Troubles In China

A casual reading of the news would lead you to believe that China is about to overwhelm the US and the world economy as a whole.  That it is not just a rising economic power but a military one as well.  However, a closer look would indicate that perhaps things are not as they appear and in fact China is struggling with some very significant internal problems.  People tend to ignore that this is The People’s Republic of China, a communist state where the government owns everything and is responsible for everything.  While it is true that the government has relaxed some of their rules on private ownership, the government still controls anything of importance.  Like most dictatorships the people offer passive resistance thereby obstructing government programs, while there is inefficiency and corruption within the government this passive resistance exacerbates the problems.

Perhaps the best example of problems the government cannot control is pollution.  China’s pollution problems are great and increasing.  They have huge energy demands which are being met with coal powered plants and their accompanying air pollution.  In an effort to meet the growing demand for power the government built the Three Gorges Dam which introduced significant environmental and social problems. Not only has this dam created internal problems with the local population it has brought worldwide concern over its environmental impact.  But China's pollution problems extend even further. In an effort to stimulate the economy and stifle unrest the government relaxed their regulations regarding private enterprise.  With this shift came increased personal wealth and with that wealth came more auto’s.  As the number of autos grew so did the smog and a decline in air quality which the government has been unable to control or reverse.  But more alarming is how the managers of the government owned facilities ignore regulations and are pouring untreated sewage and chemicals into their rivers.  

China, even Imperial China, has historically had a long history of corruption and that continues today even at the highest levels. Those who control the government are very rich and their business practices are carefully guarded secrets but that attitude simply percolates downward and spreads across the entire infrastructure.  Nepotism is rampant so organizations are overstaffed with family members who pass business back and forth within the family.  Nowhere is the mismanagement and corruption more evident than in the financial sector where the government banks make loans to other government operations without any due diligence.  These bad loans are not repaid but are carried on the books as assets. So the government makes the loan to the government without creating any jobs or wealth, the result is less money available for capital investment or new endeavors.

Socialism and communism place employment over efficiency and this is certainly true in China.  The means of production in China are located along the coastal areas and are wholly owned by the government.  These factories are subsidized by the government and the production targets are set by the government.  As long as the global economy was growing this was not a problem but as the economies of the US and Europe slowed unsold inventories have accumulated.  This has made many employees redundant in an environment where employment is a primary objective. So the government is faced with unsold inventories and too many workers.  Adding to this problem has been an influx of young workers who are leaving the agricultural areas looking for higher wages and a better life.  The result is a growing unemployment problem which the government is struggling with.  The subsidies are siphoning off money needed for infrastructure improvements needed in the interior plus the agricultural workers are struggling to make a living.  How the People’s Republic of China deals with this problem while maintaining their Communist ideals is to be determined.

In spite of these problems there is an even larger problem facing China and that is their determination to keep the value of the Yuan low.  The Yuan has been tied to the dollar which worked well for the Chinese when the economy and the dollar was strong but as the value of the dollar declined so has the Yuan.  The result has been inflation making foreign goods more expensive to the Chinese citizen just as they are beginning to enjoy their increasing wealth.  This in turn is putting pressure on the government to increase wages just as they are faced with unsold inventories and redundant employees.  Adding to their financial woes is pressure from the US to revalue the Yuan which they resist because it would simply make a bad situation worse.  But the undervalued Yuan is adding to their inflationary pressures so the government is caught between a rock and a hard place. 

How long The Peoples Republic can continue with the central planning demanded by communist philosophy remains to be seen but they have significant problems, which are growing daily.

 

The Chinese Bubble

The socialists and communists never seem to learn that central planning and government control is a failure, is expensive, and never seems to accomplish any of their objectives. Currently the feeling seems to be that China (formerly known by the politically incorrect but accurate title – The People’s Republic of China) is taking over the world. Everything seems to be made in China and the PRC seems impervious to the economic woes of the world. But is this real? Is the PRC the economic success that they want you to believe or are they practicing the tried and true strategy of the USSR, which is that if you say it’s true then it must be true?

It is important to understand that there is no private capital in the PRC and that everything is controlled by the government. This means that all new construction, production volumes, and imports are strictly controlled and subsidized by the government. Given this strict control and oversight by the government the PRC must be a booming success but alas – it is looking more and more like the PRC may have created a bubble that is nearing a tipping point.

The Central Planning philosophy seems to be “if you build it they will come”. Meaning that if you build a mall or apartment complex the consumption will follow which has left the government holding empty buildings, empty malls, and ongoing construction projects which will yield even more empty buildings and malls. You must remember the bedrock philosophy of socialism is employment not efficiency so the harsh rules of capitalist supply and demand are ignored and not viewed as relevant. The result is that there is a housing glut with substantially more housing available that is needed, but that really only applies to the coastal region. The interior of China continues to be rural with a standard of living equivalent to most third world countries.

But this problem of excess capacity isn’t limited to housing but is prevalent in manufacturing as well. Chinese manufacturers continue pumping out huge amounts of steel, cement, aluminum, and other products to the point that it is unlikely the economy can absorb the output. When the world economy took a down turn China did not cut back but continued churning out massive amounts of product. Now the world economy has cut back and the domestic Chinese market cannot absorb the surplus. In a capitalist economy the individual businesses would simply reduce output, eliminate inefficiencies, and reduce headcount but these solutions are not possible with central planning, because employment is the objective. Furthermore, Chinese industry is heavily subsidized and relies strongly on imported raw materials. The pressure on the Chinese government is tremendous and the question is – how long can they maintain this drain on their economy?

China – A Strategic Threat?

Apparently in an effort to cover up the total failure of Communism and the growing failure of Socialism, the popular press has chosen to forget that China is actually the People’s Republic of China and that it is in fact a troubled communist country. Instead we are treated almost daily to the glowing reports of China as an economic powerhouse that is rapidly taking over the global market. Unfortunately the popular press is not noted for its objective reporting or critical thinking so perhaps it is time to look behind the press releases.

While China is a large country with a huge population, it is not a homogenous population in economics, culture, or ethnicity. Historically China has been a series of fiefdoms or provinces that have not always been comfortable or even friendly with each other. Imperial China was more or less stable but hardly rich and hardly a military threat. But also the coastal regions of China have always been economically stronger than the interior and have prospered at the expense of the agrarian interior regions. It was this economic disparity that allowed Mao Tse Tung to overthrow the Chinese government and to establish what Communist China is today.

However, the reality seems to be that nothing has changed under the communists and the same economic divisions remain. In fact what appears to be a strong and competitive Chinese economy is more of a veneer than a reality. The reality is that two thirds of the Chinese people have incomes equivalent or below third world countries. While the Communists unified China they also once again demonstrated the weakness of communism, which is universal poverty. The current government recognizes the growing instability of their government and has sought to achieve greater stability through mass employment. But mass employment requires industrial growth, subsidies, and expansion of consumption either domestically or via exports. But with central planning – the mainstay of communism – there is no thought given to markets or margins – just to employment. The result is exports become a necessity because the domestic market cannot absorb the output. Therefore, China must export their goods in order to maintain political stability through salaries and the revenues necessary to support the agrarian majority.

The economic downturn has affected the economies of virtually every nation but with its dependence on exports China has been hit particularly hard. China depends on the American and European markets to absorb their exported goods, but with their declining economies the law of supply and demand has taken over. The demand for Chinese goods is down and the competition for those goods is up. China is caught in a dilemma – they cannot reduce their output nor can they reduce their subsidies to the interior and their manufacturing base. They cannot layoff workers because employment is key to their communist principles, but they cannot sustain their current production levels either. The Chinese government is trapped in the inherent flaw of Marxism – central planning and government ownership rather than private ownership. Maintaining stability is dependent on goods flowing overseas while raw materials flow in, but maintaining this flow is a growing challenge because the Communist system ignores profitability in favor of employment which in turn breaks the self regulating law of supply and demand. This problem is further aggravated by inflation, which not only raises the cost of subsidizing the interior but it drives up the cost of the manufacturing output which reduces their competitiveness with other global suppliers. An alternative might be to produce higher cost products like automobiles, which China is attempting, but this requires a different workforce – one with more education and training than what is available today. But even if they are successful in making this transition they will come face to face with Germany, Japan, and the United States. The Chinese government is caught in a situation they cannot control. They are coming face to face with the fatal flaw in socialism, which is employment as the priority rather than efficiency.

China -- Red Dragon or Paper Dragon

From what you read in such prestigious sources as the New York Times you would think that everybody should start learning Chinese because China is not only a rising military power but an economic power house that is overwhelming all competition. But is that a realistic appraisal of the situation? I think a little critical thinking may be in order.

First the New York Times is not noted for its veracity or being in love with capitalism nor is most of the American media The critical thinking seems to be reserved for American business and foreign policies rather than any critical analysis of what lies beneath the public policies and positions of the Peoples Republic of China. In fact when was the last time you saw any reference to China as the “People’s Republic of China”? Currently the PRC is simply referred to as China which may just be laziness of the part of the media but the fact is failing to call the PRC what it is in reality is misleading. The reality is that Communism or Marxism are demonstrable failures as a government. Furthermore Socialism as a governmental form is far from successful as can be seen in the current upheavals in Greece, Italy, France, and across Western Europe in general. The fatal flaw in these political philosophies is that their objective is employment not efficiency and wealth redistribution not wealth creation.

There is no free enterprise in the PRC in spite of appearances. Permitting a family or an individual to set up a noodle stand is not quite the same as opening a factory. The Chinese government permits these small businesses to operate more like a safety valve on a steam engine – the internal pressures on the Chinese government are immense and growing. These pressures are both political and economic but the economic ones are by far the greater.

In the PRC the government owns everything – there is no true private ownership. The government owns all of the factories, the land, and all means of production from rice to warships which mean that they are the sole employer and that they control all prices. But the PRC, like all governments is faced with a finite amount of revenue that must cover their overhead, but unlike capitalist governments they cannot raise taxes because that is just taking from one pocket and putting it in another. Consequently the PRC is forced to increase revenues from exports which means they must compete in a global market for both labor and goods. To date the PRC has been able to maintain the fiction that they are a competitive powerhouse but in reality they are operating a giant Ponzi scheme.

The PRC is manufacturing and exporting vast amounts of product because foreign manufacturers are sending thousands of jobs to this “low labor cost” market. But the manufacturing centers are along the coastal areas where the quality of life is far superior to the internal quality of life. This is leading to a growing influx of young people seeking a better life which in turn is causing pressures on housing as well wages as the cost of living increases. If the wages increase the competitive position vanishes and that foreign investment will move to other low labor cost markets. The PRC has attempted to deal with this issue by subsidizing the manufacturing which means that the cost of goods being exported are a) below cost b) at cost or c) with low margins. This in turn has led to quality issues but the real problem is that these subsidies are draining financial resources from the interior infrastructure. While the internal infrastructure cannot be improved the major problem is that it cannot even be repaired. The PRC has suffered greatly from major floods and earthquakes which have left much of the interior in need of repair, which means the government is faced with some very difficult decisions. They cannot reduce the subsidies without raising prices which will create a demand for higher wages which will drive foreign investment away. They can fail to quickly repair the damage but the rural areas are already restive due to their quality of life versus that of the coastal areas. What ever they decide there will be major changes in the economy of the PRC.

And this brings us to the Chinese Military. As Talleyrand once said regarding Napoleon’s military exploits “the problem with an army is that it eats” and thus the PRC has this issue to deal with as well. Armies are pure overhead. They cost a great deal to feed and equip while providing nothing in peace time, so they must be employed or reduced in size. The PRC cannot use their army by adopting an expansionist policy nor can they reduce its size because they would still have to pay the soldiers being released because the government is the sole employer. But there is another less visible issue and that is the military itself. Generals do not like to see their power reduced but more importantly the soldiers themselves are the sons and daughters of farmers and small shop keepers. These are the people who are suffering from a poor quality of life which is aggravated by the damaged infrastructure. A Failure to alleviate the suffering in the rural areas could easily transfer to a restive military, so the central government cannot ignore the problems of the interior and they are caught on the horns of this dilemma. If those weren’t problems enough there is another historic problem that has plagued China for thousands of years and that is corruption. Nepotism, bribery, and kickbacks are a way of life and part of the Chinese culture. The PRC does what it can to stop this and do prosecute and act on the most outrageous examples, but the problem is endemic and undermines trust in the government.

So China – the People’s Republic of China – is perhaps more of a Paper Dragon than a real one. While they appear to be crushing everything in their path, the reality is that Communism and Central Planning are demonstrable failures. The PRC cannot continue to sustain the house of cards they have built indefinitely and their dominant position in world trade must eventually collapse from the internal economic pressures.

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 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.

Strategic Observations and Forecast

After reading various articles and books plus listening to the news, and then observing the economic situation both nationally and internationally, I have arrived at some conclusions. Naturally these could be totally off base and have no relationship to reality, but then maybe not. Certainly it should be clear to everyone that not only are we in a serious economic situation but that we are in the throes of significant change politically, economically, and culturally. So these are simply my personal conclusions regarding what I think are some key areas of change and impact.

Energy
The drive within the US for many years has been to achieve independence from fossil fuels, meaning oil and natural gas, but in reality independence from oil imports. The focus has been on electric autos which to date have proven to be overly expensive and hugely unpopular. However, that is basically a technical problem which can and will be overcome so the long term problem is our electrical infrastructure. The Greens have prevented the construction of nuclear power plants while campaigning against coal powered energy. Unless the congress corrects this problem the price of electricity will skyrocket as thousands of electric vehicles hit the road. Even without these electric cars the price of electricity is already increasing and in some areas the supply struggles to meet the demand. My long range forecast is that while the demand for gasoline decreases the cost of gas in the family budget will be replaced by the cost of electricity and there will be shortages in the near term if congress allows the Greens to approve the Kyoto treaty which would reduce our supply of electricity as generating plants are forced to close.

Oil and OPEC
The price of oil is plummeting and efforts by OPEC to drive the price up will probably be futile at least in the near term. The problem is that the oil producing countries of Venezuela, Iran, Nigeria, and the Emirates have virtually no source of income outside of oil. These oil revenues support their socialist programs and as the price of oil drops their spending far exceeds their income. Consequently through OPEC they have tried to increase the cost of oil by reducing the supply. But there is no honor among thieves so while they agree to reduce the supply of oil the reality is only the Saudi’s do so the actual supply of oil continues to exceed the demand. The result of this hasn’t manifested itself yet, but within the next year OPEC will become nothing more than a hollow shell with each member going their own way while giving lip service to the agreements.

Iran & Venezuela
Both of these countries are unstable but perhaps the most unstable of the pair is Iran. The Mullahs have instituted Sharia Law and enforce it capriciously. They execute homosexuals, adulterers, and women who have been accused of “immoral conduct” – usually without trial. They are Saber rattling but as it turns out much of their vaunted military is unreliable. Their missile program turned out to be mostly an Adobe Photoshop exercise. By using Shia Iraqi soldiers as bait the managed to surround an American patrol with the objective of kidnapping them and holding them hostage in order to embarrass the US. Instead, they American officer who was surrounded by Iranian soldiers ordered his men to open fire. The Iranians turned and ran off leaving eleven dead. There is great unrest among the population and the more restrictive the government becomes the more unsteady the population and the more demands for change. In the meantime their principal source of income is oil and with the plummeting oil prices they can no longer fund their social programs much less their military machine. The best course of action for the US is inaction and possibly increased diplomatic contact. The Mullahs need us to be aggressive toward them and they will undoubtedly continue provocations but we must not allow ourselves to be provoked.

Venezuela is a little more stable but Chavez is systematically wrecking the economy with his socialist programs. The black market is rampant and Chavez is looking for some outside force that he can blame for his problems. Currently this is the US but without his oil income and with his socialized businesses dropping like stones he is driving for total power. This country is subject to an internal revolution by the military. The problem with soldiers is that they have parents and families. If they aren’t happy the soldiers become unreliable. Chavez will continue his drive for total power as dictator but as the price of oil declines he will be forced into either curtailing his social spending or continuing to pump oil in an effort to maintain his revenues. Either way Venezuela will be very unstable as well as his future. Once again our best course of action is no action.

China
It seems pretty clear that China as a communist nation is on very unsteady ground. As they creep more and more into capitalism the communist power structure moves ever closer to Imperial China in practice. Central planning had never worked and is not working in China. Corruption is rampant which has greatly impacted their foreign exports plus weakening the grip of the government on the people. Their exports are declining, unemployment is increasing, and their economy which depends on growth is declining. The Chinese have always been an agrarian economy and the country peasants have always been frugal as well as secretive and prone to ignoring the central government. Nothing has changed and the peasants are not spending so the revenues are dependent on foreign exchange. However, as these decline revenues decline and as these decline the government’s grip on power is threatened since they cannot continue their social programs or control the people who are moving ever more toward capitalism and individual action. It is unlikely the current communist government can continue for any extended period as it is currently structured. Most likely it will become more capitalist oriented with the central government looking more and more like Imperial China with a socialist structure similar to what you see in Europe.

Foreign Policy

Recently we have been treated to a virtuoso display dissimulation by the Prime Minister of Iran and a breathtaking display of the anti-American attitudes found on the liberal campuses of America. Coincidentally I have been asked to sit in on a discussion of American Foreign Policy by a private discussion group who are increasingly concerned about several foreign policy issues, but first Iran.

Iran
There is no doubt but that Iran is a terrorist state established by and in control of Islamofascists. But of all of the Islamic States Iran is perhaps the one with the largest educated population. Their population is relatively young on average, generally pro-west if not pro-America, and very restive. While the world is focused on the Iranian Government and its drive to gain nuclear weapons and drive the Americans out of Iraq, the Iranian government is struggling internally to maintain control and that is becoming more difficult everyday as the youth of Iran resist the Mullahs and their strict moral codes that are not shared by more educated people.

The danger is that if the Iranians gain nuclear capability before a more secular government comes to power, then Hamas and other terrorists organizations will gain that capability and would certainly use it against Israel and America. It should be noted that it is quite possible that the Iranians are using their nuclear program to distract America and the UN from the underground nuclear development effort going on in Syria. The Israeli’s bombed this facility but whether or not it was destroyed remains unknown. If this secondary nuclear development can go forward, then the Iranian government may be more open to UN inspections and loosen their control over their people in order to stabilize their government without sacrificing their nuclear ambitions and objective of bringing down America.

China
This is a very interesting topic considering two things -- 1) Bill Clinton is the one who allowed free trade status to the Chinese. He was financially supported by Hsu as was Hillary. Connecting these dots may be impossible but given the sleaziness of the Clinton's it is easy to conclude that there was a Quid Pro Quo between the Clinton's and China. However, China is far from a free or even capitalist society, although it is no longer a pure Marxist state. It is more like the old imperial china than the worker’s paradise promised by Mao and Lenin. The people have few civil rights and although the government is more open to entrepreneurs it is worth noting that they are the major source for copyright violations, product knock offs, and violation of almost every standard of production and safety. They are a rogue nation relative to business standards, civil law, and human rights. The American government as well as the UN gives lip service to China’s violation of human rights and the use of slave labor but no meaningful action has been taken nor is likely to be taken. But this flouting of standards and safety is beginning to catch up with them but I note the US Government is making more excuses than taking any effective action.

Venezuela
Hugo Chavez is a Marxist and only a thinly veiled one at that. He is systematically raping the industry of Venezuela in his drive to redistribute the wealth. He is a living example of how to gain power by promising the take the wealth of the rich and give it to the poor. This was tried by the Roman Emperors and failed. It was tried by Lenin and failed. It has been tried in France and failed. It was tried in Cuba and failed. It has been tried numerous times in Mexico and has failed every time. The reality is that poor people are poor for a reason and taking the wealth away from those who create the jobs and their wealth and giving it to the poor assures the politician of their votes while giving the poor a few dollars and temporary relief. In the long term, the entrepreneurial class is destroyed, the means of wealth generation is destroyed, and the entire country sinks further into poverty. This is true of Venezuela today just as it is of Cuba. For America the problem lies mostly in the production of oil because under Chavez the production has declined dramatically and will probably sink further as he and his Marxist/Socialist cohorts mismanage the oil fields.

Saudi Arabia
The House of Saud has a tiger by the tail. The situation there is analgaous to an obscure protestant sect of snake handlers got control of the US Government and used their resources to convert everyone to their way of thinking. They have created a monster and they don't know what to do. If they stop funding these terrorists they face a civil war which they will certainly lose -- and they may have one anyway. If they continue funding these Madrassas and thus indirectly the terrorists, they risk losing support of the West and thus instigating a civil war. The Saudi Government is VERY UNSTABLE and I seriously doubt they can remain in power much longer. Once they fall, the Muslims will have a choke hold on Western Society -- especially Europe. This will give the Russians an upper hand in Europe and they will become resurgent politically and economically. This is a problem that will be exacerbated if Putin becomes dictator which seems to be his plan. America's dependence on foreign oil will be a problem because much of our oil comes from Venezuela but the mismanagement by Chavez has reduced their output but he is heavily dependent on American oil revenues.

It should be noted that Iran, Iraq, Saudi Arabia, Baharain, Quatar, the Emirates, Kuwait, Syria, Lebanon, Egypt, and Turkey plus all of North Africa represent the old Islamic Empire that stretched from Spain to India. The Muslims are trying to re-establish that empire under the Caliphate, which historically was seated in Baghdad and unter the Ottomans in Constantinople. The war against the West is only part of the issue because these various leaders are vying for power and the position of Caliph, which is what Saddam was after. It seems clear to me that Spain has already succumbed to the Muslims in all but name and France isn't far behind. The western powers continue to view these countries as countries with secular governments but that is a false assumption. Islam does not recognize any secular power and they make no distinction between the Mullahs and the government. People like Maliki are shams because they have no real power unless the Mullahs say they do.

We are engaged in a religious war and no Muslim can be loyal to ANY government and remain a Muslim. This means that all of these Muslims who exist in our midst represent a huge and growing threat to our stability because when challenged they must side with Islam and NOT the government- any government. Just because these people are American or French, or German citizens does not mean they would support those governments over Islam and the Mullahs. Saudi Arabia is a problem but Iran, Syria, and Palestine are much greater problems right now. There are laws government sedition and it is long past time when those laws should be enforced in America.

What Ever Happened to Red China

When did the “Peoples Republic of China” become simply “China”? As far as I know the Chinese government still thinks of themselves as “The Peoples Republic”, yet the media no longer refers to them as the PRC. For that matter when did China cease being “Red China” and morph into the PRC and then to “China”? Are they less “Red” today? Has China become democratic or less communist? Of course not, what has happened is the media wants to turn world attention away from the abuses by the remaining Communist Regimes. North Korea is no longer “Communist North Korea” instead it has evolved into “North Korea” or if any negative connotation is offered, it is referred to as a “rogue regime”, but rarely if ever is it referred to as “communist”. The same is true of Cuba, suddenly Castro has gone mainstream as the Left tries to garner acceptance for his worker’s paradise, while ignoring the continued suppression of dissent and persecution of those who dare to challenge him. Did Communism die with the Berlin Wall? The recent anti-war protests were organized by the communists but for the most part in their haste to turn opinion against the administration the part played by the communists has either been glossed over or ignored altogether. What is going on in the media and when did communism die? For that matter what about its birth?

Interestingly, Communism is actually a moral reaction to capitalism and both are simply structured philosophical descriptions of market dynamics and part of the Science (?) of Economics. Commerce was largely unexplored or at least languished among the scholarly pursuits until the 1600’s. The history of the development and evolution of Economics is eloquently described in the “Worldly Philosophers”[1] Adam Smith in his book the “Wealth of Nations” actually is describing the real workings of the world of commerce at the dawning of the Industrial Age. Communism as described by Marx and Engels came as a philosophical reaction to the dark side of capitalism. This reaction can be summed up as being a moral judgment on the unequal distribution of wealth but it is a long way from formulating a philosophy and acting upon it. So Communism wasn’t born until 1917.

What seems to have escaped everyone’s attention is that governments can be capitalist, socialist, or even communist, but the actual form of government is none of those. Governments are democratic and freely elected, or they are hereditary absolute monarchies, or dictatorships. Communist governments are and have always been dictatorships. No Communist government has ever been freely elected. Yet from the very outset the Leftists have been unable to get past the inherent morality of Communist philosophy and see its failures in practice. In 1921 Lincoln Steffens upon his return from the Russia of Lenin and Stalin said “I have seen the future and it works”.[2] Of course virtually all of the leftist writers and journalists at the time were offering very positive views of Communism. So the positive view of Communism has a long history and includes some very impressive names who offered if not outright support, certainly provided a patina of approval. Shortly after assuming the Presidency President Truman said “You are needlessly worried about Russian Communism, I am worried about British Imperialism”. A view he quickly came to realize was erroneous but a position that the liberal Leftists never came to share.

Instead the media and the Leftist intelligentsia glossed over the excesses, blatant falsehoods, and most of all the atrocities committed by the Communist Regime in Russia and later in Cambodia, Cuba, China, and Viet Nam. These were largely ignored and the left wing intellectuals continued their love affair, providing the Russians with atomic secrets among other traitorous acts. Even today the Goldberg’s are viewed as martyrs by the Left and the posthumous proof that Robert Oppenheimer was in fact providing secrets to the Communists was simply ignored by the media. But now we have the papers of Senator McCarthy describing his attacks on Hollywood and the State Department, those “bastions of “right thinking” and the media are once again in a fighting frenzy. Senator McCarthy was certainly a flawed man and there is little doubt that he grossly overplayed his hand, but the fact is Hollywood was and still is filled with actors, producers, and directors who are filled with animosity toward America and American ideals and freedoms, in the words of Jeanne Kirkpatrick the “blame America first crowd.” Today “McCarthyism” is an epithet to be hurled at anyone who dares to challenge the Leftist intellectuals and their anti-American and pro-communist stance. The fact is that Senator McCarty was not totally wrong. . If you doubt this watch any Oliver Stone movie. He is an historical revisionist determined to show the world how history should have been.

But, what about Red China – how did it become not Red? How did Cuba cease being Communist Cuba and become “Castro’s Cuba”? Are these countries no longer “Communist”? Have I missed some dramatic change of heart? Are these countries now allowing free speech, freedom of the press, private ownership? Not that I know of, instead they continue to be oppressive states that imprison people for simply disagreeing with them. No dissent is allowed. The liberal press (a redundancy) paints a rosy picture of China today – it is a worker’s paradise. They are actually allowing elections at the village level. Of course, the old USSR held elections as well and you could vote for any Communist Party Candidate of your choice. The same is true in China today. It is just as Red and just as oppressive as it always was. It is interesting to me that the liberals today see China on the way to reform much like Taiwan and Korea. Apparently I missed something here because Taiwan was a leftover from the old Chiang Kai Shek regime and has been a democratically elected republic for a very long time. It evolved from a dictatorship but that was a very short period. As far as I know Korea is divided into two parts, the South which is a democratic government and the North which is a brutally repressive communist regime. So the “reforms” that the Chinese Government are implementing seem to me to be commercial more that political. Apparently this is just “realpolitik” because China wants to sell to the US and the US wants to buy. Red China is dead – Long Live China – the worker’s paradise.
[1] The Worldly Philosophers, Robert Heilbroner, Simon & Schuster, 1953,
[2] Useful Idiots, Mona Charen –Regenery, 2003