Playing the Good Guys and Getting Burned by China

A good portion of the United States stimulus money is going to Chinese companies while the Chinese stimulus specifically has a condition for that money not to go into American goods and services in order to bolster their domestic companies. Shouldn’t we be doing the same? We can and should shut out Chinese companies since China is not part of the “plurilateral” Government Procurement Agreement.

U.S. Spends, China Benefits
Gordon G. Chang, 08.20.10, 01:00 PM EDT

Obama’s stimulus money is enriching the Chinese. Need another argument why Washington should refrain from further stimulus spending? Of course you don’t–your list should already be too long–but let me tell you what Andy Xie says anyway.

The former chief Asia-Pacific economist for Morgan Stanley argues that American stimulus just ends up helping the Chinese economy–and hurting our own. “Just as water flows down,” he writes, “stimulus affects low-cost economies more, wherever it is initiated.”

Flaws in China’s Growth Model

China’s economy will continue to expand exponentially for the coming decades. I see no end in sight. However these flaws are significant enough to shape what kind of super power China becomes. I see poor universities, stifled innovation, and changing demographics as the biggest problems for China in the near future.

I don’t know the exact statistics but China produces almost 8 or 9 times more engineers than the United States. That number means nothing because they fall short of standards in the United States and around the world.

And then on the topic of innovation. What has China contributed to society in the past one hundred years? I can’t think of one thing compared to the United States with the likes of the internet, microwave, nanotechnology, stealth technology, etc. If china can’t innovate how can they continue to grow?

And then the demographics. Because of the one-child policy there will be more stress on those youth and young adults to support the masses of China’s elderly.

Seven Flaws in China’s Growth Model

by Andrew C. Schneider, Associate Editor, The Kiplinger Letter
Monday, August 23, 2010

Short term, China will keep growing rapidly, adding to demand and boosting the global economy. Long term, the picture’s not so pretty.

China’s economy is slowing, but only a little. The July industrial production numbers announced by the country’s National Bureau of Statistics on Aug. 11 were weaker than expected. That raised fears that one of the engines of global growth was about to seize up. In fact, the slight slowdown is intentional, the result of moves by Beijing to prevent overheating. China can and will change course if the need arises. We still expect it to grow about 10% this year, a figure that will make most of the world envious.

The Fed’s Worst Fear: Double-Dip Recession is Possibly Around the Corner

The combination of banks not lending money to small businesses and the government (federal, state, and local) in no position to provide assistance will prevent businesses from hiring. If this holds long enough it will cause a downward spiral to a second recession as unemployment claims continue to rise and real estate prices continue to fall. Hopefully this will not come to pass. With interest rates at zero the Fed will have no power in combatting this upcoming recession. The article below lists 11 facts that will come to pass if the economy falters.

What the Double-Dip Recession Will Look Like
by Douglas A. McIntyre
Monday, August 16, 2010
provided by 24/7 Wall St

A growing and vocal minority of economists believes that there will be a double-dip recession primarily because of the intransigence of high unemployment and the rapidly faltering housing market. The notion of a “jobless recovery” has been around since the recessions of the 1950s and 1960s. It is a concept built on a relatively simple idea: employment lags during a recession but it is always part of a recovery cycle. Production rises as businesses see the end of a downturn and anticipate improving sales. They are reluctant to hire new workers until the recovery is confirmed, but once it has been, hiring picks up.

The 2008-2009 recession was — if it is indeed over — different from any other because of its depth and causes. The first trigger was the drop in housing prices, which robbed many people of their primary access to capital. As that access disappeared, so did the availability of credit. Consumer buying power evaporated and business cut inventory and production. Joblessness rose. Finally, consumer confidence plunged.

The last downturn was so great that in some months more than 500,000 people lost jobs. The unemployment rolls are now more than 8 million, and perhaps more gravely, over 1.4 million people have been out of work for over 99 weeks — which means they are no longer eligible to receive unemployment insurance benefits. This segment of the population has already begun to add to the number of indigent Americans and will continue to do so unless they can find homes with friends and family.

The second dip of the recession that ended in 2009, according to economists and the federal government, is likely to begin within the next two quarters if certain conditions are met.

Unemployment claims are running well above expectations, and recently hit a six-month high. The four-week average of initial claims rose 14,250 to 473,500 this week. The last peak, in February, was during a period when GDP was in the very early stages of recovery. There is nearly no jobs creation in the private sector. Real estate prices continue to drop, particularly in the hardest hit regions such as California, Nevada, Florida and Michigan.

The federal, state and local governments are in no position to lend assistance to businesses, most of which lack access to capital. Similarly, banks are not prepared to lend to small businesses, especially those with modest balance sheets and relatively low sales. This presents a problem for employment since companies with less than one hundred workers have traditionally been the largest creators of jobs.

This is what a double-dip recession would look like:

India Bans Blackberry?

This article catches a glimpse of the cyber security world. I had no prior knowledge of the extent of how secure the services of blackberry’s, gmail, and skype really are.

RIM, the company behind the BlackBerry, doesn’t have years to wait for foreign governments to adopt the more relaxed U.S. stance toward encryption. It has until the end of the month to comply with orders from Indian government, and it may have no way to do so short of shutting down service in the country.

The RIM system doesn’t seem to be designed to give a backdoor to anyone, not even to those in the company, said Maribel Lopez, a technology analyst and consultant.

“It’s not like RIM is sitting there with everybody’s keys looking at everybody’s stuff,” she said. That doesn’t give them much leeway in dealing with governments that want keys.

How sad. I bet the exec’s at Blackberry won’t have a good nights rest until this issue is solved.

Here’s the link of the article from the Associated Press.

Threats of int’l BlackBerry bans echo US debate
Middle East, Indian threats of BlackBerry ban echo US debate on encryption

Peter Svensson, AP Technology Writer, On Sunday August 15, 2010, 3:58 pm EDT

NEW YORK (AP) — Threats by the governments of India, the United Arab Emirates and Saudi Arabia to shut down BlackBerry’s corporate e-mail services reflect unease about a technology that the U.S. government also took a while to accept.

The foreign governments are essentially a decade behind in coming to terms with encryption, a technology that’s fundamental to the Internet as a medium of commerce.

Encrypted communications are scrambled in a complex process to ensure that only the intended recipient can read them, using the proper digital key. This often takes place behind the scenes, without the user needing to do anything. When you submit your credit card number on a shopping site, the communication is encrypted. When you log in to your bank’s site, that connection is encrypted as well.

Most companies use encrypted connections for their corporate e-mails, at least if employees need to access e-mail outside the office through virtual private networks and other secure systems. One of the reasons Research In Motion Ltd. has been so successful with its BlackBerry phones is that it brought that level of security to e-mail-capable phones.

Encryption, however, poses a problem for law enforcement officials. They can intercept encrypted messages, but can’t read them, unless the encryption is poor and agents have vast computer resources to use in unscrambling them. Traditional investigative tools such as wiretaps don’t work. Canada’s RIM and other technology companies stress that they agree to legal requests from law enforcement, but in RIM’s case, it can’t decrypt the messages on its corporate e-mail service.

BlackBerrys seem to have been singled out by foreign governments because the devices provide an easy and convenient way to communicate securely. But there are many other ways to communicate in an encrypted fashion, and any government that’s serious about squelching encrypted communications would need to go after them as well.

California Takes the Initiative in High-Speed Rail

At least California is taking the initiative here. But assuming they will be receiving $4-5 Billion in Local Grants to fund the project is pushing it. Local coffers around the state are dry and will continue to be for a half decade as the state crawls its way out of the recession.

the authority has nearly doubled the estimated price of traveling from San Francisco to Los Angeles to $105, as measured in today’s dollars. The original number was based on the notion that a bullet train ticket would be half the price of a comparable air ticket; the authority changed that to 83 percent in hopes of generating more profit.

$105 a ticket is going to kill the project when it comes online. You can drive from Los Angeles to San Francisco with about one and half tanks of gas. Thats around $45. And if you are carrying passengers in your car the cost will go down per person if everyone puts in their fare share.

None the less the future of American High Speed Rail is on the horizon.

Here’s the link to the article in the Mercury News.

Who will pay for California’s high-speed rail system?

By Mike Rosenberg and Gary Richards

Bay Area News Group

Posted: 08/15/2010 12:00:00 AM PDT

For the next minute, imagine yourself at a car dealership. You’re strapped for cash but find a sleek new ride and ask the salesman for a deal. He quotes you a number that’s four times what you have in the bank. And, he warns, even that price isn’t fixed — there’s no guarantee you won’t pay more in the end. What do you do?

For California, the lure of its new ride — a bullet train system capable of whisking passengers between the Bay Area and Los Angeles — has proved so enticing that the state jumped at the deal, even though it has only a quarter of the money needed. That’s leading some critics to ask whether the state’s largest project ever could also prove to be its most financially disastrous. California is less than two years from the planned start of construction on the nation’s first high-speed rail line, which would open in 2020. The trains will zip along the Caltrain corridor from San Francisco to San Jose and then on to Anaheim, a three-hour journey end to end. It has the potential to create jobs while offering a cheaper, greener and faster form of travel. It could also be another nail in the state’s financial coffin. The California High-Speed Rail Authority, created to carry out the project, told voters in 2008 that the rail line would cost $33.6 billion. The price has since jumped 27 percent, to $42.6 billion. That much cash could pay to build a new Bay Bridge, extend BART to San Jose and Livermore, and repair California’s water system — with enough left over to erase the state’s budget deficit. And historical data shows the undertaking will almost certainly get more expensive.

How much will it cost?

A Pessimistic Outlook for the Economy in 2011

AP survey: A bleaker outlook for economy into 2011

By JEANNINE AVERSA, AP Economics Writer – Thu Jul 29, 11:08 am ET

WASHINGTON – The U.S. economic recovery will remain slow deep into next year, held back by shoppers reluctant to spend and employers hesitant to hire, according to an Associated Press survey of leading economists. The latest quarterly AP Economy Survey shows economists have turned gloomier in the past three months. They foresee weaker growth and higher unemployment than they did before. As a result, the economists think the Federal Reserve will keep interest rates near zero until at least next spring.

Yet despite their expectation of slower growth, a majority of the 42 economists surveyed believe the recovery remains on track, raising hopes that the economy can avoid falling back into a “double-dip” recession. The AP survey compiles forecasts of leading private, corporate and academic economists on a range of indicators, including employment, consumer spending and inflation. Among their forecasts:
• Economic growth the rest of this year and early next year will be weak — less than 3 percent. For the April-to-June quarter, economists pegged growth at 2.8 percent. That’s far below the 3.7 percent pace predicted just three months ago.
• The unemployment rate will be no lower at the end of the year than it is now — 9.5 percent. A majority think it will be 2015 or later before the rate falls to a historically normal 5 percent.
• State budget shortfalls pose a “significant” or “severe” risk to the national economy. The loss of tax revenue has forced state and local governments to cut services and lay off workers.

WikiLeaks exposes United States Military strategy

US braces for blowback over Afghan war disclosures

By KIMBERLY DOZIER, Associated Press Writer – Tue Jul 27, 7:56 pm ET

WASHINGTON – Operatives inside Afghanistan and Pakistan who have worked for the U.S. against the Taliban or al-Qaida may be at risk following the disclosure of thousands of once-secret U.S. military documents, former and current officials said.

As the Obama administration scrambles to repair any political damage to the war effort in Congress and among the American public by the WikiLeaks revelations, there are also growing concerns that some U.S. allies abroad may ask whether they can trust America to keep secrets, officials said.

Speaking in the Rose Garden Tuesday, President Barack Obama said he was concerned about the massive leak of sensitive documents about the Afghanistan war, but that the papers did not reveal any concerns that were not already part of the debate.

In his first public comments on the matter, Obama said the disclosure of classified information from the battlefield “could potentially jeopardize individuals or operations.” The president spoke in the Rose Garden following a meeting with House and Senate leaders of both parties.

In Baghdad, Adm. Mike Mullen, chairman of the Joint Chiefs of Staff, told reporters he was “appalled” by the leak. He said “there is a real potential threat there to put American lives at risk.” The Army is leading the Pentagon’s inquiry into the source of the leak. A federal law enforcement official said the Justice Department is assisting in the probe. The law enforcement official who spoke on condition of anonymity about the ongoing probe says the Justice Department does not have its own separate investigation into the leak, but rather is acting in a support role to the Pentagon.

This is for those of you who bash capitalism.

“the misery of being exploited by capitalists is nothing compared to the misery of not being exploited at all”
— Joan Robinson

Oil-Eating Microbes in the Gulf

Mighty oil-eating microbes help clean up the Gulf

Wed Jul 28, 4:41 pm ET
By JOHN CAREY, environmental writer

Where is all the oil? Nearly two weeks after BP finally capped the biggest oil spill in U.S. history, the oil slicks that once spread across thousands of miles of the Gulf of Mexico have largely disappeared. Nor has much oil washed up on the sandy beaches and marshes along the Louisiana coast. And the small cleanup army in the Gulf has only managed to skim up a tiny fraction of the millions of gallons of oil spilled in the 100 days since the Deepwater Horizon rig went up in flames.

So where did the oil go? “Some of the oil evaporates,” explains Edward Bouwer, professor of environmental engineering at Johns Hopkins University. That’s especially true for the more toxic components of oil, which tend to be very volatile, he says. Jeffrey W. Short, a scientist with the environmental group Oceana, told the New York Times that as much as 40 percent of the oil might have evaporated when it reached the surface. High winds from two recent storms may have speeded the evaporation process.

Paradox of Thrift

As according to Stiglitz ‘Freefall’, the saving economies are attempting to accumulate half a trillion dollars in additional reserves every year then the world has a big problem. There are three solutions, either central banks can create those reserves by ‘printing money’ (and providing their governments with healthy seignorage dividends), the private sector can release reserves by increasing leverage and the money multiplier, or the world can go into an deflationary economic slump. Option 2 has been tried and resulted in the bubble and bust of 2000-2008, option 3 is the current course. Option 1 is the only solution to get us out of the mess.

There is a global portfolio balance problem, everybody wants to be long dollars, and post-Lehman Bros, no-one is willing to be short. Problems of crowding-out, inflation and the inefficiency of government expenditure are only problems if the underlying problem is solved and the economy returns to full capacity.

Jamie Galbraith’s solution works today because what is required is not really a deficit, but increased seignorage, but while the central banks engage in quantitative easing the only difference is balance sheet cosmetics between the central bank and Treasury.

Interesting piece of information. The world is slowly sinking into is a monetary coordination problem rather than anything else. It seems we are trapped in a paradox of thrift.