Dear Friends,
The Taipei Times reports that the US has frozen arms sales to Taiwan for the next year. http://www.taipeitimes.com/News/taiwan/archives/2008/07/19/2003417877 . Within the larger picture of World affairs this is curious.
The Peoples Congress in China voted unanimously to use force if necessary to compel Taiwan back. Never mind that Taiwan is a free democratic Republic, that could at any time, if it was the will of the people, to return to mainland China’s domination. That they haven’t, is clear evidence of the people of Taiwan’s will, to remain under the government of their choosing (free). Illustrating of the use of individual sovereignty, a fundamental tenet of International Capitalism.
Lets look at how another former nation that has been brought, ‘under the fold’ so to speak, has fared. Tibet was annexed by the threat of violence in the late 1950’s. Since then China has imposed upon the people of Tibet the “One child policy.” While importing non native Han Chinese to Tibet. The native Tibetans are now second class citizens in their own country… In my opinion the Tibetan people are the victims of ‘Ethnic Cleansing’ or at least Ethnic watering down. Either way, that the World turns a blind eye is flabbergasting.
Communist have never shown an aversion to the spilling of blood to make a point. Tiananmen Square is a Chinese example but there are thousands from every country that have looked up and seen the bottom of the jack boot of Communist authority. From the purges of the Soviet Union to the killing fields of Pol Pot Communists have never been able to slake their thirst for the blood of the people they “represent”.
No one can begrudge the growth that that has led to the improvement of the lives of so many people. Growth of GDP and therefore growth in the standard of living of people, is another tenet of International Capitalism. We applaud the gains made by the Chinese people. We deplore the actions of the Communist tyrants that lord over them.
With these and many other examples, what about the actions of the Communist Party in China, would lend us to believe that they have any compunction in killing thousands or perhaps even all of the people in Taiwan to bring Taiwan back ’under the fold’? To what end???
Now bring this new thought to the table of ideas. Why then given the previously stated, state of affairs, would the US so obviously abrogate the obligation that it made, under no duress, to help a free Republic defend itself from a modern Genghis Khan?
It is common knowledge that the meteoric rise in commodities prices are the result of the rapid expansion of the economies of the East Asian countries and China in particular. It’s Elasticity of supply, at some level of demand, no matter the price, supply cannot increase until new production is brought online to meet the new demand. Driving the equilibrium price up and up causing inflation.
The US has run up huge trade deficits with China. We buy the cheap goods that flood over here. When we do we pay in Dollars. The Chinese use Yuan in China. They must either trade the Dollars for Yuan on the World currency market (driving down the value of Dollars), or reinvest the Dollars back into the US economy further affecting the National Savings and Investment Identity.
The National Savings and Investment Identity is simply that; Private Investment PLUS Government Borrowing, MUST EQUAL, Private Savings PLUS Foreign Investment. So the Balance of trade is not only affected by the importation of goods but also of capital. Furthering the impact of Government Deficit spending. One can almost double the trade deficit of goods to see the real impact on the Balance of Trade when there is a major trade deficit with a single country. On the balance however if the Aggregate balance of trade is ‘balanced‘, there would be no negative effect, the effect only shows up under a large aggregate trade deficit.
This ends up putting huge downward pressure on the value of the Dollar to balance out the Trade Deficit. Giving China correspondingly huge leverage on the value of the dollar. That leverage comes with a price however. If China were to use that lever, China would loose the value of every Dollar it holds, just as would everyone else.
China need not use that lever however. The mere threat of using it, especially when the World economy is faltering in no small part because of the US mortgage meltdown, would have a chilling effect on any president. I pray that is not the case here…
