A psychological trap

I have been following them for several years. They are a pro-Keynesian, interventionist blog site from Australia. They have lots of justifiable gripe against asset bubbles, bankers’ greed, credit booms, etc. But, they do not link those with monetary policies pursued in the West, although they have had blog posts accusing the RBA of fomenting real estate bubbles with its policies. They are all for activist fiscal policy and helicopter money, if my memory serves me right.

The ‘Houses and Holes’ blogger of this site is a typical liberal commentator when it comes to finance and economics. One could guess that, had this guy been a voter in the elections in the U.S., he would vote Hillary simply because Trump was the first one to repudiate TPP. Never mind that Hillary followed him swiftly there.

Yet, sample the following paragraph of his:

…. A less generous analyst might see this as some form of commercial treason. I will say that it is indicative of just how unprepared Australian parliaments are to address Chinese soft power influence in its manifold forms. Indeed, with the current crop of money-grubbing mock-libertarian ideologues in charge, we are a complete bloody pushover. Our checks and balances appear gossamer-thin in the executive. The intelligentsia is under assault from the Chinese student pipeline and pseudo-intellects like Bob Carr and his Chinese apologism. Nor can we rely on the media to hold any to account. Of the duopoly, Murdoch will give China the nod the moment the deal is good enough. Fairfax is dying and in its death throes has grabbed for a real estate lifeline that is itself China dependent….” [Link]

This situation very much resembles the one that prevails in the USA. This is analogous to the situation that Trump is facing in America. Almost everybody is compromised, as he narrates above in the case of Australia. Many are pointing to the Persian Gulf (GCC) connections to the Clinton Foundation. But, China too would be very interested in the outcome going in favour of Ms. Clinton.

Many Federal Reserve research papers since 2009 have shown that the rise of China-US trade and outsourcing of manufacturing to China have had a real impact on American youth employment, on American communities, etc. I have cited them in my blog post here.

Clearly, China’s economic rise has been America’s economic undoing, to some extent, although China’s exports, employment in the export sector, the strength of its manufacturing sector and America’s Treasuries meant that America too had important cards to play and it did not play them.

Read the comments by Ian Bremmer in his interview of PM Lee Hsien Loong:

And certainly, everyone I talk to in the White House understands that if it were not for China after the 2008 financial crisis, we would be in a very different position than we are right now.

I am not quite sure what is meant by ‘if it were not for China….’. Is he referring to the fact that China did not sell U.S. Treasuries or that China unleashed a massive stimulus and saved the world?

Both are remarkably wrong analysis of the state of play in 2008-09. China stood to lose if it sold U.S. Treasuries. Second, China’s stimulus was an acknowledgement of that, actually and of their dependence on the U.S. economy. China panicked that its export market and the principal source of economic growth had collapsed and unleashed a massive credit stimulus in its economy.

Just think about it: if Western capitalism had collapsed, why would China have to unleash one of the biggest economic stimulus? Where was the epicentre of the global economic crisis? China?

Therefore, Americans have trapped themselves into thinking that they are in a decline and they owe one (or more) to China (and perhaps the Gulf Sovereign Wealth Funds) for having bailed them out. It is a grievously wrong reading of the situation and those who read it this way have been in office since then. Ms. Clinton’s election victory will continue to drive that worldview.

Until China fixes its economy (if ever), China would like America to wallow in the mistaken belief that it is beholden to China and it is the lever that China has been using to cajole and threaten the Federal Reserve into not raising interest rates.

China has a lot riding on the U.S. election victory. If the ‘defeatists’ – the proponents of American decline – won, China would have won and the fear of ‘Houses and Holes’ will be that much closer to becoming a reality.

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