The US and Taiwan have good relations. Though the US does not officially recognise Taiwan as independent from China, like the rest of the world it treats Taiwan as what it is: a de facto independent state. And now it is apparently time for a new arms deal between the US and Taiwan. The US sells arms to just about everyone, so why not to a little island in the Pacific? What could China possibly be angry about?
If you answered “a lot”, you not alone. Since the government of China considers Taiwan a renegade province which will, inevitably, one day be reunited with its true owners, and since a huge number of people in China fervently agree, American arms sales to Taiwan are a kind of provocation. If the Chinese government sold weapons to al Qaeda, Americans would feel approximately the same as the Chinese do at present.
I believe that any group of people that wishes to be independent should be, regardless of what some militant nationalists say. Therefore, I am all in favour of Taiwan’s continued independence from China. However, there is no reason to provoke China by selling Taiwan another $6.4b in arms. As I said, I support independence, and the US government has already made it clear that it does too. It established the Taiwan Relations Act in 1979 and updated it with the Taiwan Security Enhancement Act in 2000. The Acts both authorise arms sales but the central clauses state in clear terms that the United States guarantees Taiwan’s security and independence. Why antagonise China further?
The United States needs China. Its government, in particular, through decades (or at least one decade) of myopic policies, is financially dependent on China like a teenager with a credit card is dependent on his father to bail him out. The two countries are, of course, economically interdependent; witness the Chinese government’s understandable threat of sanctions on American arms manufacturers. They should be cooperating more on political and military levels–in the Security Council; on East and Central Asian security matters, where their interests coincide; on Iran, which for some reason Barack has a desire to punish but which China is wisely declining to rush into a decision on; the list continues. Neither has an interest in war with the other.
The problem is, at root, one of ego. China and the US both see themselves, at a cultural level, as the rightful superpowers of the world. Each needs to be the best in the world, the biggest, the richest, the fastest, the strongest. Over the next generation, we will see this playground need for supremacy play out everywhere from the oceans to the Olympics. But why do we need to be number one? Surely, we should be working to be better than our former selves, not better than others. But instead of setting our own goals and working with others to achieve them, we treat others as competitors and train to beat them, even cheating or holding them down if necessary.
Only through recognising their common interests and cooperating on them will the US and China avoid violent collision. Billions of dollars in arms sales to Taiwan is not the way to build a partnership that affects the entire world.
The Wall Street Journal reports on John McCain’s increasing disconnect with Arizona’s GOP voters.
The issues that divide him from the Republican base are numerous, but McCain’s 2008 vote for the $700 billion bank bailout and his opposition to President George W. Bush’s tax cuts never played well with conservatives. Nor did his opposition to drilling in the Arctic National Wildlife Refuge (ANWR), his sponsorship of the restrictive (now declared unconstitutional) McCain-Feingold “campaign finance reform.”
McCain’s Mavericky teaming up with the Senate’s most liberal members and pushing for amnesty for the millions of foreign nationals who have entered the U.S. illegally has alienated many grassroots Republicans. His proposal to close Guantanamo Naval Base and try terrorists in U. S. Courts won him no fans – a position he is now veering away from.
A Rasmussen Reports statewide poll found that 61% of Arizona Republicans think McCain has lost touch with those in his own party. That’s the good news. The bad new for him is that’s up eleven points from 50% four months earlier.
Arizonan’s now have a conservative option. Former Congressman J.D. Hayworth, who has filed to run for the U.S. Senate is sending shock waves through the McCain camp. While Hayworth’s campaign event to make a formal announcement will not occur until February 15, he is already in full stride — much to the chagrin of John McCain.
No sooner do I announce plans to scale back on posting articles when along comes something I can’t resist. The above-linked Reuters article reports on an announcement by Commerce Secretary Gary Locke of plans to boost enforcement of trade deals in an effort to achieve Obama’s promised doubling of exports in five years. There are a couple of key points that need to be made here.
First of all, I have spent virtually my whole adult life listening to presidents, Commerce secretaries and U.S. Trade Representatives vowing to get tough on trade deal enforcement. This effort will turn out no differently. If anything, exporting nations are relieved to have the focus drawn away from the import side of the equation.
Secondly, the following passage from the article can’t pass without comment:
“While the U.S. is a major exporter, we are underperforming,” Locke said in the excerpts given to reporters. “U.S. exports as a percentage of GDP are still well below nearly all of our major economic competitors.”
The competitors Locke speaks of are primarily China, Japan and Germany. Back in early November, Obama challenged his economic team with the question, “If Germany can build an economy on exports, why can’t we?” (See Obama on Trade: “If Germany can do it, why can’t we?”.) America is not “underperforming.” It’s not about “competing.” The problem is that the field of economics doesn’t yet recognize or understand the role of population density disparities in driving global trade imbalances. Boosting our exports means that nations like China, Japan and Germany have to boost their imports – their domestic consumption. If they were capable of such domestic consumption, they wouldn’t have the need to export so much in the first place, nor would they have the excess production capacity to do so.
I don’t doubt the president’s sincerity. Every president for the past 30 years has understood the need to restore a balance of trade. But Obama is the first post-global economic collapse president and, as such, the first to have an added sense of urgency brought on by a realization of the ultimate consequences of sustained trade imbalances. Unfortunately, he’s fallen back on the same worn out approach of enforcing trade deals when it’s the deals themselves, lacking population density-leveling mechanicsms, that are the problem.
But this time, time is not on his side. The era of sweeping trade imbalances and their consequences under the rug has ended. The U.S. is economically boxed in on all sides by high unemployment, global demands to rein in our budget deficit and a Federal Reserve with an empty tool box. So the only question is how soon the president will run out of patience with the export-focused approach and turn his attention to imports.
I’ve got a lot of projects in the works as of late, so my blogging might get a bit sparse the next few days. But here are some good reads for Monday:
1. Older and younger workers compete for part-time hourly jobs
Well good gods, no wonder it’s been such a bitch to find work. With an unemployment rate of 18% among those 18-24, what is this going to do to this generation? This is a very unsettling statistic because angry, intelligent and bored young people can do some dangerous things. See: Russian Revolution of 1917 and the entire decade of the 1960s.
2. Terror trials opinions:
Two good columns today about where to hold trials of 9/11 conspirators and other terrorists. Watch them face off!
If not NYC, where else could Obama’s administration possibly try the Guantanamo Bay prisoners? vs. Keep terror trials on American soil
3. Spray-on liquid glass is about to revolutionize almost everything
Now this is just cool. Check it out.
“Spray-on liquid glass is transparent, non-toxic, and can protect virtually any surface against almost any damage from hazards such as water, UV radiation, dirt, heat, and bacterial infections. The coating is also flexible and breathable, which makes it suitable for use on an enormous array of products.”
And since it is caucus day today, here’s a concise set of principles for all you conservatives to keep in mind while you discuss and propose and poll tonight:
You cannot bring about prosperity by discouraging thrift.
You cannot strengthen the weak by weakening the strong.
You cannot help little men by tearing down big men.
You cannot lift the wage earner by pulling down the wage payer.
You cannot help the poor by destroying the rich.
You cannot establish sound security on borrowed money.
You cannot further the brotherhood of man by inciting class hatred.
You cannot keep out of trouble by spending more than you earn.
You cannot build character and courage by destroying men’s initiative and independence.
And you cannot help men permanently by doing for them what they can and should do for themselves.
—William John Henry Boetcker (1873–1962)
(thanks to On caucus day, ten truths for conservative candidates)
I know it’s hard for most to read a rant about such a heady topic from somebody who:
1- Can hardly spell
2- Spends his free time killing brain cells with beer
3- Still idolizes Luke Skywalker
4- Is unable to add or subtract without a calculator
5- Collects nazi things.
Let me start by saying that by no means do I believe that our President or Govt or Ben Bernanke is intentionally harming the country or have hatched a diabolical plot with Socialist designs. I do feel that Bernanke is an arrogant twat who thinks he can use the current crisis as a means or an excuse to change the rules to suit his needs and entirely change the roll of the Fed. Obama is just a limp dick. People don’t understand what the Fed is sposed to do in normal times much less how egregious their actions have been of late. Even Paul Volker has mentioned the Fed’s actions have been borderline illegal. Removing private risk and placing it onto the shoulders of the tax payers is unacceptable. The man should be arrested.
“Treason doth never prosper; what’s the reason? For if it prosper, none dare call it treason.”
Sir John Harrington, 1600 (circa)
Unprecedented fiscal and monetary stimulus programs have “come at the cost of significant increase of risk to sovereign balance sheets and a consequent increase in sovereign debt burdens that raise risks for financial stability in the future, We have transformed the banking crisis into kind of a sovereign solvency crisis by buying up a lot of private securities and auto companies and so forth,” We’ve dealt with the consequences of vaporizing $3 trillion of private demand in the U.S. by providing a lot of public demand.” -IMF
My pal Joe got me thinking on Sunday when discussing the Fed. He said something like “what would we do if we didnt have the ability to print money?”
This has been debated since our forefathers and long before central banks. Central banking was brought in only after it was decided that it was easier to finance things, such as wars, by printing money instead of taxation. What people still to this day fail to see is that printing money is just as good as increasing taxes. Instead of taking money out of your wallet, the Govt simply makes the money in your wallet worth less through inflation or the lack of de-flation.
IMHO If we didnt print money we would certainly have less booms and therefore less busts. Printing money is bad. Not good. Inflation is bad. If you dont believe me go back to Germany 1923. If Germany doesn’t suffer inflation we dont have the 3rd reich. No Hitler! No cool tunics or Camo helmets. (ok, maybe inflation has some pros)
But honest, inflation is very very very bad. But you may have noticed we are not experiencing inflation now and the Fed is just printed truck loads of cash. What gives? I will discuss deflation later, but first —- BUBBLES
Printing money causes assets prices to inflate (assets such as investments/real estate are not included in the inflation/CPI figure)
BUBBLE BUTT BUBBLE BUT …
So, what the fuck is wrong with higher asset prices? For those of you who slept through recent crisis allow me to present exibit A – the real estate bubble. (I cant go into detail, but prices went up, (the bubble) prices went down, people lost jobs, the Fed saves the banks yada yada ydada…
Lets discuss the current asset bubbles – the equity and MBS (mortgage-backed securities)
Its important that you understand that Investments are a zero sum game (nobody pays DIV anymore). If Google made 133 Billion this quarter the stock would not move unless more people bought it than sold it. Simple.
The MBS market works the same way and we will spend the next 5 minutes (depending on how fast you can read) talking about MBS.
The MBS market has catapulted to nose bleed levels this past year. The reason for this? The obvious reduction in home foreclosures? the vast amounts of unemployed finding high paying jobs right?
Fuck no.
More people purchased mortgage-backed securities than sold them.
(Well, just one person purchased them – Ben “fuck face” Bernanke)
See, about a year ago the fed sent a note to banks and other large investment houses (see PIMCO / Blackrock etc..) which said:
“Guys, the boys and I have decided to buy a fuck load of MBS paper so you may want to wait and unload your smelly paper on us. Sheet, even buy some in anticipation. Yours truly – BBFF”
The shit face banks and PIMCO etc agreed to buy treasuries with the proceeds of their MBS sales.
Bill Gross coined this agreement “shaking hands with the Govt”
SO, the fed printed a shit load of money and purchased MBS (and other crap, but we wont go there). Banks used the proceeds to invest in treasuries and the stock market and everything went up, crisis over and everything is totally fucking awesome … and NO INFLATION! Whats the big deal?
Not so fast honey fart. The Federal Reserve Bank, like any other bank, has a balance sheet – assets and liabilities, profits and losses (profits/losses are handed over to the US Treasury).
Assets:
MBS
Treasuries
Other (lost of speculation on what “other” means)
Liabilities
Interest on bank cash reserves. (No interest on the printed money. Sweet.)
In normal times the Fed holds almost exclusively treasuries and takes the coupon payments and hands over the cash to the Treasury.
(So the Treasury pays itself its own coupons/interest. Mull that the fuck over.)
Recently the Fed handed over $50 billion. Nice job guys! Purchasing MBS paper made the value of their existing paper go up.
(BTW the Fed is only supposed to purchase securities for a short period – i.e. not hold them to maturity.)
So when will the Fed sell their MBS? Will they be able to find a buyer for the 1,320,000,000 in MBS it has purchased … Hmmmm.
Now, listen up, the Fed said last year it will buy MBS until March this year. What is going to happen when they stop buying?
Its called massive fucking losses handed over to the Treasury. Add this to the massive losses handed over by Freddie and Fannie Mac and you can conceivably have a trillion+ in losses. Losses mean higher taxes or more printing. Printing will not be an option due to inflation so higher taxes and a lower standard of living is in our future.
But hey, better the govt shoulder the losses than private institutions right?
When private institutions over-leverage and default that institution suffers. When the govt over-leverages and defaults we are all fucked. Game over. Printing money. Bad.
But the Fed wont let the ponzi game end. They will announce soon enough that it will indeed not end the MBS purchases. Sure as my middle name is Glenn they, the ass fuck heads they are, will keep buying and buying and knitting and knitting and knitting … Also, When the Govt is all of a sudden the biggest swingin cock in the investment land there will undoubtadly be conflicts of interest … Example: If the Fed raises rates that will tank the value of their MBS book. So the Fed has come up with the idea of increasing the rate of interest on bank reserves instead. More free money for the banks and further entries onto the liability side of the ledger for tax payers. Also, raising rates will increase the debt service of the treasury, i.e. higher interest expense for those treasuries they need to roll over. It behooves the Govt to keep reates low for their own necks..
Yes, I mean what I am about to write (somewhat). The public anger directed at the banks is somewhat misplaced. Thats right, I said it. The banks are not to blame (entirely) for all that ails us. They came to the party, did some dancing and got a bit too drunk off the punch – but the party was thrown by our Govt and they spiked the punch bowl. (God, thats a corny metaphor.)
The Govt is just being gamed by the banks. Political “fat cats” have been attempting to sway public opinion against the banks in a pathetic attempt to deflect blame for their own incompetence. They orchestrated the housing bubble. They are now trying to reflate the asset bubble. The Govt is the problem. Just take a look what the Govt did directly after the last housing bubble burst – THE S&L CRISIS …
DID THE GOVT CREATE THE HOUSING BUBBLE ???
This is what the dopes did after the bank S&L crisis almost destroyed the economy.
The HUD Reform Act of 1989: To provide for refinancing of mortgages, loans, and advances of credit under the lower income homeownership program of section 235 of the National Housing Act.
The Federal Housing Administration, generally known as “FHA”, is the largest government insurer of mortgages in the world.
The Homebuyers and Renters Relief Act of 1989: To increase the affordability of homeownership for first-time homebuyers and promote the development of low-income rental housing.
The Housing Opportunity Zones Act of 1990: To remove legislative and administrative barriers to the production of new and substantially rehabilitated housing that is affordable to lower-, moderate-, and middle-income families.
The Department of Housing and Urban Development Accountability Act of 1989: To prevent abuses of the process for selection for housing assistance under programs administered by the Secretary of Housing and Urban Development.
The Community Housing Investment Partnership Act.
The Recycling of Existing Assets for Cost-Effective Housing Act of 1989: To authorize the Secretary of Housing and Urban Development to make grants to States to establish revolving funds to assist low- and moderate-income homebuyers and renters.
The Low-Income Housing Credit Act of 1989: To amend the Internal Revenue Code of 1986 to improve the effectiveness of the low-income housing credit.
The Low Income Housing Preservation Act of 1989.
The Housing Affordability Act.
Homeownership and Opportunity for People Everywhere Act of 1990 (The “HOPE” Act). “There are authorized to be appropriated for grants under this title $96,000,000 for fiscal year 1991, $260,000,000 for fiscal year 1992, and $400,000,000 for fiscal year 1993. Sums appropriated pursuant to this subsection shall remain available until expended.”
Fair Lending Enforcement Act of 1990: To amend the Equal Credit Opportunity Act and the Home Mortgage Disclosure Act.
The Housing and Community Development Act of 1989.
The Housing and Community Development Act of 1990.
The Community Housing Investment Partnership Act.
The Homeownership Assistance Act of 1989: To authorize the insurance of certain mortgages for first-time homebuyers, and for other purposes.
The Home Mortgage Overcharge Prevention Act of 1989: To amend the National Housing Act to limit the amount of interest paid by a homebuyer upon the prepayment of a mortgage insured under the Department of Housing and Urban Development single-family mortgage insurance program.
The Neighborhood Mortgage Lenders Accountability Act: If any examination of an approved mortgagee by the Secretary (including an examination under subsection (d)) discloses that the mortgagee has failed, in the determination of the Secretary, to meet the lending needs of the community served by the mortgage (as determined by the Secretary under subsection (a)(1)) with respect to residential housing lending, the Secretary may, in the discretion of the Secretary, require that the mortgagee, for continued status as an approved mortgagee for purposes of this Act, develop and submit a plan for remedying such deficiencies.
The First-Time Homebuyers Assistance Act of 1989: To authorize the Secretary of Housing and Urban Development to establish a demonstration program to insure mortgages with no downpayment for moderate-income first-time homebuying families.
The Homeownership Through Sweat Equity Act of 1989: To authorize the Secretary of Housing and Urban Development to carry out a demonstration program of providing grants to housing development agencies to acquire abandoned and vacant housing for rehabilitation and rehabitation by homeless and low-income families.
Who would co-sponsor a bill and then vote against it? Six Republican Senators including Idaho’s “Deficit Peacock”, Mike Crapo, that is who.*
Until Obama’s State of the Union speech, Crapo proudly proclaimed that he was a co-sponsor of the bipartisan Conrad-Gregg “Fiscal Task Force.” The Task Force would create an 18 member commission who, after review, would create a deficit reduction blueprint after the November elections that would be voted on before the new Congress convenes next year.
Republicans claimed the Fiscal Task Force as their own. It gave them a great way to attack the “tax and spend” Obama administration. Here, for example is what Senate Minority leader, Mitch McConnell , said last May:
We must address the issue of entitlement spending now before it is too late. As I have said many times before, the best way to address the crisis is the Conrad-Gregg proposal, which would provide an expedited pathway for fixing these profound long-term challenges. This plan would force us to get debt and spending under control. It deserves support from both sides of the aisle.
Always on the lookout for a way to increase his fiscal hawk cred, Crapo became an enthusiastic co-sponsor of the bill. So what caused the about face? President Obama endorsed the task force in his State of the Union.
Well, Crapo and his fellow Republican co-sponsors couldn’t find themselves in the position of supporting anything Obama favored, so, just prior to the SOTU, they withdrew their support. Commenting on McConnell’s vote against the legislation in an editorial in the Washington Post, Fred Hiatt said “No single vote could embody the full cynicism and cowardice of our political elite at its worst”. The same can be said about the cowardly seven co-sponsors.
Of course, after withdrawing their support, the seven Republican lemmings, including Crapo, voted against the bill. PolitiFact.com summarizes:
…on Jan. 26, 2010, when the Conrad-Gregg bill, originally introduced as S. 2853, came for a vote in the Senate, it fell seven votes shy of the Senate’s 60-vote threshold for passage, garnering 53 yeas and 46 nays, with one senator not voting.
The measure would have passed with 60 votes if only seven additional Republicans who had co-sponsored S. 2853 voted for it. Instead, those seven — Robert Bennett of Utah, Sam Brownback of Kansas, Mike Crapo of Idaho, John Ensign of Nevada, Kay Bailey Hutchison of Texas, James Inhofe of Oklahoma and John McCain of Arizona — withdrew their co-sponsorship in the days before the vote and then voted against it on the floor.
While McConnell and McCain have caught a bit of flak from the national media, Crapo flies under the radar as usual. Let me know if any local media point out the hypocracy. I won’t hold my breath.
* Paul Krugman calls anyone who claims to be a deficit “hawk” simply for political gain a deficit “peacock” and no one fits that description better than Crapo.
