U.S. Should Fix Its Problems, Not China's

Obama said on September 7: “We won't win people over by calling them names, or dismissing entire chunks of the country as racist, or sexist, or homophobic. When I say bring people together, I mean all of our people….And we can't do that if we immediately disregard what others have to say from the start because they're not like us….if we think that somehow there's no way they can understand how I'm feeling, and therefore don't have any standing to speak on certain matters because we're only defined by certain characteristics.”

This is the third time I have repeated that quote in my weekly articles since Obama made it a month ago in a speech at the University of Illinois, I hope that both sides in Trump’s Kavanaugh appointment will seriously consider it in the run-up to the November election. Extremely divisive partisanship in Washington is increasingly a “tail risk” if/when there is a recession, or worse, another financial crisis and a strong policy response is not forthcoming.

Two days after I posted an article last week, “Stop New Cold War with China,” the cold war escalated Thursday with Pence’s speech and a Bloomberg article on China hacking, very strongly denied by Apple and Amazon. Yesterday there was a “frosty,” “testy” exchange between the U.S. Secretary of State and China’s Foreign Minister in Beijing, the former saying there were “fundamental disagreements.”

Military tensions are increasing, with U.S. “freedom of navigation operations” (FONOPs) in the South China Sea and U.S. sanctions against China, economic warfare which the U.S. has waged against numerous countries.

Also last week U.S. long-term interest rates spiked up, increasing the risk in global financial markets, as does Trump's China trade war and the ongoing budget issue in Italy, see the first three sets of links in my weekly article on growing risks to the global economy, from former BIS economist William White, the OECD, and UNCTAD.

The IMF yesterday modestly lowered its global growth forecast for 2018 and 2019, as did the OECD on September 20, with trade growth slowing. Global debt as a percent of GDP has increased since the 2007-09 Great Financial Crisis (GFC), which has shifted to the government and corporate sectors from the household and financial sectors, see chart at the top of my September 22 article.

The best way for a deeply divided U.S. to “compete” with China is to address its own glaring problems. Trump’s China cold war takes attention away from critical issues that impact the daily lives of almost ALL Americans, regardless of race, gender, nationality, ethnicity, sexual orientation, economic class, etc.

Such as the high cost and poor outcomes of the U.S. health care and education systems, and the NIMBY unaffordable cost of housing in high-growth urban areas. All three heavily cut into American standards of living and the future for their families, when the U.S. median household income has been stagnant since before 2000, see chart at top of my September 29 article.

To try to raise the level of political discourse in the U.S. from its abysmal low, starting on August 4, I have been calling on the tech elite to stream debates on Facebook, YouTube and Twitter, by nonpartisan experts on key issues like health care, education, housing, immigration, good jobs, trade, national security, under the banner of MAWA, Make America/World Awesome, a proposal I also made several times before the November 2016 election.

And why I have also called for financial and economic experts to create a Financial Crisis Prevention/Resolution Committee. And for AI/big data experts in the U.S. at Amazon and elsewhere and in China to work together on creating a recession early warning system.

China is focused on the economic impact of deleveraging its economy, see the chart at the top of this article on its slowing credit growth, a very major factor for the global economy. The U.S. trade war is destabilizing China’s already difficult situation, which China's leaders won't forget. In releasing a new report on China last week, see link in my weekly article, CSIS, a D.C. think tank, said:

“The current brinksmanship, with Washington believing it can force a reckoning, is not the shortcut to changing China’s policy choices. Beijing is already on a dangerous path, and Washington should be better prepared for the risks that can result quickly from the disruptions in China’s financial system, rather than pursuing a strategy based on Beijing suddenly changing course to avert a less pressing threat.”

Trump and the China trade hawks in his administration are concerned about the decline of the U.S. industrial base and competitiveness, including for the military, something both Democrats and Republicans failed to address for decades, without getting into the issue here of why the U.S. needs such a massive military budget, against what legitimate threats?

But it wasn’t China that caused this decline, American global corporations have been de-industrializing the U.S. since the 1970s, long before China joined the WTO in 2001 and Mexico NAFTA in 1994, due to Wall Street’s focus on short-term speculative gains on opaque, leveraged financial, not real, investments, which was enabled by the easy money policies of the Fed, see my December 21, 2016 article on this.

The trade deals that Trump focuses on are a symptom of that deeper financial disease, not its cause. Those trade deals came along AFTER the power of U.S. private sector unions was already broken in the 1980s, as shown in the BLS data on work stoppages, which fell precipitously in that decade, I won't assign blame here for that loss of power, as there was plenty of blame to go around, the point being that American factory workers had no job protection by the time China joined the WTO in 2001.

Eric Chewning, deputy assistant secretary of defense for industrial policy, said regarding the just released Defense Industrial Base report, see link in my weekly article: “There is existing capability you all have where it’s just eroding because the invisible hand [“free market”], and in some cases, that invisible hand is being directed by a state-backed wrist [China], is moving things offshore.”

I suspect that even Trump may know this, though he finds it far easier to blame China to his political base. Trump has picked the wrong fight and the wrong opponent. China is not going to change its system to suit the U.S. and adopt the “free market.”

Why should it, from China’s perspective? It was America's so-called “free market” capitalism that created the 2007-09 Great Financial Crisis (GFC), and China’s managed state capitalism which led the global economy out of it.

Perhaps that may not be the case if/when there is another crisis, but until then, the burden of proof is on the U.S., not China, despite the recent decline in the stock market of the latter while it has been at an all-time high in the former.

Same goes for stagnation of living standards for decades for the majority of the American population versus their rapid growth in China, again despite the current low U.S. unemployment rate, which is highly misleading, see chart at the top of my August 4 article.

Besides, “free market” capitalism has always been a fiction, as has been definitively shown by Fed policies during and since the 2007-09 Great Financial Crisis (GFC), the deliberate effect of which has been to inflate asset prices, mainly benefiting the top 1% and 10% income brackets, which own much of the inflated wealth.

As for national security, it was the U.S. that invaded Iraq in 2003 on false pretexts, China has done nothing of the sort. Again, things might change, China has issues, of course, but so far the burden of proof is on the U.S. “liberal democracy,” not “authoritarian” China.

The U.S. should fix its own house, literally, parts of its cities look terrible compared to the modern ones in China, that’s a good place for massive investment and employment. But the U.S. financial system won’t direct credit to such long-term needs, nor to other long pay-back investments, with some speculative exceptions.

Best,

John Furlan