20-Mar-10 News - US-China relations deteriorate

[John]

20-Mar-10 News - US-China relations deteriorate

** 20-Mar-10 News - US-China relations deteriorate
** http://www.generationaldynamics.com/cgi-bin/D.PL?xct=gd.e100320#e100320\n

Contents:
"Animosity increases between U.S. and China"
"Krugman and Evans-Pritchard get out the pitchforks"
"Additional Links"

[mannfm11]

I just posted this on an Australian financial site sponsored by Steve Keen. What few seem to realize is China is on the dollar, they merely issue Chinese versions. The US can't devalue against China and China can't value their currency upward, other than to take in American interest and not issue any more yuan. Roach has it wrong too. Americans save plenty. It is their government that spends too much and the fact that a certain number of Americans have too much credit. China would have never developed without the aid of the US credit bubble. The US has a problem unless they levy tariffs. The problem is that devaluation will only serve to move US wages down toward those of the Chinese and make capital in the US take flight. The economics of credit are not understood by many, especially Bernanke and Congress. Obama is clueless.

[mannfm11]

John, I read the link on CDS's. He brings out important issues, but the most important issue is that the default swap is on something already in existance. IN essense, the buyer of a swap is in the same position as the company that issued the debt, short the money and paying a fee for it. It is clearly an attack on speculative debt, which may eventually discourage speculative debt, which is the main culprit in this mess. For every seller, there is a buyer. The danger is the seller can't pay, not that the buyer is right or wrong.

If there is regulation, it should be that the sellers be able to pay. This is a fantastic portfolio tool, but then again it allows for more, not less speculative debt. The great secret is that about 80% of the debt out there is bad. The CDS market will do away with itself, as those that grant the insurance will go broke or realize that insuring debt in a collapsing bubble is not a good idea.

This is more a case of losers yelling, deal again. There are constant complaints in the gold markets about naked shorts. Well, if there is a naked short, why doesn't the long just go ahead and buy. They locked in a price and the short is required to deliver. These bonds are put on the market with the idea the company is creditworthy. If the company is credit worthy or Greece is creditworthy, the buyer of the swap will lose their money, simple as that.

We are headed toward a massive depression. It won't matter whether there are sizable swaps or not. The debt in general needs to be liquidated. Idiots seem to have the loudest voices in this game, attempting to maintain the status quo, while leaving us with the problem. The problem is the banks are broke and the insiders in the banks are stealing what already isn't there under the guarantees of the government and under a cloud of smoke designed to cover for them. We will be left holding the bag.

[ridgel]

I hate to say it, but Krugman is exactly right here. Every time China buys a U.S. treasury to keep down their exchange rate they are subsidizing their domestic exporters by exactly the same amount. It's a perversion of free trade and economic theory, which says that if a country consistently runs a trade surplus then their currency should appreciate. 25% tariffs on Chinese goods is kind of arbitrary, but it would be a good start. 25% plus 5% more every year until trade is balanced. Unemployment in the U.S. would fall overnight.

[John]

Dear Barry,

> John, I read the link on CDS's. He brings out important issues,
> but the most important issue is that the default swap is on
> something already in existance. IN essense, the buyer of a swap is
> in the same position as the company that issued the debt, short
> the money and paying a fee for it. It is clearly an attack on
> speculative debt, which may eventually discourage speculative
> debt, which is the main culprit in this mess. For every seller,
> there is a buyer. The danger is the seller can't pay, not that the
> buyer is right or wrong.

This is exactly right. And what really amazes me is that the CDS
buyers and sellers need have no relationship to the bonds being
insured. You're not allowed to do that with life insurance or fire
insurance, but this happens all the time with "bond default"
insurance.

It's as if I and my next door neighbor decided to make a bet on
whether you, Barry, are going to die in the next year. If you live, I
get a thousand dollars. If you die, my next door neighbor gets a
million dollars. It's really a sickness.

Nonetheless, any attempt to prevent this sickness through regulation
cannot possibly succeed.

John

[ridgel]

Here's more evidence of deteriorating U.S. / China relations in the business area:

http://news.bbc.co.uk/2/hi/business/8579528.stm

Fully 38 percent of foreign firms questioned by the American Chamber of Commerce say they feel increasingly unwelcome to participate and compete in the Chinese market.

...
The disquiet was most pronounced among foreign firms specializing in high-tech and information technology, with 57 percent saying they felt negatively affected by government policies. In that sector, 37 percent of foreign companies said they were losing sales as a result of Chinese government policies.