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Politics : Welcome to Slider's Dugout -- Ignore unavailable to you. Want to Upgrade?


To: SliderOnTheBlack who wrote (3126)10/29/2006 1:14:02 PM
From: wsw1  Respond to of 50507
 
A Loophole For Poor Mr. Paulson
Jessica Holzer, 06.02.06, 6:00 AM ET

WASHINGTON, D.C. - For Henry Paulson Jr., a Goldman-sized tax loophole awaits his pleasure.

High-flying business executives almost always endure financial sacrifice when they make a detour into public service. Paulson is no different: The Goldman Sachs (nyse: GS - news - people ) boss will see his annual paycheck shrink from last year's $38 million to a paltry $183,500 once he takes over the job of Treasury secretary.

But don't shed too many tears for Paulson. He has amassed quite a fortune--a roughly $700 million equity stake in Wall Street's premier investment banking house. And soon, he will have the chance to diversify a good chunk of those holdings without paying a dime to the Internal Revenue Service.

By accepting the Treasury post, Paulson is poised to take advantage of a tax loophole that allows government officials to defer capital gains taxes on assets they have to sell to avoid a conflict of interest, as long as the proceeds are reinvested in government securities or a broad array of mutual funds approved by the government within 60 days.

Technically, the tax kicks in once these replacement assets are sold, using the purchase price of the original assets as the cost basis, says Tom Ochsenschlager of the American Institute of Certified Public Accountants. But why sell when you can avoid the tax altogether?

"The idea is never to sell," says Robert Willens, the top tax and accounting analyst at Lehman Brothers. "If you're able to hold onto the replacement assets until your demise, you never have to pay it."

The tax break was designed to ensure that the wealthy are not deterred from taking posts in government because they fear a big tax hit. But it amounts to a significant perk of public office.

Paulson's huge equity stake in Goldman served him well as he flitted around the globe singing the firm's praises to potential clients and investors. It was hard evidence of his faith in Goldman's continued success. But once he is gone from the bank, such a giant concentration of assets could be somewhat of an albatross for Paulson, who, at 60, is surely considering the tax consequences of diversifying his fortune.

It is not a stretch to suppose that, at the margin, the chance to unwind his stake in Goldman Sachs tax-free may have had an influence on his decision to take the Treasury job. After all, if he were to completely divest himself without any tax relief, he would be staring at a tax bill of well over $100 million, Willens says.

Paulson need only obtain a "certificate of divestiture" from the Office of Government Ethics to sell off his 3.23 million Goldman shares, worth about $484 million, tax-free.

But he may not escape paying taxes on the sale of the rest of his Goldman holdings, which are made up of restricted stock and options, depending on whether he received them as part of his pay package. Proceeds from the sale of assets received as compensation would be treated as ordinary income rather than a capital gain and thus would not qualify for the tax break.

Plenty of wealthy public servants, including Defense Secretary Donald Rumsfeld and former Secretary of State Colin Powell, have taken advantage of the tax break since it was introduced in 1989 under the administration of President George H.W. Bush. Deputy Chief of Staff Karl Rove has obtained a certificate of divestiture for stock sales in 23 companies since he joined the administration.

To get the tax relief, it must be deemed "reasonably necessary" for a public official to divest his shares, or a congressional committee must require the asset sale, according to section 1043 of the tax code.

Paulson should have no trouble passing this test: A large stake in a global financial firm would seem a clear conflict of interest with the duties of Treasury secretary, which include ensuring the smooth financing of the current account deficit and helping to manage financial crises.

Even a stake in an industrial company is enough to raise eyebrows nowadays. Outgoing Treasury Secretary John Snow, the former chairman of CSX Corporation (nyse: CSX - news - people ), dumped more than $20 million worth of his former company's stock to avoid the appearance of a conflict of interest. And Snow's predecessor, Paul O'Neill, the former chairman of Alcoa (nyse: AA - news - people ), was dogged by criticism of his $100 million stake in the aluminum giant until he finally unloaded it. That's still small potatoes compared with Paulson's nest egg.

It is always possible that Paulson could follow in the footsteps of fellow Goldman alumnus Robert Rubin and avoid divesting his Goldman stake by placing it in a blind trust. But even the former Treasury secretary, who was the richest member of the Clinton administration, made ample use of the tax break, diversifying other portions of his fortune.

Poor Gov. Jon Corzine of New Jersey, who launched a successful bid for the U.S. Senate after Paulson shoved him aside to become the top dog at Goldman, wasn't so lucky. While serving on the Senate banking committee, he was pressured to sell off his $300 million stake in the investment bank. But alas, the tax perk is only available to members of the executive branch.



To: SliderOnTheBlack who wrote (3126)10/29/2006 1:14:59 PM
From: wsw1  Respond to of 50507
 
Henry Paulson's Treasury
Nomi Prins

In the coverage of President Bush's nomination of Henry J. "Hank" Paulson to replace John Snow as Treasury Secretary, I've lost count of the number of mainstream media discussing the "well-worn path" between Goldman Sachs and official Washington. But just because a road is well traveled doesn't mean it leads in the right direction.

Tapping officials from the venerable investment bank for policy-making positions in government is a practice that dates back to the Eisenhower Administration, when John Foster Dulles, whose law firm represented Goldman Sachs, was appointed Secretary of State.

In more recent history, Goldman Sachs co-CEO Robert Rubin instigated massive banking deregulation in the five years he served as Treasury Secretary in the Clinton Administration. Rubin quit in 1999 for a multimillion-dollar position at Citigroup. Around the same time, Jon Corzine lost an internal political battle as Paulson's co-CEO, rebounding first as the Democratic senator of New Jersey and now as governor.

In March 1999, Joshua Bolten left Goldman Sachs to become policy director of the Bush-Cheney campaign, later serving as policy adviser, director of the Office of Management and Budget and ultimately White House Chief of Staff. Stephen Friedman, former Goldman co-CEO with Rubin, was appointed National Economic Council director by Bush from 2002 to 2005.

Enter Hank Paulson, who has spent the past eight years as Goldman Sachs chairman and CEO. He joined the firm in 1974 after serving as a member of the White House Domestic Council in the Nixon Administration.

Under Paulson's leadership, Goldman Sachs has become one of Washington's most generous patrons. Paulson is a top donor--mostly to the GOP. (To the chagrin of critics on the right, Paulson is also an ardent environmentalist and is chairman of The Nature Conservancy.) As Treasury Secretary, Paulson may have to dump some stock (he is the single largest shareholder in Goldman Sachs according to its 2006 proxy statement, with 4.6 million shares) to decrease his overwhelming conflict of interest, but even if he sells his unrestricted stock, he'll still have several hundred million bucks in RSU (restricted stock unit) awards, which are not immediately sellable. This could place him in a position where maintaining his financial well-being could necessitate supporting policies positive to Goldman's short-term stock price over long-term needs of the general economy, like dividend tax cuts.

What first struck me upon news of Paulson's possible appointment was that he's too smart to take on this task, with Bush's approval ratings for his economic policies hovering around 40 percent. Then, I got it. Paulson is Bush's last hurrah--and his last chance. Known as a pragmatic and decisive leader, Paulson will likely be more proactive than Snow, whose sole job essentially was traipsing up to Congress once a year and urging lawmakers to raise the US debt cap by another trillion dollars so we wouldn't default on our interest payments to China.

Bush's economic legacy is a weak dollar (who wants to invest in a country teetering on the brink of default?) and tax cuts for the super-wealthy that have created an outrageous deficit and debt. And that legacy benefits men like Paulson at the expense of middle-class Americans and the working poor. It will be a stretch for him to argue for prudent budgeting, while facing the country's highest national debt ever, without cutting social programs to get there.

This shaky economic legacy also makes Paulson's possible appointment more challenging and hence more potentially dangerous than Rubin's. He must rally citizens into believing their individual economic condition is better than it is. Plus, he needs to convince international investors that the dollar isn't in free-fall, despite the abundance of American debt. That's a lot harder than convincing a board of peers as chairman to compensate your fellow senior executives hundreds of millions of dollars.

When Robert Rubin hit Washington, mega-consolidation in the banking industry that led to "Enronian" corporate scandals had yet to be given the 1999 legislative go-ahead that smashed Glass- Steagall, FDR's New Deal Act separating commercial banking from investment banking. Today, things are more complicated and less regulated.

Separately, the fact that Paulson presided over Goldman Sachs during a period when the firm increasingly transformed itself from a classic investment bank relying heavily on profit from stable fees into something resembling a hedge fund, in which record profits were based on trading bets made with borrowed funds, doesn't make him the most credible proponent of debt or deficit reduction.

So for Paulson to nab the top Treasury spot is multiples worse. Still, he is strong and confident. That's the scary part. Bush gets a cheerleader to help cement his ideas of individualism, from more tax cuts for the rich to privatization of anything politically viable at the moment.

In a highly touted post-Enron-implosion speech at the National Press Club in mid-2002, Paulson urged reform in the financial system in three areas: accounting policy, standards of corporate governance and conflict of interest. "Conflicts are a fact of life in many, if not most, institutions, ranging from the political arena and government to media and industry," he said. "The key is how we manage them."

Or how we ignore them. The question isn't how it's a conflict of interest for Paulson to preside over our country's economy but how it's not. According to the first general statement laid out in the "Standards of Ethical Conduct for Employees of the Executive Branch": "Public service is a public trust requiring employees to place loyalty in the constitution, the laws and ethical principles above private gain." Even if Paulson ultimately sells all his stock and finds a way to offload his restricted stock, he will wield in the meantime enormous influence over the Treasury bond and foreign currency trading positions of Goldman, with every policy decision on debt issuance or the dollar that he makes. What's good for Goldman isn't necessarily good for Middle America. Therein lies the conflict of a man whose entire career has been predicated on successfully promoting corporate welfare over public interest.

thenation.com



To: SliderOnTheBlack who wrote (3126)10/29/2006 1:25:00 PM
From: wsw1  Respond to of 50507
 
Goldman Sachs

On top of the world
Apr 27th 2006
From The Economist print edition

In its taste for risk, the world's leading investment bank epitomises the modern financial system

BY ANY measure, Goldman Sachs is a formidable company. The bank knocks the spots off its competitors, whether in pure “investment banking”, the traditional craft of underwriting and mergers and acquisitions in which it made its name, or in its new focus, trading for customers and its own account. Even compared with leaders in other industries, Goldman makes spectacular returns. Among its latest record-busting yardsticks was a 40% quarterly return on equity. The average pay-packet of its 24,000 staff last year was $520,000—and that includes a lot of assistants and secretaries.

This makes the bank an easy target for populist politicians and tabloid newspapers. The real reason why Goldman should matter to outsiders is not because it is a manufacturer of millionaires (good luck to it); but because it stands at the centre of a two-decade-long transformation of the financial markets and a new approach to risk.

Business risks that were once seen as a lumpy fact of life are now routinely sliced up and packaged into combinations that generally suit issuers and investors alike. At the heart of the change has been the development of huge markets in swaps, derivatives and other complex and often opaque instruments that allow the transfer of risk from one party to another. From small beginnings in 1987, the face value of contracts in interest-rate and currency derivatives is now more than $200 trillion—16 times America's GDP. A further $17 trillion is outstanding in (even newer) credit-default swaps, which allow bond investors to lay off the risk of issuers defaulting.




Led by Goldman, investment banks have innovated at a furious pace and changed the mix of their own businesses. They have taken on more risk as they have moved from more transparent markets, in which margins are slim, to more profitable portfolios of derivatives and direct private-equity investments. The face value of Goldman's derivatives exposure is more than $1 trillion, although the bank says that its net exposure, once you offset all its positions, is $58 billion, against shareholders' funds of $28 billion. The bankers' innovations have brought huge rewards to their industry. In the past decade it has garnered revenues of more than $125 billion, more than three times the level in the previous decade.

Simply the best
This huge new risk industry has produced gains for people far away from Wall Street and the City of London. Car companies have been able to hedge away many risks that once were seen as an incurable part of the business—and thus focus on what they do best. Pension funds have been able to shape their portfolios to fit their appetite for risk. Friction is bad for economies; the risk industry reduces it to all our benefits.

Yet the sheer size of the numbers involved does mean it is worth raising three questions. How exactly has Goldman and its industry achieved this? Can it be sustained? And what should happen if something goes wrong?

Like most of its rivals, Goldman is a difficult institution for outsiders to understand. Until 1999 it was a private partnership. With public ownership came greater reporting responsibilities, but precisely what Goldman is up to remains obscure. The bank likes to say that it still relies a lot on traditional investment banking, but Goldman's accounts show that its profits come increasingly from trading. The sharp-suited investment bankers act as a sales force for less-well-dressed colleagues who work out how to make money from swaps, options and direct investments (see article).

Goldman was not the first to realise that new financial techniques had the potential to alter risk management for companies of all kinds. Bankers Trust, now part of Deutsche Bank, was arguably quickest off the mark. But once it joined the risk-management game, Goldman steadily accumulated market nous. It applied this by building a proprietary technology system, shunning the off-the-shelf products used by many of its competitors. People who have left Goldman say that this system is unmatched at rivals. One consequence is that Goldman seems confident that it can take more risks than its competitors do. Its trading revenues are the most volatile among big investment banks and it has the most days when it loses money. Overall, however, it makes the most money.

Inside the black box
But for how long? The market doubts the run of huge profits can last. Goldman's shares are valued less richly than those of competitors it so obviously outwits. Moreover, investment banks are less highly valued than less glamorous commercial banks and retail brokerage firms.

This could be because investors think Goldman will struggle to sustain the breakneck innovation that keeps it ahead of others. Goldman's ascendancy is already showing stresses—most recently the struggle to manage conflicts of interests across its business lines. Hank Paulson, Goldman's boss, recently chastised its London team of investment bankers for appearing too aggressive in their offers to buy companies, thereby threatening the bank's reputation for being an adviser. In Japan, for just this reason, some of Goldman's M&A customers have deserted it for rivals.

These kerfuffles show that conflicts of interest can probably be solved by market pressure rather than intervention by regulators. A bigger problem for both investors and regulators has to do with risk itself. Outsiders—and perhaps even insiders—find it hard to judge whether Goldman's business is sustainably good or has thrived thanks to a dose of unsustainable good luck and skill. In addition, the very improvements in risk management that have spread risk far and wide make it harder to know where risk is concentrated or how risks might combine to threaten the system's overall health.

So far central banks have concluded that the system is more robust than it was. But the trading models that have propelled Goldman will be tested one day. At worst, the bank itself—or, more likely, a second-tier rival or a hedge fund—might fall into the kind of dramatic spiral that killed off Long-Term Capital Management (LTCM), a hedge fund, in the late 1990s. Financial markets have always been subject to crises.

Any crisis would affect Goldman, because it is so intertwined with the system. The bank says it keeps plenty of liquid reserves against the dread day. It might well profit from any crisis (it did from LTCM). But the chances are that some banks, somewhere, will get into serious trouble.

If that happens, the losses of any bank will be for its shareholders; they should not expect any bail-out. The wider question has to do with systemic risk. If the much vaunted systems do not work, then the central banks will have to step in (as the Federal Reserve did with LTCM). In the past, though, such collapses did less damage to the financial system than the regulatory over-reaction that followed them. If policymakers were to respond to the next crisis by ushering in a more conservative regime that severely limited financial risk-modelling and risk-management, the global economy would be the poorer for it. That is what should stick in people's minds when the day comes. Until then, why not do something too often forgotten? Love Goldman or hate it, you ought to admire it and the system it epitomises. And hang on tight.

economist.com



To: SliderOnTheBlack who wrote (3126)10/29/2006 1:44:29 PM
From: wsw1  Respond to of 50507
 
No More Chinese Whispers
by James McGregor

It took an undiplomatic Chinese diplomat to tell China and America what we both need to hear: "It is high time to shut up!"

In a mid-August BBC interview Sha Zukang, China's ambassador to the U.N. in Geneva, used those words to tell American politicians to stifle complaints about Beijing's rapidly growing military budget. He noted that defense spending in China, with a population five times larger than the U.S., is a small fraction of the American military budget, which accounts for nearly 50% of global arms spending. "It is the U.S.'s sovereign right to do whatever they deem good for them," Mr. Sha said. "But don't tell us what is good for China." As Mr. Sha's comments indicate, after 25 years of economic reforms and more than a decade of nearly 10% annual growth, Beijing is weary of and angry about America's constant criticism. The Communist Party leadership is turning this hectoring to its advantage at home, where the leaders understand that, while in the age of the Internet they can't stop information from coming in, they can shape how the people think about what they learn from abroad.

Since the early '90s, the Chinese leadership has been teaching its people that China is re-emerging as a benevolent great power while America is determined to hold China back. School textbooks portray the U.S. as a hegemonic power seeking world domination, and rank us equal to terrorism as a threat to world peace and stability. The state media echoes that message, depicting American advocacy of democracy, press freedom and individual rights in China as a cynical plot to destabilize the country.

Their efforts are effective. A March 2006 opinion survey by the Global Times, a Chinese newspaper, showed that 59% of city-dwellers believe the U.S. seeks to contain China. The 2005 Pew Global Attitudes Project survey showed that only 42% of Chinese view the U.S. favorably. A 2003 survey by Duke University of hundreds of Chinese cities and rural counties indicated that the more educated people are, the more likely they are to hold negative views of the U.S.

* * *

My personal experiences after 15 years in Beijing reflect those results, even among Chinese who studied in the U.S. At a lunch I hosted to bring Henry Kissinger together with young Chinese entrepreneurs, he looked around the table and asked: "Now that we have such impressive economic progress in China when and how do you envision democracy developing?" They looked at him, aghast. Finally, one answered for the group: "Do we want to destroy all the progress China has made?"

When the Chinese look at America, they see a media-driven political system with election campaigns featuring crass manipulation of wedge issues that divide the population, while failing to focus on America's real problems. When they look at their own system they see a political strategy that attempts to hold the people together as tightly as possible for as long as possible -- albeit by brutalizing those who get in the way -- to make the necessary wrenching changes China must go through to prosper.

The Chinese people want the rule of law and fairness. But they also want a government that solves problems and focuses on progress. The many vainglorious and venal local Communist Party cadres are roundly detested. But Chinese who experienced the chaos of the Cultural Revolution also believe that America must be purposely seeking to destabilize China. Surely the U.S. isn't so naïve as to think instant democracy would make China a better place?

Half a world away, our sensationalist broadcast media is equally adept at demonizing China for the American populace. When CNN's Lou Dobbs discovered that ranting generates ratings, he quit asking CEOs thoughtful questions about China and now focuses on flogging it for stealing jobs and unfairly threatening U.S. economic preeminence. Bill O'Reilly and his infotainment-obsessed brethren at Fox stir up a similar stew of angry anti-Chinese cornpone. And neither network has any trouble finding like-minded and uninformed talking heads from the Congress eager to obscure their own leadership and policy failings by laying America's economic insecurities and difficulties at China's doorstep. During a book tour that took me to many American broadcast outlets in the past year the producers invariably asked: "Are you our anti-China or our pro-China guest?" They were baffled when I answered that I was the "let's-try-to-understand-China guest." Our TV screens may be in color, but discussions of China are exclusively in black and white.

The rest of the world doesn't share our fear and loathing of China. For the past 15 years, its diplomats have undertaken a very effective charm offensive to build a positive image abroad. People-to-people contacts abound, with Chinese students filling universities around the globe. Outbound Chinese tourists now outnumber those from Japan. China's slogan for dealing with its neighbors is: mulin, anlin, fulin, which translates as: be friendly, make them feel secure and help make them rich. It works. A 2004 BBC poll of 23,000 people in 22 countries showed that 48% considered China a positive global influence -- 10 points higher than the U.S. Moreover, the survey showed that 58% of the respondents ages 18-to-29 had a positive view of China.

So what should an insecure and out-of-sorts superpower and a paranoid and increasingly pugnacious aspiring superpower do to avoid a collision? First, do as Ambassador Sha requests: "Shut up!" Second, both sides need to designate statesmen with the stature, credibility, influence and wisdom to shape public opinion and bring a halt to the systematic demonizing of one another. From America's side, I nominate Hank Paulson, the Treasury secretary. He is well-regarded in China and well-informed as a result of making some 70 trips there during his Goldman Sachs days. His business background is a huge plus. After two decades of on-the-ground experience investing billions of dollars and employing millions of people in China, the U.S. business community is far ahead of politicians in understanding the Chinese government and people.

Mr. Paulson also has a ripe opportunity. Both President Bush and Condoleezza Rice are too bogged down in the Middle East, and ideologically uncomfortable with China, to do more than occasionally trim the weeds of the U.S.-China relationship. While Mr. Paulson comes to his new office too late to become Mr. Bush's Bob Rubin, he does have three years to set himself up to be the next Kissinger for China. The business community, both governments and the media will listen to him if he is forceful and forthright.

It will be easier for Mr. Paulson to influence China than many think. Behind the bluster, the Chinese leadership under President Hu Jintao is uncertain and searching for where to take the country as it becomes an integrated part of the global community for the first time. China doesn't really know what it wants to be next. It just knows that it doesn't want to be what it used to be: a feudal country that foreigners could carve up like a ripe melon, eventually becoming a dysfunctional civilization that a messianic leader could bring to the edge of social and economic insanity. With WTO membership, China's doors are now permanently open. Foreigners are part of the Chinese business and social fabric and a restive Chinese population is increasingly demanding an accountable and honest government. Chinese leaders understand that there is a mismatch between their economic and political systems that needs to be aligned, but they aren't sure how to do it.

The current danger is that Chinese leaders will believe their own baloney, that America's main goal is to keep China poor and weak, and base their future course on that premise. The truth is, some in America have that agenda. But another truth is, we couldn't do it even if we wanted to.


We can't afford to let the ignorant and insular in both China and America teach, tease and taunt our two nations into an unnecessary and potentially cataclysmic collision. Mr. Paulson is 60 years old, wealthy as hell, and intrigued by China. What else does he have to do for the next couple of decades?

danwei.org



To: SliderOnTheBlack who wrote (3126)10/29/2006 1:56:49 PM
From: wsw1  Respond to of 50507
 
“Why Paulson accepted the Treasury job

It is possible that Henry Paulson sees Goldman Sachs facing an uphill battle in the next few years as the US economy slows. Paulson has made enough money in the good years and may consider it smart to leave Goldman at the peak of the market - it’s no fun to run an investment bank in a down market.

Paulson is a banker. Bankers are interested in the state of the market, not the economy per se. In two and a half years, a treasury secretary can, with the full power of the Treasury behind him, have a chance of saving the market from imminent collapse from its current structural imbalances.

The formula is to accelerate the crash in order to gain a fast recovery later. The prospect of Paulson engineering a sharp correction in the equity market right after the mid-term congressional election is almost certain. The strategy is to remove the structural bottlenecks and to weed out the weaknesses and have the market resume its upward path by June 2008. This strategy is doable with a heavy dose of government intervention, but it will require a crash to create a serious enough emergency to make government intervention patriotic, possibly including massive bailouts of several troubled giants such as General Motors, General Electric and Fannie Mae (the Federal National Mortgage Association) and the big money-center banks that are up to their necks with credit-derivative exposures.”



To: SliderOnTheBlack who wrote (3126)10/29/2006 4:09:51 PM
From: praha4  Read Replies (4) | Respond to of 50507
 
Slider's vision is 20/20 looking in the rear view mirror:

"Commondities have been beaten down, gasoline prices have collapsed, Oil has fallen, OPEC now considering production cuts (that doesn't wash with Simmons Peak Oil Armageddeon now does it?(vbg), Nat Gas fell by 2/3rds over 9 months and the Dow is off to the races with the US Dollar recently running to 10 month highs...and bonds deep in the money since May.

My, my... how things have changed.

-- whodathunkit?"

Now, tell us something we don't already know. Oil, natural gas, and gold are all putting in bottoms, or in the case of natgas, already bottomed, on the charts, and you're still pounding the table on past trends. Bonds and the US dollar have had their rally and topped, and beginning a free fall.

--- whodathunkit?

Financials (XLF) and broker dealers (GS, MER, IAI) have all had their run, with the market convinced Fed rate hikes are over, and possible rate cuts are coming soon. Its too late to go long, and too early to go short financials, based on the charts here.

Investing in Chinese banks and/or financials may be worth considering, but anyone chasing momentum is a fools game here.

Anyone thinking a new Democratic Congress can suddenly balance the federal budget by repealing Bush tax cuts, and solve the problem of the huge US fiscal imbalances, is naive. The country has no solution to the demographic Medicaid/Medicare freight train coming down the tracks. The only solution is monetize the debt, print more money, fool today's voters, and pass the problems on to the next generation. Paulson, Rubin, et al have no magic wand, no more rabbits in the hat.

And the host's attitude towards Peak Oil theories betrays a biased opinion, and frankly does a diservice to honest discussion with his patronizing attitude towards the subject.

tomorrows headline will be:
"I see dead US dollar long speculators"

---whodathunkit?

:)

from praha4



To: SliderOnTheBlack who wrote (3126)10/29/2006 9:35:36 PM
From: Fun-da-Mental#1  Respond to of 50507
 
Everybody knows the Chinese are about to inherit the earth. Their economy is now comparable to the USA. They have already cornered the market for low-end goods and they are rapidly moving up the scale. And they use the dollars they earn to buy T-bills and other US investments, in effect lending the money back to us so we can buy more from them.

Where will it end? Are any jobs safe in America? Obviously the US government can't ignore this.

And what's worse, from the point of the powers that be, is that they're going it alone. They allow only a small amount of foreign involvement and investment, enough to help them get up to speed faster, but not enough to give foreigners control of anything. The motive for this is not so much nationalism but rather the well-justified paranoia of the communist party / PLA that if they open up to foreign money and influence they will be out of power quickly.

If you put together the interests of the US government and people AND the multinational corporations, you get an incredibly powerful force. But what are they going to do about it? War would be disastrous. A trade embargo would be almost as bad, and the powers that be still wouldn't get to move into China, so that is not a preferred option. What's left?

Buy them out! Use the carrot and the stick, just like we've been doing so far. Threaten them with war and embargo if they don't play ball, but more importantly, tempt them with trillions they'll get if they open up to foreign investment.

This approach will not succeed as long as the Chinese economy keeps growing at 10% a year. They don't need us, and anyway the longer they hold out the higher the price they can get. But if there is an economic slowdown, then the balance shifts the other way. All of a sudden the natives are restless, and our trillions start looking pretty attractive.

But if they do truly open to foreign investment, and the party is deposed or fades away to figurehead status, that doesn't mean we the people have won. It means there will be a huge sucking sound as investment dollars drain out of the USA and other developed countries into China.

I guess what Slider's saying is that the US market will be propped up one way or another (by taxpayers money, if it can be arranged) until this transfer is complete and it's too late to do anything about it.

So what's a poor individual investor to do? Invest in China? Any better suggestions?

Fun-da-Mental



To: SliderOnTheBlack who wrote (3126)11/5/2006 1:56:54 PM
From: MonetizeMe  Read Replies (1) | Respond to of 50507
 
Re: "The greatest wealth transfer in history." Bond market related, I presume.