Chinese Strategy In Foreign Aid Expansion: Encirclement & Defense

Dr. Charles Wolf Jr., is the distinguished chair in international economics at the RAND Corp., and is professor of policy analysis at the Pardee RAND Corp., graduate school.  He continues as a senior research fellow at Hoover, Stanford University.  Dr. Wolf was instrumental in the fielding of a two year research study published recently by RAND titled “China’s Foreign Aid & Government-Sponsored Investment Activities.”  Any read will detail to the reader the mind of a dominant Chinese minister of commerce responsible for administering such largess.

In today’s dollars, Chinese foreign aid is $189.3 billion and growing.

Beijing does NOT conceive of this as the west does, for it finances this aid through loans.  Beijing also see’s its foreign commitment abroad as a way of securing Chinese economic and political advances while developing the very nations that it seeks will serve Beijing’s domestic needs.  Beijing does not give aid away like the west.  Instead it consigns specific production and resource development for export to China alone!  Proceeds from these exports are deposited in two escrow accounts established by ‘The China Development Bank of China’ & ‘The Export-Import Bank of China’.  The loans are quite simple really, a 3% rate of interest over 15 years with a five year grace period.

The nations exporting the most for China are Latin America and Africa, third is the Middle East, last is Southeast Asia.

For South America, Venezuela, Brazil & Argentina lead.

In Africa, largest programs are in Nigeria, Ghana.

In Asia, largest is in Indonesia, Thailand and Malaysia.

What is sought are energy deposits like coal, oil, gas along with ferrous and non-ferrous metals.

By the way, this is how North Korea stay’s afloat.  More on that another time.

Exporters get developed infrastructure, developed export regimes, limited availability of its own natural resources, economic growth, new technology and an emergent class of sufficient manufacturers.  China gets an expanded supply line, payback in commodities, as well as diplomatic leverage against the U.S.

However, both parties are exposed to risks and hidden costs.  Let’s go over a few.

The export lead country experiences massive environmental damage, no rule of law, social blight, aggressive social-ethnic tensions as well as massive corruption.  At the least, these nation states remain prostrate to permanent port of call entry for Beijing’s Navy.

Unspoken in this report is how vulnerable China’s Navy is to protecting its own delivery commons in war.

The unintended and perverse social, political, environmental consequences have yet to play out.

Beijing, the colonizer does NOT care.

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Why the Debt Ceiling Matters: Currency & Goverance Regime Matters

In national emergencies Congress can exceed tax expenditures and run deficits.  What Reagan taught was simple, the deficit itself is not the problem, but the depth, the reach and scope of government on civil society IS.

This is why confiscatory taxation, or more importantly, the philosophy animating the convictions of progressives is so dangerous.  Their’s no limiting principal.  Taxes will never catch up to the spendthrift mores of any political class.  This is why conservatives often use moral terminology when criticizing excessive annual spending, we lose more of our sovereignty each time.  Just ask State Governers.

This is why raising the debt ceiling is such a bad idea.  Raising the debt limit allows Congressional members “a way out” from having to accept responsibility for large public expenditures.  We’ve surpassed $17 trillion this year alone.  And that dosen’t even mention the social mandates which are around $50 trillion.  Do the math.  We don’t have an economy THAT LARGE.

Debt ceilings provide a false sense of security.  But this sentiment never acknowledges the reason why we SURPASS the ceiling every year.  We run chronic deficits because our economy isn’t growing.

The Federal Reserve has helped in keeping interest rates low.  The interest paid to U.S. Treasury holders (U.S. bondholders) determines that requisite revenue needed to service such debt.  By keeping the rate low, the Central Bank is helping a spendthrift Congress continue financing mandates/expenditures that are clearly broken.  If the interest rate should rise, more debt instruments must be issued.

The debt burden on the economy is measured in relation to GDP.  The CBO now states that our current account of issued debt is 70% of annual GDP.  Before the 2007 recession it was 39%.

Ok, so what’s the problem?

A growing and unsustainable debt level manifests an expansion of government.  Philosophically, this means that government must confiscate more sovereignty from civil society to fuel its expansion.

The debt ceiling has not been an effective instrument in controlling debt.  It has lead to a dreadful complacency.

Most states require a balanced budget, the growth of federal mandates to the exclusion of federalism only exacerbates state budgets.  All that’s left are budgetary gimmicks.

A real debt ceiling limit would control spending directly.  A rule would be to bring government outlays into historic ratios relative to GDP.

Let’s start there.

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The State Pension Blow Out

When Meridith Whitney, the Chief Investment Officer for Kenbelle Capital CP published “Fate of the States:  The New Geography of American Prosperity”, most folks never really questioned the contractual obligations states have; the mantra out of union leadership was that such obligations were safe from bankruptcy.

Imagine that.

Well, it turns out, that the vast majority of states throughout our Union haven’t funded pension obligations.  That’s called bankruptcy.  And the same union officals continue to shield this nasty reality behined rhetoric that really is propaganda.  Because states have the Constitutional and legal authority to tax, they cannot file bankruptcy.  So as union officials continue to mask paper thin obligations behined a mask of opaque rhetoric, let’s keep in mind that bankruptcy proceedings are about restructuring the very obligations unions erroneously think are safe.

Thanks to Q.E., public penion benefits are really well capitalized.  Asset classes remain well capitalized.  However, public pension costs have soared.  Let’s look at two landmines.

California, Detroit, Chicago.  Chicago must make one billion dollar pension contribution this year alone, a third of the cities operating budget!  Just this year.  There pension debt is $19.4 billion.  Chicago just released a massive amount of unsecured debt.  It issued $500 million in commercial paper and $900 million in general obligations.  Can you believe that!!

Detroit is worse.  The city is expecting to go broke by 2020.  As a city, Detroit is expecting to repay its general obligation bondholders 20 CENTS on the dollar while suing to invalidate $1.4 billion in certificates of participation which were used to backfill 2005 pension costs.  Try not to laugh.  The banks that fostered this merely asked Detroit to perform an interest rate swap.  These banks will now only be paid 30% of their investments. Oh yeah, unions refuse to support a readjustment plan to repay the banks in total.

Througout the city, Detroit is cutting pension benefits 34%, although these retiree’s can recoup their losses if the market performs well.

California:  The city of Stockton filed for bankruptcy in 2012.  The Franklin Templeton Investments is only recovering $94,000 from its initial $35 million investment. Its investors will receive about 50 cents on the dollar. See where this is going; bankruptcies remain the venue of choice for debt obligations BUT pensions remain untouched.  Why is this a problem?  Cities throughout California contiue to muddle through each year with most having to restructure again.  Refusal to face the political third rail of pensions isn’t a sound fiscal strategy going forward anymore.

Unions throughout this nation continue to placate everyone/anyone to the mantra that pension obligations are protected by State & Federal Constitutions protecting them from impairment.

Come again??


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GOP: Autopsy. . .

Now the CPAC is over its time for an assessment of where/what the GOP is?  Identity development is significant, for no institution can surmount challenges without sufficient formation of an articulated self understanding.  Florida’s recent Congressional win favoring the GOP need not introduce opacity, however, the consultant class never had the imperatives that make strong conservatives win. Why?  Because paid punditry matters not governance.

As WSJ Daniel Henninger recently wrote in his column ‘Republican Roulette’, the parading of past Presidential candidates isn’t helpful either.  Why?  Because, such people are political free agents for whom the party is largely a legal necessity only.

Did we forget that politics and its glamorized free agency are nothing more than high rollers running “arcane strategies to fill auditoriums.”  Sad isn’t it, especially given the gravity of our problems.

None of these candidates ever make the sale.

Why is that?  My gut tells me most of it rests on failure of articulation and execution of message.  Any future Republican message must be connected to something real.  Have we forgotten that Johnson’s Entitlement State was politicked.  The arduous labor needed to punch through contemporary narcosis is missing.

In a sentence:  creating and sustaining an idea of critical mass to govern must define today’s GOP.

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U.S. Foreign Policy: Ideal vs. Real

To the vast majority of foreign policy specialists, the golden age of collaboration and consensus remains WWII, more specifically, the political union that existed between the U.S. and Britain.  The problem with this interpretation is that its grounded in pure sentiment, for any sufficient review of the actual policy achievements of Truman, Acheson, Marshall, Roosevelt and Churchill must be conceived within the limits of power itself and the consequent acrimony that relations exert on any union.

There never really was a golden age of collaboration and consensus.

The history of American foreign policy is the history of what presidents and their advisors do once they conclude that others are not likely to be of much help.

Remember that when partisans fillet G.W. Bush over Iraq.

Realism includes a marked measure of public condescension and mistrust, even among Allies.  Consider the Marshall Plan.  Yes, it means American Unilateralism!  There are numerous examples of this happening throughout WWII.  Its just glossed over in favor of sentiment.

How about the acrimony over U.S. -Soviet detente beginning in 1972 ending with Regean?  Or the time the U.S. threatened to kill a successful implemented Marshall Plan to threaten French resistance to an American backed German Deutschmark, paving the way for a pro-western Federal Republic of Germany?

Did we forget the Presidencies of Nixon, Ford, Carter’s attempt to stabilize foreign relations with Communist states, only to be hampered at home by a coalition of hawks, neoconservatives, anti-communist liberals, the AFL-CIO George Meany, not to mention Henry Scoop Jackson, Daniel Patrick Moynihan and numerous media conglomerates ALL STRUGGLING to hamstring an American Executive.

Remember, it was Moynihan who taught that the cold realpolitik of detente meant nothing less than abandoning  the defense of liberty itself.

All this was before Reagan.

Have we forgotten that diplomatic engagement with U.S. enemies is useless unless aimed at achieving a deeper strategic purpose.  While Reagan talked to Gorbachev he never gave up anything of substance.  He never failed to sustain his resolve for Pershing missiles in Europe, Soviet dissidents or the moral superiority of capitalism.

We should remember, the U.S. have NEVER achieved STRATEGIC CONTINUITY.  Remember Reagan, ‘we win, they lose.’  There was no moral equivalency or zero sum engagement to be managed, but an encounter with an enemy requiring defeat.

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Why We Have The World’s Poor

I cannot turn this entry into a disputation of diverging cultural achievements between Islam and Christendom.  I would need to begin with the glaring philosophical achievement of the Church Fathers as they grappled with the Christological heresy known as Arius, specifically the wests ontological, epistemological success in countering nominalist tendencies intrinsic to the Semitic mind/culture.  The west’s achievement in coupling a cosmology to ethics in the unique discovery that became humanness was and remains unqualified in Islam.  To engage this topic without preparing readers for difficult terrain would only enrage those who may very well like the Church and the distinct achievements that Islam rendered to the west in the Middle Ages.

Instead, why do regions of the world have the poor?

Why did the achievement of property rights as the distinct cultural repository permitting empirical western achievement out pace the civilizations of the east?

The answer is found when you discern the impact of the specificity of christian ethics.

In other words, by not permitting social, political institutions the very ability to discover, discern, possess and transmit ACHIEVED CAPITAL is why we have the poor.

I’ve spent time in Africa.  I’ve noticed the differences between nation states and cultures that had contact with an emergent mercantile Anglo Enlightenment.

Why do we have regions of poor?

Answer:  The poor live in nation states/regions of the world that are lawless tribal societies, that do not permit nor allow the discovery, acquisition, maintenance, transmission of capital.  The source of this conflict is the repression of emerging capital intrinsic to meaningful labor.

Here’s the good news?

Digital technology is coupling the very social, political and institutional bonds that were severed by the Anglo Enlightenment which always saw a division between labor and capital.  Digital technology unites what Marx torn asunder.

Watch African nation states and numerous others emerge from a tribal night, welcoming the unity denied them for centuries.

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The Fatal Conceit of the West

The fatal conceit of the west is discerned when academics affiliated to the intellectual mores of German idealism begin to conceive of power relations outside of history.  Think Kissenger, Hegel or worse yet, Francis Fukuyama’s ‘End of History’ charade.

Let’s face it, the west’s pool of idealist alternatives has grown to the detriment of our international standing.

How does this affect Russia or Putin?

We fail to acknowledge that the seizure of Crimea or eastern Ukraine is really not ideological nor purely historical, its national.

It means that the focus or foci to study is the four decades prior to 1947.  Think Barbara Tuchman.

Instead, what the west seeks to transcend are the very social, political and national vortices of expressed power that continue to dominate autocracies.  And land based regimes, especially those deep in the ‘Heartland’ or Spyke’s ‘Rimland’ always shape their forward moving policies from within interior lines of engagement.

Why does this hurt the west?

Because we’re foolish enough to believe that disarmament, the sanctity of international law, coalitions and nuclear deterrents don’t matter.

Remember the ‘Carthaginian Peace’ or how about Japan’s pincer movement south along China’s littoral region from Manchuria toward Nanking.  The examples are legion.  Liberal democracies cannot envision a repeat of history because philosophically we’re tied to the lie of an every forward moving positivism, especially one that continually divorces the demands of ethics from value.

Let me spell it out, for only one taught to comprehend synoptically can discern the movement of power outside the positivist lie; the connection between U.S. capitulation in Syria and Crimea isn’t casual.  Its organic.

Don’t worry though, the west is invested in the moral opprobrium of idealized winners only.

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Putin’s Next Move

Putin’s next move is easy.  Split any/all coalition that U.S. seeks to develop.  This has already been done with Germanic/Polish perfidity.  If the U.S. doesn’t any unilaterally, then it should seek to punish Putin with long term diplomatic, economic consequences.

Neither will work given Putin’s accurate grasp of just how weak the American President has become.  The trap is believing that averting a confrontation is the best alternative.

Ask the Ukrainians.

Putin will control the May vote/referrendum, he’ll also control eastern Ukraine & Crimea.  Absent a direct violent response from the U.S. effectively strengthening local players; this is end well for Putin.

Why?  Because Putin has correctly calculated American resolve.  He’s done the same with NATO, new NATO members and every/all multilateral institution around.

Who should worry?  The entire Baltic region, Poland, Kazakhstan, even Germany itself isn’t safe given a lack of a nuclear deterrent, no indigenous fuel supply and a weak U.S. President.

The conceit that geography no longer matters is a western fatal conceit.  So is the moralizing that now animates western engagement of Russia.  How else to say it:  Putin doesn’t fear the U.S.

This well end well for Putin, unless the American’s begin to develop and field a game plan on the ground in this region to make Putin pay for his excessive expansion.

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Amerika: The No Growth Society

What does ‘leading from behind’ embody?

It basically turns American exceptionalism on its head.  According to this progressive thought, America isn’t a nation conceived as liberty in equality but a power that needs to be constrained or at least a co-equal partner managing the affairs of the world.

Funny thing, this progressive idea of eviserating American exceptionalism isn’t sufficiently informed from reality.  The American Navy has kept the commons open for commerce since the British empire failed around 1945.  But I suppose that why its called propaganda, facts can’t stay in the way of a good yarn.

The problem you see is that this revisionist template is being used to ‘govern’ our foreign relations with Libya, Syria, Iran, Russia.

Did I mention the U.S economy?

We’re leading from behined there too.

GDP is barely 1.8%.  Our inflation rate is around 8% if you include energy, food and health care.  That leaves us in negative territory.

What’s the norm for growth?  Around 4%.  Oh yeah, that with wage growth and disinflation.  Our faltering, choking economy is literally no-where.

I should also note that the Great Recession officially ended in June 2009.  Nevertheless, the world’s people have missed out on a lot of productive meaningful growth.  This has consequences when you’re a hyper-power.  THIS has yet to play out!  But it will.

What will it look like?

When the world’s only Superpower starts leading from behined permanently, we’ll start to see how the sinews that have underwritten the global economy come untethered.  Those bonds are social, political, but they often only demonstrate/exert themselves in monetary, fiscal policy.  Say Venezuela or Bolivia.  Know what I mean. . .

What we’re witnessing throughout the world now is a complete breakdown in what has underwritten GLOBAL ORDER.  Namely a benevolent regime that enforces standards.  Without it, other regimes start to take over.  Its called power politics.  And progressives aren’t good at it.

Weakening political economies breed anger.  Low/no growth breeds political volatility.  Think the 1930′s.  Just what are politico’s the world over supposed to do with millions of unemployed youths who cannot find work.  Look at Egypt.  How about Yemen.  In fact, except for Israel, the entire Near East as a region is soon to be set ablaze by current conditions.

Just what are vain and decelerating economies to do when their advanced policies no longer work?  Well, the muddle though.

Remember Angus Maddison, the OECD eminent economist?  He taught that if you look at world history synoptically, you’ll see that from about the Garden of Eden to the early 19th century, economic growth didn’t exist.

Can you say FLATLINE!

Then something happened.  Its called the Industrial Revolution.  And what we now call first world economies sprang to life.

Maddison describes 1820-1950 as the capitalist epoch.  Economic growth began and Judeo-Christian nation states enjoyed what we call growth.  For the first time since PERHAPS ANTIQUITY the human person was not static, but moving along a bell curve shaped by means of production.

Cultures, nation states that never experienced the Judeo-Christian heritage never had the chance to grow.  Now, they’re revolting.  We call it the Arab Spring.

As Daniel Henninger wrote, “there is no alternative to strong economic growth.  NONE.

They know it in Beijing, Seoul, Kuala Lumpur, Jakarta, Warsaw, Bratislava, Taipei even Hanoi.  The missing piece is a global growth agenda led by an American President” who understands the role of American exceptionalism as an underwriter to the aspirations of millions of people who hope for a way out of poverty.

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Putin: The Return

Vladimir Putin is overextending his hand.  Like all autocrats, he cannot accept a losing hand.  He wants a conflict over the status of Ukraine and Crimea.  Having a weak U.S. executive and a compliant E.U helps Putin.  This will get ugly in a way that only hard power can resolve.

Forcing the Russian Flag atop the legislature in Simferopol has all the hallmarks of Soviet special forces.  Politically, the Crimea’s elected parliament will hold a referendum on the status of the region in May.  Here Putin is certain to win and encircle Kiev.

Propaganda is working in favor of Putin.  Having the exiled leader of Ukraine Viktor Yanukovych emerge from hiding to declare himself a lawful political agent of Ukraine asking for Russian regional obligations on state run television is only the beginning.

The facts are hard for Yanukovych.  He fled Kiev last Friday when his political allies and former loyal security forces abandoned him.  Ukrainian Parliament has voted him out office and is seeking prosecution for the murder, by Soviet sniper, of several protestors.

What does Putin fear?

As a land based autocratic regime, Putin is seeking to repress Belarus and Central Asia by destabilizing Crimea and Ukraine.

All of this comes after Kiev voted in a transition cabinet Tuesday.

Crimea has long been a flashpoint between Russian Slavs and Ottoman Turks.  Now its Crimean Tatar minorities being agitated to encircle indigenous liberty emerging in Kiev.

The immediate challenge for Kiev in Ukraine is economic.  Its central bank is completely out of foreign reserves and near bankruptcy.  Default is imminent if the U.S. fails to engage.

The Kremlin is testing western resolve.  It’s not really testing the E.U. Putin knows that team Obama places more value on rhetoric than action.  We did nothing when Putin invaded Georgia in 2008, ditto for the entire Near East.  We’re dithering with Iran.

The Russian dollar is vulnerable to collapse, it has hit new lows recently, we can damage the Russian economy easily.

The future of liberty and peace throughout the Near East, Ukraine will depend on American engagement.

Its time for any adult in the White House to take charge. #PutinUkraineCrimea

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