Arthur,
Jörg Wuttke won't have a year in which to make his case against China. Too
many storm clouds are gathering now. Dubai faces bankruptcy; Japan's yen is
riding so high that it faces exportation oblivion; the US dollar continues
to slide; HSBC is kicking well-off owners of gold out of its vaults to make
space for even richer ones; all advanced countries are now in deep debt and
at least five of them face compounding debt . . . . if one had an hour or
two to spare the list of similar items could grow three or four times over.
The vicarage tea party of September 2008 will be invaded by all the village
louts in 2010. And what will be the result? If we're lucky, not all the
chairs will have been kicked over and we'll be in an economic recession
deeper than the 30s but which is just about manageable without too many
revolutions -- giving economists and politicians a few months in which to
re-read their Hayek and to realize that it was just too stupid of their
forebears a century ago to invent national currencies of their own whose
value lies only in the confidence of what were then largely deferential
electorates.
In those same few months of grace in 2010, the 200-odd nation-states of the
world will no longer be of importance. They'll continue to exist, of
course, in the same way that parish councils and city councils still exist
-- they'll still have domestic jobs to do, and politicians will still be
pontificating. But, meanwhile, another lot will start to be running the
world. There'll be probably something like 40 or 50 of the richest
institutions in the world whose assets will largely be in gold and land, a
satellite fringe of maybe 500 rich individuals whose assets are also mainly
in gold or land and there'll be 100 million or so of sensible individuals
who've been squirelling Eagles, Buffalos, Maple Leafs and Krugerrands for
years. In short, with luck, we'll be at the dawn of re-instituting a
sensible world currency. There was nothing wrong with it before, only that
nation-states needed currencies they could borrow to the hilt as they
fought nationalistic wars. They can't afford to any longer, thank goodness.
That's one saving grace about the present situation.
Back to a gold/silver/platinum/lanthanides/rice/wheat/maize-backed
currency. Of only sentimental value? Maybe. But it will be a sentimental
value that's historical, universal and a great deal deeper and wider than
the confidence that people have in their governments' currencies. Meanwhile
politicians will have to adjust to what has been the real world all along
and which has been in denial under all their blather and hype. And
economists will be having their Ah-Ah moments before re-writing all the
text books of 150 years past. Economists are a pretty bright lot but they
haven't been as bright as 100,000,550 others have been.
That's my forecast for 2010.
Keith
At 16:40 26/11/2009 -0500, you wrote:
NY Times
November 27, 2009
China Seen Facing Protectionist Backlash Next Year
By REUTERS
BEIJING China faces a protectionist backlash next year because its
manufacturers are saddled with overcapacity and are disposing of its
excess output on world markets, the European Union Chamber of Commerce in
China said Thursday.
Jörg Wuttke, the head of the business group, said it would take about 12
months to prepare a case alleging dumping, the practice of selling goods
for less than it costs to produce them.
This lead time would indicate to me that in the second half of 2010, there
will be far more dumping cases against China, unfortunately,Mr. Wuttke said.
He was speaking at the introduction of a study into industrial
overcapacity in China, a longstanding situation that the chamber believes
has grown more serious as a result of the global financial meltdown and
Beijings aggressive response to it.
The crisis has throttled demand for exports from China at a time when even
more investment, in the form of the Chinese governments massive stimulus
package, is being pumped into building new plants and adding unnecessary
capacity,the report said.
As a result, the problem is actually getting worse in many industries,it said.
In a survey of the chambers members, 56 percent of respondents identified
local government policies aimed at luring investment as the main
macroeconomic reason for overcapacity; loose lending was the second most
frequently cited cause.
Mr. Wuttke welcomed efforts by the central government to curb new capacity
but said it was often powerless in the face of local governments that
craved new factories for the tax revenue and jobs they could generate and
that have done everything to keep existing plants from going under.
Local protectionism kicks in,Mr. Wuttke said. So even if Beijing sees a
problem and wants to tackle it, they are very often derailed by local politics.
Apart from generating trade friction, rampant overcapacity would weigh on
foreign direct investment into China.
Why would you invest if that market is already oversupplied?he asked.
By wasting resources and eroding profits, overcapacity deters research and
development and encourages companies to cut corners on health and safety
standards as well as environmental protection.
Further, the creation of unneeded capacity raises the risk of
nonperforming loans for banks that finance the investment. It also
generates trade tension as producers sell their surplus production
overseas at cut-rate prices, the study said.
The State Council, Chinas cabinet, recently singled out the iron and
steel, cement, electrolytic aluminum, glass, coal, chemical, polysilicon
and wind power equipment sectors as the worst offenders when it came to
overcapacity and announced steps to rein in their expansion.
The chamber applauded the cabinets actions but said the fundamental answer
was to shift from investment-led and export-led growth and to focus more
on domestic consumption and services.
The report made a series of recommendations that amounted to a
root-and-branch overhaul of Chinas economic model.
The recommendations included the redistribution of national income from
companies to households. It said state-owned enterprises should disgorge
dividends for the government to spend on social security, health and
education instead of plowing profits back into fresh investment.
It also recommended a sharp reduction in corporate capital expenditure in
coming years.
In addition, the report said that China should remove subsidies for energy
and other inputs, which are provided indirectly by households. Claiming
that the manufacturing sector has become addicted to these subsidies, it
recommended increasing resource and environmental charges.
Reuters
Keith Hudson, Saltford, England, <www.evolutionary-economics.org>,
<<http://www.amazon.com/dp/1906557020/>www.amazon.com/dp/1906557020<http://www.amazon.com/dp/1906557020/>/>,
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