Archive for category Politics

News: China is the #1 Largest Economy per International Monetary Fund

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The International Monetary Fund has indicated today that China, and not the US, is now the biggest economy in the world.

The IMF uses the PPP estimates which many economists consider a fairest measure because it takes into account the cost of living in different countries.

Based on these estimates, the US economy considering its population purchasing power is measured to be $17.4 trillion while China is $17.6 trillion.

However what is more important to consider is that while the US growth has reduced considerably to 2% in 2014 with an continuous declining growth rate for the last 10 years, China has maintained over 7% growth rate which although reduced after the global financial slowdown remains much higher plus the fact that China population is many times bigger that of the US.

China Climb to #1

The growth in China started 30 years ago and steadily overtook the US economy while at the same time the US economic growth slowed.

The latest IMF figures show the Chinese economy is worth $17.61 trillion, compared with $17.4 trillion for the US

 

China has 1.3 billion people which is about 5 times than the US.  In the 19th century, the US with an increase immigration of 30 million europeans also increased its economy surpassing the UK which at the time was the #1 economy.  China with its population density

China has a population of around 1.3 billion – four times that of the US – but its economy has only just become the biggest

 

The new IMF rating is based on an analysis using a statistic called ‘purchasing power parity’ (PPP), which makes adjustments for the fact that goods are cheaper in China and other countries relative to the US.

Without these cost adjustments factored in, the Chinese economy is still smaller than that of the U.S., at $10.3 trillion.

But experts have described the toppling of America after nearly 150 years by China, even on the PPP measure, as a ‘symbolic’ moment for the global economy.

China enjoyed three decades of double-digit growth before the global downturn of 2009, as industrialization and sweeping economic reforms in China created a new powerhouse in the East. Growth has now slowed (since 2012) but remains strong by Western standards with the IMF forecasting expansion of 7.4 per cent this year and 7.1 per cent in 2015.

And while for the US, the IMF is predicting growth of just 2.2 per cent this year and 3.1 per cent next year.

US overtook the UK 142 years ago

Britain led the world in the industrial revolution of the mid-18th century, but America was hot on its heels.

The US underwent huge industrial expansion after its civil war ended in 1865, fueled by rapid urbanization and huge population growth – including the immigration of nearly 30 million Europeans.

Britain had out-produced the U.S. and its European rivals for much of the 19th century, at the height of the industrial revolution and with trade links across the Empire. But the US caught up as a growing population, the expansion of the railways and a focus on industry as well as agriculture boosted its economy.

In 1872, the US overtook Britain to become the world’s largest, a position it held for the next 142 years.

Productivity, leading brands and innovation, coupled with the success of the US dollar and the fact that 62 per cent of the world’s financial reserves are held in the currency, kept America on top.

Meanwhile, the economies of Britain and other European powers were ravaged by two world wars. Britain borrowed heavily from America during the Second World War and received a further $4.3 billion in 1945.

History Repeats

China was the world’s leading trading nation up to the 18th century, until control of its ports and trade were taken over by imperial nations in Europe. Under Communism it remained inward-looking, until 1980 when the government started to allow foreign investment.

In this graph depicting the top contributors to the global economy, it shows China and India combined to be more than 50% of the world’s economy up until the 1800’s, a situation that did not change until the 1980’s.  Now China and India together add up to over 40% of the world economy based on IMF estimates.

 

Based on the IMF estimates, India is ranked as the #3 economy in the world and Japan is #4 and Germany #5.

Russia, Brazil, France, Indonesia and the UK make up the rest of the top 10 in that order.

Many economists believe the PPP measure of an economy is a fairest measure because it takes into account the cost of living in different countries.

As an example, although wages are typically far lower in less developed countries than in mature economies, goods and services are often also cheaper, which affects individual consumers’ comparative purchasing power.

Hot News

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This appeared in the News today that is of great precedence.

  • Russia ratifies Economic Union and readies trade in currencies other than dollar

A new era of trade done primarily outside the dollar, and in national currencies such as the Yuan and Euro. This Union already has the support of several BRICS nations, as well as associate countries, and will help facilitate trade being done in a much smoother and easier way than what is currently used through SWIFT or other Western banking processes

  • China will use gold and gold pricing to force global currency reset

China is recognizing that physical gold is the ultimate catalyst to force an end to the [control] d… of purely fiat finance, and that by revaluing gold to its rightful price will have the effect of both protecting their own currency, and wresting financial control away from the … dollar hegemony.

Keeping an Eye ON These Headlines

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Headlines pointing to a major inflexion.

Why Japan’s Smaller Military Could Hold Its Own Against China

China’s soaring military spending — up 12.3% this year — and aggressive gestures in the region could be setting the scene for major conflict. With various countries feuding over Pacific territory,  Japanese Prime Minister Shinzo Abe compared the ratcheting tensions to Europe before World War I .

China’s $188 billion military budget far surpasses the $49 billion budget of Japan, its biggest regional rival, even if it doesn’t come close to America’s budget of $640 billion.

China’s military is also much bigger than Japan’s, with lots more equipment and 2.3 million active personnel compared to 58,000.  Consequently, China ranks third on the Global Firepower Index, which heavily weights sheer numbers, behind the U.S. and Russia and ahead of Japan at tenth.

But is China’s military actually stronger than Japan’s?

First of all, it should be noted that a ny military conflict between China and Japan would likely draw in Japan’s superpower ally. T he U.S. is bound by a mutual defense treaty to protect Japan, including the contested Senkaku islands, and it operates numerous military bases in Japan.

Even on its own, however, Japan’s smaller military has a qualitative advantage over China.

The majority of Chinese weapons systems are in various stages of decay, as detailed by Kyle Mizokami at War Is Boring. Only 450 of China’s 7,580 tanks are anywhere near modern. Likewise, only 502 of China’s 1,321 strong air force are deemed capable — the rest date to refurbished Soviet planes from the 1970s. Only half of China’s submarines have been built within the past twenty years.

China’s first aircraft carrier, the Liaoning, is a refurbished Soviet ship from the 1980s that is too small to launch most long-range planes and will probably be limited to hugging China’s coast.

In comparison, Japan has been supplied with advanced military equipment from the U.S. In the coming year, it is slated to purchase new anti-missile destroyers, submarines, amphibious vehicles, surveillance drones, fighter planes, and V-22 Ospreys from the U.S. Japan also expects to receive deliveries of F-35s starting in March 2017.

The F-35 is Liaoning’s worst nightmare, China’s state-owned Global Times reported based on aKanwa Asian Defense, which found that the F-35 could strike the Liaoning with hard-to-intercept joint strike missiles from a safe distance of 290km.  The F-35 should also  be able to locate and engage China’s main aircraft, the J-15, before the F-35 is even detected.

The Japanese islands are also well protected by a missile defense system equipped with Standard Missile-3 and Patriot Advanced Capability-3 interceptors. These missiles are capable of shooting down a ballistic missile both inside and outside of Earth’s atmosphere.

" Japan has the strongest navy and air force in Asia except for the United States,"  Dr. Larry M. Wortzel, the president of Asia Strategies and Risks, said in a presentation at   the Institute of World Politics last September. " They’re still restricted by Article 9 of the Constitution, which forever renounces war as a sovereign right of the nation … but you don’t want to mess with them."

U.S.: Russian planes flew near California, Guam, in upped activity

WASHINGTON (Reuters) – The head of U.S. air forces in the Pacific said on Monday that Russia’s intervention in Ukraine had been accompanied by a significant increase in Russian air activity in the Asia-Pacific region in a show of strength and to gather intelligence.

General Herbert "Hawk" Carlisle said the activity had included Russian flights to the coast of California, and around the U.S. Pacific island of Guam.

Carlisle said the number of long-range Russian patrols around the Japanese islands and Korea had increased "drastically." He said there had also been "a lot more ship activity as well."

Speaking at Washington’s Center for Strategic and International Studies think tank, Carlisle showed a slide of a U.S. F-15 fighter jet intercepting a Russian "Bear" aircraft over Guam. He used the Cold War NATO name for Russia’s Tupolov Tu-95 strategic bomber.

"Certainly what’s going on in Ukraine and Crimea is a challenge for us and it’s a challenge for us in Asia Pacific as well as Europe," Carlisle said.

The Ming Dynasty – Learning from History

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Will history repeat?
The Ming Dynasty, (called the Great Ming Empire), was the ruling dynasty in China for 276 years (from 1368–1644) and following the Yuan Dynasty led by the Mongols. The Ming Dynasty is described by many as one of the greatest dynasties in human history for having orderly government and social stability and is one of three golden eras in China (Han and Song the other 2).
It had its capital in Nanjing first (1368–1644) later moving to Beijing (1403–1644).
The Hongwu Emperor (洪武帝) was the founder and first emperor of the dynasty. His name was Zhu Yuanzhang (朱元璋), born a poor peasant in present Anhui Province. He is post-humorously known as “Great Ancestor of the Ming” (明太祖, lit.). His ruling era was thus called Hongwu era meaning “vastly martial” and he ruled from 14 September 1368 til 24 June 1398 outliving his successor. In consequence his grandson was selected to the throne however it eventually failed with rebellion.
He came to power from environmental conditions in the middle of the 14th century. Mainly famine, plagues, and resulting peasant revolts sweeping across China, Zhu rose to command the force that conquered China and ended the Yuan Dynasty.
During his rule (1368 – 1398), Emperor Hongwu attempted to create a society of self-sufficient rural communities ordered in a rigid, immobile system that would guarantee and support a permanent class of soldiers for his dynasty: the empire’s standing army exceeded one million troops and the navy’s dockyards in Nanjing were the largest in the world.
Emperor Hongwu (Zhu Yuanzhang, 朱元璋) was able to attract many talents into his service. One of them was Zhu Sheng (朱升), who advised Zhu: “Build high walls, stock up rations, and don’t be too quick to call yourself a king.” Another one was, Jiao Yu, who was an artillery officer that compiled a series of military treatise outlining the various types of gunpowder weapons. Others who became key advisors to Zhu was that edited the military-technology treatise called Huolongjing (火龙经), the Fire and Dragon Treatise describing the various usages of gun powder – fire weapons.
The Huolongjing provided information for many design of fire weapons including rocket launches, automatic repeating rocket launchers, land and naval mines, multi-barrel handguns, cannons, wheeled carriages with rotating cannons, exploding cannon balls, fire lance with short burst of flame, metal balls with poisonous gunpowder. It also included sophisticated uses of fuses to ignite the explosives, serpentine locks and matchlocks.
In his youth, his family was killed by flood from the yellow river and only he and his brother survived. Destitute, Zhu Yuanzhang took refuge at a Buddhist monastery later forced to leave due to lack of funds at the monastery. For the next few years, Zhu Yuanzhang led the life of a wandering beggar and personally experienced and saw the hardships of the common people. At around 24 years old he returned to a Buddhist temple and learned to read and write during the time he spent with the Buddhist monks.
The monastery where Zhu Yuanzhang lived was eventually destroyed by an army that was suppressing a local rebellion. In 1352, Zhu joined one of the many insurgent forces that had risen in rebellion against the Mongol-ruled Yuan Dynasty.
Zhu rose rapidly through the ranks and became a commander. His rebel force later joined the bigger Red Turbans, a millenarian sect related to the White Lotus Society, and one that followed cultural and religious traditions of Buddhism, Zoroastrianism and other religions. Zhu emerged as a leader of the rebels that were struggling to overthrow the Yuan Dynasty. He was widely seen as a defender of Confucianism and neo-Confucianism among the predominant Han Chinese population in China. The Red Turbans and Zhu both conquered the whole of China trying to reunite it like before the Mongols rule (Yuan Dynasty).
In 1356, Zhu Yuanzhang’s army conquered Nanjing and becoming his base of operations and later capital of the Ming Dynasty during his reign.
Zhu’s government in Nanjing became famous for good governance and the city attracted vast numbers of people fleeing from other more lawless regions.
As the Hongwu Emperor came from a peasant family, he was aware of how peasants used to suffer under the oppression of the scholar-bureaucrats and the wealthy. Many of the latter, relying on their connections with government officials, encroached unscrupulously on peasants’ lands and bribed the officials to transfer the burden of taxation to the poor.
To prevent such abuse, the Hongwu Emperor instituted two systems: Yellow Records and Fish Scale Records. These systems served both to secure the government’s income from land taxes and to affirm that peasants would not lose their lands.
The Hongwu Emperor expected everyone to obey his rule and was infamous for killing many people during his purges. His tortures included flaying and slow slicing.
Through the use of repeated purges, he eliminated many historical posts remaining from the former dynasty. Hongwu Emperor mainly altered the centuries-old government structure of China, increasing the emperor’s absolutism. To that extend he was extremely authoritarian, a virtual dictator who governed directly over all affairs.
The Hongwu Emperor himself wrote essays posted in every village throughout China warning the people to behave and of the horrifying consequences if they disobeyed.
After Emperor Hongewu, he had specified his grandson Zhu Yunwen as his successor. after Hongwu’s death in 1398, Zhu Yunwen assumed the throne as Emperor Jianwen (1398–1402). However, the most powerful of Hongwu’s sons, Zhu Di, who had the militarily strength disagreed with this, and soon a political showdown erupted between him and his nephew Jianwen. After Jianwen arrested many of Zhu Di’s associates, Zhu Di plotted a rebellion that sparked a three-year civil war. Under the pretext of rescuing the young Jianwen from corrupting officials, Zhu Di personally led forces in the revolt; the palace in Nanjing was burned to the ground, along with Jianwen himself, his wife, mother, and courtiers. Zhu Di assumed the throne as Emperor Yongle (1402–1424); his reign is universally viewed by scholars as a “second founding” of the Ming Dynasty since he reversed many of his father’s policies and moved the capital to Beijing. Construction of a new city in Beijing lasted from 1407 to 1420, employing hundreds of thousands of workers daily and creating what is today’s imperial Beijing including the Forbidden City.
During Emperor Yongle reign he had staged five major offensives north of the Great Wall against the Mongols, the constant threat of Mongol incursions prompted the Ming authorities to fortify the Great Wall from the late 15th century to the 16th century; which proved to be a futile military gesture only portraying it’s strength without the substance. However, the Great Wall was not meant to be a purely defensive fortification; its towers functioned rather as a series of lit beacons and signaling stations to allow rapid warning to friendly units of advancing enemy troops.
Ming Dynasty Finance
Paper money was used in the early part of the dynasty, however the Ming Dynasty ended up using silver as a means of exchange in their economy; this is due to the massive inflow of silver into the Ming economy throughout the dynasty. The amount of silver used by the Ming economy was extraordinary; the Zheng clan (郑氏), which was a major clan of merchants in the late Ming, regularly engaged in transactions of several million taels, at a time in which English traders considered tens of thousands of pounds an extraordinary fortune. However, both coin and paper money were used throughout the Ming dynasty. Ming demand for silver was such that at one point most of the output of the mines of Peru went straight to China during the Ming era.
Trade and investment
In early Ming, following the devastation of the war which expelled the Mongols, Emperor Hongwu imposed major and severe restrictions on trade. He believed that agriculture (like in Mao Ze Dong modern era) was the basis of the economy. Emperor Hongwu favored that industry over all else, including that of merchants (today’s Small and Medium Enterprises – SME’s). After his death, most of his policies were reversed by his successors. By the late Ming, the state was losing power to the very merchants which Emperor Hongwu had wanted to restrict.
The Ming dynasty later engaged in a thriving trade with both Europe and Japan. The amount of silver flowing into the Ming dynasty was estimated by Joseph Needham at 300 million taels, an equivalent of more than 190 billion dollars in today’s money. In addition to silver, the Ming also imported many European firearms, in order to ensure the modernity of their weapons.
Trade and commerce thrived in this liberalized economy, and was aided by the construction of canals, roads, and bridges by the Ming government. Taxation was light. The Ming government saw the rise of several merchant clans such as the Huai and Jin clans, who disposed of large amounts of wealth. The gentry and merchant classes started to fuse, and the merchants gained power at the expense of the state. Some merchants were reputed to have a treasure of 30 million taels.
On taxes, the entire foreign trade, which was estimated at up to 300 million taels, provided the Ming with a tax of only about 40,000 taels a year. Taxes from the beginning were drastically reduced from the high levels under the Mongol Yuan Dynasty, and the Ming had one of the lowest tax rates (per person) in the world. (a lesson on extremes to be learned. Lowest taxes are not necessarily best).
Investment and capital moved off the mainland abroad and were poured into ventures. Continuing the trend from the Song, Ming investors poured large amounts of capital into ventures and reaped high profits. Many Chinese scholars believe the Ming was the dynasty in which the “sprouts of capitalism” emerged in China, only to be suppressed by the Qing.
Privatization
Another key feature of the Ming manufacturing industry was privatization. Unlike the Song, in which state-owned enterprises played a large role, the Ming reverted to the old laissez faire policies of the Han by privatizing the salt and tea industries. By the middle of the Ming Dynasty, powerful groups of wealthy merchants had replaced the state as the dominant movers behind Chinese industry.
The Ming government abolished the mandatory forced labor by peasants used in early dynasties and replaced it with wage labor. A new class of wage laborers sprung up where none had existed before.
Decline and fall of the Ming Dynasty
Reign of the Emperor Wanli (r. 1572–1620)
The financial drain of the many wars against the Mongols and the Imjin War in Korea against the Japanese was one of the many problems—especially fiscal but also other—facing Ming China during the reign of the Wanli Emperor (r. 1572–1620). In the beginning of his reign, Wanli surrounded himself with able advisors and made a conscientious effort to handle state affairs. His Grand Secretary Zhang Juzheng (1572–82) built up an effective network of alliances with senior officials.
However, there was no one skilled enough to maintain the stability of the alliances. Officials soon banded together in opposing factions. Over time Emperor Wanli grew tired of court affairs and frequent political quarreling amongst his ministers, preferring to stay behind the walls of the Forbidden City and out of his officials’ sight. Scholar-officials lost prominence in administration as eunuchs became intermediaries between the aloof emperor and his officials; any senior official who wanted to discuss state matters had to persuade powerful eunuchs with a bribe simply to have his demands or message relayed to the emperor.
Economic breakdown and natural disasters
Excessive luxury and decadence marked the late Ming period, spurred by the enormous state bullion of incoming silver and by private transactions involving silver.
During the last years of the Wanli era and those of his two successors, an economic crisis had developed. The problem centered around a sudden widespread lack of the empire’s chief medium of exchange: silver. Philip IV of Spain (reigned 1621–1665) began cracking down on illegal smuggling of silver from New Spain and Peru across the Pacific towards China, in favor of shipping American-mined silver through Spanish ports. In 1639 the new Tokugawa regime of Japan shut down most of its foreign trade with European powers, cutting off another source of silver coming into China. These events occurring at roughly the same time caused a dramatic spike in the value of silver and made paying taxes nearly impossible for most provinces. People began hoarding precious silver as there was progressively less of it, forcing the ratio of the value of copper to silver into a steep decline. In the 1630s a string of one thousand copper coins equaled an ounce of silver; by 1640 that sum could fetch half an ounce; and, by 1643 only one-third of an ounce.[60] For peasants this meant economic disaster, since they paid taxes in silver while conducting local trade and crop sales in copper.[61]
By the 16th century, however, the expansion of European trade – albeit restricted to islands near Guangzhou like Macao – spread the Columbian Exchange of crops, plants, and animals into China, introducing chili peppers to Sichuan cuisine and highly-productive corn and potatoes, which diminished famines and spurred population growth. The growth of Portuguese, Spanish, and Dutch trade created new demand for Chinese products and produced a massive influx of Japanese and American silver.
This abundance of silver specie allowed the Ming to finally avoid using paper money, which had sparked hyperinflation during the 1450s.
While traditional Confucians opposed such a prominent role for commerce and the newly rich it created, a person emerged with a heterodoxy. Wang Yangming permitted a more accommodating attitude. Zhang Juzheng’s initially successful reforms proved devastating when a slowdown in agriculture produced by the Little Ice Age was met with Japanese and Spanish policies that quickly cut off the supply of silver now necessary for farmers to be able to pay their taxes. Combined with crop failure, floods, and epidemic, the dynasty was considered to have lost the Mandate of Heaven and collapsed before the rebel leader Li Zicheng and a Manchurian invasion.
Remembering that Ming taxation was extremely light. For example, taxes on agriculture were only 1/30 of agricultural produce, and were later reduced to 1/50 of produce. Taxes on commerce amounted to 1/30 of commerce also, but was later reduced to 1.5%. The low taxes spurred trade, but also severely weakened the state (government are typically not able to manage their finances). With the coming of the Little Ice Age in the 17th century (an uncontrollable environmental accident with long term consequences), the state’s low revenues and its inability to raise taxes caused massive deficits, and large numbers of Ming troops defected or rebelled because they had not been paid. (raising taxes under these conditions would have caused further revolts and without military forces it becomes a circle of problems).
When the Wanli Emperor sought to increase the salt tax, his measures were opposed by violence and the eunuchs he sent to collect the tax were beheaded by local officials.
Final Stage – Financial, economic and natural disasters
The central government, starved of resources, could do very little to mitigate the effects of these natural calamities. Making matters worse, a widespread epidemic spread across China from Zhejiang to Henan, killing an unknown but large number of people. The deadliest earthquake of all time, the Shaanxi earthquake of 1556, occurred during the Jiajing Emperor’s reign, killing approximately 830,000 people.
In 1640, masses of Chinese peasants who were starving, unable to pay their taxes, and no longer in fear of the frequently defeated Chinese army. These masses now began to form into huge bands of rebels. The Chinese military, caught between fruitless efforts to defeat the Manchu raiders from the north and huge peasant revolts in the provinces, finally started to fall apart. Unpaid and unfed, the army was easily defeated by Li Zicheng— now self-styled as the Prince of Shun —entered the capital without much of a fight. On May 26, 1644, Beijing fell to a rebel army led by Li Zicheng when the city gates were treacherously opened from within. During the turmoil, the last Ming emperor hanged himself on a tree in the imperial garden outside the Forbidden City.
Each bastion of resistance was individually defeated by the Qing until 1662, when the last real hopes of a Ming revival died with the Yongli Emperor, Zhu Youlang. (Despite the Ming defeat and long after the Qing Dynasty was declared, smaller loyalist movements continued until the proclamation of the Republic of China, October 10, 1911).

Government Intervention in 2013

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The first news into 2013 was the USA Fiscal cliff decision by the House of Representatives.

With the fiscal formula repeating itself (which?) there is no reason why the cliff will not be passed so it becomes a mere political theater for both parties to show their stances and at the same time to gain points one against the other in the eyes of the public.

The USA fiscal formula is based on QE1, QE2 and its derivaties QE+ continues until the Federal Reserve due date (2014).  Meanwhile its less coordinated version in the European world continues to take shape.  Now that the European Union has a more established and matured European Central Bank (ECB), it can become a connected world of government level finance.

What about China and Asia.  Ex-Japan which is also in tune with the ECB, many countries of Asia follow its own traditional system of banking.  However China is also using its own method of QE.

QE is actually good for the country however bad for the people and private enterprise.  As a tool, it has the objective of providing liquidity needed to growth and to solve some temporary cash needs however for the long term it always results in inflation.

With the massive trillions of US Dollars into the system since 2000, 13 years later is not a temporary situation anymore.

While the USA is engineering its solution out of the economic crisis and its State-Owned Enterprises (yes, AIG was stated [government] assisted, LTCM also, Fannie Mae and its cousin Freddie Mac, all the major banks, etc…) continues its same path toward creating new modern derivatives, China is entering a new period of government facing changes in its export and manufacturing base.

As a result, China also needs to engineer its new direction.  How to create a economic base to be less dependent on the USA and European exports?

Meanwhile, Europe continues looking for different formulas (which are in the span of human history, a repeat of old themes), like taxing the rich (France, 75% income tax).

Increase in taxation is innevitable as now after massive debt creation, the question will be how and who will pay for the interest on the debt.

What all this leads to?

The trends we are in comes with period of riots and crisis followed by periods of quiet pondering.  However, everything innevitably builts toward a climax before it finally ends the trend.

Although we do not take sides and do not believe in activisms, forecasting the actions and anticipating the probabilities is critical to positioning.  And positioning is everything.  What follows are analysis of geopolitical conditions into 2013.

The USA just approved 2 significant bills: USA takes Japan’s side on the Japanese dispute with China over islands.   The USA specifically confirmed that the disputed Senkaku Islands are covered by a US-Japan security treaty.  And the said treaty, signed in 1960, states that USA is to aid Japan in the event of an attack on the nation’s territory.

Next, USA restated its stance in a bill to sell F-16 attack planes to Taiwan.  This in addition to the the deployment of the so-called X-Band Missile Defense radar system in Japan continues the trend of installing a stronger military in Asia.  This military is no longer in terms of troups but with modern technology. 

The X-Band missile defense system is presumably to counter the threat posed by North Korea’s missile arsenal.  However, some sources have mentioned that it can be more than that.  Based on military strategy, this is all possible.

As 2012 is behind us, 2013 continues quietly the 2012 trend toward a final extreme before the 2000 trend ends and a new one begins.

Under this trend:

  1. Super Inflation
  2. Continue geometric use of natural resources
  3. Gold and Silver, as a save haven, will be valued over inflated prices and devalued monetary paper currencies
  4. Taxation will be increased
  5. Interest will eventually go up
  6. Tension in the world will continue

There is no exact repetition to history however there are exact outcomes where the majority loses to the minority.

 

Riots in Spain Growing With Economic Uneasiness

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Interest rates have increased making business and the economy spiral into further uncertainty challenging social stability and resulting into more riots.

 Riot police struggle with protesters during demonstrations in Madrid

Spain Financial Crisis

Spain Financial Crisis

Spanish Ministers have said that €10bn (£8bn) of cuts and tax increases must come in next year’s budget just to cover a leap in interest payments. Under the present plans, spending is to be cut by 7% next year, bringing another wave of cuts in health, education and other welfare services. Spain’s civil servants received notice that, for the third year running, their wages were being frozen.  And if there is bank bailouts which has a good probability of ocurring, it would be paid for by the eurozone rescue fund, but tagged to Spain’s further debts which would soar by another €50bn.

Cut and spending freezes and continuing debt is taken by people as serious effect on their livelihood.  We expect more of this unpleasant situations to continue.

As Spaniards respond with dismay to the violence shown by demonstrators, who launched attacks on police, and the response of some riot police, during scuffles in the area around Madrid’s parliament building 2 weeks ago, the long-running drama of the country’s deflating economy has lurched into a newly confrontational stage, amid fears that there will be more violence to come.

Spain Financial Crisis

Reportedly, the police and the conservative government of prime minister Mariano Rajoy were accused of authoritarian behaviour, radical protesters from both the far left and the far right were putting a hard, street-fighting edge on to the once peaceful protests of the civilised.

A story of a 72-year-old man depicts the controversial situation.  He was among some 30 demonstrators who had been accused of attacking police and given bail. “But I was sitting down when they arrested me,” he said.

APTOPIX Spain Financial Crisis

Being Eurozone 4th largest economy, Spain social and economic uncertainty can cause severe shocks to the EU in addition to the present burden.

Here a large rally was organized as a peaceful rally but after midnight it entered a challenging stage when rally protesters ignored prohibition for the time extension and defying authorities.

Spain Financial Crisis

Can Government Help the Economy

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Is Presidential Election year and we are one month away from 2012 Presidential Elections in the USA.  This year, there are elections all the world over including China and Japan.

Last year and part of this year, we have seen new government leaders come and old leaders leave.  Italy is one such large economy with new leadership.

It is the believe of many that the government can make an economy improve and some even believe is the role of government to make economies rich and improve forever.

Since 2000, we have seen 3 major crisis of financial magnitude to affect the economy the world over. 2000, the dotcom bubble bursting, 2009 the real estate bubble busting into a mortgage crisis, 2011 the European sovereign debt crisis which is still percolating.  In the background, we have China and India which have had decades of growth defying all economic gravity and continously performing over all crisis non-stop.

Here are some charts showing how even the centrally controlled governments (here China), have little correlation of government changing to economic results. (the vertical lines showing every 5 year Congress where new leadership is determined.

image

To some extend the (incomplete – data not available) Foreign Investment line does show a increase in GDP as FAI increased.

So we will extend the same conclusion to the USA political debates and subsequent election.

One more chart, even though the culprit to the last 2009 real estate crisis started in the USA from excessive mortgage credit, you can see here that the effect of the real estate bubble (excitement) also manifested in China (as shown by the parabolic rise of the Shanghai Stock Index) and subsequent real estate crash creating the crash of the China stock market.

image

Further economic and political science theorist may continue this study.

In addition, since winning politics t0days is more a follow the market approach (“find what people like to hear, and tell them that”).  The policies that government leaders enact are in reaction to social trends.  For example, there are significant trends toward regulation, increased taxation, protectionism and anti-importing tendencies (nobody seem to understand or want to understand the advantages of outsourcing).  The policies and laws adopted do have a long term effect on the economy, and policies and laws are enacted by the government, however is that direct or indirect consequence of social trends.

As undermined is the idea of the value of a free economy and free market.  Like gravity and the Universal Law, is there and it always shows it’s manifestation sooner or later.

The Petrodollar System

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The short version is that a 1970 deal negotiated by President Nixon cemented the US dollar as the only currency to buy and sell crude oil, and from that monopoly on the all-important oil trade the US dollar slowly but surely became the reserve currency for global trades in most commodities and goods. Massive demand for US dollars ensued, pushing the dollar’s value up, up, and away. In addition, countries stored their excess US dollars savings in US Treasuries, giving the US government a vast pool of credit from which to draw.

The Petrodollar System

To explain this situation properly, start in 1973. President Nixon asked King Faisal of Saudi Arabia to accept only US dollars as payment for oil and to invest any excess profits in US Treasury bonds, notes, and bills. In exchange, Nixon pledged to protect Saudi Arabian oil fields from the Soviet Union and other interested nations, such as Iran and Iraq.

It was the start of something great for the US and constitutes the foundation for the monopoly of the US dollar and for it to become the reserve currency in the world.

By 1975 all of the members of OPEC agreed to sell their oil only in US dollars. Every oil-importing nation in the world started saving their surplus in US dollars so as to be able to buy oil; with such high demand for dollars the currency strengthened. On top of that, many oil-exporting nations like Saudi Arabia spent their US dollar surpluses on Treasury securities, providing a new, deep pool of lenders to support US government spending.

The “petrodollar” system was a brilliant political and economic move. With oil being the most necessary commodity aside from water. No country in the world can do without oil.  And any powerful country can lose it’s power because of lack of oil. 

The Petrodollar system forced the world’s oil money to flow through the US Federal Reserve, creating ever-growing international demand for both US dollars and US debt, while essentially letting the US pretty much own the world’s oil for free, since oil’s value is denominated in a currency that America controls and prints.

The result of the petrodollar system spread beyond oil: with every country dependent on oil, and all oil purchases requiring US Dollar, the US Dollar solidify by pure need and demand its position as the reserve currency of the world – the majority of international trade is done in US dollars, as long as oil is purchased only in US Dollar.

That means that from Russia to China, Brazil to South Korea, every country aims to maximize the US-dollar surplus garnered from its export trade to buy oil.

A report on Marc Faber: ‘World War III Will Occur in the Next Five Years,’ but Relax, Equities Will Not Collapse

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Here is an article by Constantine Gardner reporting on Marc Faber.  This view agrees with my research and I want to put it here for the records.  Marc Faber trend and understanding of that trend has been unparalleled.  Some of the longer term views does take a long time to occur but as we all know optimism (and there is a lot of optimism in printing money), can go on forever but the end result one.  Analogy to that is a drunk and gambler. 

China growth is totally dependent on energy and that means in today energy solutions, oil!  The importation of oil and any problems with that importation will have a direct impact on China.  China knows that and the USA knows that.

Both the USA and China are printing money and both are being affected by inflation (China more for now).  The difference is that China how each is using its money being printed.  China has also major innefficiences and not all money printed is productive.  I am sure there is a numbers person that is smart enough to compute each country’s efficiency factor.  And as I was taught in economics 101, you dont have to be a rocket scientist to understand that China until mid-2030’s still has the population demographics to be an efficient producer.  And while China is centrally controlled, the goverment has been relaxing its grip while in the USA government is tightening. 

Credit and appreciation goes to Mr. Gardner for summarizing and publishing this article.

Marc Faber: ‘World War III Will Occur in the Next Five Years,’ but Relax, Equities Will Not Collapse

by Constantine Gardner
Business Intelligence Middle East

   
   

Dr. Marc Faber the Dr. Marc Faber the Swiss fund manager and Gloom Boom & Doom editor has taken ultra bearishness to a new level. He remains negative about the outlook for the world because policy makers in Europe and the US are trying to solve the crisis created by too much debt and leverage with even more credit and leverage. Eventually when interest rates go up, he says, the cost of financing the failed monetary policies will become burdensome and will ultimately bring a big bust.

End game

He sees a shift in economic and military power from West to East and is increasingly convinced that the end game will be war. But, so far, he had avoided giving a time frame to the war scenario. Not any longer.

Dr. Faber was amongst 10 investment experts assembled by Barron’s last week at the Harvard Club of New York for the Barron’s 2012 Roundtable. The members of the Roundtable discussed the economy, China, Europe, market volatility, investment picks and World War III.

“On an optimistic note, World War III will occur in the next five years,” Faber announced to the other members of the Roundtable, in his characteristic contrarian manner.

“That means the Middle East will blow up,” he said, without providing any details about specific countries.

When this happens, “new regimes there will be less Western-friendly,” he reckons.

“The West has figured out it can’t contain China, which is rising rapidly and will have more military and naval power in Southeast Asia,” he explains.

The only way for the West to contain China is to control the oil tap in the Middle East, Faber argued.

The prelude to war will be a “big bust that will see the end of credit expansion,” he said in a recent interview. But before this happens, “governments will continue printing money which in time will lead to a very high inflation rate, and the economy will not respond to stimulus”.

Cyber war?

“This war will be different from World War I where troops faced each other in trenches or World War II where tank divisions faced each other, he said. This will be Cyber War. A war where you can turn a switch and turn the London electricity supply off. This will be a war where you can stop airplanes from flying and bring the whole financial system of a country to a halt,” Faber said in an August 2011 interview.

And during war times, “commodities go up strongly,” he argued.

“If you want to hedge against war, you don’t want to own derivatives in UBS and AIG, but you have to own them physically, like farmland and agricultural commodities. That is something to consider for you as a personal safety and hedge. You have to own some commodities,” he stressed.

Containing oil flows to China

Tensions have been escalating in the Gulf, with Iran threatening to close the Strait of Hormuz, through which roughly 35% of seaborne crude and 20% of the world’s traded oil passes daily, while the US and Europe seek help from Arab and Asian allies to reduce Iran’s oil revenues in the dispute over Iran’s nuclear programme,

Saudi Arabia has reportedly told a senior US lawmaker it stands ready to increase its current oil output of 10 million barrels per day should new sanctions curb Iranian oil exports.

Saudi oil minister, Ali al-Naimi, said in Sunday’s edition of his country’s al-Watan newspaper that “Saudi Arabia is able to produce 12.5 million barrels per day to meet the needs of the world market and satisfy any increase in demand from consumer countries.”

For its part, China, Iran’s biggest oil customer, has rejected new US sanctions that seek to block Iran’s central bank from clearing oil payments. However Chinese Premier Wen Jiabao was this week visiting his country’s prime supplier, Saudi Arabia, as part of a Middle East tour of oil-producing nations.

“I believe that China is not the only country to buy oil from Iran… Legitimate trade has to be protected if global economic chaos is to be avoided,” Wen said while visiting Qatar yesterday, according to a Chinese foreign ministry transcript.

A game of chess

The Iranians already have a “nuclear option,” namely, the prospect of blockading the Strait of Hormuz. Doing so would hurt them, too, of course, George Friedman wrote this week in a Stratfor report.

“Each side is seeking to magnify its power for psychological effect without crossing a red line that prompts the other to take extreme measures,” reckons the provider of global intelligence.

“Iran signals its willingness to attempt to close Hormuz and its development of nuclear weapons, but it doesn’t cross the line to actually closing the strait or detonating a nuclear device. The United States pressures Iran and moves forces around, but it doesn’t cross the red line of commencing military actions.”

Thus, each avoids triggering unacceptable actions by the other, said Friedman, adding that in that game of chess, “the possibilities of miscalculation, of a bluff that the other side mistakes for an action, are very real.”

Mass Psychology As Market Driver

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Fundamentals eventually drives the market and dictates value.

However, prices fluctuates over and under as well as lagging behind.  A key element that creates these fluctuations is the “surprise element”.

Market participants are constantly processing information and a mental trend develops into paradigms.  Paradigms develops around leaders.  Major trends develops into major paradigms as more leaders gather more masses.

  1. The Leader
  2. The Information Provider
  3. The Activators
  4. The Managers
  5. The People

Leaders are rare.  Leaders need Activators to reach their goals.  Activators operate thru Managers who can translate the Activator’s instructions into language understood by the general People.  Leaders also need an Information Provider network.  The Information Provider has the knowledge but not the ability to execute its knowledge and depends on a Leader to do such.

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