16 November 2009

The Yellow Peril Attacks

Beware the Yellow Peril!!!! That was the message of Hearst in the late 19th and early part of the 20th century, and the subject of a book, "The Yellow Peril; or, Orient vs. Occident" by G.G. Rupert in 1911. According to the Wikipedia article, the tale in the book has Jesus saving us from the Chinese, Japanese, etc. God Bless America. How will we triumph this time, when the war is real? Should we embrace the Christian Right, and simply wait for Jeeeesus???

Fact is, China is waging war against the US, and the West in general. I have been making the case for some time that the issue is the exchange rate manipulations done by China, but without the effort to track down the data. The deduction is just obvious. Today the Times has two op-ed pieces, one by Krugman and a longer, more data oriented one, by Ferguson. I'll skip loading up on quotes, and trust that those interested will go read. Both provide lots of data to make the case that China is engaging in economic terrorism. No question.

The point they both skip is one that I've been yakking about for quite a long time. US capitalists have divested so much of our manufacturing base, that recovery from this Great Recession is effectively impossible, since recovery, by definition, means to return to status quo and then to further growth along the same vector. And this is the problem: the economy running into the Great Recession has so disenfranchised so many, there is no mechanism in place to allow income growth outside that wonderful 1%. They've successfully wall off growth to themselves. There can be no recovery, since the runup was based upon the middle class burning unearned equity in housing, not rising incomes. Median income has fallen during the runup. These folks will not participate in the recovery. The new normal is 12% unemployment, along with charity food.

Which brings us back to the Yellow Peril. Make no mistake, China (as well as India) set out to export its poverty here. Why else choose a much smaller foreign market to exploit, rather than growing within your own much larger one? India has done the same. The only reasons are economic warfare and a disinterest in income equity; China and India are, after all, not especially democratic. As I mentioned a few days ago, the Times knuckleheads had the effrontery to proclaim that the problem is that American workers are just overpaid. Right, let's grow our way out of the Great Recession by making even more citizens poor and the 1% ever more rich.

Where this paradigm fails for the Chinese, Indians, and the rest is because trade is merely barter lubricated by coin. The Chinese are sitting on all those dollars, but what can they buy with them? From us, that is. Well, we make nukular bombs. We make stealth fighters. We make lots of war materiel. What do we make that the median income middle class Chinese wants? Right, nuthin'. This is the problem when a (command directed) economy sets out to pillage another, rather than growing domestically. The British Empire got away with it when the process was called Mercantilism, where the industrial economy gets raw materials from backward countries, and the industrial economy sends some finished goods to the backward countries. By that definition (you can check Wikipedia), the USofA is the backward country. Food exports are our number three export, right behind nukular stuff. Kind of like a banana republic.

How can we wage economic war? Well, without manufacturing, what do we have to sell? Exotic financial instruments? After WWII the US effectively controlled the international exchange rate regime, and we prospered. We no longer have that control, witness China (and India to a lesser extent) fiddling their rates to their advantage.

What kind of war can we wage? The fact is, all that we can do better than our enemies is nuke 'em. Will we? Eventually.

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