Cartoon of the day: Gas price. A James Fallows alert :)

So, why James Fallows?  For a long time, Fallows has commented on the abuse of this metaphor :)

Dirty coal, clean future

That is the title of a calm and level-headed essay from James Fallows on how coal will dominate for quite a few more decades.  But then when have his essays not been calm and level-headed, right?  Fallows notes the horribly low energy efficiency of coal-fired processes even three centuries after James Watt's pioneering use of steam that is pretty much the symbol of the Industrial Revolution.  But, coal is here and we better deal with it because CO2 keeps piling up above.

Why focus on coal on our way to cleaning up the air?

“I know this is a theological issue for some people,” Julio Friedmann of Lawrence Livermore said. “Solar and wind power are going to be important, but it is really hard to get them beyond 10 percent of total power supply.” He pointed out the huge engineering achievement it has taken to raise the efficiency of solar photovoltaic cells from about 25 percent to about 30 percent; whereas “to make them useful, you would need improvements of two- or threefold in cost,” say from about 18 cents per kilowatt-hour to 6 cents. He recited a skeptic’s line used about the Carter administration’s clean-energy programs—“You’re not going to run a steel plant with solar panels”—and then made a point that summarized the outlook of those who have decided they can best wage the climate fight by working on dirty, destructive coal.
“It is very hard to go around the world and think you can make any difference in carbon-loading the atmosphere without some plan for how people can continue to use coal,” Friedmann said. “It is by far the most prevalent and efficient way to generate electricity. People are going to use it. There is no story of climate progress without a story for coal. In particular, U.S.-China progress on coal.”

living in Oregon means we are lucky to enjoy hydroelectric power (it has a different set of environmental impacts) and we can even forget coal fired plants.  It was a surprise to hear on the news the other day about plans to close down the only coal-fired power plant.  Which left me wondering where it was.  One student in my class knew about this--she grew up in a town that was practically across from this plant.  The things I learn from students everyday, and they have no idea about the free education I am getting from them.  One other student wondered where all those coal fired plants are in the US.  Google gave me the following graphic:

Notice that one dot practically on the Oregon/Washington border?  Apparently that could be closed down as early as 2020.

I am a NPR listener

In the traditions of "I am Spartacus" :)

I will leave it James Fallows, who has an excellent post on the importance of defending NPR against the ruthless and unprincipled attacks from Faux Noose:

We don't have so many first-rate institutions -- in general, and especially in journalism -- that we can afford to let one this valuable be delegitimized. Its leadership made a mistake in its handling of Juan Williams, but people who care about the news environment should recognize how much it has done right and defend it against the current cynical attack....

Imagine for a moment what NPR's Robert Siegel or Neal Conan or Scott Simon or Melissa Block, among many other long-experienced interviewers, might have done with such an opportunity. This is an illustration of different standards. More simply, NPR could have said: You want to continue being a personality and commentator on Fox? Fine -- it's your choice. That's a different kind of operation from ours, and we wish you all the best there.

*** Here are two illustrations of how I have seen the sense of personal embarrassment about something inaccurate getting on the air.

One: During early stages of the Iraq war, I was on "Talk of the Nation" in the studio with Neil Conan. I carelessly said "soldiers" when I should have said "troops," because the operation in question involved Marines. ("Soldiers" = Army; "airmen" = Air Force; "seamen" = Navy; "Marines" = Marines. "Troops" = any and all.) A pained look came across Conan's face -- he didn't want his show to contain an error -- and, without saying anything directly, he steered the conversation over the next two minutes so that both he and I had several opportunities to talk about the "Marines" who were fighting.

Two: A few months ago, I recorded a discussion with Guy Raz of Weekend All Things Considered about increasing polarization and logjam in Congress. As an illustration, I said that Obama's stimulus plan had received "no Republican Congressional votes." What I meant was, "no votes from Republican Congressmen" -- ie, members of the House, which was accurate. But half an hour later, just before airtime, producers called back to re-record the segment at the last minute, so I could use proper language to clarify the House/Senate difference -- and note that in the Senate three Republicans had voted for the plan. They were that determined not to have an error on their show.

Click here to contribute to NPR

Quote of the day on Christine O'Donnell

Bill Maher thinks he has been laughing at Christine O'Donnell with his old clips of her appearances on his shows. If she wins, Bill Maher will have created her.

James Fallows has nothing but sharp observations about this witch Senate candidate.  Fallows writes that O'Donnell and her likes are more dangerous than Sarah Palin because:

O'Donnell has not seemed uncomfortable for one second** -- even in her most obvious dodge, about whether she really thinks evolution is a "myth." The difference is, she is a talk show regular. Among the many things wrong with talking-head gab shows, which have proliferated/ metastasized in the past generation -- they're cheap to produce, they fill air time, they make journalists into celebrities, they suit the increasing political niche-ization of cable networks -- is that they reward an affect of breezy confidence on all topics and penalize admissions of complexity, of ignorance on a specific topic, or of the need for time to think.

O'Donnell comes across as a perfect, unflappable product of the talk-show culture. Sarah Palin knows that she is bad under open questioning -- so she avoids it, speaks only to selected audiences, is interviewed only by Fox. If she were to run for president, which I've always doubted, this would make her brittle for the unavoidable main campaign. Christine O'Donnell shows that the other path can create a better, unshakably on-message product for this era.

Oh well ... how about laughing all these off with two cartoons?  I suppose at the end of it all, the jokes are really on us folks :(

Kristof is on target on "Is this America?"

Usually, Nicholas Kristof's columns just depress me because of his "in your face" reports on godawful things around the world. So much so that whenever I see the word "fistula" I can only think of Kristof!

His latest column, however, is about the American scene. About the obscene and loud blatantly anti-Muslim rhetoric.  Kristof opens with a reference to a blog post in The New Rpublic:

Written by Martin Peretz, the magazine’s editor in chief, it asserted: “Frankly, Muslim life is cheap, most notably to Muslims.”
Mr. Peretz added: “I wonder whether I need honor these people and pretend that they are worthy of the privileges of the First Amendment, which I have in my gut the sense that they will abuse.”
Thus a prominent American commentator, in a magazine long associated with tolerance, ponders whether Muslims should be afforded constitutional freedoms. Is it possible to imagine the same kind of casual slur tossed off about blacks or Jews? How do America’s nearly seven million American Muslims feel when their faith is denounced as barbaric?

I read that last night, but blogged only about the other op-ed I read there--because I was that pissed with Friedman's column!

In a way, it proved to be for the better, because there is at least one leading commentator who has weighed in as well--James Fallows notes in his blog that:

I can't at the moment think of another mainstream publication whose editor-in-chief has expressed similar sentiments -- whether about Muslims or blacks or Jews or women or any other class -- and not had to apologize or step down. Or a national political figure: compare this with Trent Lott's objectively milder statement about Strom Thurmond, which cost him his job in the Senate leadership. Peretz can of course say whatever he wants. It's a free country, and he is entitled to the "privileges" of the First Amendment, much as I might think he is abusing them here. But Nicholas Kristof has set an example of people stepping up to say: That's him, not us. This representative of "us" is entitled to say what he chooses, but we think he's wrong, and on this he does not speak for us. 

I am glad that Kristof and Fallows are using their megaphones well, particularly on this issue of a virulent anti-Muslim sentiment ... As Kristof writes, "sweeping denunciations of any religious group constitute dangerous bigotry."  

I was once a faithful reader of TNR--but that was back when Michael Kinsley was there.  To some extent, I guess I have been following Kinsley a lot, even without realizing it!  Oh well ... I am not a TNR subscriber anyway.  And this hateful blog post by its editor, and its warmongering articles mean that I might not even care to scan through the magazine in the library.

On Cheney behaving like his first name

Over to James Fallows:

Since the results of the 2008 election became clear, the 43rd President of the United States has behaved in a way that brings honor to him, his family, his office, and his country. By all reports he did what he could to smooth the transition to his successor, including dealing with the house-is-burning-down world financial crisis. Since leaving office he has -- like most of his predecessors in their first years out of power -- maintained a dignified distance from public controversies and let the new team have its chance. He has acted as if aware that there are national interests larger than his own possible interests in score-settling or reputational-repair.

The former vice president, Dick Cheney, has brought dishonor to himself, his office, and his country. I am not aware of a case of a former president or vice president behaving as despicably as Cheney has done in the ten months since leaving power, most recently but not exclusively with his comments to Politico about Obama's decisions on Afghanistan. (Aaron Burr might win the title, for killing Alexander Hamilton in a duel, but Burr was a sitting vice president at the time.) Cheney has acted as if utterly unconcerned with the welfare of his country, its armed forces, or the people now trying to make difficult decisions. He has put narrow score-settling interest far, far above national interest.

The mystery is that Cheney has been through this process before. As chief of staff in Gerald Ford's White House, he was in charge of the transition to the Jimmy Carter team after Ford narrowly lost in 1976. Anyone who dealt with him then was impressed by his openness, his awareness of continuing national interest, his lack of bitterness -- and overall his resemblance to the George W. Bush of 2009. Whatever happened to that Dick Cheney is a matter of mystery. If only he would, for one moment, just shut up and follow the post-transition example of all three presidents he served: Ford, Bush, and Bush.

The dirt on climate change: in two photos

James Fallows:

Two samples from Lu Guang's work: a power plant in Inner Mongolia, then a migrant laborer in the coal regions of Shanxi province.

Obama nixes meeting with the Dalai Lama

The Dalai Lama represents, to me, the inability of people to live they want to thanks to the oppressive Chinese Communist Party's rule. Territories themselves, after all, have always been annexed by empires and states in the past and, hence, I care not whether China considers the Dalai Lama a splittist, or whether Tibet rightfully ought to be independent. It is the crushing of liberty that bugs me.

But, China is all grown up in the economic and military world. So, naturally, might is right. So much so that a Democrat, elected to the presidency with high levels of popularity throughout the world, has:

quietly postponed an audience with the Dalai Lama until after he visits China in November.

The move comes in the wake of Obama's decision to slap a 35 per cent import duty on tires from China and avoids a potential second affront to Beijing.

The news was contained deep in a press release issued by the Dalai Lama after his meeting Monday with top-level emissaries from Obama, senior White House adviser Valerie Jarrett and State Department under secretary Maria Otero.

Issued from his home in exile in Dharamsala, India, the third from last paragraph of the press release said: ``His Holiness is looking forward to meeting President Obama `after' his visit to China.''

I have written enough about Tibet to understand that it is now, unfortunately, a lost cause and nothing more than a pawn in the global geopolitical chess game. But, there is something seriously wrong with Obama's decision.

And here is the irony: China is upset that a high level US delegation even met with the Dalai Lama in Dharmshala.

This is what happens when we owe China gazillions of dollars!!!

Empty boxes and global trade

Two summers ago, I reviewed The Box for the Professional Geographer. The book was authored by Marc Levinson, who worked for the Economist at one point. In the book, Levinson argues that the box--the shipping container--catalyzed global trade and economic growth.

About the same time as my book review was published, James Fallows had a fantastic piece on the Pearl River Delta of Guandong Province in China. In that, Fallows wrote:

From the major ports serving the area, Hong Kong and Shenzhen harbors, cargo ships left last year carrying the equivalent of more than 40 million of the standard 20-foot-long metal containers that end up on trucks or railroad cars. That’s one per second, round the clock and year-round—and it’s less than half of China’s export total.

That was then when exports and global trade were booming like never before. And then came the Great Recession. How much have things changed? Here is the Economist:

But by November exports were worth 17.3% less than a year earlier, before slumping by a whopping 32.6% in the year to January. In March the managers of South Korea’s Busan port, long one of the world’s busiest, said that it had run out of space to store nearly 32,000 empty containers. The Baltic Dry Index, which measures demand for the ships that transport bulk goods such as iron ore or coal, fell from 11,793 at the end of May last year to a pitiful 663 in early December.
Estimates by the World Trade Organisation suggest that trade volumes will shrink by around a tenth this year.

Interestingly enough, Fallows and this Economist piece have shipping containers for illustration. Very different stories though!

Anyway, what might the story of global trade look like? The Economist seems confident that we have bottomed-out. However,

More people out of work will mean a further fall in global demand. China's boom (GDP grew by 7.9% in the second quarter) is fuelled by government investment and by the stimulus, not a rise in private consumption. Nor are other consumers stepping in. Without a move towards more private consumption in countries such as Germany and China, the world is in for a prolonged period of slow growth and correspondingly sluggish trade.

A trillion here, two trillions there. Trouble.

Contrasting news stories. First the news, and then my comments :-)

News 1 from CNN: Uncle Sam is one trillion dollars in the hole. For the first time ever.

By the end of fiscal 2009, the government expects to be in debt by $1.84 trillion. The Treasury said it expects that its expenditures to approach $4 trillion while its income will only be $2.16 trillion.

For fiscal 2010, Treasury said it expects to have a budget deficit of $1.26 trillion, with $3.59 trillion in expenses and a slightly more robust $2.33 trillion in receipts.

While we are trying to digest what a trillion-dollar deficit might mean, it is quite a contrast on the other side of the world, which is News 2 from Bloomberg: China's foreign-exchange reserves surge, exceeding two trillion:

China’s foreign-exchange reserves, the world’s biggest, topped $2 trillion for the first time as the nation’s economic recovery prompted overseas investors to pump money into stocks and property. ...
About 65 percent of China’s reserves are in dollar assets, with the rest mostly in euros, yen and sterling, estimates Wang Tao, an economist with UBS AG in Beijing. It is “difficult to stop buying U.S. Treasuries when markets for most other assets are too small and too illiquid,” she said in a report last month.

Analysis from the BBC: How long will China finance America?

A recent speech by Zhou Xiaochuan, the governor of the Chinese central bank, conceded - in a slightly elliptical way - that China would have to lend more to the US, to see it through the current economic and financial crisis.

He said: "in the short run, the US may need more capital inflows to deal with the financial crisis".

So China will continue to fund the growing gap between America's public expenditure and its tax revenues, by recycling to the US the cash of overseas investors who prefer to invest in China's real assets.

Mr Zhou is clear that allowing America to live beyond its means is profoundly unhealthy for the global economy in the long term.

As he said: "over the long run, large capital inflows are not in its best interest of making adjustments to its economic growth model".

Or to put it another way, the US public, private and financial sectors all have to reduce their indebtedness: Americans have to save more.

But there is huge self-interest on the part of the Chinese in not forcing America to go cold turkey - in breaking its borrowing addiction - too quickly. China's exporters, squeezed savagely over the past year by the global recession, would hardly relish another lurch downward in US demand for their stuff.

I agree with Jim Fallows' and Larry Summers' observation that the US-China are locked in a mutually assured economic destruction: China needs American consumption. America needs the Chinese to provide the cheap money to finance this consumption.

This, however, cannot prevail for long. Will be quite a world when this Gordian Knot is untangled. I just hope it does not happen similar to how Alexander got rid of that knot.

More on Uighurs

James Fallows notes that:

it is a lasting error and embarrassment that after 9/11 the U.S. won Chinese government support by agreeing that Uighur separatists -- formally, the East Turkestan Liberation Organization -- should be seen as part of the world terrorist threat. After all, they are Muslims.

It is such stupid decisions by the US government that continue to fuel the Islamist view that America and the West is anti-Mulsim.

Fallows throws a damper on my hope--my hope that the collapse of the Chinese communist stronghold will be triggered by any radical youth or Tibet, but with Uighurs. He approvingly cites the NY Times op-ed:

The state apparatus has become dizzy with success in dealing with unrest. This gives little hope that further mass outbreaks will not be violently crushed. It also demonstrates that social upheaval will not pave the way to democracy. The party is too strong and confident to allow change from below.

Fallows is way more informed about China--way, way, more than me--which means that I have to kill my hopes for reform, and any hopes for the Uighurs. The world might not care because, after all, they are Muslims without oil :-(

Sichuan earthquake. Music.

I heard that piece on NPR, and later found that James Fallows had blogged about that. Here it is:

China's industrial revolution

China and the US: Mutually Assured Destruction!

China is trying to get some momentum going on some kind of a new global currency. Good luck on that. I don't see anybody even shifting big time to the euro, and it was kind of a profound statement that as the world slipped into a deep recession, the dollar started appreciating.

I have blogged before about this, and have quoted James Fallows quite a bit.
Paul Krugman has his comments on it in his NY Times column. Frankly, there is nothing new in Krugman's column--nothing new that Fallows did not describe in his two pieces in the Atlantic. Almost as if Krugman just woke up to this issue; given his Nobel and his public intellectual perch, well, I suppose most of us will always expect a Nobel-prize winning idea in every column, which is not fair to Krugman .... Anyway, an excerpt from Krugman:

So what Mr. Zhou’s proposal actually amounts to is a plea that someone rescue China from the consequences of its own investment mistakes. That’s not going to happen.

And the call for some magical solution to the problem of China’s excess of dollars suggests something else: that China’s leaders haven’t come to grips with the fact that the rules of the game have changed in a fundamental way.

Two years ago, we lived in a world in which China could save much more than it invested and dispose of the excess savings in America. That world is gone.

Yet the day after his new-reserve-currency speech, Mr. Zhou gave another speech in which he seemed to assert that China’s extremely high savings rate is immutable, a result of Confucianism, which values “anti-extravagance.” Meanwhile, “it is not the right time” for the United States to save more. In other words, let’s go on as we were.

That’s also not going to happen.

The bottom line is that China hasn’t yet faced up to the wrenching changes that will be needed to deal with this global crisis. The same could, of course, be said of the Japanese, the Europeans — and us.

Bonus for reading until here :-)
The following is an excerpt from Larry Summers' speech five years ago!

I am reluctantly convinced that the most serious problem we have faced in the last 50 years is that of low national saving, resulting dependence on foreign capital, and fiscal sustainability, which has far-reaching implications for the US and the global economy. ....

[Let] us imagine that it were possible at this level of national saving to continue to borrow on this substantial scale to finance investment and that this situation were sustainable into the indefinite future, a situation of which none of us can be confident. Is it healthy for the US economy or for the global system? I would suggest not for three reasons. ....

First, it’s not our capital. The saving rate is what reflects the accumulation of wealth by Americans, and if we are not saving, regardless of how much investment we finance, the returns from that investment will not be available for the United States. Now Pete Peterson would argue—and I think he is right—that the saving rate that is appropriate today in the United States is one that is substantially greater than the rate that was appropriate 10, 20, or 30 years ago because the baby boom generation will begin retiring in 2011. Even if he is not right in that supposition, it is hard to see why wealth and savings should be lower than they have been at any point historically, or how they are going to get better automatically.

Second, a situation of substantial dependence on foreign capital and a substantial current account and trade deficit, when it has taken place in the United States, has historically at every point been associated with a substantial increase in protectionist pressure. Whether the protectionist pressure derives from the relative level of the dollar or the relative level of the trade deficit is a question that econometricians and politicians can debate—I don’t think the data really permit a distinction—but it is hard to believe that the protectionist pressures would be as serious as they are if the United States did not have a trade deficit of the current magnitude, and it is hard to believe that trade deficits of the current magnitude will not lead to increases in protectionist pressure in the future.

The third troubling aspect of this dependence on foreign capital is its geopolitical significance. Here it is most difficult to speak with definitiveness. There is surely something odd about the world’s greatest power being the world’s greatest debtor. In order to finance prevailing levels of consumption and investment, must the United States be as dependent as it is on the discretionary acts of what are inevitably political entities in other countries? It is true and can be argued forcefully that the incentive for Japan or China to dump treasury bills at a rapid rate is not very strong, given the consequences that it would have for their own economies. That is a powerful argument, and it is a reason a prudent person would avoid immediate concern. But it surely cannot be prudent for us as a country to rely on a kind of balance of financial terror to hold back reserve sales that would threaten our stability. (emphasis added)

What if China stopped loaning US?

Jim Fallows explained the mechanics of China and the US in a mutually assured destruction-like financial relationship. In this bizarre relationship, if China decides to pull money out the US, both countries lose.
But, at some point China would have to worry about pouring its hard earned money down the American drain. Bloomberg reports on the opening shot; here is an excerpt:

China’s Premier Wen ‘Worried’ on Safety of Treasuries (Update2)

By Belinda Cao and Judy Chen

March 13 (Bloomberg) -- China, the U.S. government’s largest creditor, is “worried” about its holdings of Treasuries and wants assurances that the investment is safe, Premier Wen Jiabao said.

“We have lent a huge amount of money to the United States,” Wen said at a press briefing in Beijing today. “I request the U.S. to maintain its good credit, to honor its promises and to guarantee the safety of China’s assets.”

White House National Economic Council Director Lawrence Summers, asked about Wen’s remarks, said overseas “confidence” in Treasuries would be hurt without the administration’s steps to end the economy’s decline. President Barack Obama is relying on China to sustain buying of Treasuries amid record amounts of debt sales to fund a $787 billion stimulus package.

“China’s purchases of American debt have been one of the few bolts keeping the wheels on the global economy,” said Phil Deans, a professor of international affairs at Temple University in Tokyo. “If China stops buying, where does Obama’s borrowing to fund his stimulus come from?

Change is coming. Soon. And we won't like it.

Recession watch: Now Japan, too

The G20 summit has ended, which is why the planet feels cooler all of a sudden--after all that hot air :-) ha ha. You know what was even funnier? This news report:

US President George W. Bush emerged from the G20 summit Saturday satisfied with having preserved the principles of free market economics, while leaving his successor wide room for maneuver

Excuse me, there is a "free market"? As Johnny Carson used to say, "I did not know that!" Would the "free market" apply to the 700 billion dollar bailout of private corporations? The proposed 25 billion dollar bailout of the Big3? The massive agriculture subsidies? I will stop here .... no time to list 'em all :-(

Anyway, the news is that Japan has caught the recession bug:

Japan, the world’s second-largest economy, has officially slipped into recession, hurt by weak export growth and steep cuts in corporate spending amid the worsening global slowdown.
Japan’s gross domestic product shrank at an annual rate of 0.4 percent from July to September after declining a revised 3.7 percent in the previous quarter, the government said Monday. It was the first time since 2001 that Japan’s economy has contracted for two consecutive quarters, the definition of a recession

The UK got into that even earlier:

The economy shrank for the first time in 16 years between July and September, confirming that the UK is on the brink of recession. The UK will be classed as being in recession if the economy slows in the fourth quarter as well.
On Wednesday, the Bank of England said the UK has probably entered a recession in the middle of 2008 and is likely to continue to contract well into 2009

In between Japan and the UK, in terms of the largest economies, are Germany and China. So, what is the news from them? Thanks for asking! According to the FT:

Germany has officially plunged into recession with economic activity contracting much faster than expected in the third -quarter, intensifying fears about the depth and duration of continental Europe's downturn.
Gross domestic product in Europe's largest economy fell by 0.5 per cent in the three months to September, extending a 0.4 per cent drop in the previous quarter, the German statistical office reported.

You are probably thinking, hey, Germany is the big dog in Europe. So, does it mean that that entire part of the world is in recession? Ah, the power of critical thinking! Doggone it, you are right, says AFP:

The 15-nation eurozone fell into recession for the first time ever, EU data showed on Friday, with Europe's economic powerhouse Germany among the hardest hit.
Gross domestic product in the economies using the eurozone fell by 0.2 percent in the third quarter after a similar drop in the second quarter, according to the Eurostat figures.

Everybody says the same thing: the worst is yet to come. And I am, like, you got to be kidding me! It was almost humorous to read in the following in the Guardian: "But while output is expected to contract next year, the US economy is predicted to lead the way towards recovery." Wait a minute; the US predicted to lead the recovery? How? By printing a few gazillion dollar bills?I don't get this.

And, you are meanwhile thinking, hey, what about China? You know, I have a pet theory. Let me present it:

For many years now, China's economy has grown at double-digit rates. However, in order to keep inflation under check, among other reasons, the government made sure that a significant surplus created was saved. And it saved that in the US and other places.

This kind of savings created the glut that Bernanke gushed about. Soon, we came up with dizzying schemes to exhaust the savings.

Meanwhile, China's prosperity came from ravaging the environment.

So, here is a thought experiment: we would all have been better off if only China's economy had not grown by leaps and bounds. If, for instance, their average growth rates had only been about six percent, then all the gains from the exports would have accrued pretty much to the Chinese.

No "additional" surpluses that would have resulted in China-dollars that made Americans consume like crazy.

That much of a slower Chinese growth would have also resulted in a significantly lesser environmental impacts.

Which means, in the crisis we have now, we have screwed up the environment for nothing. It is not even as if we have something to show for everything from the Three Gorges Dam to polluted skies to .....

I like my framework here. Not that I am blaming the Chinese for everything that has gone wrong. But, I do wonder about the wisdom in that relentless pursuit of economic growth that merely exported its natural resources as US Treasury notes!!!

More on the United States of Gordon Gekkos

Through the quarter-century in which China has been opening to world trade, Chinese leaders have deliberately held down living standards for their own people and propped them up in the United States. This is the real meaning of the vast trade surplus—$1.4 trillion and counting, going up by about $1 billion per day—that the Chinese government has mostly parked in U.S. Treasury notes. In effect, every person in the (rich) United States has over the past 10 years or so borrowed about $4,000 from someone in the (poor) People’s Republic of China. Like so many imbalances in economics, this one can’t go on indefinitely, and therefore won’t. But the way it ends—suddenly versus gradually, for predictable reasons versus during a panic—will make an enormous difference to the U.S. and Chinese economies over the next few years, to say nothing of bystanders in Europe and elsewhere.

James Fallows wrote this in the Atlantic's January 2008 issue. Why is this relevant in the contemporary economic context? Fallows wrote there that

For China, it has helped the regime guide development in the way it would like—and keep the domestic economy’s growth rate from crossing the thin line that separates “unbelievably fast” from “uncontrollably inflationary.” For America, it has meant cheaper iPods, lower interest rates, reduced mortgage payments, a lighter tax burden.

Still unclear? More from Fallows:

The billions of dollars China pumps into the United States each week strangely seem to make it harder rather than easier for Americans to face their own structural problems. One day, something snaps. Suppose the CIC makes another bad bet—not another Blackstone but another WorldCom, with billions of dollars of Chinese people’s assets irretrievably wiped out. They will need someone to blame, and Americans, for their part, are already primed to blame China back.
So, the shock comes. Does it inevitably cause a cataclysm? No one can know until it’s too late.

Well, does this set up the context well for Daniel Gross' and Tyler Cowen's comments that I earlier blogged about?
Further, the Chinese money is not only one source. There are other foreign investors too. So, when Paulson worries about restoring confidence in the American financial sector, I bet he is equally concerned about making sure that foreigners will continue to pump money into our system. More so when the current account deficit is at 5.1% of the GDP! To quite an extent, our financial health is beginning to resemble that of a stereotypical Third World country!!!

Which is why I am all the more convinced that the subprime mortgage issue was only a symptom of the much bigger problems. Even the problems with all the regular mortgages are symptoms of these larger problems. So, it bugs the crap out of me when pundits who are even less qualified than me on this topic proclaim that we need to address the housing industry issues first. Hello?

Ok, back to working on the syllabi ....

Las Vegas now #2 to Macau!

The Pearl River Delta and its neighborhood are THE happening places now. Hong Kong, Shenzen, and Macau. What an economic triangle! Macau has now officially displaced Vegas the gambling capital of the world.

Amazing.

Its location offers a distinct advantage over Vegas:

Macau airport is operating at nearly double its capacity, but with 2.2 billion
people living within five hours' flying time, it's a good bet that the number
will soon double again. Construction on a bridge linking Hong Kong, Macau and
Zhuhai in southern China is scheduled to begin soon. Work has begun to expand
Macau's northern border gate to accommodate 500,000 visitors a day.

James Fallows had a similar narrative in The Atlantic a year ago. I use that multimedia piece in my classes. Of course, my students don't seem to be as impressed with the Macau story as I am :-)