Autumn's Ominous Augur
Suicide By Trade Sanctions
Darryl Robert Schoon
Sep 27, 2007
Leaves aren't the only things
that fall in autumn
It seems this summer's credit
crunch and the continuing defaults of US subprime mortgages would
be enough. Now, however, the US Federal Reserve has decided to
play chicken with inflation. But evidently, even this is not
This fall, providence is bringing
yet another dish of trouble to an already over laden table -
China may actually prove good on its threat to dump $1.33 trillion
of US Treasuries and start the long awaited flight from the US
China's threat to sell its
US Treasuries - if actually carried out - will be triggered by
the US Congress. This fall, the US Congress will vote on a bill
that would impose a 20% across-the-board tariff on all Chinese
goods imported into the US. The supporters of the bill describe
its passage as "veto-proof" - that they now possess
enough votes to override a presidential veto.
This possibility calls again
into question the very efficacy of democracy, to wit the
belief that the collective will of the people is preferable to
the capricious stupidity of a king or queen or any other selected
or self-appointed tyrant, or indeed, virtually any government
Perhaps it should be argued
that democracy today is not actually democracy; anymore than
Christianity as practiced by the Church during the Inquisition
or by Southern Baptists during slavery was actually Christianity.
Point taken, but then again, at least for the sake of argument,
we need to start somewhere.
The US representatives voting
on the China tariff bill will be responding to the frustrations
of those they lead; their constituents, whose bills are mounting
while their frustrations are coming to a head and [are] perhaps even incapable of being surmounted.
Unfortunately, Americans are
looking to the very ones that led them into their difficulties
to lead them out; for it was their democratically-elected representatives
who sold out their interests in order to further their own that
caused the trouble America is in.
Politicians Have Many Masters
None Of Which Are Themselves
The vote on China will take
place in the US House of Representatives and in the US Senate.
Ironically, it will be voted upon by a group of men and women
who have already proved incapable of stopping a war the American
people recently elected them to end.
But democracy, as practiced
today, democracy de facto, is designed to thwart the will
of the people, not to promote it. For example, in the countries
that "joined" the war on Iraq (remember the Coalition
of the Willing?) the majority of the populace overwhelmingly
opposed the invasion. Yet in each country, democratically-elected
governments over-rode the will of their own citizens to support
America's need for oil and geopolitical influence.
This time, however, the representatives
of America will likely do the bidding of those who elect them
and vote to censure China for its "currency manipulation".
It should be noted that they will not be doing the same with
Japan - the world's second largest holder of US Treasuries -
for Japan is the perceived ally of the US, not its perceived
Politics is, and always has
been, a dirty business. Money and power is a combustible mix
and history is littered with the bodies of those injured in the
process. This fall, more gurneys will be needed. Should the US
vote to impose tariffs on China, the consequences will be felt
globally, in Mumbai, in Budapest, in Sao Paolo, not just in Beijing
"the notorious Smoot-Hawley
Tariff Act of 1930 a policy blunder of monumental proportions..
played a key role in sparking a global trade war and the Great
Stephen Roach, Managing Director Morgan
We are again facing the possibility
of a Great Depression and history seems intent on repeating itself.
The idea held by many that China will not exercise its "nuclear
option" by selling US Treasuries and bringing the US economy
to its knees by destroying the dollar is hopeful at best and
increasingly less believable.
China is longer dependent on
America to buy its goods. The Eurozone now shares the distinction
of being China's largest market. Additionally, when and if the
US Congress votes to impose 20% tariffs on Chinese goods, the
damage to China's economy will be significant.
China will retaliate; and,
dumping $1.33 trillion of US Treasuries on the open market will
be an all too easy and accessible option. It would destroy the
US dollar and deal the US economy a body blow from which it would
take years to recover.
This autumn, whatever happens
in the US Congress will affect the world. For in a very real
way, America's problems are the world's problems. What happens
to the US economy and US dollar will affect global commerce on
a scale not experienced since the Great Depression.
Hold onto your seats,
my friends. Democracy is in the house.
Darryl Robert Schoon
About Darryl Robert
In college, I majored in political science with a focus on East
Asia (B.A. University of California at Davis, 1966). My in-depth
study of economics did not occur until much later.
In the 1990s,
I became curious about the Great Depression and in the course
of my study, I realized that most of my preconceptions about
money and the economy were just that - preconceptions. I, like
most others, did not really understand the nature of money and
the economy. Now, I have some insights and answers about these
2005, Marshall Thurber, a close friend from law school convened
The Positive Deviant Network (the PDN), a group of individuals
whom Marshall believed to be "out-of-the-box" thinkers
and I was asked to join. The PDN became a major catalyst in my
writings on economic issues.
When I discovered
others in the PDN shared my concerns about the US economy, I
began writing down my thoughts. In March 2007 I presented my
findings to the Positive Deviant Network in the form of an in-depth
148-page analysis, "How
to Survive the Crisis and Prosper In The Process."
to my presentation, though controversial, generated a significant
amount of interest; and in May 2007, "How To Survive The
Crisis And Prosper In The Process" was made available at
www.survivethecrisis.com and I began writing
articles on economic issues.
in the book and my writings has been gratifying. During its first
two months, www.survivethecrisis.com was accessed by over 10,000
viewers from 93 countries. Clearly, we had struck a chord and
www.drschoon.com, has been created
to address this interest.