Tuesday, November 17, 2009

on money and china

SIGTARP, the Special Inspector General for TARP, who is supposedly charged to make sure your tax dollars going to the banks aren't wasted, which is funny in itself, released their first report, which is a joke in itself. The report basically says the New York Fed under Mr. Geithner was basically played by the banks in the money paid through AIG. Of course, that's not really true, AIG was simply used to funnel money into the banks, that was without a doubt always the idea. Whether you think that was criminal or in the public interest, well it was criminal. Yves Smith has a longer take down.

Of course this all plays into the growing global currency hoedown. The debate about who is beggaring thy neighbor is growing louder. Marshall Auerback has a piece at ND 2.0 entitled, Should America Kowtow to China. It's an unfortunate title, though accurate for the piece's tone, nonetheless it has some interesting bits on monetary history and thought of the 20th century. China and US at this point are tied at the hip, like it or not. More importantly, it is has been Wall Street and American mega-corporations that have profited from the past two decades of Chinese industrialization as much as anyone. It's their model, I would argue, the Chinese have mistakenly adopted.

The talk of China as a "major power" is greatly misconstrued. It is a very unstable society at this point, which is par for the course historically for the process of industrialization. China still has 800 million people who are subsistence farmers, that's almost three times the population of the US. As far as industrial development, China is more in the position the US was in the 1930s and Franklin Roosevelt depreciated the dollar. Asking the Chinese now to raise the Yuan is to say the least problematic, as Gary Shilling points out over capacity is endemic and growing. China could be the next big leg down, and who knows what that will mean?

All the money the Fed has pumped into the banks, propping up the real estate market, zero interest rates, and deficits have let the markets play with the dollar. The dollar as reserve currency has in certain respects the same role gold played under the gold standard. The dollar standard is being undermined, but not simply by the moves of the Fed and treasury of the last two years, but just as much by our mega-corporations' and Wall Street's deindustrialization policies of the past four decades. The dollar still represents the largest manufacturing and military power on the globe, but it is a power much decreased from just three decades ago. We need to rethink the global financial system.

The United States has 5% of the world's population and we use 25% of the world's resources. If 3/4 of the Chinese used oil at the same per capita rate as the United States, there wouldn't be a drop for anyone else. This is unsustainable. The old order is shaking and we need to go through some serious restructuring both here and globally. A restructuring that is going to take some time. For example, why should the Chinese be exporting anything? 20th century industrial-market thinking is not going to get us anywhere. You can't have a Banana Republic financial system and then act like you can throw your weight around. If Americans want to stand up to somebody, let's start with Wall Street and our mega-corporations.

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