Wednesday, 2 February 2011

HK - Day 4 - Hawaii-Five-O, The Fed & China

Cold War Demonised Dragon. More Ironies & Myths than You can Poke a Stick at. The Myth of Made-In-China Busted

 sunny 23 °C                       

I got back to the hotel while Atta continued her shopping (in this shoppers' paradise. Yep, she was in her heaven). By day 10 of travelling, my weary body had reached the end of its tether. Bought a coffee and some egg tarts to bring back to the hotel. Flopped my heavy body onto the bed, turned on the idiot box, and I was graced by the presence of the sideburns, wide square jawed Jack Lord. It was playing the peppy Hawaii-Five-O theme song. Flashes of collage of images of giant surfs, hip swaying hula girl, etc that capture the essence of Hawaii. If you take Jack Lord out of the picture, this opening sequence makes great promotional materials for Hawaii tourism authority. I remember I enjoyed this series when it was originally aired. The theme music was so upbeat...bub bub bah bah bah...bub bub bah bah bah...

You know you're old when you're far more interested what's coming out of the tube than spending times outside the hotel exploring. I prefer armchair travelling now (and it transported me to Hawaii, and the intrigue of international espionage). This is my heaven.

Let me just skip to the premise of this episode (this looked like an episode that was made before the late 1960s or early 1970s judging from picture quality, fashion, technology, acting, directing, etc).
Five-O's car was stopped dramatically by a couple of high ranking military uniforms (Colonel if memory serves). He was hushed into a meeting room, and was greeted by what I guess would be some CIA analyst (not important what he actually is). He explained to Five-O in dramatic fashion that the fate of the free world is rest in what they do in Hawaii. There're nuclear, and biological weapons. But these were taboo in modern warfare. What they now facing with is the economic weapon. That is, somebody is going to counterfeit US currency, flood the market with it, and cause the downfall of the US economy due to its effect of resulting rampant inflation. They went on further that there were many counterfeiting rackets before, but it hadn't been successful because the forgeries were not perfect, and were able to be detected. Until now. Somebody has finally able to produce perfect plates, and successfully produce different serial numbers. What's more they've cracked the code of the serial numbers. That somebody who is capable of all these is....drum roll please...PRC! The Russian comrades were also in cohorts, of course! This episode followed in the footstep of the long tradition of demonetisation of the commies in Hollywood during the Cold War Era.

This premise is interesting not just because of its many historical inaccuracies, and the delicious ironies in so many levels in view of what's happening in the world's economies right now.
In the Great Recession of 2008, in order to re-inflate the deflation, Big Ben (aka Ben Bernanke) decided to print money like there is no tomorrow. He's also called Helicopter Ben for this reason. It's as if he's throwing money onto America from a helicopter like confetti. The Fed dignifies this money printing by calling it Quantitative Easing, while some people call it counterfeiting of the American Dollars. Although the term 'counterfeiting' isn't entirely correct in the strictest technical sense, but the term is correct in its economic effects, and spirit, which is what matter.

While the Fed fires up all the cylinders of its money printing machine, flooding the US economy with trillion of dollars, PRC is asking the Fed to stop printing. Why? Because PRC is Uncle Sam's biggest creditor by being the biggest owners of US IOUs. So when the Fed prints money, it devalues US currency, and thus the value of the IOUs that China owns. These money printing also led to large amount of hot money flowing into the Chinese economy (and other emerging economies), creating bubbles - the type that created the Great Recession in USA in the first place.

In this episode of H5O, it accuses PRC in the devaluation of US currency by money printing. The reality in the last 2 years was that it was PRC who had been trying to stop the US government in devaluation their own currency. With US dollar being the fiat currency, this causes inflation in commodity and food prices around the world, leading to social unrest, and political instability everywhere. The fate of the free world is in peril, indeed[2]. Only it's Uncle Sam who is doing this. To put it another way, it isn't Chinese printing of US dollars that the US government has problem with, it's WHEN. If the Chinese has been doing counterfeiting in the last two years, Helicopter Ben should send the Chinese a thank-you note for doing their job and save them a bundle.
Ironic, isn't it?

The Fed is using a tool that would destroy USA economy (as espoused by the CIA analyst in this episode H5O) to save it. Ironic, isn't it?

USA accused China for currency manipulation while it's keeping its currency low by QE[3]. Ironic, isn't it? Or is it more like the pot calling the kettle black?

You want more irony?

If you look at GDP per capita in 2010, USA ranks 101, and China ranks 91. In other words, Chinese per capita income is lower than that of Thailand or Jamaica. To put it another way, the average Chinese is poorer than an average Thai or Jamaican. In fact, the Chinese are almost twice as poor as a Costa Rica. To the Yanks, Costa Rican are pretty poor. Here's the irony, these very poor Chinese is the biggest American creditor. In fact, the biggest creditor in history. This is like the household of blue collar workers and/or rural farmers lends truckful of money to the white collar middle class household. How is it possible? Well, the poor family with 4 times the size saves a lots while the middle class family spends like there's no tomorrow. Actually, they spend tomorrow's money like there's no tomorrow. The white collar family is a slave to the credit cards, while the blue collar workers/farmers household hardly use their credit cards.

Ok, this is Hollywood, and accuracy isn't their forte. Well, factual accuracies are indeed not what they interested the most, but demonising of their Cold War ideological enemy is. When you demonise somebody, facts usually get in the way. So just ignore them. Remember that H5O was made during the height of the Cold War (actual near the end of the Cold War, but Hollywood didn't see it coming. In fact, very few saw it coming).

Here are a few historical inaccuracies that this episode conveniently overlooked:
1. PRC simply didn't have the kinda technical ability that this episode accuses it had in the 1970's. Not even close.
2. PRC in this period was simply too busy destroying themselves in the Great Leap Forward and the Cultural Revolution. Their own economy had collapsed (not caused by money printing). They didn't have the time or money or in fact interest to cause a collapse in the US economy. PRC is very much an isolationist in nature. It shut itself up for some 3 decades, and opened its door only 30 years ago. Even then, it didn't want to engage in global politics. Only in the last 10 years that it has been reluctantly engaging in global affairs because of pressure from the West, especially USA. More importantly, because China is now much more - about 10 times more - well-off than it used to be. It's thus making more sense for the PRC to get their nose into other people's business.
3. Despite being both communist countries, USSR and PRC had split up, and political tensions existed between them. It would be unlikely for them to gang up on the US economy. In fact, in the late 1970's, the diplomatic relationship between USA and PRC is far better than that of PRC and USSR (until Gorbachev popped up).

Hollywood has no respect for facts, which is ok for small things. The above 3 historical facts are no small potato. You can't just ignore these. It's equivalent of saying UK is a communist country in an episode of H5O, for example. But ignored it, Hollywood did, and it could because of the ignorance caused by the total information blackout from China before 1980s when PRC kept its door tightly shut. For the masses, this ignorance would probably persist for another few decades going from what I read in the net. There's an information/perception gap about China. No doubt the gap is wider before the Internet era. Surprisingly the gap is still quite big in the Internet age. I guess China is changing faster than the internet. If there's one thing can move faster than the internet, it's China (Dubai is the only other place that's moving as fast as China, but their size is too small to have any significant impact on the world. Dubai is similar to a typical China's 2nd tier cities, and China has 20 of such cities, and counting. Of course, China's 1st tier cities are larger than their 2nd tier cities).

Information/perception gap persists because of confirmation bias. Racists gravitate towards racism websites instead of websites that show opposite views (e.g. anti-racism websites). Otherwise, they wouldn't be racists. Or if they're, they may change their views, or at least, wouldn't be so sure about themselves. A bit of confusion can do a world of good.

This episode of H5O shows yet another example of the typical Cold War mentality that the PRC were busily plotting and scheming (along with USSR) to bring down USA, maybe the world. Ironically, it was USSR who finally brought down itself. Nobody foresaw it.

For those who's interested in reading more example of Hollywood's commendable effort on the Cold War demonising of Commies, you can read more in my previous post.

You want more irony? I'm glad you ask.

With the Great Recession of 2008, USA becomes increasingly socialistic by all the bailouts of failed large multi-nationals from banks, mortgage companies to automakers, while PRC - a socialist system - on the other becoming more and more capitalistic.

Jack Lord also appeared in "Dr. No" (1958), and this happened to be one of the Bond film in the habitual spirit of Cold War demonising of PRC (and former USSR), not in the least dissimilar to this episode of H5O at all. And Jack Lord played a CIA agent. Oh my Jack Lord! Funny that.
Yep, Uncle Sam does have a history of Sinophobia. If you're a movie buff, you can check out this history of Sinophobia in my previous series of posts "Globalisation of Hollywood", dated 31-05-2010. Especially the one titled "Globalisation of Hollywood - Part 2 (Sinicisation)".
You can't say we don't live in an interesting times...that means ironies galore.

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[1] If you look at the list from Wikipedia, you can see that the 9 countries whose per capita values higher than USA are either small countries or small population, or both. This makes USA ranks number 1 in GDP per capita in a large country. Of course this figure is a slap in the face for poor folks in America, which there're many. While they can be considered the richest (large) country in the world, and yet, they also have many people live in poverty. This is yet another irony, isn't it? How come? It's because of the income disparity. The 1% richest American own something like 40% of the wealth, and leaving only 60% of wealth to be divided among 99% of the population.

[2] In fact, social and political turmoil could be seen everywhere since 2008. In between this episode of H5O was fresh breaking news about the chaos in Egypt. People took to the streets. This Arab Spring may not be caused by the financial crisis, but certainly triggered by it (the way that WW2 wasn't caused by the the assassination of Archduke Ferdinand but triggered by it). The CIA analyst in H5O is right, only it isn't caused by the PRC, but the accuser. Ironic, isn't it?

[3]  It's interesting parallel that H5O accused China of printing US currency, and today US government accuse PRC as a currency manipulator. More to the point, US government is demanding PRC to appreciate the RMB for the purpose of reducing US trade deficit. Does it work? What is the economic rationale behind it?

Here's the theory. If Chinese goods are more expensive, thus less competitive, US consumers will buy less. US trade deficit against China will be narrowed. Chinese goods will be more expensive if RMB appreciates, providing everything is being equal. Well everything is NOT being equal. When RMB appreciates, the costs to basic components that make Chinese goods will be lower.
US politicians asking another country to appreciate their currencies in order to reduce US deficit isn't new. They did it to the Japanese in 1985 in signing the Plaza Accord. The Yen appreciated something like 100%. Arguably this led to the Japanese asset bubble, and the lost decade. Did it help to reduce USA trade deficit against Japan? Not really.

Now the US government is pulling out the same old bag of tricks again (haven't been out shopping for new ones). And the US pollies are selling the idea again (can't really say 'again' if it has never stopped). They ask PRC to appreciate their currencies won't really create jobs (or reduce trade deficit), but it DOES make the pollies LOOK LIKE they're doing something useful to the US economy. It's called the art of "looking busy without actually doing anything".

Of course, PRC is now WANTING to appreciate their currencies in order to fight imported inflation (partly due to Fed's printing of money). Not because USA asks them.

So to make China's goods less competitive, costs to make Chinese goods has to be raised. This can be achieved if all the exporting countries to China that make goods to be re-exported to USA like Japan will need to appreciate their currencies as well. The question is, will all these countries do this just to reduce US trade deficit with China? Should they? Will Japanese going to kowtow to USA again, this time? Well, they were never asked, this time. China is now the new Japan, at least politically. In fact, Japan has been busily depreciating their currencies, but USA never complains, and it's obviously why for so many reasons.

US can ask all these countries to solve its unemployment problems. Use China as scapegoat for domestic politics. Why not? It's much easy to finger point than solving an actual thorny problem of economic restructure.

In fact, if you read this article, you'll realise the US trade deficit against China is much smaller than it really appears. So the whole forcing-China-to-appreciate-its-currency-to-reduce-US-trade-deficit is all a smoke screen conjured up by US pollies to divert the voters' attention away from thorny problems that should be dealt with. Either this, or the government think tank is leaking juices (nope, I don't think so. The tank is fine).

Consumers sees the Made-In-China stamp because China is the last country in the chain of the making a product. And in the final process they put a Made-in-China stamp. That's the stamp people see. But if you open up all your made-in-China products like iPhone, TVs, etc - which consumers almost never do - you'll see hundreds of microchips with stamps like Made-in-USA, Made-in-Japan, etc. How many of these are made in China? Almost none. Don't take my words for it, open up your TV or whatever electronics that has a made-in-China stamp. The more accurate stamp would be Assembled-in-China-but-actually-Made-in-mostly-Japan-and-USA-and-other-Hi-Tech-Exporting-Countries. Ok, this stamp is a bit long, and that's why they don't put it there.

Next time when you hear somebody say how crappy Chinese products are, please explain this myth to them. That Chinese don't make them, they only put them together, and their final product is only as good as their components - the weakest links, the bottle necks.

Here's another US-China trade deficit perspective. Let's now assume that RMB appreciation will solve the problem of US trade deficit against China by ignoring what I just said, just for the sake of argument. That is assuming that the Chinese goods are actually more expensive, and thus less competitive, US importers would simply buy from other countries that sell cheaper goods. So instead of a large deficit with China, USA will spread this deficit over several countries. Indeed, USA does have trade deficits with many countries other than China. It's just much easier to point out one big target as scapegoat than many small ones. It's easier in a political speech to denounce one country than several. Furthermore, it makes the politicians looks so much better to demonise a large country than small ones.

Would the politician take the troubles to explain all these? You bloody wish! They can't reveal the secrets of their trades. They can't break their codes. Dream on mate!

This concludes yet another episode of "Breaking the Magician's Code: Magic's Biggest Secrets Finally Revealed".

Please kindly substitute 'magic' with 'politic'. Now you see it, and now you...
You can trust me....I'm a doctor blogger....

Soon, the world will be under MY control! MUAHAHAHA - *cough* *retch*



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