Week One for the 45th

One of the most important duties of any head of state obviously would be serving as the nation's chief diplomat.

If one were trying to go down in history as our worst President ever, it would be very challenging to get a faster start at it than by pissing off two of our three largest export markets before even making it through the first week on the job.

As individual countries go, our 2nd and 3rd largest export markets are Mexico and China. Together, they buy almost a quarter of our total exports.

Thanks to our current President's "diplomacy", our 3rd largest export market has found it necessary to move their nuclear missiles within striking distance of us ... ya' know, just in case. And the citizens of our 2nd largest export market have begun a large-ish boycott of American companies.

So it's been a stellar week for America, right?

Debunking Subramanian: No, China Isn't Bigger

Tom Gjelten of NPR in a piece asking "Is China's Economy Already No. 1?" tells us that "By traditional measures of gross domestic product — the value, in U.S. dollars, of total goods and services produced — the size of the U.S. economy is $14.6 trillion. China's GDP is only $5.7 trillion. But if China's economy is assessed according to its "purchasing power," it may be a different story." He further relates how Arvind Subramanian tells us that by purchasing power, their economy is already larger.

But this isn't just in conflict with tradition. Purchasing power parity (PPP) is mainly useful for assessing living standards because it adjusts for the costs of selected goods within a currency's market area. PPP gives a better sense of how many bowls of rice the average Chinese citizen can buy with their Renminbi vs how many bowls the average American can buy with our Dollar. The strength of PPP comes as a per capita measure on internal purchases. For 2010 the IMF rated per capita PPP of China at 7,518 International Dollars whereas the per capita PPP of the US is 47,123 International Dollars. So we can see that the average American can buy a lot more bowls of rice (or most anything else) in America than the average Chinese citizen can buy in China. By contrast, when they're both touring Germany, if you want some idea what the Chinese citizen can buy there vs what the American can buy there, PPP won't help you as much as GDP because their PPP figures aren't tuned for Germany's market. For international buying, you need to use the actual exchange rates, which means you want the GDP because it is listed using those very same exchange rates that would take effect for international purchases. Anyone (like Subramanian) who'd use PPP as an assessment of "the bigger economy" internationally should generally be considered dubious at best. There are good reasons why it is traditional to use GDP to compare the size of national economies. When you're looking at the ability to purchase outside of your own market, it just doesn't make sense to use a figure tuned to purchasing strictly within your own market.

If that weren't enough, by all accounts other than Subramanian, his assessment of Chinese PPP is bizarrely high. While the IMF, World Bank, and CIA World Factbook all come up with slightly different calculation results from each other, they're only slightly different from each other and way, way below what Subramanian claims. They all list China below the US in PPP by a fairly wide margin.

Then, for icing on the cake, there are the very big problems in China, such as the housing bubble mentioned in Gjelten's article. Their growth is currently on a trajectory to overtake us. But past results do not guarantee future performance. China is likely to generally grow over the coming decades, but they may face some serious stumbles and possible huge crashes as well. And while we're not doing it now, if we were to start revamping our infrastructure and investing more in our own growth, we could actually use our head start to keep our advantage. Not that we necessarily will. But it is a bit premature to say that China's economy will necessarily eclipse our economy at any point in the future. It may. It seems plausible that it will. It isn't guaranteed.

China Doesn't Own Us

Intertwined

With the visit of the Chinese President, Hu JinTao, there's a lot of talk about the amount of our debt that China has financed. Paul R. La Monica, writing for CNNMoney.com, even proclaims "Let's face it. China is kind of like our landlord. Or, if you prefer a more menacing term, our loan shark. We should tread carefully."

The reports of the death of America's financial strength are greatly exaggerated. Yet they're widely believed. According to a Pew poll, nearly half of Americans "see China as the world’s leading economic power." That's a pretty stunning belief when you consider that as of the 2010 IMF figures, the GDP of the US is still higher than that of the next three largest economies combined (14.6 trillion for the U.S.A. vs 14.4 trillion for the combination of China, Japan, and Germany).

So how did a much smaller economy get such a hold over the top mover & shaker? It didn't. According to the Treasury, our total public debt stands a $14.008 trillion. Of that, "intra-governmental holdings" account for about a third at $4.631 trillion. Intra-governmental holdings are the govt writing an IOU to itself from to borrow from all sorts of trust funds and other places where it had money set aside. That portion certainly isn't held by China. The Federal Reserve, various domestic investors (pension funds, mutual funds, etc.), state and local governments, banks, insurance companies, and various other U.S. interests together own large portions of the debt. China only own about $895.6 billion in our debt. Yes, I said "only." That's a large figure to you and me, but it's quite a bit less than is held by our govt lending to itself. It's not all that much more than the amount held by pension funds. It's not all that much more than the amount held by mutual funds. It's not all that much more than the amount held by our state and local governments. It's not all that much more than the amount held by the combination of banks and insurance companies. Lot's of domestic groupings each hold comparable amounts, some more and some less. It's barely more than is held by Japan. It's around 6% of our debt.

At 6% of our debt, that's not ownership. That's not an overwhelming landlord. It's not even a loan shark. Yes, they're a significant lender for us. But they don't have a controlling stake.

Meanwhile, our imports account for about 25% of their exports. And their economy is still largely export driven. If we put strict controls on imports from China it would severely hurt their economy. Strict controls interfering with their exports to the US might well hurt their economy even more than it would hurt ours if they suddenly started dumping our debt. But, of course, they're not about to do that, since much of their cash is tied up in our debt. If they were to sell it quickly, they'd lose a lot of their value from their cash reserves. And where would they put it anyway? The crisis-prone Euro? Not if they've got any sense.

To ice the cake, as David Frum says, it's "a country facing problems as huge as its achievements." They're battling rapid inflation. Their aging workforce situation over the next couple decades may well make our Baby Boomer retirement hurdle look like child's play. And there's been talk of a growing housing bubble in China that may dwarf our Great Recession housing market trouble.

All of this means that China is at least as tied to us as we are to them. They've developed an important relationship with us ... important for both nations. They don't own us.

A Cycle: the GOP, the Chamber, and China

What cycle could wrap together the Republican party, the Chamber of Commerce, and China (among other foreign interests)?  The natural cycle of money, influence, and power, of course.  China is just one of the homes of the foreign companies behind the US Chamber of Commerce.  We can't tell how many of the Chamber's dues-paying members are from each foreign country; although given the size of China's economy, we can guess that a fair amount of the dues probably come from China.  (China is the world's 2nd largest economy and of the top 50 economies, China is by far the fastest growing.)  The Chamber in turn funds much of the political campaign effort for the Republican party, operating in the interest of their members as best they can.  For their part, the Republicans seek to promote the causes of their donors.

The steps of the cycle:

1. Of the dues that make up the general budget of the US Chamber of Commerce, the biggest spending lobbying organization in the United States, much comes from foreign members.  (Such as operations in China and India to whom we outsource work from American companies.)
2. The Chamber of Commerce funded many of the campaign commercials that lead to Republican wins in the 2010 elections, enough that a Republican would have to be fully brain-dead to not understand that the Chamber is a big source of the power the party has.
3. The Chamber of Commerce lobbied
1. against the 9/11 health bill to "keep open a tax loophole benefiting foreign corporations", which makes perfect sense given that many of their members are foreign corporations
2. against the DISCLOSE act, which would have shed light on their funding situation and campaign activity
3. on behalf of foreign companies that are some of the highest growth investment opportunities and thus likely to get a lot of investment money from the upper class tax cuts
4. The GOP voted
1. against the 9/11 health bill (most House Republicans voted against the bill; the Senate Republicans successfully filibustered it)
2. against the DISCLOSE act
3. for upper class tax cuts.  That's an understatement:  they didn't just vote for it, they made it their top priority and refused to let anything else through the Senate until they got it.  It'll mean more money for the wealthy to invest wherever they choose, which might be in foreign companies ... especially if they decide to invest where there's the highest potential rate of return.
5. The Republican efforts bring more money to foreign business.
6. Foreign businesses pay more dues to the Chamber, which feeds back into step #1

Foreign business gives cash to the Chamber, the Chamber gets the GOP elected, the GOP supports foreign business, foreign business has more cash to give to the Chamber, repeat ad nauseum.

I'm not saying the Republicans have thought this out and realize all the implications, but there they are.

It's not a conspiracy.  Let's be clear about that.  A conspiracy would require that those responsible were knowingly working together towards a common goal.  A cycle just means that individual parts are acting in a manner where the set of relationships feed into each other in a repeating chain.  It's a cycle.

Anyone else find this to be a rather bad cycle?