Tag Archives: US

John Rubino: China Cannot Let This Happen

By John Rubino, Sep 23, 2015

After borrowing — and largely wasting — $15 trillion during the Great Recession, China now looks like a typical decadent developed-world country, complete with slow growth, anemic consumer spending and unstable financial markets.

But it’s not France, Canada or the US, where recessions happen and voters peacefully replace one major party with the other. China, within living memory, has seen civil unrest beget open rebellion beget multi-decade civil war.

Just as Germany is never going back to hyperinflation, China will not tolerate mass protests. Which means it somehow has to find jobs for the tens of millions of citizens who aspire to middle class life. This need for growth at any price explains the borrowing/infrastructure binge of the past five years. And soon it will explain a massive devaluation/QE program. From Monday’s Wall Street Journal:

China’s Workers Stumble as Factories Stall

XIGUOZHUANG, China—For decades, an army of migrant workers drove China’s boom times, flocking to its cities to sew T-shirts, assemble iPhones, or build apartment blocks and Olympic stadiums.The arrangement helped millions of poor, rural Chinese join a new consumer class, though many also paid a heavy price.

Now, many migrant workers struggle to find their footing in a downshifting economy. As factories run out of money and construction projects turn idle across China, there has been a rise in the last thing Beijing wants to see: unrest.

In Xiguozhuang, a village among cornfields some 155 miles south of Beijing, it had been rare to see working-age men for much of the year. This year, however, many of the men are at home, sidelined by a fading property boom.

“Times are tough now,” said Wang Hongxing, a 39-year-old father of three who has worked at building sites across China’s northeast since his teens, but who has spent the past two months tending his farmland plot. “There are too many workers and wages are dropping.”

But for other migrants, especially those of a younger generation who took jobs in factories along China’s coast, a return to farming isn’t an option. Nor do they necessarily want to join the service sector China sees as a cornerstone in its shift to a new economic model.

Wang Chao dropped out of school when he was 15 and left his home in Anhui province. After a series of jobs up and down China’s east coast, he felt he had struck gold with a job in a textile factory near his hometown.

The factory closed in July. Mr. Wang, now 19, and other workers gathered recently outside the factory premises to demand back wages. He says he is owed two months’ pay, or about 2,000 yuan, or $320. The owner of the factory, which produces cheap trousers, told workers he is in deep debt and can’t afford to pay them. He couldn’t be reached to comment.

Mr. Wang hopes he can find another factory job. In Shanghai, he worked in a restaurant but doesn’t want to do that again. “Factory work is so much more comfortable in comparison, and better paid,” he said.

As a result of a rural-to-urban flow that many scholars say is likely the largest in history, roughly 55% of China’s 1.37 billion people now live in cities, compared with just under 18% in 1978.

The migrant workforce now numbers some 274 million but the pace of its expansion has slowed, and many economists believe China now faces a shortage of unskilled labor in urban areas. A mismatch of workers’ skills and aspirations with actual labor demand has exacerbated the problem.

…In August, after the factory a which made Power Wheels cars and other toys for Mattel Inc., shut its doors, hundreds of workers protested to demand unpaid wages.

Such unrest has become more common. China Labour Bulletin, a Hong Kong-based watchdog, has tracked more than 1,600 labor protests and strikes in China since January, already exceeding last year’s overall tally of 1,379.

The malaise has even affected workers at major state-owned enterprises. In May, thousands of workers staged protests over proposed layoffs at China National Erzhong Group Co., a debt-riddled machinery maker in Sichuan. Workers shared images on social media of banners criticizing company officials. One read: “360 yuan! How can we live on that!”

In response to such disputes, local authorities have at times adopted harsh tactics, including sending police officers to break up strikes and detain protesters. But in some cases authorities have also sought to appease workers.

The recent unrest is still far from the massive protests that swept over China in the late 1990s and early 2000s as state-owned enterprises laid off tens of millions of workers and local governments expropriated farmland around emerging cities for development.

But the rise in frequency of strikes and protests has caused concern in Beijing, which in March urged bureaucrats across the country to prioritize “harmonious labor relations.”

Take a surplus of young men (the result of China’s one-child policy which put a premium on male children), combine it with a shortage of good jobs, and the obvious result is instability.

The equally-obvious solution? Easier money designed to get people borrowing and spending. So now it’s just a question of which central bank is first to address its country’s crisis (slow growth and a massive influx of refugees for the eurozone, slow growth and a demographic implosion for Japan, slow growth and global chaos for the US, and now slow growth leading to civil unrest for China) with a massive devaluation. China, given its history, might be the odds-on favorite.

This article is written by John Rubino of Dollarcollapse.com and with his kind permission, Gecko Research has been privileged to publish his work on our website. To find out more about Dollarcollapse.com, please visit:

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Rate hike red flag? The Fed is worried about Greece

Bloomberg, Jul 8, 2015

Rate hike red flag? The Fed is worried about Greece

The Federal Reserve is worried about Greece hurting the U.S. economy. That could make the Fed pause on a rate hike.

In a shift from the Fed’s April meeting, the banks’ committee members grew more concerned about Greece’s impact on the United States.

“Many participants expressed concern that a failure of Greece and its official creditors to resolve their differences could result in disruptions in financial markets in the euro area, with possible spillover effects on the United States,” according to the Fed’s minutes of its two day meeting which started June 16.

Much has already happened since the Fed’s June meeting. Greece is now asking for a third bailout. China’s stock market is tanking as the government tries to prop it up. Puerto Rico is still at risk of defaulting on its debt later this year.

Fed Chair Janet Yellen will offer an updated view on the bank’s outlook on Greece in a speech on Friday.

“The [Fed’s committee] recognizes Greece as a risk to the forecast, but ultimately they are thinking, ‘How does this affect the U.S. economy?'” said Luke Tilley, chief economist, Wilmington Trust Investment Advisors. Tilley believes it’s still possible the Fed will raise rates twice this year, starting in September.

Yellen and other committee members must determine this summer whether these developments will delay a Fed rate hike. The U.S. economy is not directly exposed to the Greek crisis. But it’s tied to Europe’s economy, which is tied to Greece. If the dominoes start to fall, America’s economy could get hit.

Many economists believe the Fed will raise its key interest rate in September, a move that would signal that the economy is almost fully recovered from the Great Recession. Rates have been at zero since late 2008.

Some experts believe Greece will have a limited impact on the Fed’s thinking as a potential rate hike, or “liftoff,” approaches.

“Greece has spiraled downward,” says Mike Materasso, senior vice president at Franklin Templeton Investments. But: “The Fed will be looking domestically.”

The Fed’s has two big goals: improve the job market and get inflation to rise to 2%. The job market is getting better by most measures, but inflation is still flat. If Greece or China appear to hurt those goals, the Fed might wait beyond September to raise rates.

However, the Fed’s committee affirmed that it remains on the path to raising rates this year.

“Members thus saw economic conditions as continuing to approach those consistent with warranting a start to the normalization of the stance of monetary policy,” according to the Fed’s minutes. Translation: A September rate hike is still an option.

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What Obama’s trade deal (likely) means for American jobs

CNN Money, Jun 12, 2015

What would President Obama’s trade deal do to my job?

That’s really what all the fuss is about on various trade agreements that President Obama is pushing.

The biggest deal of them all is known as the Trans-Pacific Partnership (TPP for short). It would reduce trade barriers between 12 countries– U.S., Japan, Vietnam, Mexico to name a few — that account for 40% of the world’s economy.

 

1. What’s the debate? The White House and Republican leaders say that’s great news for American workers. It would make it easier for millions of people in other nations to buy U.S. goods, which should create jobs.

“We’re going to see unprecedented growth in the middle class in the Asia Pacific from 570 million [in the] middle class to 3.2 billion in just the next 15 years,” Commerce Secretary Penny Pritzker told CNNMoney.

But Democrats and unions say history hasn’t shown that free trade is all that beneficial to workers at home. A deal like TPP would just make it easier for businesses to move jobs elsewhere, they argue.

“This trade agreement would continue the race to the bottom for American workers,” said Senator Bernie Sanders, a Democratic presidential candidate.

2. Who’s right? It’s difficult to answer that because TPP is being negotiated mostly in secret. You can’t just go read through the document like you can for most pieces of legislation.

On Friday, the House was supposed to vote on whether to give the president “fast track” authority, but in a big defeat for Obama, House Democrats defeated a key part of the bill. The issue is likely to come back for a vote next week.

If passed, the Obama administration would be able to negotiate and sign various trade deals — like TPP — with little legislative involvement. It would almost certainly mean that TPP would get done, at least in some form.

Here’s a look at what all this means for your job — and your neighbor’s.

3. What about my job? Workers in the auto, agricultural and energy industries likely have the most to gain. America’s top exports right now are cars, gas and planes and other spacecraft. Reducing trade barriers should make those industries thrive even more.

On the agricultural side, products like pork are in high demand elsewhere in the world. The U.S. could potentially set up and fill that void. But critics of the deal argue that workers for larger companies that have a global reach already will be in a better position to benefit than workers at smaller businesses.

The biggest question mark is what will happen to other manufacturing and service jobs. Nike, for example, has said it would create 10,000 new engineering and manufacturing jobs in the U.S. if TPP happens.

But economist Peter Morici of the University of Maryland calls it “simply a bad deal for ordinary Americans” because of “downward pressures on wages and worsened income inequality,” in a Washington Times op-ed. He says America’s free trade agreement with South Korea killed about 25,000 jobs, driving wages down and worsening income inequality.

4. Who profits from the deal? One of the most outspoken supporters of TPP is the U.S. Chamber of Commerce, the main lobbying group for big business. As the White House points out, exports have been a key driver of economic growth during the recovery, accounting for about a third of the rebound.

But critics like Democratic Senator Elizabeth Warren question whether anyone beyond big business executives and shareholders will benefit.

“U.S. multinationals, like GE and IBM, would still profit from the TPP by moving production to Asia to advantage labor and other resources made cheaper by manipulated currencies, but ordinary working Americans would face more unfairly advantaged foreign competitors, unemployment and even lower wages,” argues Morici.

5. Better conditions for whom? One of the missing details that the public doesn’t know right now is how many protections are in the TPP deal. The White House says the trade agreement will enforce better labor and environmental practices — at home and abroad.

If done right, it could give the U.S. more teeth to fight back when other countries try to undercut America. For example, the agreement is supposed to provide protection for the intellectual property of U.S. exports, from movies to software to prescription drugs. The White House was also trying to create an assistance program for workers who lose their jobs because of free trade agreements.

But the wording — and enforcement — is key.

“If you’re used to reading these trade agreements, the devil is absolutely in the details,” Thea Lee, the deputy chief of staff for the AFL-CIO, which is spearheading the left’s opposition to the deal, told CNN.

Source

China’s big chess move against the U.S.

CNN Money,  Mar 4, 2015

china latam us

China is making friends right under America’s nose.

Latin America is China’s latest business buddy. Chinese banks increased investments in Latin America by 71% last year, and the country plans to double its trade volume with the Central and South American region over the next decade.

This comes as U.S. power in the Americas is starting to erode. U.S. cash is actually fleeing the region as investors see better deals at home or elsewhere.

China doesn’t appear as worried about the short-term.

“What we’re looking at is not simply an economic play. It’s an economic play that also has political and strategic undertones,” says Ilan Berman, vice president of the American Foreign Policy Council in Washington.

Outside of economic ties, Berman points out that China has helped fund Argentina’s nuclear power plant, launched Bolivia’s first satellite and is rumored to be helping Venezuela start its own drone program.

But for now, the relationship is mostly economic.

Trading Places: Although America is still the No. 1 trade partner with Latin America, China is already beating it in some places. China is ahead of the U.S. in trade with Brazil, Argentina, Peru and Venezuela, according to M.I.T. data.

It’s a win-win for China and Latin America for many reasons. China needs all of Latin America’s abundant commodities, like oil and soybeans, while some Latin countries are desperate for cash, which China is happy to provide.

In a sign of the shifting alignments, Latin American countries formed an alliance in 2010 called CELAC (Community of Latin American and Caribbean States), which excludes the U.S. and Canada.

Two months ago, the CELAC countries held a big meeting. Instead of going to Washington, they went to Beijing for the first formal conference between China and the region.

Of course, the new friendship isn’t entirely sunny. Chinese and Latin American economies are slowing down. Demand for goods is declining in China, and Latin America is at the end of a commodity boom, straining ties.

But the potential for long-term ties is strong. China’s President Xi Jinping has vowed to double trade between his country and Latin America over the next decade to $250 billion.

“China provides a source of financing and export markets without pressures to adhere to practices of transparency, open markets, and Western style democracy,” says Evan Ellis, a Latin American expert and professor at the U.S. Army War College.

Venezuela is a good example. As the country’s economy flounders — some have even dubbed it the worst in the world — China stepped in, lending the South American nation billions in exchange for oil.

maduro jinping
Venezuelan President Nicolas Maduro, left, shakes hands with China’s President Xi Jinping.

Money talks: China’s banks lent $22 billion to Latin America last year. That’s more than the World Bank and Inter-American Development Bank sent to the region combined, according to Margaret Myers, an expert at the Inter-American Dialogue, which is not associated with the bank.

“These countries have really welcomed China with open arms,” says Myers.

Meanwhile, U.S. businesses are losing interest in Latin America. Direct investment from U.S. firms to Latin America has declined almost 20% since 2011, according to Commerce Department data.

Despite the recent Cuba announcement, Latin America remains low on America’s policy priorities, some say. Its sleepy attention toward Latin America has allowed China to capitalize.

“As western capital retreats from Latin America…there’s a vacuum there. Why wouldn’t the Chinese want to fill that?” says David Morton, an emerging market expert and chief equity strategist at Rocaton Investment Advisers.

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Why the U.S. is Letting China Accumulate Gold

By James Rickards, Daily Reckoning, Mar 2, 2015

Why the U.S. is Helping China Accumulate Gold

A lot of people think about gold as a percentage of a country’s total reserves. They are surprised to learn that the United States has 70 percent of its reserves in gold. Meanwhile, China only has about 1 percent of its reserves in gold. People look at that and think that’s an imbalance. But those are not very meaningful figures in my view.

The reason is that a country’s reserves are a mixture of gold and hard currencies, and the currencies can be in bonds or other assets. The United States doesn’t need other currencies. We print dollars, so why would we hold euros and yen?

The U.S. doesn’t need them, so it makes sense that the country would have a very large percentage of its reserves in gold. China, on the other hand, has greater need for other currencies.

A better metric, in my opinion, is to look at a country’s gold holdings as a percentage of GDP. GDP is a representation of how big a country’s economy is. It’s the gross value of all the goods and services.

There are different measures of money supply — M3, M2, M1, and M0. In a money economy, however, you can say that the country’s gold holdings are the real money. I call a country’s gold reserves gold “M-subzero”.

The IMF officially demonetized gold in 1975. The U.S. ended the convertibility of gold in 1971. Gold disappeared “officially” in stages in the mid-1970s. But the physical gold never went away.

Today, the US has about 8,000 tons. We haven’t sold a significant amount of gold since 1980. We dumped a lot of gold in the late 1970s to suppress the price, but none after that. So one of my questions for central bankers is, if gold is such a ridiculous thing to have, why are we hanging onto it? But that’s a separate question.

Right now, China officially does not have enough gold to have a “seat at the table” with other world leaders. Think of global politics as a game of Texas Hold’em.

What do want in a poker game? You want a big pile of chips.

Gold serves as political chips on the world’s financial stage. It doesn’t mean that you automatically have a gold standard, but that the gold you have will give you a voice among major national players sitting at the table.

For example, Russia has one-eighth the gold of the United States. It sounds like they’re a small gold power — but their economy’s only one-eighth as big. So, they have about the right amount of gold for the size of their economy.

The U.S. gold reserve at the market rate is about 2.7 percent of GDP. That number varies because the price of gold varies — but it’s around 2.7 percent. For Russia, it’s about 2.7 percent. For Europe, it’s even higher — over 4 percent.

In China, that number is 0.7 percent officially. Unofficially, if you give them credit for having, let’s say, 4,000 tons, it raises them up to the US and Russian level, but they want to actually get higher than that because their economy is growing.

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