classical economics
for analysis,  forecasting
and policy design

Why China Succeeds
While U. S. Economy Stumbles Time and Again
By Wayne Jett © July 21, 2009

    The Statue of Liberty cringes in despair. Within eyeshot of the great monument of human freedom lighting the way to the New World, the most ruthless predators on the planet manipulate government power to rob hard-earned capital from working people.
    The last, best hope of mankind has fallen captive to financial manipulators. Franklin Roosevelt said capital pools of “organized money” had “owned” every U. S. government since Andrew Jackson left office. Those capital pools, now called investment banks, hedge funds and private equity funds, have never been more powerful or more aggressive than in 2008 and 2009. Their effects on America and the world are already devastating and threaten to become far worse.
What’s It Like: “Owning” Government?
    “Owning” U. S. government enables dominating the organs of public policy, including the Federal Reserve System, Congress, the White House, Treasury, the SEC, CFTC and on down the list. Organized money, usually called Wall Street, gains unfair, illegitimate advantages over all other market participants through special influence at these institutions of federal power.
    Organized money literally owns the Federal Reserve, with almost a majority of the private central bank’s corporate shares in the hands of Wall Street’s international financiers. At the Fed, Wall Street manipulates the dollar’s value, deliberately causing inflation and deflation, and thereby gaining vital insider advantage by knowing how to position investments, short or long, in an entire range of market sectors. Wall Street’s major players (Goldman Sachs, Morgan Stanley, J. P. Morgan/Rockefeller) dominate the Fed so thoroughly they can reposition their capital assuredly before the Fed takes a turn in policy. In short, the Fed’s controlling insiders know what and when to buy and sell.
    Federal executive authority important to Wall Street is exercised primarily by the Treasury Department. Wall Street grabbed complete control of Treasury in 2006 when senators led by Charles Schumer (D-NY) and White House chief-of-staff Josh Bolten (formerly a Goldman Sachs executive) persuaded President George W. Bush to dump secretary John W. Snow and to replace him with Goldman Sachs CEO Henry Paulson.
Paulson’s March to the Sea
    Paulson destroyed the Bush recovery which followed cuts in tax rates of May, 2003, by springing a trap door constructed largely by Goldman Sachs and Morgan Stanley. Crude oil prices manipulated three times higher in unmonitored trading of “futures” contracts and rampant fraud in securities trading attacks on major competitors of Goldman and Morgan were hallmarks of Paulson’s reign as Treasury’s “economic czar.”
    With the SEC and CFTC already captives of Wall Street, Paulson’s presence at Treasury assured no special regulatory actions would be taken in response to fraudulent trading attacks on major financial firms. Under Paulson’s watchful eye and deft hand, the predators destroyed shareholder interests at Bear Stearns, IndyMac, Fannie Mae, Freddie Mac, Lehman Bros., AIG, Merrill Lynch, Washington Mutual, Wachovia Bank, National City, General Motors, General Electric, Ford, Chrysler and many others. When fraudulent traders attacked Goldman Sachs and Morgan Stanley, the SEC responded – but only the two favored firms, not others, benefited from enforcement of the ban against short selling emergently adopted.
Speaking Truth of U. S. Corruption
    One of the few remaining investigative reporters with integrity, Mark Mitchell, is presently publishing a serial report revealing machinations of a sinister ring of hedge funds connected to Michael Milken. The ring attacked the share price of a small biomedical firm, Dendreon (DNDN), in the Spring of 2007 while using illicit influence with the FDA to forestall approval of a promising vaccine for treatment of prostate cancer. After the FDA broke its own protocol by reversing the positive assessment of its own advisory committee, 60,000 lives were lost in two years to prostate cancer as the Milken ring assiduously pressed its campaign to destroy Dendreon through raids against DNDN securities, while profiting from “pump-and-dump” promotions of putative competitors. During all of this, the SEC was missing in action.
    Deeply corrupt, mercantilist influences over U. S. government economic policies produce cyclical economic performance. Wall Street profits more richly during down-turns than in up-trends. Outsiders, meaning the middle class and their institutional money managers, are at great disadvantage and lose many billions of capital to insider elites.
    The Fed pretends to act counter-cyclically to avoid precisely the cycles it produces. When economic growth appears as vigorous job creation, the Fed raises the benchmark “funds rate” banks use in unison as their signal to raise interest rates on loans. The Fed argues that job creation pushes prices higher, so increased cost of credit is necessary to “fight inflation.” Only by sleight-of-hand polemical tactics which change “inflation” to mean higher prices of goods and services rather than devaluation of the currency unit can the Fed alibi for its irresponsible acts.
China Falls to Merely Robust Growth
    What does all this have to do with China? China just reported second quarter GDP growth of 7.9% after growth of 6.1% in the first quarter of 2009. China’s government states its goal for 2009 is 8% GDP growth and is confident its policies will achieve it. Job creation is in proportion to GDP growth. These growth rates represent a significant “dip” in multi-year performance, due primarily to the sharp U. S. contraction in 2008. China has hit double-digit growth of GDP during much of the last decade.
    If China followed the same “enlightened” economic theories and policies as the U. S., the People’s Bank of China would already be tamping down GDP growth to 3% and then driving its economy into recession. This is what the Federal Reserve did to U. S. economic growth in 2004 through 2007, if its rhetoric were believed. Fed actions combined with mercantilist conniving to skew bank lending towards high-risk sectors while depriving small business of reasonably priced credit. This produced the 2008 financial debacle, leaving Americans in more precarious financial straits than at any time in the past 75 years.
    Burdened as it is with communist government ideology and bureaucracy of a nature that brought the Soviet Union to disintegrate, how does China manage to outdo the allegedly transparent and enlightened U. S. economic model? The answer, in a nutshell, is that Wall Street (think Goldman Sachs, J. P. Morgan, the Rockefellers) is not permitted to dominate China’s economic policy as it dominates the U. S.
    China sells so much to the giant U. S. market that a primary objective of its economic policy has been to maintain stability in the value of its currency relative to the dollar. This is why China pegged its currency to the dollar during the Nineties and kept the exchange rate stable until, in 2005, U. S. senators Schumer and Graham threatened a 28% tariff on Chinese goods unless China revalued its currency higher. Pressing China to raise its currency’s unit value is equivalent to imposing a U. S. tariff, because it raises the cost to Americans of Chinese-made goods.
China’s Secret Sauce
    Such dealings with its U. S. market and with the European Community require China to encounter and accommodate Keynesian economic theory and policy. Yet China clearly is not adhering to Keynesian or Phillips Curve tenets espoused, for example, by Federal Reserve staff. Its high growth rate evidences this, but there is more. People’s Bank of China has, for years, sought the views and counsel of renowned classical economist Robert A. Mundell of Columbia University.
    Canadian by birth and education, Mundell is the leading theorist on monetary policy in the world. He won the Nobel Prize for economics in 1999 based upon the prescience of his research anticipating economic issues before the occurred, but more likely due to his pivotal role in developing the euro for the European Monetary Union. He was the first, in 1972, to call President Nixon’s move from gold-based to fiat currency what it was: the path to monetary and economic chaos. Alongside his monetary work, Mundell’s early analysis of fiscal policy inspired the Kennedy proposal of tax cuts in 1962, the Reagan tax rate cuts of 1981 and 1986.
    With all this, why has Mundell never been Fed chairman or secretary of the Treasury? Indeed, why does the Fed not bother to seek Mundell’s counsel even in dire crises? Simply put, the Federal Reserve is the tool of mercantilism and Treasury acts to serve mercantilist objectives. Neither intends to abide by classical economic principles. Keynesian theory was developed to justify and to obfuscate deliberate violations of classical economic principles. If either institution were to consult Mundell, doing so would call attention to economic views that would then have to be ignored if mercantilist interests were to be served. Therefore, the Fed and Treasury choose to ignore the man and the economic theory he applies.
Justice in Lonesome Dove
    As already stated, a central feature of American mercantilism is severe corruption and rampant fraud in U. S. financial markets, among government officials and in major media. So complete is mercantilist domination, the corruption and fraud rarely is even acknowledged in public arenas. China differentiates itself from the U. S. in its policies for dealing with corruption and fraud against its people. In 2007, China executed by firing squad a high government official found guilty of taking bribes. Recently available photographs showing execution by firing squad of a female public official in February, 1980, also for taking bribes, inspired among Chinese people calls for more frequent executions – not the protests of such executions anticipated by Western observers.
    Anger among the American middle class is rising as awareness of financial fraud grows through new means of communications, primarily web-based. Under mercantilist influence, U. S. officials do not take seriously detection, prosecution or punishment of corruption or of fraud crimes by major players on Wall Street. China, on the other hand, succeeds by weighing merits of economic principles on their merits and by punishing corrupt influences severely. In America, policies of similar insight were once known as “the law of the West.” ~