This is the scenario:

As part of its strategy to spur growth and especially employment (made altogether more urgent after the Tiananmen uprising in 1989), China embarked on a program whereby its abundant labour could be made available to the world.  As part of this, it pegged its currency to the U.S. dollar.  As of 1997, the yuan was pegged at 8.28 to the dollar and China’s GDP growth more than doubled in the 1990s.

Meanwhile, in the U.S. financial deregluation and ultra low interests rates fuelled bubblenomics.  The tech bubble bursting and, later, 911 and the ensuing war on terror… coupled with Chinese growth… kept the U.S. Federal Reserve scared enough to keep rates at these low rates.  As Rickards adds, Federal Reserve Chairman Alan “Greenspan’s low rates… were also a kind of intravenous drug to Wall Street.” (104)  ‘Helicopter Ben’ Bernake  arrived at the Fed (first as a governor but then as Greenspan’s replacement), underlining the deflation-fighting low interest rates with a plan for the printing of money to monetize government deficits.  The stage was set for the housing bubble and the grand printing of money involving the U.S. Treasury, the Federal Reserve System, Wall Street and Congress. Oh yeah, and let’s not forget China and the many Western corporations taking advantage of extremely poorly paid Chinese workers (as well as the non-existent labour and environmental laws), because here is where it all gets so very interesting:

When a Chinese exporter ships goods abroad and earns dollars or euros, it must hand over those currencies to the People’s Bank of China in exchange for yuan at a rate fixed by the bank.  When an exporter needs some dollars or euros to buy foreign materilas or other imports, it can get them, but the PBOC makes only enough dollars or euros available to pay for the imports and no more; the rest is kept by the bank.

 

The process of absorbing all the surplus dollars… produced a number of unintended consequences.  The first problem was that the PBOC did not just take the surplus dollars, but rather purchased them with newly printed yuan. This meant that as the Fed printed dollars and those dollars ended up in China to purchase goods, the PBOC had to print yuan to soak up the suplus. In effect, China had outsourced its monetary policy to the Fed, and as the Fed printed more, the PBOC also printed more in order to maintain the pegged exchange rate.

 

The second problem was what to do with the newly acquired dollar.  The PBOC needed to invest its reserves somewhere… preferring highly liquid government securities issued by the United States Treasury. (106)

And this doesn’t even get at the internal debt financing happening inside China as part of its economic expansion and domestic building spree, nor does really include the Euro Zone.  Truly, the global financial system is out of control.

What caught my eye today was a story that Foxconn workers were ‘upping’ the pressure on management of the Chinese manufacturing company and threatening mass suicide if their demands over working conditions were not met:

‘Mass suicide’ protest at Apple manufacturer Foxconn factory
Malcolm Moore, Daily Telegraph (Jan. 11, 2012)
http://www.telegraph.co.uk/news/worldnews/asia/china/9006988/Mass-suicide-protest-at-Apple-manufacturer-Foxconn-factory.html

This is not a joke (or an Onion article).  Foxconn has become infamous for having to install nets around its factories in order to dissuade its workers from publicly committing suicide to protest unbearable working conditions.  This is a fact that I mention to my students as much as I can because it is indicative of the realities of North American technology consumption: our corporations ‘design’ the products, which are then manufactured and assembled in mostly Asian countries where labour is cheap, where labour laws are weak or–more commonly–virtually non-existent, and where rules governing pollution or working conditions are overseen by a authoritarian government (meaning they are really, really bad).

As I said, it is unfair to single out Apple because it is rare to find anything ‘tech’ related today that is manufactured in Western nations and by Western citizens.  But Apple stands out because it is considered as a premiere brand and the cult of Apple/SteveJobs is so strong that often its adherents are completely clueless as to how the company operates.  I see this constantly where I work as many assume that Apple products are somehow different from the product category in which they come from.  Macs, according to Apple Logic, are not PCs, even though the guts of a Mac are the very same components which show up in competitors’ products.  In many cases, as with the Apple A5 chip that is found in the iPad 2 and the iPhone 4S, components are actually manufactured by competitors (with respect to the A5, it is made by Samsung).  Again, why this is not recognized is all due to the strength of Apple’s pervasive marketing but it still does not paper over the fact (for those paying attention anyway) that Western companies–and by extension the emotional branding and satisfaction that we often derive from a inexpensive tech gadgets–are completely dependent upon the exploitation of people and resources in distant lands.  And with a company like Apple that is sitting on a mountain of cash (stashed in overseas bank accounts so as to not have to pay taxes in the U.S.) and which enjoys a seemingly ‘untarnishable’ reputation, it is sad that so many are so misinformed about the actual circumstances surrounding the company’s operations.

Can anyone say, ‘commodity fetishism’?

See Zero Hedge’s article and the German original at Zeit Online.

peace.

Obama to Seek $1.2 Trillion Increase in U.S. Debt Limit Dec. 30
http://www.bloomberg.com/news/2011-12-27/obama-to-seek-1-2-trillion-increase-in-u-s-debt-limit-dec-30.html

My favourite line in the article is this:

“Obama may have little difficulty financing a fourth consecutive year of $1 trillion budget deficits after the U.S. government received record demand for its bonds in 2011, pushing longer-maturity Treasuries to their best performance since 1995.”

It’s just so matter-of-fact.  The way that governments in the early 21st century pay for its services is simply by selling high-performing debt (translation: by selling the future wealth of its citizens).

I can’t wait to see what happens in three days time.

Peace

.

Another source of amusement has been Britain.  While the EuroZone inches toward financial implosion, other countries (like the U.S. and Canada) pretend that the they are on the road to recovery and that it is Europe (or the uncertainty over Europe) that is holding them back.  Then there is the U.K.  PM David Cameron has delighted Eurosceptics in his country by talking tough and not participating in any scheme to save Euro banks.  And while many in Canada and the U.S. applaud Cameron’s decision for his apparent intent to not expose the U.K. economy to the disaster that is Europe, there are probably other reasons why Cameron does not want to participate in any talks that might include financial reform in Europe: to save the London financial sector.

But before I get to that, I should like to reiterate that the Eurocrisis (just like the financial collapse of 2008) is not (only) a sovereign-debt/lazy-society problem… it is a global banking problem.  Sure, Greeks retired early, don’t like paying their taxes, and didn’t work hard enough.  But the problem goes well beyond that.  Germany is often held up as the EuroSaviour.  The hard-working Germans work hard, generate wealth and pay taxes.  End of story.  But that is not quite true as well as they have a hand int he problem that is the EuroZone.  The easiest way to understand this is through the phrase, “It takes two to tango.”  Greece (or the other PIIGS) did not get to where they are on their own.  If the Greek government has lived beyond its means by taking on too much debt, once must understand that that debt comes from somewhere.  And the “somewhere” is primarily other Western economies.  The debt that Greece owes is owned by Greek and other Western/European banks.  What is more, a lot of that debt was taken on to finance purchases from corporations in those other Western economies.  So, it should come as no surprise that, while the discussion of what Greece should do was just getting started, countries like France and Germany threatened Greece that they had to get their economic house in order, but such austerity should not threaten arms purchases from French or German military contractors.  (See this article from the Jerusalem Post from May 2010 as an example: http://www.jpost.com/International/Article.aspx?id=176792.)  Greece led Euro countries in military spending (measured against GDP, a standard measure of military spending) and much of that spending was for French and German armaments.  The hypocrisy did not go unnoticed in Europe and this, in part, points to how misleading it is to only point fingers at Greece in the EuroCrisis.  The economies in places like Germany and France are dependent upon countries like Greece overspending, especially for such costly (and mostly useless) expenditures like military spending.  (In case you are wondering, the reason why Greece buys so much armaments is because it is in a long-standing rivalry with Turkey.)

As I said, it takes two to tango.  More realistically, it takes many to create a debt crisis.  The economies of France and Germany, for example, are dependent upon sovereign overspending.  Those economies would not seem so strong without it (and that also goes for countries like China and Canada).  The global banking system is dependent upon sovereign overspending (on defence and all kinds of social programs like health care and pensions).  It is all of a piece.  That is why the discourse that the EuroCrisis is the fault of lazy Greeks is so inaccurate: the Western financial system is entirely dependent upon things like Greek overspending and sovereign deficit spending.

And this is how we arrive at the U.K.  While Cameron is acting like the responsible steward, steering his country away from the EuroIceberg, the real reason he is walking away from the EuroTable is because he fears any financial regulation… for such regulation would likely stop the PonziSchem-onomics that is the British economy.  There is a reason why financial pundits (the honest ones) have called the U.K. (London in particular) as the “ground zero” when it comes to the global financial crisis.  And that is because the loosest rules have allowed for all kinds of financial shenanigans that are still coming to light.  Case in point is the revelation that when tallying all debt (government, corporate, and individual), no one rivals the Brits… whose debt-to-GDP ratio is somewhere in the 1000% range.

That’s right, U.K. debt-to-GDP ratio is somewhere near 1000%!!  (Actually it is around 950%… but, hey, ’1000′ is much more dramatic.)

I am sure that the numbers here will become more transparent in the months to come as more people start poring over the data.  For those interested, check out this Zero Hedge article from Dec. 18 (it is from this article that the graph at left is borrowed):

“Psssst France: Here Is Why You May Want To Cool It With The Britain Bashing – The UK’s 950% Debt To GDP”  (Dec. 18, 2011)
http://www.zerohedge.com/news/psssst-france-here-why-you-may-want-cool-it-britain-bashing-uks-950-debt-gdp

Much more amusing is Episode 226 of the Keiser Report (the discussion starts around the 14 min. mark):

http://rt.com/programs/keiser-report/episode-226-max-keiser/

And, finally, take a look at Steve Keen’s website (he is the interviewee in the Kesier Report report above)… he is more sceptical of the numbers at the moment but I am sure will have more on this in the future once the data become ore clear:

http://www.debtdeflation.com/blogs/2011/12/23/max-keiser-me-the-uks-950-debt-to-gdp-level/

The point here is that Western economies (and the developing economies that have been serving them) are entirely dependent upon a financial sector that has itself reached gargantuan and absurd proportions relative to the real economies of those nations.  All of this was fuelled, in my humble opinion, by the need to maintain the illusion that Western economies are healthy and productive.  The U.K. should really be the poster boy of the global financial crisis at perhaps it still will turn out that way.  IN the meantime, politicians like Cameron will continue play-acting… but that should not be very surprising either.  At any rate, don’t bet on seeing too much in the mainstream media on this until the moment the U.K. economy completely implodes because, as we all know, there are too many Google 2011 ‘Top Search’ lists, Twitter Twends, and celebrity Facebook posts to “report” on.

Peace.

(And may 2012 be better than 2011.)