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but not against a behemoth like China with 3.5 billion population.
The Captain


Now THAT'S population explosion!
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Those of us who remember Mao can easily see how the current Chinese government and economy differs from "the good old days". China's regime resembles a Fascist perspective more than a Communist one. While both are totalitarian....

Although it may be a distinction without a difference.
But you hit that on the head -- both totalitarian.

Presumably, there is a feeling that America will be diminished somehow if we were #2 and China #1

Well, I for one am not comfortable with the #1 world power having a totalitarian government. YMMV.

DB2
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We old buggers remember the collapse of the Soviet Union. You cannot imagine my amazement when I got home from work, turned on the TV, and saw people standing on top of the Berlin wall, attacking it with sledge hammers and picks. The Warsaw Pact fell apart. Most of it's members are now more aligned with western Europe. The Soviet Union fell apart, with large areas declaring themselves independent nations. Now, 30 years later, Putin makes a big show of waving a big stick, but it's a paper tiger, with a GDP smaller than Canada or South Korea.

I am sure the GIC have in mind a Chinese collapse going down the way the Soviet Union did, as that is the most recent example.

And the upside for the US? As the only big dog on the block, the USD remains the reserve currency, because losing that status would probably result in a very large devaluation, which would set off waves of inflation in the US that would dwarf the inflation triggered by sharp increases in the price of oil in the 70s. The US' trading partners would start demanding a different currency for their goods, rather than rapidly devaluing Dollars. Foreign creditors would demand US bonds denominated in more stable currencies rather than Dollars. Finally, the US would be going to the IMF for a handout, and the IMF would demand draconian government spending cuts, which would be the end of Social Security and Medicare.

Steve
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No. of Recommendations: 7
... the USD remains the reserve currency, because losing that status would probably result in a very large devaluation, which would set off waves of inflation in the US that would dwarf the inflation triggered by sharp increases in the price of oil in the 70s. The US' trading partners would start demanding a different currency for their goods, rather than rapidly devaluing Dollars. Foreign creditors would demand US bonds denominated in more stable currencies rather than Dollars. ...


OK you got the rec but what I'm seeing is a shift in trade patterns that have the Asian Nations trading much more with each other and Europe joining in the free trade frenzy. The US trades more with Canada and Mexico than it does with China? TPP appears to be a game changer ... but stand by for really loud noises.

One might notice that many of the names mentioned have been major trading partners with USA for a very long time? Imagine India, Japan, South Korea, Aussie and NZ all becoming part of the Chinese circle of trading buddies?

Tim <wonder if they have room for we Canucks around the campfire?>



https://www.scmp.com/economy/china-economy/article/3020200/c...

China Economy

China pushing for world’s largest regional trade deal without US, hailing ‘momentum’ with Asian partners

Regional Comprehensive Economic Partnership (RCEP) involves the 10 Asean nations as well as China, Japan, South Korea, Australia, New Zealand and India


...

Published: 6:35pm, 26 Jul, 2019
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No. of Recommendations: 11
But you hit that on the head -- both totalitarian.

As Milton Friedman found out late in life, it's not a dichotomy but a trichotomy

June 23, 2007
Three Freedoms: Civil, Economic, and Political

In the preface to the 2002 edition of Capitalism and Freedom, Milton Friedman wrote:

If there is one major change I would make, it would be to replace the dichotomy of economic freedom and political freedom with the trichotomy of economic freedom, civil freedom and political freedom. After I finished the book, Hong Kong, before it was returned to China, persuaded me that while economic freedom is a necessary condition for civil and political freedom, political freedom, desirable though it may be, is not a necessary condition for economic and civil freedom.


https://softwaretimes.com/files/three%20freedoms%20civil,%20...

In the linked essay I comment on how these freedoms have fared in Venezuela over the years.

In any case, that's not Uncle Sam's worry. The problem is that while the USSR never learned to make rope and could not afford to buy it from Capitalists, China is making rope with stolen western intellectual property. That's the noose that Uncle Sam needs to fear and counteract if Pax Americana is to survive. For too long America has been an appeaser preferring the life of ease to the hardship of economic war.

Of course wars are wasteful but, when executed properly, they end with winners and losers. The Economic Pax Americana depends fundamentally on the US Dollar remaining the world's reserve currency. America cannot win against China fighting mercantilism with free trade. That works with lesser economies like Japan, South Korea, and Germany but not against a behemoth like China with 3.5 billion population.

The Captain
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No. of Recommendations: 22
"Of course wars are wasteful but, when executed properly, they end with winners and losers. "
_____________________________________________________________

I agree wholeheartedly. The US became great in large part because it "won" World War I and WON World War II, by remaining standing physically unscathed as our competitors were physically destroyed. While we lost people and material, our infrastructure was not only undamaged, but enhanced by being beefed up during the war. Practically everyone else, allies and foes alike, were on a relative basis losers.

The economic war we are embarked on now has the potential of causing us to be a loser (either alone, or in conjunction with China). It is an unnecessary risk as it is solely our objective to damage an entity which is approximately our equal depending which metrics you use. There were other ways to accomplish our goals without entering into a Mexican standoff.

We may get lucky and "win", they may get lucky and "win" or we can end up both diminished. There has been a complete lack of understanding of the Asian concept of "face" in this affair and we have created a scenario where China has not easy way of backing off and must make an effort to seriously damage us at some point.

Jeff
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but not against a behemoth like China with 3.5 billion population.
The Captain


Now THAT'S population explosion!
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The US dollar is going to continue being the major reserve currency for many years.
The US has large, liquid financial markets capable of taking huge investments.
And the US has a reputation for financial safety and rule of law.
China has a long way to go to replicate those characteristics.
Gold might stage a return though.

Also, being the major reserve currency might be undesirable. It leads to a stronger currency which in turn means less exports and so fewer jobs. These lost jobs might not be important if the economy has better ones available. So, China might not want to be a major reserve currency.

  Date              System             Reserve assets           Leaders
1803–1873 Bimetallism Gold, silver France, UK
1873–1914 Gold standard Gold, pound UK
1914–1924 Anchored dollar standard Gold, dollar US, UK, France
1924–1933 Gold standard Gold, dollar, pound US, UK, France
1933–1971 Anchored dollar standard Gold, dollar US, G-10
1971–1973 Dollar standard Dollar US
1973–1985 Flexible exchange rates Dollar, mark, pound US, Germany, Japan
1985–1999 Managed exchange rates Dollar, mark, yen US, G7, IMF
1999- Dollar, euro Dollar, euro, yen US, Eurozone, IMF

https://www.winton.com/longer-view/history-of-modern-interna...

Q4 2018 global reserve currencies
Dollar: 61.7%
Euro: 20.7%
Japanese yen: 5.2%
UK pound sterling: 4.4%
Chinese renminbi: 1.9%
Canadian Dollar: 1.8%
Australian dollar: 1.6%
Swiss franc: 0.15%
Other: 2.48%
https://wolfstreet.com/2019/04/01/us-dollar-status-as-global...
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Now THAT'S population explosion!

Well they did drop the single child thing you know?

I try to not point out such things to people older than myself.

A wee bit ... well a lot off topic but a touch of Canadian Politics on a Sunday afternoon.

I'm so proud of our Nova Scotian Premier who cuts to the chase. The guy on the billboard has 2.4% in the latest polling. He was disappointed when the Cons (wisely) wouldn't make him their leader so started his own party. Diplomat daughter knows him well and once commented that "He only gets up to speed when he sees the buffet ... a really nasty insult. }};-D

In all the many years I've lived in Nova Scotia since I first arrived in January 1971 I've never seen the province doing as well as it is right now?

Tim

https://www.huffingtonpost.ca/entry/maxime-bernier-billboard...

POLITICS 08/25/2019 10:11 EDT

New Bernier Billboards Linked To Company Specializing In Protein Products
The People's Party said it hasn't been in contact with the third party behind the signs.


Christian Paas-Lang Canadian Press

OTTAWA — Billboards with Maxime Bernier’s face and a slogan advocating against mass immigration cropped up Friday in several major Canadian cities.
The ads, which were seen in Halifax, Regina and Vancouver, prompt people to vote for the People’s Party of Canada and read “Say NO to Mass Immigration.”


...

Stephen McNeil Retweeted Andy Fillmore, MP

As Premier, I welcome everyone to Nova Scotia - but I don’t welcome this negative, divisive tone. Our population is at an all-time high, unemployment is at a record low and our economy is growing, in large part thanks to immigration. That’s fact, not opinion.
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but not against a behemoth like China with 3.5 billion population.
The Captain

Now THAT'S population explosion!



I rounded up

1.386 billion (2017)

to 1.5 billion but my finger had a different idea!

Why don't fingers behave?

Oh well....


•India
1.339 billion

•United States
325.7 million

1.386 billion / 325.7 million = 4.25545

You get the idea.. No?

The Captain
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Actually, becoming a reserve currency allows the gov't/Fed to borrow substantial amounts of money to supply the bonds which nations keep in their reserves. The strength of the currency is more a factor of interest rate. While partially related to the size of the demand for bonds, it is also a function of Fed policy. If, for arguments sake, the Chinese RMB became accepted as a reserve currency at 7% at the expense of the USD, the effect on the US would be inflationary as a pile of bonds come on the market and would allow the Chinese to "print" a huge amount of money without facing the inflation it would otherwise bring. While it might strengthen their currency, the ability to trade directly in RMB, rather than USD might more than compensate for that.

Jeff
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As the only big dog on the block, the USD remains the reserve currency, because losing that status would probably result in a very large devaluation, which would set off waves of inflation in the US


To keep reserve currency status the US will have to keep running a trade deficit, rather than ‚bringing jobs home‘. With all the president‘s rhetoric, which choice is it going to be?


The Triffin dilemma or Triffin paradox is the conflict of economic interests that arises between short-term domestic and long-term international objectives for countries whose currencies serve as global reserve currencies. This dilemma was identified in the 1960s by Belgian-American economist Robert Triffin,[1] who pointed out that the country whose currency, being the global reserve currency, foreign nations wish to hold, must be willing to supply the world with an extra supply of its currency to fulfill world demand for these foreign exchange reserves, thus leading to a trade deficit.[...]

In the wake of the financial crisis of 2007–2008, the governor of the People's Bank of China explicitly named the reserve currency status of the US dollar as a contributing factor to global savings and investment imbalances that led to the crisis. As such the Triffin Dilemma is related to the Global Savings Glut hypothesis because the dollar's reserve currency role exacerbates the U.S. current account deficit due to heightened demand for dollars.
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The US dollar is going to continue being the major reserve currency for many years.
The US has large, liquid financial markets capable of taking huge investments.
And the US has a reputation for financial safety and rule of law.


Let's take a look at the criteria:

If China keeps growing at a higher rate than the US, it will have larger, liquid, financial markets.

The US' reputation for safety? Our economy is running full blast at 50 year record low unemployment, and the Federal government is still running a $1T/yr deficit.

Rule of law? The SCOTUS has held it's legal to bribe public officials and to gerrymander voting districts to rig elections. The US tosses international treaties aside whenever short term political expediency is helped.

Notice that table in the post, the one that shows Sterling only accounting for 4.4% of global reserves.

There was a time when Sterling was the go to currency.

In 1930, a GBP was worth $5 US, about the same ratio as had been the case since at least the 1850s.

https://en.wikipedia.org/wiki/Tables_of_historical_exchange_...

Then WWII bankrupted the UK, and the empire fell apart.

Sterling's reserve status started to slip away, while the US rose.

I remember when the GBP was devalued, from $2.80 to $2.40 in the 60s.

Now the pound buys you $1.23.

That is about a 75% devaluation vs the USD in 90 years.

The US is running it's fiscal house like a banana republic. If another currency offered equal or greater scale, and better stewardship, the loss of the USD's reserve status, and the resulting devaluation would probably happen a lot faster than Sterling's collapse.

Since the US' "leadership" seems unwilling to put it's fiscal house in order, the only alternative to the USD being regarded as the next nose tissue masquerading as national currency, is to prevent anyone else approaching the US' scale.

Steve
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China is making rope with stolen western intellectual property. That's the noose that Uncle Sam needs to fear and counteract if Pax Americana is to survive. For too long America has been an appeaser preferring the life of ease (or short term profits) to the hardship of economic war.

Of course wars are wasteful but, when executed properly, they end with winners and losers. The Economic Pax Americana depends fundamentally on the US Dollar remaining the world's reserve currency. America cannot win against China fighting mercantilism with free trade.


DesertDave, make a note here. Steve agrees with the Captain.

Steve
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There has been a complete lack of understanding of the Asian concept of "face" in this affair and we have created a scenario where China has not easy way of backing off and must make an effort to seriously damage us at some point.

I have run into that concept of "saving face" in the USian private sector, just about everywhere I worked. Ever see "the five phases of a project"? Or maybe it's six, I don't recall for sure. The phases start out with "elation", then "disillusionment", then "search for the guilty", then "punishment of the innocent".

This concept of treading gently on China so the leadership isn't embarrassed, misses the entire point of a war. The objective isn't negotiating an amicable agreement. An amicable agreement would only give China a green light to supersede the US. As others have said, it's about defining a winner and a loser.

That brings us back to the phases of a project. If China loses this trade war, sees a large part of it's industrial base collapse due to loss of it's largest export market, the US is too large for China to do anything directly. That is where phase 4 comes in, "punishment of the innocent". Just as a CEO who sees his pet project go down in flames looks for a "rogue underling" to take the fall I certainly would not want to be in Hong Kong, or Macau, or Vietnam, because someone unable to defend themselves will bear the brunt of China's wrath. (meaning we better stoke up our ties with Taiwan, which will probably be a lot easier if China goes extreme with Hong Kong due to the current unrest)

Steve
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DesertDave, make a note here. Steve agrees with the Captain.

So miracles DO happen! 😇

The Captain
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There has been a complete lack of understanding of the Asian concept of "face" in this affair and we have created a scenario where China has not easy way of backing off and must make an effort to seriously damage us at some point.

Truman could have allowed Japan to save face, instead America "Saved A$$."

The Captain
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Those who understand the way Japanese act and think could have easily predicted an act like Pearl Harbor. I'm not saying that things would have been rosy if either we had acted in a way which caused Japan to pull back their attack - or if we had preempted it, but history would have been different.

It is in very bad taste to embarrass an adversary and demenes the one doing so. It is also expected that the insult will be taken personally and payback will be inevitable (but not necessarily immediate).

Look, being a tough negotiator is one thing, embarrassing others personally in public is another. Going out of one's way to belkittle an adversary may work when they are a small subcontractor and you can financially outlast them. Doing it wholesale to leaders around the world - foes and allies alike - will likely have unnecessary repercussions. At this stage, the White House advisors driving his decisions are apparently clueless.

Don't taunt the bull unless you are willing to risk getting gored. The problem is, that we are all at risk.

Jeff
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Steve agrees with the Captain.

And i agree too. Shocking.

I do think carrying out a strategy formed from this POV requires some, ahem, intelligence and self-governance.

In Short Supply Everywhere.


david fb
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Don't taunt the bull unless you are willing to risk getting gored. The problem is, that we are all at risk.

There is certainly risk involved. 10-15 years ago, it would probably have been easier for the US to strangle the Chinese economy. 10-15 years from now, it would be a lot harder for the US to strangle China.

Steve
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Sorry, you can only recommend a post to the Best of once.

Of course wars are wasteful but, when executed properly, they end with winners and losers.

A war isn't over until BOTH sides say it is over or one side is no longer capable of insisting that it isn't.
(Tamil Tigers)
https://en.wikipedia.org/wiki/Sri_Lankan_Civil_War#End_of_th...
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I do think carrying out a strategy formed from this POV requires some, ahem, intelligence and self-governance.

Did you hear about the "second thoughts" controversy?

The comment was sort of left dangling, and the media seemed to be trying to spin it as the POTUS was thinking he went too far. (I'm sure that is what those that profit from trade with China want to think)

So, the White House staff issued a clarification.

White House says Trump regrets not raising tariffs on China higher

https://www.cnbc.com/2019/08/25/white-house-says-trump-regre...

So the official spin is the US should be even more aggressive. But that clarification came from a staffer, not from the POTUS. So, who wrote it? I see Bolton's fingerprints all over this operation.

This article talks about the President's powers to block Chinese access to US markets.

...nuclear' trade option could shut down all Chinese business and investment in US

https://www.abc.net.au/news/2019-08-25/donald-trump-china-tr...

I don't think he would shut down trade precipitously, because too many US businesses are dependent on Chinese made products. A couple years down the road, when the most important business have heeded the President's warnings and moved their supply chains out of China, then an embargo would be possible.

Steve
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DesertDave, make a note here. Steve agrees with the Captain.

Duly noted.

Desert (A war isn't over until BOTH sides say it is over or one side is no longer capable of insisting that it isn't.) Dave
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