her empire to surpass that of the United States?

Through a hybrid statist-capitalist political structure, China would create a conduit through which American businesses would willingly draw down the wealth of Europe and America and transfer it to China in order to share in the prosperity of that wealth transfer. Through the centralized imposition of forced savings on its people, China would provide low cost labor to sell goods at low enough prices to cause EurAmerica to look the other way as their neighbors’ jobs went to China. Through low interest loans, China would entice EurAmerican politicians to spend beyond their means to temporarily ease the pain of EurAmerica as China’s sucked away their life force. These were the basis of her strategy.

Similarly to how a business cycle contains early adopters and late stage laggards, China planned a capital extraction cycle for EurAmerica, in which China would extract capital in multiple phases, each phase having an optimal extraction strategy. First extraction would be through the early adopter “gold rush” investors rushing into China to stake a claim. China would also plan for early majority, late majority and laggard’s capital extraction.

In 1978, China assessed America’s assets:
• America’s most valuable assets were intellectual capital that resulted from 200 years of publicly funded primary and publicly subsidized secondary education
• America’s physical assets included business assets, commercial, and residential real estate worth $7 trillion in addition to public assets of land, buildings, and infrastructure
• America produced 26% of the world’s GDP at $2.8 trillion and consumed a quarter of the world’s goods
• America’s debt was as low as it had been since WWII as a percentage of GDP and its 110 million workers were capable of doubling their loans to provide China more capital
• America’s Baby boomers were entering a peak spending phase followed by peak saving
• America’s constitutional republic allowed a relative few capitalists to control the direction of her economy

By 1978, multinational corporations had steadily grown in number and size for two decades. China’s success depended on corralling MNCs through direct foreign investment to create massive inflows of capital quickly monetized as hard assets and infrastructure.

China would entice merchants to invest by offering access to the future potential purchasing power of its people. However, given China’s low household incomes, market penetration would be low to start. Therefore, to entice the early adopters, China would create special economic zones that provided the perfect investment opportunity of cheap educated labor, loose regulation, low taxation, strengthened business law, and enhanced infrastructure and transportation, in which businesses could produce goods at very low arbitrage costs to sell back to their home countries for high margins.

With low cost of goods from special economic zones, early adopter businesses were highly profitable and banks poured investment into China as a result. But, China could not complete her Grand Plan to multiply her GDP 50 times by enticing early adopter investors alone. She had to implement a plan timed to extract maximum dollars from EurAmerica at each phase of her exponential growth.

During the next stage, the early majority stage, China manipulated baby boomers’ peak spending phase:
• China’s low prices secured America’s baby boomers as loyal customers
• Prior to America noticing a substantial loss of jobs, China secured free trade agreements, and mined American businesses for their intellectual capital.
• She reinvested profits back into America’s debt to keep America’s interest rates artificially low in order to spur on higher levels of consumer spending and government borrowing.
• China supported lobbying of America’s mass investment vehicles to fund MNCs. 401Ks and IRAs, created in ‘80and ’81, funneled money through the stock market into MNCs for investment into China.

Then, America was drawn into the late majority stage as America’s baby boomers entered their peak saving years. 401Ks and IRAs artificially fed the stock market frenzy. Baby boomers sensed they knew how to invest in a bubble market that kept rising. With access to low interest rate loans kept low by China’s reinvestment, speculators borrowed money to bet on the rising stock market. America ultimately increased its debt to pump up stock values to build more Chinese factories.

Inevitably, the stock market bubble burst, leaving America’s baby boomers with lower retirement savings. The stock market that seemed destined to go up forever finally reversed rapidly decreasing valuations. However, the debt that had funded its escalation remained.

During the late majority phase:
• More businesses began to invest in China just to remain competitive with businesses that had moved offshore earlier.
• Tens of thousands of businesses transferred factories to China to obtain low cost labor
• Millions of Americans lost jobs
• With a generation of education completed, China now was able to take more advanced jobs as well as factory jobs. America’s bastion of protected, more technically competent jobs was not a bastion after all.
• American retail outlets for Chinese goods grew exponentially
• China continued to loan its excess profits back to the American government to keep interest rates low.
After having lived through the weakness of the stock market, real estate appeared to be the baby boomers’ best retirement savings alternative. In the early stages of the Great Ponsi, housing prices went steadily up. With low interest rates, Americans could now borrow on the value of their homes to continue funding China’s growth. China’s final stages of extraction saw the housing bubble increase beyond what had ever been experienced before.

Even though American jobs were increasingly being driven offshore, the frenzy of increased housing prices allowed additional borrowing from Americans, feeding the China gold rush further. This behavior was not unexpected, following a pattern of historical boom-bust cycles and was part of China’s planning. As a result of the stock bubble and the housing bubble, America’s total debt had risen to over $55 trillion. With such exuberance in the housing market, secondary debt markets participated in credit default swaps to the tune of an additional $42 trillion. China now had extracted close to the maximum of America’s value, leaving America with the corresponding debt.

So China extracted maximum value, first in trade secrets and early adoptive money, then by IRAs and 401Ks, then by stock market and home equity loans, then by 2nd mortgages and housing speculation. China monetized the massive cash flows as quickly as possible, building infrastructure and excess manufacturing capacity, while leaving America holding debt in exchange.

Without any other rising asset values to borrow from, America has tapped out its debt. Having maxed its debt, America can only print money to finance its trade deficits. Without further real debt derived money extraction to give China for infrastructure investment and without a real ability to pay for low cost Chinese goods, America is fast losing her worth to China as an infrastructure vehicle. Recognizing that maximized extraction and rapid monetization of America’s wealth is nearing its end, China is now finalizing the implementation of her strategy, that of pulling out of American debt before other countries that maintain reserve currencies create a run on the dollar.

In thirty short years, China was able to accelerate her GDP from $216 billion to $11 trillion. She amassed reserve capital of $3 trillion. She reversed America’s fortunes from the greatest creditor nation to the greatest debtor nation. She gutted America’s factories while creating the world’s largest manufacturing base in her own country. A measure of output that highly correlates to GDP is energy consumption. In June of this year, 2011, China surpassed the United States as the largest consumer of energy on the planet. While the U.S consumes 19 percent of the world’s energy, China consumes 20.3 percent.

In 1992, the world came together to discuss the impact of climate change resulting from energy consumption. The talks resulted in Kyoto protocols being initially adopted in 1997 that attempted to create a framework for reducing greenhouse emissions. The protocols called for 33 industrialized nations to reduce their greenhouse gases to 1990 levels and then to maintain emissions at those levels. Although it called for emerging countries like China to voluntarily lower levels, it did not require them to be mandated.

Of course, all of the countries who had no requirements to reduce their emissions signed the agreement. The United States, under scrutiny from environmentalists and others did not sign. China did sign. This was an additional strategy perhaps not envisioned in 1978 that nonetheless would have assisted in accelerating America’s slide had we signed.

GDP highly correlates to energy usage. In 1990, America’s real GDP was about $8 trillion as compared to $14 trillion in 2011. Kyoto would have caused America to either:
• Invest billions in the attempt to lower our energy usage per dollar of GDP
• Pay billions to other countries to have them produce less so that we could grow our GDP from $8 to $14 trillion
• Or, maintain our GDP at 8 trillion

In the meantime, China’s GDP in 1990 was $1.3 trillion and has since grown to over $10 trillion. China’s energy use has correspondingly grown as well until the point that this month, she overtook America as the greatest polluter. Kyoto was a grand idea that was doomed from the start because of the flaw that allowed the now greatest polluter to play by different rules. It attempted to cap the economic growth of America while allowing other countries to grow unfettered.

China had a Grand Plan that has been executed with the finesse expected of a centrally planned economy. Kyoto added nicely to that plan. America has been thwarted by China’s plan but now has the ability to reverse course. Given China’s size and growth rate, she will pass us soon if she has not already and her stride will be too great for us to catch her. However, by avoiding traps like Kyoto, and understanding that economic gamesmanship can accomplish a much greater destruction of a nation’s wealth than warfare ever could, perhaps America can once again right its course.

A Triumphant Cake for the Return of China’s Empire

When making a cake for a great celebration, the baker uses the same ingredients as when baking a small 10” diameter cake, he just uses a lot more. When the world first saw China stirring up batter, they thought somehow this poor country surely was beginning to make a little 10 “ diameter cake. Now that they see the size of China’s great celebratory cake, some view it as so great that it could feed all of their cake eaters back home five times over. Surely this cake must be too big and therefore China’s baker must be on the verge of closing shop for having so foolishly made such a big cake. For those that still think China’s cake is too big, they just haven’t yet grasped the size of her guest invitation list.

When China began implementing her modernization plans in 1978, she hadn’t planned a 10” diameter cake. She planned a cake for the size of China. And it wasn’t one of those cheap, store bought cakes that we would have expected her to bake given her finances in 1978. It was one fit for a triumphant party celebrating the Empire’s return. In fact, the cake would be so big and would use so many ingredients that parties back home would have to shrink their party plans. The world’s storehouse would not have enough ingredients to throw elaborate parties for both China’s guests and the world’s.

No matter, if there was one thing China learned over 5,000 years, it was how to plan a celebration. China planned her strategy to ensure that on the day of the big celebration, she would have enough ingredients. This certainly meant she would have to manage party conflicts with those back here at home at some point. However, if parties back home didn’t have cake factories to make their cakes, they wouldn’t be able to compete at the appointed hour of China’s celebration, and if they didn’t have cake factories they surely wouldn’t be competing for ingredients at the appointed hour. China would implement her plan to ensure her guests would have their cake. But, she needed to implement first things first.

Reviewing her strengths, China noted she had plenty of baker’s assistants. They simply needed to be trained. She would definitely need more factory space to make the cake and more roads to get the supplies to the factory. And because she didn’t have all needed ingredients in-house, she would have to make arrangements with cake ingredient suppliers to ensure that she would get the ingredients even if others competed for them. Critical to her success, China needed baker’s secrets to make such a great cake. Most importantly, because China had many more bakers than she needed but not enough money or know-how, she would need to trade her strengths for the others.

With strategies set, China set out to implement her plans. She first told all comers that they could build a cake factory in her special cake factory zones, and that they could bake cakes for all of China’s people. With the announcement of this cake bonanza, Bakers came from all over the world for the chance to make cake for China. When asked how big to make the factories, China said to make them ten times larger than they first imagined. The bakers would need access to money and lots of it.

Oddly, While China had such big plans for cake factories, no one in China could afford to buy such magnificent cakes, and no one in China knew how to make them. So if the baker wanted to make cakes in China, the baker would have to teach Chinese baker assistants the secrets to baking a cake. The baker would also have to go back home for bank funding and for free markets to sell the cakes made in China back at home.

Of course, when presented with such a sweet deal, the banker could not pass it up. Together, the baker and the banker convinced everyone back home of the sweet deal from China. China would sell the cake for half the price of home prices so that everyone would be happy. The baker could get a great factory, at least one in China, and had the hope of selling cake to the Chinese some day. The people back home could get a cake that tasted just as good because the baker used his secrets in China to make the cake. Of course the financier back home was happy. Increasingly, cake factories back home seemed to be having trouble selling cakes at twice the price of Chinese cakes, and with cheaper prices and free markets, China cake factories promised great banking returns. The only people that seemed upset were the baker’s old assistants back home who no longer were employed to bake cakes, but no matter, everyone else was happy.

China was happy that her plan was progressing. She would get a grand cake factory that could be used for the great celebration. China could also begin to build relationships with all the worldwide cake ingredient suppliers. She now needed to spread the icing for the next layer of the plan. The baker assistants back home were the ones buying the cakes made by the cake factories in China. If they didn’t have a way to pay for the cakes, all would be lost.

China knew, when planning for her modernization party, that in order to make a cake big enough for the triumphant celebration, she would need so many factories, roads, ingredients, and educated cake bakers that it would take all the expendable money in Europe and America combined to build them. In fact, it would take much of the world’s stock market value and even the equity in people’s homes if she were to be able to throw a truly triumphant party. She needed the baker assistants back home to borrow from their savings, their homes, and their future earnings if the plan was to succeed.

No worries, China had studied capitalist boom-bust cycles of the past. She knew it was very possible for bankers to create the boom once again, in the exact same manner as Europe and America had fallen prey to many times before, and that during the short boom, she could fund her party. Given the opportunity to fund all the cakes in China, bankers back home repeated their very sins of the past. Their patterns had remained predictable for centuries, reacting in a frenzy every time a cake bonanza presented itself. This time they dropped interest rates, made crazy loans, created IRAs and 401 Ks, and escalated not one but three bubbles to draw out as much money as they could to fund as many cake factories as they could in as short a time as they could.

The feeding frenzy occurs because there is only so much time the batter can rise before it falls. When the bubbles finally popped, China had her cake factories, all the baker assistants back home had borrowed more than they could ever pay back, and all the bankers back home had made enough money to live happily ever after.

Now came the appointed hour of the triumphant party for the return of the Empire. By this time, China had been building ingredient relationships unabated, because the bakers back here at home no longer bought baking ingredients. China had built the world’s fastest, largest most efficient ships to bring all the needed ingredients to her shore. She had built massive highways to transport the ingredients to her impressive, massive, modern cake factories. She had educated all her people to fill the ranks of cake bakers. She had saved historic amounts of money from the cheap baked goods she sold to the baking assistants back home and now could buy all the ingredients she needed.

But wait, what about the party back home? Now that it was time for her great celebration, China bought up all the ingredients that were supposed to be for the party back home. The baker’s assistants back home no longer had money to buy cakes, so the Chinese cake factories now could turn their focus inward on their country to bake for the celebration. But really, Chinese cake factories hadn’t any competition for ingredients. The baker’s assistants back home had long lost their knowledge of cake baking. The cake factories had long fallen into disrepair and could no longer be used to make cake. The roads back home were in disrepair. The cake baking schools back home had fallen behind without local businesses to spur them to excellence. The ingredient suppliers had long ago built relationships with China’s bakers and knew where their bread was buttered.

As the triumphant party was being held in China and the great cake was being presented to her party guests, back home all that anyone could do was watch from afar. The bakers had lost their market for cakes back home. Without demand, they could not make the payments on the bank loans and they defaulted. Without sufficient buyers, they turned over their factories to the Chinese. Without customers back home and without money or credit to pay for new cake factories back home, the bakers now became unemployed themselves. The bankers, now without payments on their loans, well they closed up shop as well.

Is America Prepared for Kamikaze Finance?

Brett Arends, in his April 25th Marketwatch article entitled “IMF Bombshell: Age of America Nears End”  reports that the IMF has predicted 2016 as the year when China’s economy overtakes that of the United States.

http://www.marketwatch.com/story/imf-bombshell-age-of-america-about-to-end-2011-04-25

Perhaps the word bombshell is the right allusion.  What comes to mind is America’s shock and disbelief in 1941 that the Japanese could fly formations of attack aircraft for so long under the radar right above sea level to destroy Pearl Harbor.  Just as Americans were unprepared to foresee the stealth attack of Japan even after years of her militaristic advances, Americans have stood helplessly by as the armaments of American financial defense sit helplessly in Congressional harbors of polarized politics.

Two concepts of financial attack seem reasonable afterthoughts.  First is that exponential financial expansion is hidden from radar until the last few years of growth.  American appeasers failed to recognize that as China expanded it’s economy 10 percent per year for 30 years, the law of exponential growth meant China’s economy would grow 800 percent in thirty years, but that the  greatest 400% would occur in the last seven years.  

The second even more ingenious stealth move unforeseen by America but creating an even more shocking surprise attack is that by holding the exchange rate low for so many years, the Chinese were able to fly even lower to the ocean swells and build a purchase power parity empire undetected by conventional financial defenses.

In preparation for this two pronged financial assault,  China has been building the hegemonic relationships that thwarted Japan’s  military attempt to over take the United States just 6 decades ago.   China also was successful in its hegemonic strategy to preemptively gut American factories through the “treasonous”  collaboration of multinational corporations and international banks residing  in financial cells right here in America.  

Our American factories, that were so successful in mounting a war of attrition against the Japanese in WWII, now lay dormant in the rust belt as 24 percent of our capable American workers line the “soup kitchens” of the American social welfare system and charitable organization’s generosity.  This time around, without the physical and financial capabilities to defend ourselves from within, it may be Americans who are forced to display patriotism through financial kamikaze during the end stages of the American empire.

Did China Learn from Japan? You Bet!

In 1853, Commodore Perry, demonstrated United States military force on behalf of U.S. business interests. Perry intimidated Japan into a one sided treaty with threat of vanquishing Japan’s much less industrialized military. Having been subjected to America’s use of colonial might, Japan embarked on the Meiji revolution, a modernization frenzy for 60 years, much as has been occurring in China since the 1978 Four Modernizations.

Just as America colonized through WWII for economic dominance, rationalized with a mistaken belief of cultural superiority, Japan colonized through imperial treaties and war for decades through the 1930s. During this time, similarly to China today, Japan’s leadership inspired a deep devotion to Japan’s destiny through education, media, military and other institutions.

Similarly to China’s concerns today, Japan was unable to limit its urbanization and required rapid GDP growth through the 1920s. When Japan’s economy was devastated by the Crash, instead of leaning socialist like America, Japan’s submitting culture turned militaristic, assassinating its elected Prime Ministers in favor of military leadership.

Japan’s military miscalculated its securing of oil from U.S. controlled colonies and eventually lost the war. After the war, the world, retreating from its wounds, was unable to contain decolonization. However, friendly autocratic governments mostly replaced colonies with terms favorable to business interests. The U.S. policy of world military dominance secured these relationships for a time.

In this environment, Japan thrived applying its discipline and tightly controlled banking and industry to a growth miracle. The miracle ended with bubble inflation caused by non secured raw material inputs, loose monetary policy, and a large rise in the valuation of the yen. Japan’s economy, like the United States, also succumbed to globalization.

Did China learn from these events as it prepared to reenter the world stage? You bet.

Of course, Chinese people are not evil and Chinese have long endured too much racism in America. But, no-one should be deceived by the Chinese government’s strategy to secure enough raw materials during this relatively peaceful period as possible for the future inward growth of their nation before such hegemonic relationships are hindered. China learned from Japan’s pre-war mistakes and will not repeat them.

Yes, the Chinese government is manipulating the value of its currency to give it an advantage in the international market. The idea that it is somehow unfair is a bit weird to me. If China wants to accept fewer dollars for its labor, why is it not entitled to do so? The world’s insistence on revaluing currency higher is just a system like any other. China is only copying a technique well implemented by Japan earlier.

Its U.S. strategy has limits, and China is coming to the end of those limits. China has fed off of the United States as much as it can. As a potential fatal flaw, it may have sucked too much life from its host. China must now somehow realize these saved dollars before Bernanke has a chance to take them back through QE2 and Qex’s.

Will the Chinese government collapse any time soon similarly to the end of the Japanese miracle? Heck no.

Tariffs are a Winning Political Strategy Unless A Political Party Counters with a Solution that is both Populist and Effective

The relative world peace established by the United States’ rise as the world’s sole super power has for several decades lulled the potential for global war. By spending more than all other nations combined on war capability during the previous decades, America effectively eradicated multinational corporations’ (MNCs) only known natural predator. In the absence of other governments organizing their citizens to wage war for control of another country’s resources, multinational corporations have had no natural predators in third world countries for the past 40 years.

In third world countries, where developed and complex economies do not exist, dictators have been easily influenced to enter into one sided contracts and socialist countries’ have had few alternatives to the purchasing power of corporations but to enter into monopolistic contracts as well. Therefore, just as in any ecosystem that is devoid of natural predators, MNCs have proliferated during the previous three decades. While U.S. corporations have led the growth of MNCs, industrialized countries throughout the world have competed for direct foreign investments worldwide.

Two results of this explosion of MNCs have been the driving down of consumer goods prices and loss of jobs in industrialized nations. Since America consumes a quarter of the world’s output, jobs have been lost in countries across the globe to support our consumption. Other industrialized countries have partially subsidized the price benefits that America has received.

However, America has also lost jobs as a result of the transfer of investment to other countries. Some in America claim that we should have imposed limits on our country’s corporations’ foreign investments to limit American job losses. Limiting our investment would have only allowed other countries’ corporations to invest without competition from U.S. corporations. As a result, our corporations would miss opportunities as other nations’ corporations increased worldwide market share. Therefore, America correctly acquiesced to the notion that we must share the burdens of globalization to ensure our corporations maintain world market share of global investments.

Globalization is a worldwide phenomena created by America’s overwhelming military goals. Our military is an economic catalyst transferring the wealth of industrialized nations toward creating household purchasing parity around the globe. And this economic disparity of household incomes is so great that it will continue to provide overseas investment opportunities for America’s wealthy for decades to come unless the disaffection of industrial nations’ middle classes creates another predator. While China is quickly gaining long term worldwide contractual relationships with third world countries and building military defenses for a future military threat to its hegemony, war does not seem a threat to globalization for several decades at least. The more eminent threat to globalization is the political opportunity that MNCs have caused by their increasing structural unemployment in industrialized countries.

America’s Republican Party is now attempting to capitalize on the high unemployment of our middle class by touting tariffs as a way increase employment and to win the 2012 elections. Tariffs do increase employment and America is ready for a populist employment platform. Unfortunately, history has shown that as a government centric solution, tariffs are ineffective and ultimately cost a nation more than they benefit it. However, unless political parties are prepared to counteract waves of populist sentiment, America is destined to repeat detrimental policies. Remember what happened in Great Britain in 1945. Even though Winston Churchill had 83 percent support after the war, his party was overwhelmingly rejected when the Labour Party touted full employment, health and housing platforms.

To win against the party that supports tariffs, the competing party must support full employment that does not raise costs to Americans and that ultimately makes our goods and services more competitive in the world marketplace, two things that tariffs cannot accomplish.

My job voucher plan is a solution that can give the political party that retains it as part of its 2012 platform a winning populist strategy. It makes America competitive without raising costs of foreign goods to our consumers. It creates full employment without creating more social costs than our current unemployment and welfare solution. My job voucher plan does reduce the cost of American goods, does provide full employment for our labor force, does reduce our trade deficits, and ultimately pays back America for its investment in our people.

If you have a member of your political party that would be interested in more details, I would be happy to engage a discussion

America Must Lead the International Regulation of Multinational Corporations

In every world empire, there has been a concentration of state wealth and a transfer of that wealth from one great empire to the next e.g. Egypt to Rome; but it wasn’t until the emergence of the industrial revolution and the invention of the Charter Company that private entities gained wealth comparable to nation states. Now with the revolution of the MNC, the power of Corporate Nations has surpassed that of most States. Neither Hayek nor Friedman adequately addressed how classic liberalism would optimize a world where states bow to corporations and MNCs increasingly become international oligarchs.

Jump forward a hundred years and what role will states have? In the beginnings of the industrial revolution, charter companies had standing mercenary armies comparable and sometimes larger than the states that authorized their charters. In the Iraq war, Blackwater seemed to silently engulf Iraq with its private mercenary activities. How will the mercenary forces of the oligarchs compare on an international scale 100 years from now with the mercenary forces of the charter companies a hundred years ago?

It is true that America’s Federal Reserve has significant culpability in its role of allowing our Congress to irresponsibly expand the debt, but much of that debt was driven by and inextricably tied to a trade deficit caused by an emerging international wave of MNCs and a lack of understanding by industrialized nations’ trade negotiators of their eventual encompassing impact on nations. Given our macroeconomic naiveté, we had the choice to continue borrowing or to accept a slow but real decline in average home purchasing power. For some reason, the Fed was happy to support the former option.

Some conspiracists point to forces external to the U.S. as having responsibility for and benefit from the Fed’s irresponsibility. These central banking forces are more tightly controlled in a state financed imperial China and must continue to be if China is to rise as perhaps one of only a handful of states possible of maintaining parity with the MNC empires of tomorrow. For its 4000 year social isolationist protection, China will eventually seek policies to repel MNC dominance. If western industrialized nations are to survive, we must also collectively seek a strategy for containing MNCs within an international boundary of regulation.

Forbes: The Richest People in the World 2011

The following repost of Forbes richest people gives insight into the changing dynamics of globalization and America’s fading dominance.

Repost from Forbes
Mar 9th 2011 at 5:15PM

Luisa Kroll and Kerry A. Dolan, Forbes.com

This is Forbes’ 25th year of tracking global wealth and it was one to remember. The 2011 Billionaires List breaks two records: total number of listees (1,210) and combined wealth ($4.5 trillion). This horde surpasses the gross domestic product of Germany, one of only six nations to have fewer billionaires this year. BRICs led the way: Brazil, Russia, India and China produced 108 of the 214 new names. These four nations are home to one-in-four members, up from one-in-ten five years ago. Before this year, only the U.S. had ever produced more than 100 billionaires. China now has 115 and Russia 101.

Atop the heap is Mexico’s Carlos Slim Helu, who added $20.5 billion to his fortune, more than any other billionaire. The telecom mogul, who gets 62% of his fortune from America Movil, is now worth $74 billion and has pulled far ahead of his two closest rivals. Bill Gates, No. 2, and Warren Buffett, No. 3, both added a more modest $3 billion to their piles and are now worth $56 billion and $50 billion, respectively. Gates, who now gets 70% of his fortune from investments outside of Microsoft, has actually been investing in the Mexican stock market and has holdings in Mexican Coke bottler Femsa and Grupo Televisa.

While nearly all emerging markets showed solid gains, wealth creation is moving at an especially breakneck speed in Asia-Pacific. The region now has a record 332 billionaires, up from 234 a year ago and 130 at the depth of the financial crisis in 2009. Sizzling stock markets are behind the surge. Three-fourths of Asia’s 105 newcomers get the bulk of their fortunes from stakes in publicly traded companies, 25 of which have been public only since the start of 2010.

America’s wealthiest still dominate the global ranks, but the U.S. is losing its grip. One-in-three billionaires is an American, down from nearly one-out-of-two a decade ago. It has 10 more than last year but 56 fewer than its 2008 peak. The U.S. is adding new billionaires at a much slower pace; just 6% of its 413 billionaires are new this year compared with 47% of China’s and 30% of Russia’s.

Still there are plenty of inspiring newcomers who figured out clever ways to get rich. The most obvious example is the success of Facebook, whose soaring valuation over the past couple of years — based on the most recent institutional round the company is worth $50 billion — has spawned six billionaires. Leading the group is Facebook’s CEO Mark Zuckerberg, whose fortune jumped 238% to $13.5 billion in the past year. Also joining him in the world ranks are his co-founders Eduardo Saverin and Dustin Moskovitz, its first president Sean Parker (played by Justin Timberlake in The Social Network) and the Russian Internet investor Yuri Milner. Moskovitz, 26, is eight days younger than his former college roommate Zuckerberg, making him the world’s youngest billionaire.

The frenzy among big investors for all things social pushed up private market values of online gaming outfit Zynga and online group-buying site Groupon, creating two more new billionaires, Mark Pincus (who taught people to farm on Facebook) and Eric Lefkofsky (who was Groupon’s lead investor).

Other notable American newcomers include Do Won and Jin Sook Chang, the co-founders of Forever21, and Chris Cline, who owns three billion tons of coal reserves, mostly in Illinois.

Why do we spend so much time counting other people’s money? Because these moguls have the power to shape our world. Telecom billionaire turned prime minister Najib Mikati is keeping Lebanon’s government together. Ernesto Bertarelli, who lost the America’s Cup to Larry Ellison last year, is now focusing on saving the oceans from mass extinction. Gates and Buffett have already traveled to three continents working to change giving practices among the ultra-rich.

No. 1: Carlos Slim Helú & family
$74 billion | Telecom | Mexico

No. 2: Bill Gates
$56 billion | Microsoft | U.S.

No. 3: Warren Buffett
$50 billion | Berkshire Hathaway| U.S.

No. 4: Bernard Arnault
$41 billion | LVMH | France

No. 5: Larry Ellison
$39.5 billion | Oracle | U.S.

No. 6: Lakshmi Mittal
$31.1 billion | Steel | India

No. 7: Amancio Ortega
$31 billion | Zara | Spain

No. 8: Eike Batista
$30 billion | Mining, Oil | Brazil

No. 9: Mukesh Ambani
$27 billion | Petrochemicals | India

No. 10: Christy Walton & family
$26.5 billion | Wal-Mart | U.S.