This is a message to Ron Reece ...
Hi Ron,
I have continued to follow your progress on the currency thread, and I lurk on the gold thread.
Message 15617888
You of course know you have posed a complicated question. You also know that my attempt at an answer, if genuine, will be controversial. I can only give you my views, as the answer itself will only become apparent over time.
I got back from China last night in time to enjoy the public holiday today (some traditional event for I do not know what purpose), and will leave Hong Kong for Thailand this Saturday, staying at www.rayavadee.com from April 7th to the 13th, and then wind down back in Hong Kong during our Easter holiday (April 13th-16th). In Hong Kong we celebrate many holidays, ranging from Christian’s Christmas, Easter, to Buddha’s birthday, to Communist/Socialist events like May Day. While I am in Thailand, I will probably refrain from checking on the Internet for (a) e-mails, (b) SI postings, (c) MS Money stock quote updates, and (d) anything on the E3 episode.
I will, however, be sneaking a peak at CNBC every so often, just so that no cataclysmic drama and associated opportunity is missed. Dramatic events seem to always happen while I am on down time.
The global village and its communication infrastructure are more fantastic every time I dwell on it.
Grand Unification Theory
I believe history, geo-politics, economics, valuation, wealth, gold and national power are all aspects of the same (how shall I say it?) universe or continuum, for lack of better words.
Let me improve upon this statement by addressing your question at three different levels:
(a) Popular media rhetoric (Xinhua News, CNN, NY Times),
(b) Interest groups’ motivations (US and Chinese groups), and
(c) The crux of the matter.
And impact on and influence of the principals and other interested parties, stake holders, on the solution of the crux of the matter, and on solution to the E3 matter
(a) US and China,
(b) Russia, Japan, EU,
(c) Muslims and Jews,
(d) Taiwan,
(e) Korea and SE Asia, and
(f) India
It is likely that many of my ‘factual’ statements will be hard to agree with, but more difficult to argue against, and controversial. It is also likely that some of my forward-looking statements will be troubling.
The factual and forward-looking statements makes more sense if taken in the context that ‘history, geo-politics, economics, valuation, wealth, gold and national power are all aspects of the same universe or continuum’.
The basis of what I have to say is simply a synthesis of all that I read and hear in Taiwan and China, and all that I read from the US.
Popular Media Rhetoric
CNN is covering the worried families of the 24 crew members of the E3, and neglect to mention the missing Chinese pilot. Both were following orders.
NY Times is focusing on a ‘spy’ plane that issued a distress signal, made an emergency but forced landing at a Chinese air base, and its crew invited to stay a while against their will and the plane (sovereign territory) boarded, neglecting to mention that no Chinese spy plane makes any forced landings in Hawaii, or what would happen if any does.
Xinhua will focus on a downed fighter pilot and an American plane landing in Chinese territory without permission or import license.
The simple facts can be worked out by logic, with no rights, no wrongs, just is:
(a) US spy plane flying close to Chinese military installation,
(b) Two fighter interceptors went up to greet and direct the spy plane away,
(c) Had the Chinese fighters wanted to knock the US spy plane out of the sky, machine gun fire would work better than a pump on the propeller,
(d) US plane pumped Chinese plane, without intention to knock it down, but playing none the less, otherwise foolish, as the second fighter plane is more than adequate to bring the spy plane down, and
(e) Accident happened
All of the media rhetoric about rights and wrongs are claptrap as there are no rights and wrongs in relationships between ‘strategic competitors’. International waters, sovereign air space are all aspects of the same claptrap.
Interest Groups’ Motivations
From the US side, we have the following broadly identified interest groups, with totally transparent interests, each using the incident to their own ends.
Jesse Helms & Company: Sell Taiwan weapons
Labor Union: Protect US jobs against Chinese imports
Environmentalists: Make China keep the environment clean
Human Rights Activists: Make China change by doing all of the above
Tibetans: Make Chinese leave Tibet by doing all of the above
Taiwan Lobby: Yup, do all of the above
Pentagon: Yup, yup, yup. Budget time again
Defense Industry: Yup, yup, yup. Let me show you the latest goodies
China Exiles Groups: Yup, do all of the above so that we have some attention and reason to exist
Business Groups: Well, maybe not all of the above, but at least make them open their markets
Democrats: Do something, W, anything to paint yourself into a corner, and we will help you get there fast
Republicans: (ex-Jesse) What is this all about and where is the upside?
Media: Do something, W, so we have drama
From the Chinese side, there are fewer interest groups, but each using the incident to their own ends nonetheless.
Leadership: We want to keep matters under control and get on with what really matters … the economy
All Challengers: In concentrating on what you (the current leaders) say really matters, you are neglecting nationalists interests, and thus we ought to be in leadership position
Military: Ok, yup, we agree with whatever, and what is our support worth to any group? The bidding will start at … cruisers, missiles, destroyers, and submarines; China’s military has the smallest budget of all major powers, and until the Gulf War and Bosnia Intervention, shown no dramatic increases.
The Crux of the Matter
If we believe the crux of the matter between US and China is actually about Taiwan democracy, Tibetan culture preservation, human rights, and any matters reported in the popular media, we are then lost, because the moral high ground claimed by the US in all of these matters are historically not consistent, and China does not need to respond and engage the US at any level. US moral high ground is mostly so only in its own media’s view, and US long term sustainable leverage on continental scaled China, ex-engagement, is next to nil.
Taiwan: The US support for Taiwan pre-date any Taiwan democratic election, and in fact pre-date the KMT massacre of local Taiwanese in the late 1940s. Do not forget all the other atrocious regimes supported by the US, from Korea to Chile, from Israel to Iran, from Indonesia to South Africa.
Tibet: The Han Chinese in Tibet out number the Tibetans, just as the American Indians are out numbered and relatively worse off on the economic ladder; and
Human Rights: Recognition of rights, in the US and elsewhere, improved with economic prosperity and social tranquility. Socially and economically, China is about where US is in the 1920s, due to its historic accident for the last 200 odd years. Matters have been, are and will continue to improve, but at its natural pace, not at any US dictated velocity. Further, US cannot live up to its own standard, unless doubled.
And so, what is the entire hubbub really about?
Power, and all that Power can bring. This, and only this, is the crux of the matter.
China is an old civilization and young continental scaled country. The nation has been through a period of unimaginable (for its scale and duration) weakness, and is now newly invigorated. Should present trends continue, the nation would invariably develop into a major world power answerable to no other single power.
The country club’s door will be kicked down, and a new place setting at the head table will be arranged.
Such a country, if answerable to no other single country, and answerable to no in-country middle class, is potentially a dangerous country, irrespective of whether the country is democratic or not. Should the country be democratic, it then is a less dangerous country, as its leadership is answerable to a franchised and large middle class, not interested in war. Should the country be not democratic, it can then be dictated into action by a small group of non-elected leaders. Such a country, if bordered by relatively weak countries, will dominate in its immediate neighborhoods. Such a country, in time, will invariably project its power far beyond its immediate neighborhoods.
Traditionally, when any and all US presidential candidate make his intention against China known, all US leverage is immediately lost, because China historically has not cared about costs (trade, soldiers lost, properties lost, etc) on matters of national sovereignty and security. Cost has never remotely been an issue, else why intervene in Korea and Vietnam, in face of obviously vastly superior forces?
And so, there is a worry.
At a more basic level, the worry is one of resource allocation. US is a country using far more of the world’s resources and spewing more of the world’s poison than its percentage of total population could normally command, but for its power. When such power is balance by another, the worry is that the resource allocation equation would be changed.
Forward Looking Statements
My best guess (and yes, only a guess):
(a) China and the US will not get into a shooting war, because China will actively avoid it unless pressed, as in the case of Korea directly and Vietnam by proxy, and because US middle class has no interest in engaging in a shooting war, at least for the moment, and certainly not over Taiwan, and in the long run will make the necessary mental adjustment (US China nuclear parity is a given, because it is simple and crude, and missile defense is not workable);
[EDIT: if there is war, the timing will be at China's choosing, and necessarily to US disadvantage, but the necessity for war will be at US' choosing]
(b) China will develop economically, by and by, at between 6-8% per annum, and based on manufacturing ever higher value added goods, powered by domestic policy reform driven demands pent up for the past 200 years, topped of with export at the margin;
[EDIT: China, by and by, over the past 50 years, has always minded its own business]
(c) In line with economic growth, China will firstly (now) experiment with political reform, and then rollout political reform;
[EDIT: the hope is Taiwan and Korea serves as viable developmental models for China ... economic followed by political reforms, only bigger, continental in scale]
(d) In line with economic growth, and purchasing power parity, China will become stronger militarily. Eventual nuclear parity with the US is a given, either by US lowering its missile count or by China increasing its missile count. The choice is mostly up to the US. Eventual conventional superiority is not out of the question;
[EDIT: I do not know how folks in the US think about time, but out here, the horizon is far, and memory long]
(e) Depending on diplomacy, particularly with Russia, India and the Muslim world, strategic superiority is also attainable;
[EDIT: The folks out here are raised on "Romance of the Three Kingdoms", a factual historic classic about three kingdoms in China, then two, then more rapidly one, and raised on Sun Tze's strategems]
(f) Most of China’s neighbors will reach accommodation with China, with SEAsia and Taiwan taking the lead, Korea and Japan to follow, all suitably tenderized over the past decade;
[EDIT: It is amazing that the US can actually think of the Indonesia and Thailands as allies in any conflict with China, as these are not Germany or France.]
(g) Russia, and may be India, will be power centers in their own rights (no, I do not believe for one moment we have seen the last chapter of Russia yet, as the game is so very long). China will enable Russia to concentrate its attention on Europe, Russia will enable China to concentrate on East and SE Asia, and India will exist happily, separated from China by a very big mountain;
[EDIT: I have deliberately written off Japan, as they will soon be a grey nation of 60 million, emptied of factories, devoid of resources and savings, and lacking in strategic depth, overly concentrated in two industrial centers, and they know it]
(h) EU will be busy with its own social programs and Russia;
[EDIT: each time the cage of Europe is opened, the same beasties jump out]
(i) In the near term, any US activities regarding Taiwan will be counter balance by Chinese and Russian activities regarding the Muslim world;
[EDIT: saw TV programs of the recent Mecca pilgrimage, know the precarious state of the various Muslim country ruling classes, and matters look fanatical and grave]
(j) Israel will continue to make nice with China, as in the past twenty plus years, just to avoid an all out arming of the portion of Muslim world relevant to Israel;
[EDIT: what Russia does not have, Israel will supply, and engineers are so inexpensive and plentiful in China]
(k) China-Taiwan integration is happening now and will continue to gather pace. The symbolic flag changing ceremony will come as surprisingly as the fall of the Berlin Wall;
[EDIT: US activities in this regard is simply not going to matter, as the take over will happen with a phone call, not a beach landing]
The game, as with the stock market, as always, based on historic currents, should hold few surprises in the long term (hundred year cycles), following a logic and rationale in accordance with the current, but is unpredictable in the short term.
CNN is as good in reporting on the world outside of the US as CNBC is in reporting on the fair Nasdaq valuation, as in not at all.
I will take a guess at the most likely solution to the immediate problem of the E3 and its crew:
(a) Apology not defined, but offered and accepted (the Clinton solution on what constitutes ‘sex’)
[EDIT: This is simply not a worthwhile issue for either side]
(b) Taiwan gets its weapons (not useful against China in war, but enough to bargain for a better deal), with the crucial piece at a useless 7 year lead time (Taiwan is keeping very quiet on the current E3 spat, knowing full well that the outcome, regardless, is not in Taiwan’s long term favor, as the die is set already)
[EDIT: smart thing for US to do is to link Taiwan arms supply to Chinese non-proliferation action]
(c) E3 plane not returned, because it cannot fly, and because it is interesting
[EDIT: boys must play]
(d) Crew will be released, unless an ultimatum is set by W, in which case pilot is put on trial, to be released in exchange for something else of matter (if it is not one thing, it is another)
[EDIT: let's see how smart W is]
(e) Protocol for future midair tag game worked out
[EDIT: need to do this any way]
(f) More military built up all around Asia (Japan is keeping mum on the whole affair as well, as it knows the demographic/geo-politic score, and same for rest of SEAsia) as before, but only to improve bargaining position, not for shooting, as only (not counting civil and pseudo civil wars) Japan has a history of invading other’s territory
[EDIT: all will do what they have to, so as to have a place setting at the trough]
(g) Nothing happens to trade because it benefits all, is a blunt, ineffective, indiscriminant and therefore worse than useless weapon, and will affect the world economy at a bad time if disturbed
[EDIT: so, what else is new under the sky]
(h) It will be commonly recognized that the whole incident was an accident, waiting to happen, as the US does its normal ‘taken for granted’ patrols, and China sent up the interceptors to challenge, sooner or later
(i) This has happened before, and will happen again. During the last round of Chinese missile testing around Taiwan, Taiwan and some overseas Chinese business types requested and got Clinton to send in the aircraft carrier. The carrier sailed through the strait without pause, as opposed to the historic maneuver of sailing back and forth. Some satellite showed some PRC nuclear torpetoed submarines disappeared from their base. Reading the western press, one would believe that China stopped the missiles raining because the US fleet was in town. If so, Taiwan obviously would never have anything to worry about as it can call in the US fleet any time.
There is so very much more to the Clinton-Indonesian Chinese story than meets the CNN eye.
To sum, the difficulty between the US and China is simply that both know it will take cooperation to produce wealth, and that there is no upside to destructive competition, but the mindset in some quarters on both sides is one of historic distrust based on narrowly defined interests, and the popular rhetoric is clothed in matters of principle, as opposed to matters of pragmatics.
My interest in these matters is simply part of my financial self-preservation effort. Crisis, when misunderstood by others, is an opportunity, and gold is a hedge.
On the flip side, for this thread, gold is an opportunity when China (and the moves are definitely starting) liberalizes its gold market (I got the first whiff of a gold mine privatization deal to work on) and allows its citizens to own gold in its pure monetary form (as opposed to expensive jewelry), the 200-year pent up fever will unleash a wild domestic gold party, supplemented by offshore smuggling. China always goes to excess, whether in TV production, or orange growing.
Chugs, Jay |
