“It would be a great thing to have a good relationship with Russia, Trump said”

PDT is afraid of nothing. Here they are, out to railroad his presidency because of some alleged form of pre-election collaboration with Putin and Russia, and here he is, just yesterday, collaborating with Putin and the Russians: Putin and Trump talk Syria, election meddling at brief meeting. The US and Russia working together against a common enemy works for me, and apparently for them as well.

U.S. President Donald Trump and Russian President Vladimir Putin agreed a statement on Syria during a brief meeting at a summit in Vietnam on Saturday and Putin again dismissed allegations of meddling in last year’s U.S. election.

And walking into the media-Democrat Lion’s den, this is how the article ends.

“It would be a great thing to have a good relationship with Russia,” Trump said.

It would indeed. It would be great if the relationship between Russia and the United States could somehow be reset. It would be a true benefit if the President could have more flexibility now that the election is over, if you know what I mean, which no Democrat following the party line would ever do.

And then there’s this, in late-breaking news: South Korea, China agree to manage North Korea issue peacefully, in stable manner. It would be great to have a good relationship with China too.

Some positive news about the Chinese economy

Here’s the story: China likely to drag the world into global recession, Citigroup says. Here’s how it begins:

China is sliding into recession and the leadership will not respond quickly enough with large-scale fiscal policies that could avoid a major slowdown and stimulate demand, Citigroup’s top economist Willem Buiter said.

The only thing to stop a Chinese recession, which the former external member of the Bank of England defines as 4 per cent growth on “the mendacious official data” for a year, is a consumption-oriented fiscal stimulus program funded by central government and monetised by the People’s Bank of China, Buiter said.

“Despite the economy crying out for it, the Chinese leadership is not ready for this,” said Buiter, the man who coined the term “Grexit” during the Greek debt crisis.

So what is positive about that, you might ask. If it is a deliberate decision not to reflate but to go through the adjustment that is obviously required, there will be about a year of mess, possibly not even that, and growth will resume on a stronger basis. It will also be a sign that the Chinese leadership understand how useless Keynesian economic theory is and are now biting the bullet and will endure the pain of the next twelve months. This is all speculation from both Mr Buiter and myself, but it will be interesting to see how things do unfold. If there really is a recession and no stimulus and the Chinese economy comes out of it in 2016-17 stronger than ever, we will be re-writing our textbooks without any doubt.

Is there a coming war with China?

David Archibald has been saying this for as long as I can remember. This is from a year ago, from a year ago:

China has built an offshore oil drilling rig, numbered HD-981, specifically for the purpose invalidating other nations’ claims to seabed they thought was theirs. There is no doubt about the purpose of the rig given that a Chinese state oil company official once called it “our mobile national territory.” Its primary purpose isn’t commercial. If China can drill an oil well on some other country’s seabed, they can then claim that it was China’s territory all along. The rig is having its first outing to that purpose off the coast of Vietnam, accompanied by 86 Chinese vessels including a submarine. Vietnam responded by sending 30 coastguard vessels to interfere with the Chinese drilling rig. Ramming of Vietnamese vessels by the Chinese ones has been reported.

Miscalculation might not lead to war because there is nothing miscalculated about what China is doing. China intends to start a war.

As far as Archibald was concerned, this war was inevitable. Then yesterday, we had this at Drudge from The Telegraph in London, US-China war ‘inevitable’ unless Washington drops demands over South China Sea. This is how the story starts:

China has vowed to step up its presence in the South China Sea in a provocative new military white paper, amid warnings that a US-China war is “inevitable” unless Washington drops its objections to Beijing’s activities.

And we are right in the thick of it. From The AFR again yesterday, China using Brazil resources as lever against Australia:

China will use its growing relationship with Brazil to pressure Australia into running a more independent foreign policy, according to analysts and academics, as Beijing seeks to use its economic muscle for strategic influence.

Chinese Premier Li Keqiang signed $US50 billion ($63.5 billion) worth of deals during a state visit to Brazil last week, including a loan facility to help iron ore miner Vale increase production.

In a sign that Beijing is increasingly looking towards Brazil for food and mineral commodities, China also pledged to lift a ban on Brazilian beef.

“If Australia gets closer to the United States we will see China increase its purchases from Brazil, while reducing its trade with Australia,” said Wu Xinbo, Dean of the Institute of International Studies at Fudan University.

“The alliance between Australia and the US is a major constraint on the relationship between China and Australia.”

And now today, picked up at Drudge: Japan to join U.S., Australia war games amid growing China tensions.

Japan will join a major U.S.-Australian military exercise for the first time in a sign of growing security links between the three countries as tensions fester over China’s island building in the South China Sea.

While only 40 Japanese officers and soldiers will take part in drills involving 30,000 U.S. and Australian troops in early July, experts said the move showed how Washington wanted to foster cooperation among its security allies in Asia.

It’s a very messy world out there. I hope someone is paying attention.

Without God, people can do as they please

china christianity

One of the most enlightening books I have ever come across was The Victory of Reason: How Christianity Led to Freedom, Capitalism, and Western Success by Rodney Stark. And at the very end of this book there is a quote from a Chinese scholar who had been part of an investigation into the causes of Western economic success. This is a direct quote of what this Chinese scholar had said:

One of the things we were asked to look at was the success, in fact, the pre-eminence of the West, all over the world. We studied everything we could from the historical, political, economic and cultural perspective. At first, we thought it was because you had more powerful guns than we had. Then we thought it was because you had the best political system. Next we focused on your economic system. But in the past twenty years we have realised that the heart of your culture is your religion: Christianity. That is why the West is so powerful. The Christian moral foundation of social and cultural life was what made possible the emergence of capitalism and then the successful transition to democratic politics. We don’t have any doubt about this.

I was reminded of this by an article in London’s The Telegraph with the self-explanatory heading, China on course to become ‘world’s most Christian nation’ within 15 years. And while you may be sure the Chinese government has been keeping a watchful eye on where this might go, they have also not been attempting to stamp it out. And there are reasons for this, in keeping with that earlier study:

Some officials argue that religious groups can provide social services the government cannot, while simultaneously helping reverse a growing moral crisis in a land where cash, not Communism, has now become king.

They appear to agree with David Cameron, the British prime minister, who said last week that Christianity could help boost Britain’s “spiritual, physical and moral” state.

Ms Shi, Liushi’s preacher, who is careful to describe her church as “patriotic”, said: “We have two motivations: one is our gospel mission and the other is serving society. Christianity can also play a role in maintaining peace and stability in society. Without God, people can do as they please.”

In place of a moral order we now have political correctness and the pagan religion of Gaia and the environment. China, meanwhile, may become a Christian nation as we in the West depart from what may be the single most important part of the inheritance we have.

Keynes and the coming Chinese recession

I realise I haven’t been haranguing you about the menace of Keynesian economics for a while so thought I’d remind you of its enduring horrors as there is unanimous agreement that Australia has to get its fiscal house in order. The origins of that disorder are, of course, in the Keynesian policies put in place during the GFC. Just hearing about Kevin Rudd’s 48-hour decision process for the pink batt adventure is a reminder of just how useless, in terms of productivity and real growth, almost all government spending is. A perfect paradigm example. Past the first ten percent, government spending is unproductive whatever other benefits there may or may not be.

As for a recantation from the economics community, not so much as a word. You do have to wonder if they are ever going to get it right. And if they don’t get it right, how policy is ever going to get it right. The latest episode of wrongheaded analysis shows up on the ABC with this story not about Australia but about China. Apparently the problem with the Chinese economy is debt:

In recent times, the boom has been sustained by an explosion in lending by banks and so-called “shadow banks”. If the current scale of lending proves to be unsustainable, could that end the boom and result in China becoming the next country to succumb to the impact of unproductive debt? [my bolding]

Ah, “unproductive debt”! What, pray tell, is that? It is, in fact, exactly what every pre-Keynesian classical economist warned against. It’s spending on non-value-adding forms of production, the usual object of government spending in virtually every one of its forms. There it is, the problem right before their eyes but invisible all the same. Whether one thinks of it in money terms, so that debt is taken on for forms of production which ultimately do not earn sufficient revenue to repay what is owed, or it is thought of it as using up productive resources in ways which do not replace the capital that has gone into that particular form of production, one way or the other the economy is going backwards and not ahead. Keynesian economics is poison but who’s to know? This is what the Chinese did:

The program clearly lays out how the Chinese leadership responded to the prospect of a global financial crisis and possibility of a world-wide depression. The response focused on a spending and investment program carried out on a scale never seen before in human history. Over the past five years, a new skyscraper has been built every five days in China – along with 30 new airports and 26,000 miles of motorways.

Well there was certainly an enormous quantum of resources used up which, incidentally, also happens in highly productive investments. In this case, however, there are the office building, there are the roads, there are the airports, but none of them will generate the revenue to repay their costs. A Keynesian program to the back teeth with predictable results, or at least predictable if you start with Say’s Law. Starting from Keynes it is all a mystery with no explanation. And where do they think it will end up:

Interviewing key players including former American Treasury Secretary Henry Paulson, former Chairman of the Financial Services Authority Lord Adair Turner and Charlene Chu, a leading Chinese banking analyst, reporter Robert Peston reveals how China’s extraordinary spending has left the country with levels of debt that many believe can only result in an economic crash with untold consequences for the world – particularly resource-driven economies like Australia.

If you thought the last five years were bad, apparently the next five will be even worse. Meantime, ending the reign of Keynes and return to classical economic theory would be a start in even understanding what’s going on never mind actually getting our economies untracked.

Why are they mentioning it now?

china nuclear strike range

The headline of the story that goes with this picture is “Inside China: Nuclear submarines capable of widespread attack on U.S.“. The first two paras read as follows:

Chinese state-run media revealed for the first time this week that Beijing’s nuclear submarines can attack American cities as a means to counterbalance U.S. nuclear deterrence in the Pacific.

On Monday, leading media outlets including China Central TV, the People’s Daily, the Global Times, the PLA Daily, the China Youth Daily and the Guangmin Daily ran identical, top-headlined reports about the “awesomeness” of the People’s Liberation Army navy’s strategic submarine force.

That is the map that accompanied the story. There are many many ways in which Obama as president is a disaster with this being near the top. Meanwhile Gillard took our defence expenditure down below where it was in 1938. Now picture the geo-political world twenty years from today.

UPDATE: Two further stories on Drudge about American foreign policy idiocies.

Top generals: Obama ‘purging military’…

Israel ‘furious’ with White House for leak on Syria strike…

From the first:

Retired Army Maj. Gen. Patrick Brady, recipient of the U.S. military’s highest decoration, the Medal of Honor, as well as other top retired officers, say President Obama’s agenda is decimating the morale of the U.S. ranks to the point members no longer feel prepared to fight or have the desire to win.

“There is no doubt he (Obama) is intent on emasculating the military and will fire anyone who disagrees with him” over such issues as “homosexuals, women in foxholes, the Obama sequester,” Brady told WND.

And from the second:

Israel is fuming with the White House for confirming that it was the Israeli Air Force that struck a military base near the Syrian port city of Latakia on Wednesday, hitting weaponry that was set to be transferred to Hezbollah.

It is more than just incompetence although there’s plenty of that as well.

And after all that stimulus spending too

You do know most of our economies are going nowhere, right? So to add to the rest of the tales of woe, there is this from David Uren:

Even assuming that the US overcomes its current budget crisis without wreaking too much damage, businesses in the advanced world may continue to hold back from the investment required to generate jobs and growth. The slowdown in the emerging world, the severity of which has taken the fund by surprise over the past six months, may prove intractable.

The biggest change in the IMF’s outlook in the past six months concerns China. In April, it believed the slowing of China’s growth to just below 8 per cent this year would be a passing pang, with growth returning to 8.5 per cent by 2015 and continuing at that level into the indefinite future.

But it now believes there has been a permanent reduction in China’s potential, and it sees growth slowing to 7.3 per cent next year and to just below 7 per cent beyond 2016. If the pattern of global disappointment continues, China’s long-term growth rate could be below 6 per cent, it says. For the IMF, which traditionally adjusts its forecasts in fractions of a percentage point, this is a huge downgrade.

Public spending beyond some limited amount is a long-term economic disaster. The evidence mounts. But are we learning? We shall see. I will only add that the story presumes that there is a kind of wilfulness in business not investing at the present time. They would if they could so the fact that they don’t tells you something else about how badly our capital base has been mismanaged for the past decade or so in particular.

Only the members of a government and their advisors are apt to believe that members of a government and their advisors are able to direct our resources in a value-adding direction. It is a delusion, but they’re the ones who get to decide. But what a mess their delusions cause!