Thursday, December 9, 2010

The Future Lead Dog of the Axis of Evil
by Scott Ryan

Not too many "experts" are going to be willing to go as far as I with that title but they will come around in a few years.  The rogue islamic nations of the world have a friend in China (and Russia) but that's another column.  First they have some triumphs they must achieve in the financial world and they are well on course to that end.  A commercial was featured today on Special Report with Bret Baier that was amazingly similar in substance to the opening of a column I wrote in February of 2010. The commercial was well produced and was exactly the scenario I had in mind; so I am featuring it here at TableOfWisdom followed by the original column.  Much of what was written is unfortunately coming to fruition, especially in light of an enormously significant story reported just a few days ago.

The head of the Shanghai Gold Exchange told a conference there that Chinese imports of gold for 2010 through October were 209.7 tonnes, compared to 45 tonnes for the whole of 2009. This is a bombshell…” –

The commercial begins in a futuristic classroom in Beijing, China and the teacher is lecturing on the topic “Why do great nations fail?” The commercial speaks for itself so without further ado…

My column from last February begins with that very premise and continues the lecture that the commercial did not have time to elucidate. So without further ado, let’s take a trip back to February, 2010:

The Most Deadly Platitude of the 21st Century
by MrArbitrage
Independent, time-stamped source (originally featured at

"While watching Special Report on Fox News this evening I heard panelist Charles Krauthammer make a naïve, yet common statement regarding our strategic position with China.

In regard to the China situation, there exists a false sense of leverage and invincibility by Americans that is very dangerous and I feel it is worthy of a column. I like to view each day through the lens of history. I’m not talking about the obvious need to look to -past –history. I like to look at us –today- through the perspective of future generations sitting in their classrooms, talking about the obvious warning signs that led to the destruction of the United States of America (the way we used to do with Rome) and what could have been done had the people not fallen asleep, become too preoccupied with themselves and used some common sense. We need to soberly view it this way in order to avoid having it become a reality.

What we are seeing happen with the US and China is a subject about which I have been warning since we granted China “Most Favored Nation Status” and “Permanent Normal Trading Relations” This is the type of ineptitude and short sightedness the federal government has in recent years been providing and it arguably leads to most of our self-induced national crises.

Charles Krauthammer mitigated the severity of the situation by making the statement so often used as a rationalization for gambling with our national security (all so some corporations could make a few quick bucks to keep up with the rigorous demands of shareholders). Remember the story of Noah? All the people ridiculed and mocked him for building this great boat, especially when they had never seen rain. As the rain finally started coming down, they were still laughing a bit - but suddenly there was a bit of uneasiness in their voices. That reminds me of how the “national conversation” seems to be going these days. Their disdainful cry of “protectionist” and “isolationist” seem to be slightly abating as they grudgingly cover the obvious signs that something isn’t quite right with their "friend".

Krauthammer was talking about how China is making demands to the United States. (One is that Obama is not to visit the Dalai Lama but there have been many recent tensions with China that will escalate.) He said spoke about the possibility of the Chinese dumping dollars as a reprimand for our approval of new arms sales to Taiwan. His critical mistake is the same assumption that he and all of our reckless policy makers have long made while undermining our sovereignty to this rabid dog. He thinks that the Chinese are just flexing their muscle but they will not follow through because as he stated “they are as dependent on us as we are upon them”.

As I use my technique of viewing today through the eyes of a future history class on Fallen Nations and Empires, I see that specific statement as the most deadly platitude of the 21st century. The lethal assumption is that if China continues to sell down the dollar and dump their treasuries - since they have such enormous exposure to treasuries - they would be hurting themselves as much as they would be hurting us. Concluding that “they would never do it” based upon that notion is a terrible miscalculation by people who do not know or understand their enemy. Make no mistake, communism –is- our enemy.

Not only do they underestimate the barbarism of their communist enemy (whom many of these incompetents deem to be our “friends” or “partners”), they also show a lack of understanding of economics and hedging strategies.

Two KEY POINTS of gross negligence:

1. They underestimate the barbarism of our adversary as they are thinking from the perspective of traditional American leaders, with American values. Americans love freedom and get to elect our government. We used to elect people to represent us who rejected communism and its religion atheism. Therefore, our representatives had to represent our values and to some degree, although much less these days, we elected people who shared the values in our Declaration that we are created equal and that we had inalienable RIGHTS, which came from our Creator. God fearing representatives were extensions of ourselves, therefore, they would abhor the brutal tactics necessary to implement communism and would make policy decisions that would not hurt the people who put them there. They sometimes fell short but most would not deliberately hurt their constituents.

Communists don’t have constituents and their people do not have guns. Communists come to power by doing horrible things to people against their will. They do not care about their slaves, nor do they have to. Their god Friedrich Nietzsche taught them that the people exist for the purpose of functioning as a scaffold, to prop up the superior (themselves). When man is reduced to these terms, the maniacs in charge will do anything to them that they see fit. Just in 1996, before we propped them up, the Chinese were so desperate - a congressional report notified us that China was then selling the organs of their dissident prisoners on the black market – so they could finance the red army! That’s not very compassionate.

2. A “death blow” to the United States will not have the same effect on them as our naïve policy makers have long maintained because China has been positioning itself with appropriate –HEDGES- that will skyrocket upon the death of the dollar and the US credit rating. In fact, the more they lose on their sizable treasury investment, the more they will make in their gold and other commodity investments. Who do you think has been buying them up over the past year? China (and India) see what is coming.

China played this thing brilliantly. They have been sucking foreign dupe money by the trillions to do what their own economic system could NOT do without suckers like us. Without us, their regimes would implode like the Soviet regime. They were smart to con us by dangling a billion potential customers to green corporate executives who would in turn hire lobbyists to sell out our national security and sovereignty in order to keep the requisite EPS growth.

Do you really think they are worried about hurting a few of “their people” by dealing a death blow to the United States? They think it would be only temporary because after all, communists always maintain that “it didn’t work last time because it wasn’t done right.” They believe that once they take down the USA, the utopian fantasy will finally work.

Chinese companies have “gone western” temporarily loosening the reigns to suck capital to finance red army so the regime can nationalize them later, or at least take 70% of their cash flow if they have any. Why not? The west is full of suckers who think regime changed and communism is now good.

They will export enough fuzzy math to keep their Ponzi going long enough for them to rebuild the Red Army from foreign investment. If they have no compunction about selling you toys with poison paint for your toddlers and toxic drywall, just think about their accounting standards.

This willful ignorance about the evil of this communist regime is a disgrace that will long stain our country and may ultimately lead to our financial demise.

What we are seeing in our policy toward China, giving MFN and permanent normal trading relations status to these barbarians is just a glaring history lesson in the making. The only problem is that the only thing we learn from history is that we –never- learn from history.

In each bubble after the tech bubble of the 90’s we say to ourselves “How did we not LEARN from the last bubble. How did we miss the signs?” During those bubbles I gave advance warning (see ) as there were obvious warning signs preceding the debacles. For example, during the real estate bubble it was obvious that credit was far too loose. People were getting mortgages without income verification or even JOBS for that matter.

When hearing these ridiculous stories about anyone and everyone being able to get mortgages – even several mortgages – people should have asked themselves the question of “what happened to generally accepted underwriting standards?” and “if it is this easy to create prosperity for all, why haven’t banks been doing this for decades?” It kind of begs the question doesn’t it? Did people really think that today’s underwriters by lending hundreds of thousands of dollars to anyone with a pulse had discovered something that never occurred to the bankers of centuries past?

What was amazing was how we went from the strict underwriting principles to virtually zero underwriting principles in such a short time period. It happens because people have a propensity to get caught up in their emotions and their greed regardless of how educated or supposedly “sophisticated” they may be. There is something about the madness of crowds that gives people a false sense of security as long as the majority opinion is on their side – and it makes them do astoundingly destructive things, over and over and over again.

I have been harping on this China foolishness for years, going back to Clinton, Bush through Obama. I have enlarged upon all of the reasons why getting in bed with a Communist country is a bad idea and somewhat analogous to a legitimate accountant knowingly taking a mafia Don as a client. It is short-sighted and will likely end badly, even deadly.

Just as the coming real estate/banking debacle should have been obvious through the glaring abandonment of basic, historical underwriting standards, so too should the coming China debacle be obvious by anyone who remembers the caution exercised by previous generations toward communists.

I am 39 years old but I clearly remember the days when the leaders of most multinational corporations would not invest serious capital in communist countries like China because before the changing of the guard in corporate America, people like my grandfather understood the risks of committing serious money to building infrastructure within a country run by a communist dictatorship. Executives at US corporations today have severely breached their fiduciary responsibility to shareholders by risking billions of dollars of shareholder equity into a precarious situation like China.

These irresponsible corporate and governmental “leaders” have just like the bankers, fallen for the irresistible temptation of quick and easy riches without thought or regard to the potential consequences should we at some time find ourselves in a hostile relationship with China.

Ask yourself the question WHY. WHY would China still want to suppress citizens from being able to “Google” PRO-DEMOCRACY materials? What are they afraid of? Haven’t we changed the worldview of the Communist regime now that we have “traded them into prosperity”? That’s what our elected swindlers told us would happen if we gave the MFN and Permanent Normal Trading Relationship. Of course my tongue is firmly ensconced in my cheek. Communist dictators don’t change because you inject capital into their financially desperate government in the name of “growth”. Subsequently, if it works so well, why haven’t we been “trading Cuba into prosperity”? I smell a treasonous rat."

There are many pundits finally beginning see what is coming.  You can listen to Republicans like Krauthammer and Rove who advocate compromise with the left until the wall come crashing down before they sound the alarms or you can  read and get the warnings 10 years before the rest:

Sample: August 30, 2001, written the following WARNING regarding our China trade policy -

"It's only COMMON SENSE that trading with communist regimes – LIKE CHINA, will mostly STRENGTHEN the COMMUNIST REGIME. There is indeed a REASON why they call it COMMUNISM! In the Communist system, MOST of the money is directly or indirectly TAKEN from the people.  We can trade all we want with the cronies in China, but all it's going to do is further finance China's evil agenda. China in my book is the "lead dog" on the “axis of evil”. Not only is “free trade” going to finance communism, we are also going to give them leverage that will eventually put us at their mercy. The reason is because American businesses, which now covet that potential market, in the aggregate are going to have to increase capacity by investing trillions of dollars to be able to meet the enormous demand of a billion people. Once they have the capacity, our economy will be at their mercy. China can hold that trade over our heads to get what they want because if they were to cut us off, the loss of earnings, which will be necessary to offset the prodigious investment, would be DEVESTATING to our stock market, our jobs and our overall economy.Trade with China is nothing more than fool's gold. This is one case where big business truly does have the majority of our politicos in their pockets. I believe that placating China with MFN and Permanent Normal Trading Status in my belief is the most egregious blunder of our times.I am a Conservative before I am a Republican and because of that important distinction I must bring attention to a gross contradiction made by our President yesterday. I write this not out of acrimony toward President Bush, for whom I voted in 2000. I write this because it is my prayer that he will come to recognize the hypocrisy of his statement regarding trade with Cuba when compared with China.If it were something petty, I wouldn't bother to write this; however..."


"...I must say that we don't give away our liberty overnight; things go bad incrementally. I think China is laughing at us behind our backs. Go ahead and say I'm crazy now but let me go on record here and say that free trade with China, no matter how good they make it sound is a Trogan horse (on their part) and very specious."  - 8/30/2001
(days before our world and our beloved nation forever changed).
(time-stamped, 3rd party links)