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18 April 2015


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For a contrary view, this writer takes the position that the AIIB is irrelevant as an indicator of US decline or China's rise--at least in terms of international finance. The author bases his view on the way those financial markets operate, and not on any particular foreign policy successes or failures by the US.

One statistic noted relative to the RMB as a potential future reserve curency is the tiny percentage of interbank trading orders using the RMB, 2.2% last year and presently at 1.7% and, more importantly, the unwillingness of the Chinese government to run the huge accounts deficits necessary for a reserve currency, and the inability of an export-oriented economy to do so.



IMF has strayed far from its original mission of controlling and clearing currency exchanges, now that the currency trade is fully floating. If China wants to take on the misguided mission of enabling Banana Republics spending beyond their means, and hence bankrupting their countries/currencies and needing a bailout, more power to them. [And sadly the US is going the Banana Republic route fiscally, too. The Eurozone is already there.]

This fool's errand of giving people money for their "Development" was a White Man's burden, if there ever was one. Some Chinese are already grumbling about the Yellow Man's burden these days.


OK, I’ll bite.

Respectfully, you’re mixing apples and oranges here, Walrus.

The apples are the results, but the oranges are the cause.

US sanctions on Russia drove the Russia/China alliance and, hence, China’s decision to begin, to *start*, a possible global institutional infrastructure replacement.

All Russian US Dollar holdings sit in an account at the NY Fed. All of them. US Dollars, by law, cannot leave the US banking system. (ZeroHedge doesn’t know this stuff.) Yes, individuals can take a max of $10Gs per trip out of the country, and yes, Russian citizens back home are the largest holders of US paper dollars under their mattresses in the world, but so what? US paper money is chump change.

All Russian banks whose clients have US Dollar holdings have accounts at the NY Fed. All of them. So it was easy for the US to violate the law and spirit of international banking and various treaties to slap sanctions on Russia, or Russian individuals, because they wasn’t doing what they were told.

The US does it because it can in spite of international agreements; not because it is ethical or legal. The US gets other countries to go along, or at least it has in the past, because these countries, too, don't want their USD holdings sanctioned.

The rest of the world is fed up with the US acting like a drunken parent who takes his kid’s odd-job money away to dictate behavior.

But the US pulled the Russian sanctions schtick because
(1) we have neocons running foreign policy, backed up by think tanks they control.

(2) we've allowed Israel-centric civil servants to rid the State Department over the past three decades of distinguished and necessary Arabists and Russian experts who know the terrain, the languages, and the history. Ergo, Victoria Nuland can operate like a mafia queen.

(3) none of the current US foreign policy officials understand the US federal monetary system, and therefore fail to appreciate, or even consider, the consequences of their actions internationally.

(4) none of the current US foreign policy officials know Russian history; more importantly, they don’t understand the Russian ‘soul’ (or if they do, they mock it out of a pernicious and odious sense of superiority) something I’ve known since I spent months in Russia under Soviet rule when I was 17 and young enough then to pick it up on my own. Hence, you have what the Colonel calls The Children’s Crusade.

As Keynes--whom no one has read, but nevertheless think they know—wrote about an economist whose ideas had persisted for 100 years previously, he “offers us the supreme intellectual achievement, unattainable by weaker spirits, of adopting a hypothetical world remote from experience as though it were the world of experience and then living in it consistently.” (Excerpt From: Keynes, John Maynard, 1883-1946. “The General Theory of Employment, Interest, and Money.” iBooks.)

I cannot recommend enough Patrick Smith’s April 16 interview with Russian history expert Stephen Cohen in Salon with the long title, "The New York Times 'basically rewrites whatever the Kiev authorities say': Stephen F. Cohen on the U.S./Russia/Ukraine history the media won’t tell you.”

End of Part 1. ;-)


Part 2

Over the Christmas-New Year’s week of 1979-1980, China announced its long-term plan to visiting foreign journalists that it was going to destroy American manufacturing hegemony and industries. Which it did. Aided and abetted of course 14 years later by Rahm Emanuel, who bragged that it was he who "kicked NAFTA over the goal post,” and who then spent a year leading up to China’s Most-Favored-Nation status in 1999 inundating the Wall Street Journal with op-eds pleading for the right of his Wall Street buddies to produce at China's wage level of $0.60/hour.

The NAFTA Mexican pay scale was $2.22/hr then. The move of American companies to China overnight decimated the Mexican economy (even more than Goldman Sachs had when it destroyed their peso in 1995 as Mexico’s bankers) and left the upper half of Mexico in almost famine state after destroying their mom-and-pops and unable to feed their families; hence, the move northward to get work to eat. We caused it. The Clinton admin caused it.

China was happy to use America’s middle-class wage decline to entice US workers to buy their goods, which we taught them how to make according to our specs and quality control standards. American, He Big Man on Campus. After the first standard five-year non-disclosure contracts were up in 2004, after we revealed our trade secrets and customer lists, after we schooled them in our technological particularities, the Chinese factory owners declined to re-up, moved across the street, and competed with their former American counterparts: us.

Fast forward to 2014. The US is kicking Russia in the teeth. But Russia has resources and energy China needs.

China wants them. Russia needs the sales. First China has to protect itself from buying them in USD, which the US controls because China has around USD$1.7 trillion parked at the Fed in treasury securities from its sales to Walmart and Best Buy for the past 15 years.

Russia and China then agree to a $400 billion gas deal in Yuan last May.

Then the USA leaves China out of the Kill-the-US-via-the-secret Trans-Pacific Partnership (and other lethal deals for the US you should be screaming bloody murder about) by the increasingly stupid Obama administration.

But the biggest act of hubris in the 21st C was the Obama administration slapping sanctions on Russia thinking it would corner her. I know China couldn’t believe its good luck. But it moved fast to take advantage of it.

*That’s* why it started its own investment bank. AIIB.

However, it’s going take a long time to match the daily trading in the USD treasury securities market. Right now it’s around $750 billion/day, which is proof that the world still wants USD. It’s going take a long time to replicate the financial infrastructure and institutions that support the dollar worldwide. The repo markets, the works. $50 or $60 billion in an AIIB is not going to cut it. So think of it as a beta test. But once China irons the kinks out, it will act quickly; they are mathematical geniuses as long as they stay away from the Univ of Chicago school of economics.

The USD will cease being the reserve currency when the world no longer wants it. It’s just that simple. When the world no longer want to sell us stuff in USD, because that’s the only way other countries can get USD. When oil is no longer sold in USD but some other currency, like Yuan for instance.

It could change overnight if we have WWIII, which is what the Children’s Crusade playing a lethal game of political Parcheesi with our lives do not understand. That’s what happened after WWII. The British Pound was out as the reserve currency, and the US Dollar was in, cemented later by Nixon taking us off the gold-standarad internationally in 1971, smartest thing he ever did.

There is, however, the small matter of the trillions invested by foreign governments and banks in US treasury securities sitting in savings [aka “securities”] accounts at the Fed right now. These are essentially federal government CDs. Like you putting your savings in a CD at the Bank of Podunk. They are NOT money we “borrow” as our idiot politicians and media keep telling us, and fools like Peter Schiff and others try to get you to believe. The fire-breathing alarmists who think the US can go broke, or that we should live within our means like a business or household. Effing stupidity.

These countries are going to have to exchange those USD on the open market for their own, or some other country’s, currency at the going rate—just as you would if you wanted Euros or Swiss Francs. If no one wants USD, who will they trade with? Think about it. Or they will have to buy US goods with them. Because those USD ain’t leavin' the US.

So, it’s going to be a while. However, how we handle Iran and Russia could make an overnight difference. It’s war that will do it.

I view the neocons and the rabid Pro-Israeli/anti-American groups as the enemy within using up all the congressional oxygen that could aright this ship. And judging from comments I’m now hearing said around me, I’m not alone. I’m just f**king fed up with them, and the cowered media who don’t have the balls to report what’s going on.

Read the Stephen Cohen piece in Pt1.


We've just been through a very long period in which economics was based on 'physics envy'; the notion that an economy was an 'engine' that 'cooled', and had 'heat flows', underlies muddled economic thinking about everything from 'trickle down' tax policies to complex derivatives. During the late 1800s and most of the 1900s, physics and its elegant math was viewed as 'science'; in order to be a reputable 'science', economics sought to don itself in the lustre of complex mathematical equations and borrowed the fundamental metaphors of physics in constructing the intellectual edifice that would lead to 2008.

Physics is a *physical* science; moral judgements are not required, nor are they relevant. However, economics is a *social* science; consequently, moral judgments are necessary in order to sustain the viability of the culture upon which all individuals depend -- if there are too few moral boundaries, the entire system is corroded until it collapses.

For about 200 years, economics and commercial exchanges were abstracted and removed from a social context, with the appalling result that a lot of erroneous ideas promoted a political and financial culture that valued 'profit' and 'capital accumulation' as the primary legitimate goals of all economic activity. The concept of 'honor' or social responsibility was demeaned, ignored, and generally castigated by a model of economics that viewed the economy as one huge, gigantic engine.

Meanwhile, between about 1980 and 2007, the world underwent one of the most remarkable events in human history - summarized by Moore's Law. Microprocessors and digitization transformed everything from the way that toilet paper is manufactured to the way we take photographs. In the last 20 years, it is estimated that 30,000,000,000 (yes, b-b-billion) microprocessors have fundamentally altered commerce. All of those microprocessors represent the interests of capital, rather than the interests of labor. Capital quickly gained the upper hand in terms of tax policies.

The emphasis on capital accumulation generated a powerful feedback loop: more capital led to more capital, which generated large pools of money that formed the basis for financialization (i.e., making debt into a commodity to be bought, sold, and used as the basis for speculative bets).

Following from financialization, and enabled by computer technologies built on all those microprocessors, tax laws in the US functioned to make capital behave as if it were on steroids: the growth was not healthy, but it was impressive. Using the engine metaphor as the basis for economics blinded policy makers to the reality that far too much GDP 'growth' was premised on the creation of ever more debt. The economy became driven by debt, rather than by productivity; the 'economics = engine' metaphor was incapable of shedding light on this fundamental problem of the decline in productivity and the diminished share of economic benefits going to 'labor'.

IMVHO, the US failed to do quite a number of things - most of them relating to failures of leadership and imagination: not only in elected positions, but at the Federal Reserve, think tanks, and other institutions. Tragically, the inability to question the fundamental assumptions about 'what an economy is' led to terrible outcomes.

I'm not convinced that what ZeroHedge is reporting is as clear-cut as national dominance and shifts in power; that is certainly part of what is happening, and as an American I think we have a lot of chickens coming home to roost. But I don't think that captures the magnitude of what's really happening.

I emphatically agree with this posts' premise that the failure to reign in Wall Street and International Finance has been an ongoing disaster that continues to unfold. However, I also think that is the inevitable outcome of assuming that an economy is an 'engine' and that mathematical models of 'heat flows' can somehow be mathematically manipulated to create Credit Derivative Swaps (CDOs) that could predict whether or not mortgage holders in Florida will default in droves. That kind of activity has almost no true economic benefit, but the 'engine' metaphor fails to fire off alarm bells about this underlying, systemic problem.

The deeper problems are, to my mind, international and not tied specifically to national interests.

There is a fascinating new area of economics that posits it is a complex adaptive system: economic transactions are made within a social context, and each transaction subtly alters the larger social structure. Once one begins to think of economics in these terms, moral judgements, notions of fairness and reciprocity, and reputation, become extremely important in economic regulations, organizations, and policies. In one sense, it might be argued that thinking in this way restores a sense of 'honor' to economic behavior, and that would be good for everyone -- of whatever nationality, social class, or religion.

The emerging conversation about 'what an economy is' is one of the most fruitful outcomes of the appalling failure of conventional, 'neoliberal' economics.

As an American, I don't intend to spend a molecule of energy mourning the loss of the dollar's dominance. There will be consequences, but they have been a very long time coming, and they are the result of a multitude of compounding errors, as well as a political system that has been corrupted by financial contributions.

The bigger challenge is altering the way that everyone thinks about economics. Because only with better metaphors and a more clear grasp of the inherently social nature of economic activity will we be able to truly start solving some very big problems.



The concept of a country that issues its own currency is "spending beyond its means" is antiquated. It is an artifact of the gold-standard days for the USA, when our currency was pegged to something that you had to dig out of the ground. Countries, federal governments, do not operate like businesses or households.

The United States of America cannot go broke. Period. Cannot.

Greece, Spain, Portugal, Ireland, Germany, Italy and France can. They don't control their own currencies. They use a foreign currency called the Euro, controlled by bankers, not a central government (United States of Europe). The Euro is a doomed currency.

The USA isn't going anywhere "fiscally" because Congress has refused to institute meaningful fiscal policy for over 30 years. We do monetary policy only, which means we leave it to the Federal Reserve to make the decisions. The Federal Reserve has two mandates: control the overnight interest rate (Fed Funds rate) and insure full-employment.

CONGRESS DOES FISCAL POLICY. Fiscal policy, simply, means that Congress would look at the general condition of the economy WITHIN EVERY YEAR and if it’s ice-cold, it would cut taxes for the 99% immediately and increase government spending to relieve unemployment. If the economy is running red hot, it would increase taxes on selected group and cut spending. Or, if one section of the country is suffering from an economic downturn, it would spend into that section increasing jobs and relieve the economic pain. The Federal Reserve cannot do this. And Congress controls the Federal Reserve.

You don’t have to know economics to make back-of-the-envelope assessments of what needs to be done. (Economic models have become like climate models that can’t predict the future accurately. Even Paul Volker is sounding the alarm.) Here’s a mantra you should memorize. If unemployment is too high—and it is, kids can’t find work; 23,000 turned out for 400 jobs at a new Walmart in DC within the past month—if unemployment is too high, it means the deficit is too low. Case closed.

The deficit means the difference between what the government spends and the government takes in in taxes. It’s just an accounting term. The deficit does NOT mean we are leaving debt to our children and grandchildren.

In point of fact, you can see this on the Monthly Treasury Statement (but not on the Daily Treasury Statement). Here’s the latest: Feb 15, 2015. http://www.fiscal.treasury.gov/fsreports/rpt/mthTreasStmt/mts0215.txt
Look at the right column. BTW, receipts are taxes. Outlays are spending. A SURPLUS for the federal government, the US Treasury, is considered a NEGATIVE, not something beneficial. Because that surplus means that amount has been removed from the real economy. That money is no longer available for the people to spend or save. It’s been taken out of the private sector’s bank account and extinguished.

Now, why would the US Treasury consider a government surplus a negative if there was anything good about it?

And if you expect some of the *accounting*-illiterate shmucks that get elected to Congress to understand how this works, sadly, you're mistaken.

Everyone look at this chart. The US federal government has run a deficit for the majority of 238 years. This chart is 1952-2012. The blue sections in deficit during Clinton’s time are the private sector. That was during Clinton’s vaunted surplus. It created the 2008 Financial Crisis, btw, delayed by the dotcom and housing bubbles. (It’s why I can’t vote for Hillary.) At the time, Bloomberg crowed that we haven’t seen a surplus like that since 1926-1929 (when actually it was 1920-1930, according to White House Historical Tables). Guess what that precipitated?

The federal government operates exactly opposite to the private sector. It's the federal government's JOB to provide for the general welfare of the people (preamble to Constitution) and promote jobs and financial security to advance the general welfare and well-being of society. It's called Public Purpose or Public Interest. All the Bible-toters who invoke austerity and cruelty have got it wrong. Using their parlance, The federal government is the Creator, and everyone else is the rest. The Creator does have to worry about "debt." Debt is new money into the economy at the federal level, not something anyone owes.


Correction, BIG CORRECTION. Penultimate sentence should read, "The Creator does NOT have to worry about "debt."



We sure messed up alright. In many ways. Some you highlight in your post. The shit canning of Glass Steeagal was a huge mistake (crime?), agreed. But if we take the 500k ft view of the situation, perhaps we will admit, the situation that existed after WWII was untenable. Period. All our major, natural, competitors, bankrupt, physically and emotionally exhausted, infrastructure destroyed, huge population loss. Only America was intact. Basically untouched, with a gigantic new infrastructure built. And coffers full. Under a million citizens lost. We were the only party really standing from all the major players. Russia, China, UK, Germany, Japan, France, Italy, et al....all in big trouble, to say the least.

That state of affairs could not last forever. It has not. A more natural, and hopefully, sustainable, world order exists. True, we rushed this new order into existence with our endless stupidity. But we were gonna get to this position, one way or another.

If we, in the States, could come to accept this view, perhaps we would not feel like we are so 'exceptional'. And that might be a very good thing.



The "faith and credit" that backs the dollar can certainly go broke when faith in the US goes to zero, which is where it is the direction it is heading in rather rapidly.


Well, before writing this post I thought useful to check first the AIIB website. What I found?

"Q9: In which sectors will AIIB engage and invest?
AIIB will focus on the development of infrastructure and other productive sectors in Asia, which may include energy and power, transportation and telecommunication, rural infrastructure, and agriculture development, urban development and logistics..."

If you think that the above is a move against the dollar, then Michael Pettis is right, it's not a big deal.

But why do we have to frame the question this way? China doesn't keep her goals secret. She wants to:
a) Influence or shape the capital intensive infrastructural projects of other asian countries.
b) Influence or shape the networks that connect the eurasian productive regions according to her needs.
c) Achieve the above goals with the happy cooperation of the neighbouring countries.

That is the cause of the vehement reaction of the american elites. They surely can discern an emerging hegemonic power in action, when they see one.

William R. Cumming

Thanks Walrus for this post and all for great comments. IMO the multilateral organizations created in 1944 at Bretton Woods, N.H., all need a makeover. The rise of Central Banks worldwide since the end of WWII is astounding to me.

And a question? Is Globalization really all about international finance or a subterfuge for eroding the nation-state system?

Second question? What has the formal and informal devaluation of the 1970 value dollar wrought?

Babak Makkinejad

Deficits have to be financed, within the rules of the Capitalist Economy, through "Debt Service" - part of the government budget will have to into "Debt Service".

As Deficits accumulate and grow larger, like those of Japan or Greece, larger and larger amounts of funds have to be allocated to "Debt Service".

Deficits do matter as they constrain policy choices available to any government.

I agree that the absence of Deficit is not necessarily indicative of a productive manufacturing economy; Australia and UK are good examples of that.

But Deficits are not Cost-Free either; in my opinion.

Babak Makkinejad

I think that EU must be included in your criticism of US in using Finance as a Weapon for that was used first against Iran.

Mr. Trenin discusses China and Russia here:




Excellent analysis.

Babak Makkinejad

It seemed to me also that US leaders, in politics and in business, were really going out of their way to harm the United States for short term gains.

The refrain was "in the long term we will all be dead".

I understood that there were 3 billion hungry people that would do anything to get out of poverty.

I also understood that like certain military tactics, there were governments out there that were willing to feed people into the business furnace to advance their aims.

In military parlance, then, I wondered why US leaders in business or politics were not engaged in intelligent rearguard action. They seemed to have thrown in the towel from the get-go and gone home.

When one considers Japan, or Germany, one could see that there are ways to be an exporting manufacturing hub without pauperizing yourself or your neighbor.

May be in US people thought they could be making money by renting money to others.

Babak Makkinejad

A metaphor based on the principles of computer programs is probably more productive than one that is based on physics since in computer programs one lacks the Laws of Physics and their constrains.


The notion that MRW claims with great certitude that a nation that "prints" it's own currency cannot go broke is a canard. History is replete with examples of currencies becoming worthless. Fred is correct that the "full faith and credit" is a function of psychology - confidence. It can change and has in the past when profligate governments spent well beyond their means typically by engaging in wars that cost too much. The promises made by government on pensions, entitlements, welfare and subsidies are mostly unfunded. Yes they can keep those promises in nominal terms by printing dollars but if it can buy anything of value is highly doubtful. So we can be certain there will be a crisis in government liabilities in our future.

Another canard that MRW claims as gospel truth is that the private sector would be in contraction unless the federal government runs a deficit. First of all annual federal budgets are mostly accounting legerdemain. Social security and other trust funds are used to make the annual deficits look smaller. That's why gross federal debt is a better indicator of deficit or surplus. The much vaunted Clinton era too saw federal debt rise. The best metric of systemic leverage is total credit market debt. Its clear that the US and the rest of the world has substantially increased leverage since the 2008 financial crisis.

As far as China is concerned they are clearly using their current financial ability to influence other countries in Asia, Africa and Latin America. But China too is riding the tiger of leverage by the tail. There already is massive capital flight with Chinese elites getting their money out of dodge.

There is no doubt that a new financial architecture will develop as the US continues to hold other nations hostage in pursuit of its foreign policy. However as long as other countries are willing to trade goods and services for US paper we will continue to take advantage to the detriment of our middle classes whose wages and jobs get destroyed.



I agree with your post and the comments. My old unit is smack-dab in the middle of another civil war 50 years almost to the day after of its deployment to Bien Hoa Airbase, South Vietnam:

173rd Airborne Brigade arrives in Ukraine for Fearless Guardian

There are only two possible outcomes. A withdrawal at some later date or World War III. I am dumfounded at the stupidity.

Your “follow the money” is an explanation. A cartel of international Criminal Families mounted a counter-revolt and seized control of the western democracies. International transnational institutions accountable only to the money holders are in now charge. Only this to my mind explains Austerity and the restart of the Cold War 2.0. The only response to insure the survival of mankind is to reestablish governance by sovereign states accountable to the people and the return to the rule of law for all.

Norbert M Salamon

I appreciate the point you have made that the US can not go broke as she controls her own currency.

This statement does not correlate with the notion that the USA economy is invulnerable as she controls her currency within the global economy.

Were the creation of USD go to such extremes [almost there] that sovereign states and or non US corporations have doubts about the $'s value, the economy of the US would collapse for lack of import raw materials.

If you would peruse the USA's raw material import as required for industrial economy, especially for the Military Industrial Complex, you would come to the valid conclusion that these can not operate without imports.

That there is a multi billion Forex play daily has nothing to do with anything but outright gambling by too rich entities [including the Federal Reserve, the Plunge Protection office -- what ever its real name, of the US Treasury] - useless, to large extent, to the addition of US GDP as service industry component.

When the Chinese Yuan becomes a corner stone of the international trade, the need for US FOREX will decline, as the English Pounds' use declined with the rise of the USD.

I do not presume that the dollar collapse is imminent, but it is certain result of USA foreign Policy and the petrodollar correlation.

Your statement:
"The Creator does have to worry about "debt." Debt is new money into the economy at the federal level, not something anyone owes" is belied by a part of the Constitution, wherein the first draw on US National Budget is the interest due on Federal Debt. IF the buyers demand higher interest due to $ CREATION - the deficit grows exponentially - due to the nature of compound interest.
No doubt you will explain to all pension funds, mutual funds etc. that it is an error to believe that they are due any payment for lending to the Federal Government.


WRC, the whole globalization debate tends, unfortunately, to be co-opted by conspiracy theorists. But there are some extremely interesting statistics, and if you are interested in this topic, I'd recommend David Rothkopf's "Power, Inc". In a sense, it gets at legal structures and the fact that for years in the US, we've had conservative judges deciding cases in ways that favor capital and corporate structures. They do not appear to be looking historically, nor at the larger global implications of their legal decisions. The TPP looks as if it is going to put even more power into the hands of quasi-judicial bodies, thereby making democratic political structures (municipal governments, legislatures) irrelevant.
Here's an excerpt of Rothkopf to whet your interest: http://foreignpolicy.com/2012/02/27/inside-power-inc/
"The sales revenues of the world’s largest company, Wal-Mart Stores Inc., are higher than the GDPs of all but 25 countries. At 2.1 million, its employees outnumber the populations of almost 100 nations. The world’s largest investment manager, a low-profile New York company named BlackRock, manages $3.5 trillion in assets — greater than the national reserves of any country on the planet. In 2010, a private philanthropic organization, the $33.5 billion-endowed Gates Foundation, distributed more money for causes worldwide than the World Health Organization had in its annual budget."

For your second question, I'd agree with MRW's assessment, and add that the 1970 devaluation was a sign of the times. If you look at fisheries data, timber data, and other natural resources data, the pressure on resources really started to increase in the 1970s, at the same time that population statistics worldwide began to rise fairly dramatically. So IMVHO, there is an environmental-resource-demographic background to your question that is too seldom addressed in economic conversations. The 1970 decision happened in the context of many, many other factors.


One day we will have a draft in this country. It won't be for war, but when the financial institutions of this country start going under, we'll need to have a draft to force the financiers to stick around and help clean up the mess they created.

different clue


What I remember is this: the whole Republican Establishment wanted Free Trade in order to exterminate unionized industry in America over time in order to exterminate unions. It was one of President Reagan's perennial "must haves" and "never gots". Mulroney of Canada joined Reagan in this pursuit.

NAFTA , MFN for China, etc. were finally achieved by the deceitful liar Clinton who campaigned against NAFTA even while secretly planning to seek its passage all along. And Emmanuel was one of his point-creatures in Congress itself for getting it passed. It took a Democrat to achieve the great historic "goes to China" on anti-unionitic and anti-workeritic Free Trade. Rahm can brag all he likes about kicking it over the goal posts. I remember that he was just one of many players on the field, and the field was built long before he got there. Clinton can't get away with hiding behind Rahm, and neither can economic treasonists like Pelosi of California.

different clue

Babak Makkinejad,

But in the real bio-physical meatspace analog world in which we eat, drink, breathe, live, die and thingmake; laws of physics and thermodynamics and so forth bind and constrain everything. An "economics" which pretends the bio-physical constraints don't exist will lead its followers to hit their heads on a cinder block ceiling in due course.

The coming bio-physical breakdowns in China will prove that correct if they occur, or prove that incorrect if they never occur. Meanwhile, China marches on towards turning all the great rivers of Asia into crusty ribbons of fece. In the puruit of economystic goals.



Economic theory developed on the back of "physics envy" actually did produce a lot of very valuable if largely abstract and complicated insights that turned out to be useful in such unexpected applications like matching medical residents and interns to hospitals. What it hasn't done is to offer insights on how to make the world into utopia...but then quantum mechanics hasn't given insights on the meaning of the universe either, has it? I think the problem isn't so much "physics envy" of economists per se, but popular misunderstanding of what economics (and physics) does and the charlatans who take advantage of them. I'd draw the analogy to Mesmerism--"doctor" Mesmer claimed to have discovered secret of life in "physics" when everyone thought it was huge (for legitimate reasons--just not Mesmer's) and swindled good money off of many. I've found many of these "policy academics" to be lousy academics, too eager to change the world and too sure of their opinions to think through things carefully in the abstract. We should wish that social science academics were more like physicists, not less.


Deficits are "Oh, look, the sky is blue.: That's all. They're an indicator of the economic weather.

In actual physical order, this is what happens.

(1) Congress determines spending (appropriation). Let's say $100.

(2) US Treasury tells its banker (Fed) to mark up its General Account at the Fed and pay vendors.

(3) Money supply in real economies now increased by $100.

(4) US Treasury THEN, and only then, "prints up" $100 in treasury securities.

(5) Treasury securities auction to public (domestic and foreign). Fed can't buy.

(7) Money supply is restored to balance.

The "debt service?"

In late August the US Treasury asks the Fed to tell it how much interest income is owes for the upcoming year on the outstanding treasury securities.

Let's say $20.

The US Treasury "prints up"--out of thin air--$20 in treasury securities and sells those at auction as well. No children, no grandchildren involved.

This is how it works.

The Daily Treasury Statements only go back to 1998. That's when they started making them public. Since 1998, the US Treasury has issued $719 trillion marketable and non-marketable treasury securities. (Check Sept 30 of every year and add them up). The US Treasury has also redeemed $701 trillion in treasury securities since 1998. Look it up. They're called "Public Debt Cash Issues/or/Redemptions." That leaves $18 trillion left over.

$18 trillion is the amount of USD in everyone's bank accounts.

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