Historically Europe has been the battleground of the West with France and Germany playing dominant roles with Britain and Russia playing important but secondary roles. This pattern has existed up until 1991 with the creation of the Euro-zone which was intended to link Europe financially in an effort to prevent any future wars due to the interdependence. This effort recognized the nationalism within the zone so the interdependence was strictly financial. It left borders intact along with languages but most importantly it left financial controls intact, meaning financial policies continued pretty much as they had in the past but with a common currency.
Unfortunately Europe has been held in thrall by its socialist programs – generous social programs that rewarded workers with lavish health and retirement benefits without demanding a great deal of work. While the taxes have been high in order to support these programs tax collection has been a challenge and the great national game has been to avoid paying taxes. The result has been the cost of government has far exceeded the revenues and the imports have exceeded exports. But the European problem isn’t totally theirs alone. China manipulates its currency keeping it an artificially low rate which drives its export based economy. The US has allowed the government to increasingly get involved in the financial structure which has caused instability both at home and abroad. But the serious problems remain in Europe because the objective of the common currency was unification and stability and the creation of an economic power – United Europe – to rival the United States – politically and economically. All of these objectives are seriously threatened.
The Maastrict Treaty created the Euro as a common currency but left the countries control of their individual fiscal policies. This meant that the countries in the Euro-zone had their own tax policies and would not share banks but would share interest rates. This allowed countries like Greece to continue their socialist programs supported by borrowed money but without any control over the value of money. In effect the Euro remains under central control but at the expense of national sovereignty. The result is the fiscal crisis in Greece and the imminent crises in Italy, Spain, Ireland, and Portugal. But these financial problems are jeopardizing the objective of a Unified Europe as well as the Euro itself, because of the resurgence of nationalism.
The Maastrict Treaty was intended to unify Europe and suppress the nationalism that has plagued Europe since the fall of Rome. But unlike the other members the German economy was designed to be export based unlike the other members in the European Free Trade Zone. . Germany became the dominant financial force in the Euro-zone and the unwilling source of financial support for the less responsible members. This is a role the German people quickly tired of as they couldn’t see why they should subsidize the irresponsible Greeks while the Greeks see the Germans as manipulating the financial system in their favor. The first bailouts by the Germans did not go well with the German people and when it became obvious that more bailout money was needed the Germans demanded action. The result was the creation of the European Financial Security Facility (EFSF) which raises money on the bond market and funnels that money to the weak Euro-Zone members, but the EFSF is run by Germany and it is the Germans who call the tune – not the French and certainly not the weak governments who depend on German money.
With the EFSF in place Germany can demand economic reforms before loaning money and are doing so. These reforms are austerity reforms which strike at the very heart of the socialist programs in place in these countries. In effect they can’t continue as they are without financial aid and they can’t get this aid without meeting Germany’s demands for reform. At a stroke and without firing a shot Germany has achieved the control over Europe that has been it’s objective since Bismark. The result has been a rise of nationalism that threatens the Euro and the concept of a unified Europe. At the very least the generous socialist programs that the Europeans have enjoyed for a long time cannot survive without extreme restructuring. This means fewer government jobs, longer work weeks, reformed pension plans, and higher taxes that are actually collected. These reforms are being resisted in Greece and Italy but when implemented will bring them more in line with the rest of the world. The question of what the European Union might become is now less relevant that can it survive at all without significant changes.—changes dictated by Germany. Welcome to the Fourth Reich.
Showing posts with label Europe. Show all posts
Showing posts with label Europe. Show all posts
Wednesday, November 16, 2011
Saturday, July 02, 2011
China and Economics
The idea that China is rapidly taking over the world economy is a widespread belief, but like so many things related to Socialism and Communism the realities are frequently ignored by pandering press. Currently the focus is on Greece and Europe where all of those socialist dreams are rapidly becoming an economic nightmare as it becomes apparent that government spending cannot exceed tax revenues. But there are other socialist countries where the stark reality of economics is beginning to rear its ugly head and China is one of those.
China – like so many other nations including the US, unleashed a flood of “stimulus” money in 2008 for the purpose of stimulating its economy which had been hard hit with the global decline. This stimulus money mostly went to local governments with the intent that this money would be spent on the infrastructure. This money vanished but with no real improvement in the infrastructure and by 2010 the local governments were $1.6 trillion dollars in debt, mostly in bank loans with a substantial portion of those loans being bad debt. Many of those infrastructure projects are sunk in debt and incomplete and those that have been completed have done little to stimulate or support China’s economic growth as they are simply “bridges to nowhere”. The reality is that no government can continue to make loans that are not paid back because eventually you run out of money. Greece and Europe (and soon the US) are in the throes of that reality and China is not far behind.
Cart Water’s and American Investment Banker and a specialist in China, points out that 55% of the Chinese GDP was from infrastructure investment – meaning bank loans which in a Communist country means the government. But governments do not make a profit and this is true even in communist countries and the collapse of the USSR is an example of how governments cannot run anything at a profit. So the Chinese government is trying to shore up its economic house by shifting much of the local government debt off of their books while the state owned banks re-capitalize using state guaranteed profits generated by the spread between interest rates on savings and interest charged on loans. Chinese law allows the banks to roll over their bad debts indefinitely so they can gradually pay down these debts. This is a communist country where the government controls everything so it is easy for the government to rig the system, which is just building a house of cards that cannot stand forever.
Of course in a rigged system the banks make money no matter if the loans are bad loans but the reality is those loans don’t go away and as that debt load grows the government will find it harder and harder to lend more money for investment in the infrastructure necessary to maintain their economy. That economy is highly dependent on the industrialized coast cities and their industries which are government subsidized. But China remains a largely rural economy and the disparity in income between the interior and the coastal region is creating unrest and demands for infrastructure and quality of life improvements that the government cannot meet in its leveraged state.
But the work force in the Industrial cities is demanding higher and higher wages which is placing the government into a difficult position. A failure to meet the demands for higher wages will cause the workforce to become even more restive than it already is but raising the wages reduces China’s competitiveness in the world labor market while reducing their ability to satisfy the rural area’s demands for improvements in infrastructure and quality of life. The government has made some attempt to increase wages but this has caused some manufacturers to abandon China and move to lower cost labor markets. This migration out of China is causing unemployment and empty factories which is having an impact in the rural areas because the government can’t fund the necessary improvements in the countryside and those unemployed workers were sending money to their rural families but that has ceased adding to the unrest. There have already been riots and unrest which the government is attempting to keep out of the public eye but they recognize the gravity of the situation.
Socialism and communism alike cannot and do not work in the long term. Europe is nearly bankrupt and faced with the reality that their extravagant government benefits cannot be sustained in the face of higher costs and greater longevity of their populations. Attempts to reduce these benefits even slightly had resulted in riots and instability. This is a lesson not wasted on the Chinese but the fear that China is going to take over the world seems unfounded.
China – like so many other nations including the US, unleashed a flood of “stimulus” money in 2008 for the purpose of stimulating its economy which had been hard hit with the global decline. This stimulus money mostly went to local governments with the intent that this money would be spent on the infrastructure. This money vanished but with no real improvement in the infrastructure and by 2010 the local governments were $1.6 trillion dollars in debt, mostly in bank loans with a substantial portion of those loans being bad debt. Many of those infrastructure projects are sunk in debt and incomplete and those that have been completed have done little to stimulate or support China’s economic growth as they are simply “bridges to nowhere”. The reality is that no government can continue to make loans that are not paid back because eventually you run out of money. Greece and Europe (and soon the US) are in the throes of that reality and China is not far behind.
Cart Water’s and American Investment Banker and a specialist in China, points out that 55% of the Chinese GDP was from infrastructure investment – meaning bank loans which in a Communist country means the government. But governments do not make a profit and this is true even in communist countries and the collapse of the USSR is an example of how governments cannot run anything at a profit. So the Chinese government is trying to shore up its economic house by shifting much of the local government debt off of their books while the state owned banks re-capitalize using state guaranteed profits generated by the spread between interest rates on savings and interest charged on loans. Chinese law allows the banks to roll over their bad debts indefinitely so they can gradually pay down these debts. This is a communist country where the government controls everything so it is easy for the government to rig the system, which is just building a house of cards that cannot stand forever.
Of course in a rigged system the banks make money no matter if the loans are bad loans but the reality is those loans don’t go away and as that debt load grows the government will find it harder and harder to lend more money for investment in the infrastructure necessary to maintain their economy. That economy is highly dependent on the industrialized coast cities and their industries which are government subsidized. But China remains a largely rural economy and the disparity in income between the interior and the coastal region is creating unrest and demands for infrastructure and quality of life improvements that the government cannot meet in its leveraged state.
But the work force in the Industrial cities is demanding higher and higher wages which is placing the government into a difficult position. A failure to meet the demands for higher wages will cause the workforce to become even more restive than it already is but raising the wages reduces China’s competitiveness in the world labor market while reducing their ability to satisfy the rural area’s demands for improvements in infrastructure and quality of life. The government has made some attempt to increase wages but this has caused some manufacturers to abandon China and move to lower cost labor markets. This migration out of China is causing unemployment and empty factories which is having an impact in the rural areas because the government can’t fund the necessary improvements in the countryside and those unemployed workers were sending money to their rural families but that has ceased adding to the unrest. There have already been riots and unrest which the government is attempting to keep out of the public eye but they recognize the gravity of the situation.
Socialism and communism alike cannot and do not work in the long term. Europe is nearly bankrupt and faced with the reality that their extravagant government benefits cannot be sustained in the face of higher costs and greater longevity of their populations. Attempts to reduce these benefits even slightly had resulted in riots and instability. This is a lesson not wasted on the Chinese but the fear that China is going to take over the world seems unfounded.
China and Economics
The idea that China is rapidly taking over the world economy is a widespread belief, but like so many things related to Socialism and Communism the realities are frequently ignored by pandering press. Currently the focus is on Greece and Europe where all of those socialist dreams are rapidly becoming an economic nightmare as it becomes apparent that government spending cannot exceed tax revenues. But there are other socialist countries where the stark reality of economics is beginning to rear its ugly head and China is one of those.
China – like so many other nations including the US, unleashed a flood of “stimulus” money in 2008 for the purpose of stimulating its economy which had been hard hit with the global decline. This stimulus money mostly went to local governments with the intent that this money would be spent on the infrastructure. This money vanished but with no real improvement in the infrastructure and by 2010 the local governments were $1.6 trillion dollars in debt, mostly in bank loans with a substantial portion of those loans being bad debt. Many of those infrastructure projects are sunk in debt and incomplete and those that have been completed have done little to stimulate or support China’s economic growth as they are simply “bridges to nowhere”. The reality is that no government can continue to make loans that are not paid back because eventually you run out of money. Greece and Europe (and soon the US) are in the throes of that reality and China is not far behind.
Cart Water’s and American Investment Banker and a specialist in China, points out that 55% of the Chinese GDP was from infrastructure investment – meaning bank loans which in a Communist country means the government. But governments do not make a profit and this is true even in communist countries and the collapse of the USSR is an example of how governments cannot run anything at a profit. So the Chinese government is trying to shore up its economic house by shifting much of the local government debt off of their books while the state owned banks re-capitalize using state guaranteed profits generated by the spread between interest rates on savings and interest charged on loans. Chinese law allows the banks to roll over their bad debts indefinitely so they can gradually pay down these debts. This is a communist country where the government controls everything so it is easy for the government to rig the system, which is just building a house of cards that cannot stand forever.
Of course in a rigged system the banks make money no matter if the loans are bad loans but the reality is those loans don’t go away and as that debt load grows the government will find it harder and harder to lend more money for investment in the infrastructure necessary to maintain their economy. That economy is highly dependent on the industrialized coast cities and their industries which are government subsidized. But China remains a largely rural economy and the disparity in income between the interior and the coastal region is creating unrest and demands for infrastructure and quality of life improvements that the government cannot meet in its leveraged state.
But the work force in the Industrial cities is demanding higher and higher wages which is placing the government into a difficult position. A failure to meet the demands for higher wages will cause the workforce to become even more restive than it already is but raising the wages reduces China’s competitiveness in the world labor market while reducing their ability to satisfy the rural area’s demands for improvements in infrastructure and quality of life. The government has made some attempt to increase wages but this has caused some manufacturers to abandon China and move to lower cost labor markets. This migration out of China is causing unemployment and empty factories which is having an impact in the rural areas because the government can’t fund the necessary improvements in the countryside and those unemployed workers were sending money to their rural families but that has ceased adding to the unrest. There have already been riots and unrest which the government is attempting to keep out of the public eye but they recognize the gravity of the situation.
Socialism and communism alike cannot and do not work in the long term. Europe is nearly bankrupt and faced with the reality that their extravagant government benefits cannot be sustained in the face of higher costs and greater longevity of their populations. Attempts to reduce these benefits even slightly had resulted in riots and instability. This is a lesson not wasted on the Chinese but the fear that China is going to take over the world seems unfounded.
China – like so many other nations including the US, unleashed a flood of “stimulus” money in 2008 for the purpose of stimulating its economy which had been hard hit with the global decline. This stimulus money mostly went to local governments with the intent that this money would be spent on the infrastructure. This money vanished but with no real improvement in the infrastructure and by 2010 the local governments were $1.6 trillion dollars in debt, mostly in bank loans with a substantial portion of those loans being bad debt. Many of those infrastructure projects are sunk in debt and incomplete and those that have been completed have done little to stimulate or support China’s economic growth as they are simply “bridges to nowhere”. The reality is that no government can continue to make loans that are not paid back because eventually you run out of money. Greece and Europe (and soon the US) are in the throes of that reality and China is not far behind.
Cart Water’s and American Investment Banker and a specialist in China, points out that 55% of the Chinese GDP was from infrastructure investment – meaning bank loans which in a Communist country means the government. But governments do not make a profit and this is true even in communist countries and the collapse of the USSR is an example of how governments cannot run anything at a profit. So the Chinese government is trying to shore up its economic house by shifting much of the local government debt off of their books while the state owned banks re-capitalize using state guaranteed profits generated by the spread between interest rates on savings and interest charged on loans. Chinese law allows the banks to roll over their bad debts indefinitely so they can gradually pay down these debts. This is a communist country where the government controls everything so it is easy for the government to rig the system, which is just building a house of cards that cannot stand forever.
Of course in a rigged system the banks make money no matter if the loans are bad loans but the reality is those loans don’t go away and as that debt load grows the government will find it harder and harder to lend more money for investment in the infrastructure necessary to maintain their economy. That economy is highly dependent on the industrialized coast cities and their industries which are government subsidized. But China remains a largely rural economy and the disparity in income between the interior and the coastal region is creating unrest and demands for infrastructure and quality of life improvements that the government cannot meet in its leveraged state.
But the work force in the Industrial cities is demanding higher and higher wages which is placing the government into a difficult position. A failure to meet the demands for higher wages will cause the workforce to become even more restive than it already is but raising the wages reduces China’s competitiveness in the world labor market while reducing their ability to satisfy the rural area’s demands for improvements in infrastructure and quality of life. The government has made some attempt to increase wages but this has caused some manufacturers to abandon China and move to lower cost labor markets. This migration out of China is causing unemployment and empty factories which is having an impact in the rural areas because the government can’t fund the necessary improvements in the countryside and those unemployed workers were sending money to their rural families but that has ceased adding to the unrest. There have already been riots and unrest which the government is attempting to keep out of the public eye but they recognize the gravity of the situation.
Socialism and communism alike cannot and do not work in the long term. Europe is nearly bankrupt and faced with the reality that their extravagant government benefits cannot be sustained in the face of higher costs and greater longevity of their populations. Attempts to reduce these benefits even slightly had resulted in riots and instability. This is a lesson not wasted on the Chinese but the fear that China is going to take over the world seems unfounded.
Saturday, July 07, 2007
Imperial America
Increasingly we see various public statements by Americans as well as foreigners accusing America of being “Imperialistic”. The definition of “Imperialism” is “the policy of seeking to extend the power, dominion, or territories of a nation”. The key word here appears to be “policy” because that infers that the government of the United States has a conscious and defined policy to gain territory (land), to increase its power at the expense of others, or dominate other countries. If this is the policy of any political power or elected official since 1900, it has been a well guarded secret.
In fact, the United States was very isolationist prior to WW I and refused to get engaged in the struggle between Britain, France, and Imperial Germany until 1917. As usual the Europeans made the mess and then turned to the US to clean it up. The US not only brought all of their soldiers’ home, leaving Europe to its own devices, but sent food and treasure to repair the self-inflicted damage. The President of the United States was instrumental in establishing the ineffective League of Nations, which was intended to act as a diplomatic forum to prevent further bloodshed.
The US Senate failed to ratify the League of Nations so America was never part of it. This failure to join the League of Nations was a reflection of the isolationist attitude of America and Americans. Even though the US emerged from WW I as a global power it was unwanted and the role rejected by the US. The League itself degenerated into a debating society that was totally ineffective. The failure naturally was attributed to the failure of America to join. The implication is that had America been a member, America would have used its military power to thwart both Mussolini and Hitler. This represents the first step in the “blame America first” policy that has permeated European politics since 1918. The reality is that following WW I America returned to its peaceful and isolationist state and reduced its military to a token level, a point largely ignored by the Europeans.
The important point here is that the United States, who had the military might to dominate Europe and dictate the peace terms, did not. This is demonstrable proof that the US did not have any interest or policy to dominate or to increase either its territories or power after defeating Imperial Germany. In fact the minimal role played by the US and its failure to exercise its power led to that travesty of the Treaty of Versailles, where the European “powers” punished Germany and carved up the Ottoman Empire, thus assuring the instability and violence that afflicts the Middle East today.
This scenario was replayed again as Germany once again rebelled against the onerous terms of Versailles and rose to power. Once again the Europeans turned to the US to for assistance and once again the United States came to the aid of Europe and crushed Germany and the Axis powers. However, this time the US could not withdraw its troops because Europe remained under threat from the communist USSR. Those troops remain in Germany even now, but at the request of Germany.
In an effort to correct the mistake of not joining the League of Nations, the US led the effort to establish the United Nations. This was in reaction to the charges that the old League had failed because the US failed to join. However, the UN has – like the League before it – degenerated into a debating society that is totally powerless and thoroughly corrupt. It has no military power and has not been successful in preventing any war or keeping any peace anywhere in the world. UN “peacekeepers” are not just ineffective they are generally ignored and attacked when they get in the way of the dictator du jour.
Still the point is that following WW II, Korea, Viet Nam, Grenada, Bosnia, and the cold war, the United States has only grown in power but that has not been the policy of the US government but the result of other nations not being able to defend themselves and looking to the US for assistance in maintaining their sovereignty. Nevertheless, the US has not extended it territory or dominion over other nations. So why is the US accused of being Imperialist? This is addressed in Imperial America II.
In fact, the United States was very isolationist prior to WW I and refused to get engaged in the struggle between Britain, France, and Imperial Germany until 1917. As usual the Europeans made the mess and then turned to the US to clean it up. The US not only brought all of their soldiers’ home, leaving Europe to its own devices, but sent food and treasure to repair the self-inflicted damage. The President of the United States was instrumental in establishing the ineffective League of Nations, which was intended to act as a diplomatic forum to prevent further bloodshed.
The US Senate failed to ratify the League of Nations so America was never part of it. This failure to join the League of Nations was a reflection of the isolationist attitude of America and Americans. Even though the US emerged from WW I as a global power it was unwanted and the role rejected by the US. The League itself degenerated into a debating society that was totally ineffective. The failure naturally was attributed to the failure of America to join. The implication is that had America been a member, America would have used its military power to thwart both Mussolini and Hitler. This represents the first step in the “blame America first” policy that has permeated European politics since 1918. The reality is that following WW I America returned to its peaceful and isolationist state and reduced its military to a token level, a point largely ignored by the Europeans.
The important point here is that the United States, who had the military might to dominate Europe and dictate the peace terms, did not. This is demonstrable proof that the US did not have any interest or policy to dominate or to increase either its territories or power after defeating Imperial Germany. In fact the minimal role played by the US and its failure to exercise its power led to that travesty of the Treaty of Versailles, where the European “powers” punished Germany and carved up the Ottoman Empire, thus assuring the instability and violence that afflicts the Middle East today.
This scenario was replayed again as Germany once again rebelled against the onerous terms of Versailles and rose to power. Once again the Europeans turned to the US to for assistance and once again the United States came to the aid of Europe and crushed Germany and the Axis powers. However, this time the US could not withdraw its troops because Europe remained under threat from the communist USSR. Those troops remain in Germany even now, but at the request of Germany.
In an effort to correct the mistake of not joining the League of Nations, the US led the effort to establish the United Nations. This was in reaction to the charges that the old League had failed because the US failed to join. However, the UN has – like the League before it – degenerated into a debating society that is totally powerless and thoroughly corrupt. It has no military power and has not been successful in preventing any war or keeping any peace anywhere in the world. UN “peacekeepers” are not just ineffective they are generally ignored and attacked when they get in the way of the dictator du jour.
Still the point is that following WW II, Korea, Viet Nam, Grenada, Bosnia, and the cold war, the United States has only grown in power but that has not been the policy of the US government but the result of other nations not being able to defend themselves and looking to the US for assistance in maintaining their sovereignty. Nevertheless, the US has not extended it territory or dominion over other nations. So why is the US accused of being Imperialist? This is addressed in Imperial America II.
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