Click amount to donate direct to CounterPunch
  • $25
  • $50
  • $100
  • $500
  • $other
  • use PayPal
Support Our Annual Fund Drive! We only ask one time of year, but when we do, we mean it. Without your support we can’t continue to bring you the very best material, day-in and day-out. CounterPunch is one of the last common spaces on the Internet. Help make sure it stays that way.
FacebookTwitterGoogle+RedditEmail

Paulson in China

by MIKE WHITNEY

 

Treasury Secretary Henry Paulson wrapped up 2 days of high level talks with the Chinese delegation on Wednesday without any progress on the two issues of central importance to the American people”the massive $230 billion trade deficit and the ongoing manipulation of the Chinese currency, the yuan. As expected, China agreed to allow “more passenger flights between the two countries” and they also approved a plan “to remove a ban on the entry of new foreign brokerages and to allow financial services firms to expand their operations in China”. (Marketwatch)

But that was basically it. China will not to allow its currency to float freely on the open market. They want to maintain the advantage they have on their American competitors by continuing to “fix” the yuan in a way that best serves their national interests. That’s the way nations are supposed to work. The Chinese aren’t taken in by the hogwash about “free trade” or “deregulation”. They’re playing to “win””and that’s what counts.

It’s different in America, where the currency has been deregulated to serve the interests of a small group of bankers and investors. Every one else loses. Factories are boarded-up and workers are thrown out of their jobs because they cannot compete with foreign manufacturers who “underbid” them on every item. This doesn’t matter to Paulson and his buddies in the financial service industry. Their business thrives on ever-increasing flows of cheap capital to American markets. Whatever happens to the American worker is not his concern.

Oh sure, Paulson may wave his finger reproachfully at his Chinese counterparts for rigging their currency, but he’s certainly not going to do anything that would disrupt the flow of $230 billion into US bonds and securities. America’s massive $800 billion current account deficit is what keeps interest rates low and the stock market humming-along at full throttle. Why would he mess with that?

After all, what’s more important: American workers or the wealth and prosperity of Wall Street moguls and banking giants?

According to Marketwatch, Paulson succeeded in persuading his Chinese counterparts to allow foreign brokerages and financial services firms “to expand their operations in China.” Big surprise, eh? As former chief of Goldman Sachs, it’s clear that this was high on Paulson’s list of priorities. After all, Chinese workers set aside an estimated 50% of their earnings and have saved a whopping $2 trillion in the last decade. The financial service industry must be salivating at the thought of opening shop in Beijing and tapping into that mushrooming market.

There’s a misconception in the US (particularly among “protectionist” Democrats) that trade with China is a “one way street” that only benefits the Chinese. That is not the case. In fact, the real beneficiaries of the present arrangement are the US business elites who set out to destroy the American work-force by moving factories to a country with no labor or environmental laws. The Bush administration has assisted the exodus of US corporations by creating tax incentives for “off-shoring” and by promoting a free trade ideology which is ruinous to America’s future.

But that’s not China’s fault. China can’t be blamed for our job losses or “unsustainable “trade deficit—that’s the result of the neoliberal policies which have enriched a few wealthy American industrialists and bankers at the expense of everyone else. As China expert Henry C K Liu says in his article “A Dialogue of the Mute”

“China has actually been a powerless respondent to the dysfunctional terms of trade set by US economic policies, aggressively exploited by US transnational corporations and financial institutions for unfair profit.” (More than 60% of China’s trade surpluses are traded by foreign companies, many of which are US firms)

Liu adds: “China cannot expand domestic consumption because Chinese wages and benefits are too low. Yet Chinese cannot raise wages faster because real wealth has been leaving the country through export trade while the yuan money supply is expanding through the central bank buying dollar inflows with yuan. The result is a liquidity bubble, with too much currency chasing a dwindling supply of real wealth that has been exported.”

The Strategic Economic Dialogue (SED) between the Chinese and US delegations was a complete failure. The yuan will continue to be manipulated and America will continue to bleed jobs and wealth. We’ll probably never know what really went on behind closed doors, but one thing is certain; the US is not giving the orders anymore. With $1.3 trillion in dollar-backed securities and US Treasuries, the Dragon is in the driver’s seat. Now that Japan has slowed down its purchases of US debt; China represents the last bit of scaffolding holding up the feeble greenback. That means that the Fed will have to consult with their “loan-officers” in Beijing before raising or lowering interest rates.

Sounds crazy, but its true.

And, while everyone is predicting that Fed-master Bernanke will probably lower interest rates to save the struggling real estate market; it may be that our Chinese friends will demand a rate-hike to preserve their investment. That’ll just speed up the sub-prime meltdown and send tremors through world stock markets.

Our favorite economic guru, Elaine Supkis, provides a bit of historical background to our current economic predicament. In Yesterday’s post she says:

“Anyone with half a brain can see that on 9/11, we reset our economy on its present irresponsible course. Bush and the American people declared a war on terror and began spending like fiends and cut taxes and Bush famously said we should all go shopping so we went on the world’s biggest, stupidest shopping binge.

To hide the inflation this new policy brought and thanks to the Federal Reserve simultaneously dropping interest rates to an amazing and irresponsible 1%, hiding inflation became the #1 job and to do this, we had to shift as much labor as possible to China! China’s surplus in trade with us was fairly insignificant before 9/11 but it shot through the roof. After 9/11, China passed Japan and has been the #1 source of cheap labor for the US which must use China in this fashion or find some other nation to do this for us.

What I am saying is, we cannot simply force China to raise their prices to us, we will simply rush to India or some other cheap labor nation to do the work for us!

The US RULERS know China’s intentions. Bush’s family works for the Communist Chinese, they have had business deals with them for years and years. The Chinese have cultivated corrupting the Bush clan since they first met Mr. Bush Sr. when he jumped from the CIA to ambassador to China. These people then ran off to China to make money off of the differential between Chinese labor’s wages and American consumer buying abilities. The Chinese exploited this treason as they should, after all, we are in competition with them for ruling the world and if our rulers are so banged stupid that they think they will dominate the Chinese and not vice-versa then…we get what we are getting today.

Namely, our necks in a Chinese noose. But do not forget, the American ruling class put our necks there, not the Chinese. They simply cooperated! (See the whole post here.)

The economic war against the American people started on the same day as the war on terror”9-11. Interest rates plummeted, the money supply was put on steroids, and the US began auctioning off its national wealth at a rate of $800,000 billion a year. The current account deficit and the loss of 3.2 million manufacturing jobs has been used to conceal inflation which is only now beginning to rear its head in the form of recycled dollars in an over-leveraged stock market. (Why else would the Dow hit new highs every day when GDP is an anemic 1.3%?)

We can see now, (from the coordination of policy) that it wasn’t just Big Oil and the neocons who led us to war with Iraq. The Federal Reserve played an equally important part in that deception. It lulled the people to sleep with low interest rates (which kept the economy humming-along) while the nation’s wealth was shifted from the middle class to the mega-rich. The Fed’s policies have created enormous equity bubbles and a massive “unsustainable” trade deficit. When the bubbles burst, the America people will be forced to “privatize” whatever public assets are left.

Wasn’t that the goal from the very beginning?

Now, we’re stuck and there’s no way out. If China allows its currency to rise; then the US economy will plunge into recession or worse. And, if we stay on the same course, the country’s wealth will be sold piecemeal to foreign investors while the dollar continues to weaken and unemployment soars.

Our options are limited and we appear to be headed for a hard landing. But–Elaine Supkis is right–you can’t blame the Chinese for that. It may be their noose, but it was Bush and Co. who put our necks there.

MIKE WHITNEY lives in Washington state. He can be reached at: fergiewhitney@msn.com

 

 

MIKE WHITNEY lives in Washington state. He is a contributor to Hopeless: Barack Obama and the Politics of Illusion (AK Press). Hopeless is also available in a Kindle edition. He can be reached at fergiewhitney@msn.com.

More articles by:

2016 Fund Drive
Smart. Fierce. Uncompromised. Support CounterPunch Now!

  • cp-store
  • donate paypal

CounterPunch Magazine

minimag-edit

September 28, 2016
Eric Draitser
Stop Trump! Stop Clinton!! Stop the Madness (and Let Me Get Off)!
Ted Rall
The Thrilla at Hofstra: How Trump Won the Debate
Robert Fisk
Cliché and Banality at the Debates: Trump and Clinton on the Middle East
Patrick Cockburn
Cracks in the Kingdom: Saudi Arabia Rocked by Financial Strains
Lowell Flanders
Donald Trump, Islamophobia and Immigrants
Shane Burley
Defining the Alt Right and the New American Fascism
Jan Oberg
Ukraine as the Border of NATO Expansion
Ramzy Baroud
Ban Ki-Moon’s Legacy in Palestine: Failure in Words and Deeds
David Swanson
How We Could End the Permanent War State
Sam Husseini
Debate Night’s Biggest Lie Was Told by Lester Holt
Laura Carlsen
Ayotzinapa’s Message to the World: Organize!
Binoy Kampmark
The Triumph of Momentum: Re-Electing Jeremy Corbyn
David Macaray
When the Saints Go Marching In
Seth Oelbaum
All Black Lives Will Never Matter for Clinton and Trump
Adam Parsons
Standing in Solidarity for a Humanity Without Borders
Cesar Chelala
The Trump Bubble
September 27, 2016
Louisa Willcox
The Tribal Fight for Nature: From the Grizzly to the Black Snake of the Dakota Pipeline
Paul Street
The Roots are in the System: Charlotte and Beyond
Jeffrey St. Clair
Idiot Winds at Hofstra: Notes on the Not-So-Great Debate
Mark Harris
Clinton, Trump, and the Death of Idealism
Mike Whitney
Putin Ups the Ante: Ceasefire Sabotage Triggers Major Offensive in Aleppo
Anthony DiMaggio
The Debates as Democratic Façade: Voter “Rationality” in American Elections
Binoy Kampmark
Punishing the Punished: the Torments of Chelsea Manning
Paul Buhle
Why “Snowden” is Important (or How Kafka Foresaw the Juggernaut State)
Jack Rasmus
Hillary’s Ghosts
Brian Cloughley
Billions Down the Afghan Drain
Lawrence Davidson
True Believers and the U.S. Election
Matt Peppe
Taking a Knee: Resisting Enforced Patriotism
James McEnteer
Eugene, Oregon and the Rising Cost of Cool
Norman Pollack
The Great Debate: Proto-Fascism vs. the Real Thing
Michael Winship
The Tracks of John Boehner’s Tears
John Steppling
Fear Level Trump
Lawrence Wittner
Where Is That Wasteful Government Spending?
James Russell
Beyond Debate: Interview Styles of the Rich and Famous
September 26, 2016
Diana Johnstone
The Hillary Clinton Presidency has Already Begun as Lame Ducks Promote Her War
Gary Leupp
Hillary Clinton’s Campaign Against Russia
Dave Lindorff
Parking While Black: When Police Shoot as First Resort
Robert Crawford
The Political Rhetoric of Perpetual War
Howard Lisnoff
The Case of One Homeless Person
Michael Howard
The New York Times Endorses Hillary, Scorns the World
Russell Mokhiber
Wells Fargo and the Library of Congress’ National Book Festival
Chad Nelson
The Crime of Going Vegan: the Latest Attack on Angela Davis
Colin Todhunter
A System of Food Production for Human Need, Not Corporate Greed
Brian Cloughley
The United States Wants to Put Russia in a Corner
Guillermo R. Gil
The Clevenger Effect: Exposing Racism in Pro Sports
FacebookTwitterGoogle+RedditEmail