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THE REAL PURPOSES
So now why are Paulson and Bernanke visiting Beijing this time? We hear the official reasons. What events or statements have been made in recent weeks? To be sure, a few important public statements have been made to change the landscape and tense relationship. The Peoples Bank of China deputy governor Wu Xiaoling stated in late November: "Firstly, long-term interest rates are falling, reducing returns on bond investments. Secondly, the exchange rate of the dollar, which is the major reserve currency, is going lower, increasing the depreciation risk for East Asian reserve assets." In addition, an anonymous source was quoted: "These low rates can easily lead to an asset price bubble, and this is what we are paying attention to." The details are that since summertime, the yuan exchange rate has fallen from 8.0 to 7.82 for over a 2% decline. Also, the paid yield on long-term USTBonds to them has fallen from 5.0% months ago to 4.5% now, which is 10% less income. On this trip, Bernanke joins the team. We are not told of who or how many Wall Street investment bankers are included in the entourage. My opinion, pure conjecture, is that the current trip has two purposes.
First, the Chinese have threatened to withdraw from USTreasury Bond purchases, and possibly to sell some of their vast $1000 billion horde. The "diversification" word sends shock waves in the currency world. Their leaders harp and threaten on a regular basis about diversification, a dreaded word in the FOREX trader pits. Bernanke is there most likely to convince the Chinese not to diversify, since doing so would harm the USEconomy. Their export business would suffer, while their foreign reserves (national savings account) would decline in value. Important jobs within China would be lost, putting their leadership at risk. The dynamic duo have made the journey for the purpose of urging China not to diversify, at least not until after several more lucrative deals are brokered. Independent control of our nation is slowly eroding, not just with energy security but with industrial security. Precious few seem to notice, until perhaps now.
Secondly, Paulson will act once more as the Wall Street investment banker ambassador, to strike secret deals on stock issuance and public offerings. The pressure to open up their financial sector comes with unspoken mega-million$ in fees for the Manhattan insiders, who will surely not share their booty with small fry Wall Street firms, not with Paulson at guard. Paulson repeatedly has referred to the path of reforms, which is the euphemism for opening up their banks to US partnerships and competition. It is more than banks though. Numerous other US corporations across numerous industries, from construction firms to car makers to telecommunications, they wish to enter China, which has concrete roadblocks in place to obstruct. They must remember all too well the days of colonialism early in the 20th century. Chairman Mao fought the foreign devils, and the memory lingers.
Wall Street lusts and drools over the prospect of investment banker fees. This is the immediate opportunity, with many zeros on pay checks and coveted bonuses. In addition, major Manhattan firms are putting their initial positions in place BEFORE the initial public offerings to sell the stock. The deals will profit not only US princes of government service, but Chinese communist captains. Chinese leaders, like their US counterparts, have vested interests for personal gain in the sale or capitalization of some trophy corporations (mostly big banks) with enormous future prospects as the Middle Kingdom continues to emerge as a world leader. The losers are the US workers and investors. Systemically, global village forces continue to exert pressures, both to level the wage playing field and to provide exploitation opportunities for those in power. The trend of outsourcing jobs to Asia has both assisted US businesses and wrecked US worker lives.
GROWING VULNERABILITY, DESPERATION
The degree of US vulnerability is difficult to quantify, off the scale of available adjectives. China could shut down the entire USEconomy if a concerted program were embarked upon to dump USTBonds. They could permit US shopping retail centers to perform a vanishing act where the majority of electronics, clothing, housewares, and furniture would be halted in supply.
Few Americans fully appreciate and consider the vast problems facing China. They have several demographic classes which migrate step by step from rural to urban centers. Large tracts of farm lands are being taken for industrial purposes, offering a higher wage in factory jobs. People are demonstrating openly against displacement, pollution, and forced compensation. The number of violent events from such demonstrations is on an alarming rise. Beijing leaders are highly suspicious of Western business. So far they have managed the Westerners brilliantly, by permitting technology and fixed investment to enter, and finished products to leave. But they have blocked competition directly from outsiders in key industries. Where they have opened a segment to competition, Chinese firms have fared poorly. Now Beijing leaders are slow to permit foreign competition and partnerships. They want the next piece, more total control of the technology, greater independence to expand beyond original partnerships. The US firms are reluctant, and for good reason.