National Review on President Obama's Re-Election

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Obama Might Be Reelected . . . By Victor Davis Hanson January 6, 2012 2:54 P.M. . . . if he just stays silent and undercover in Hawaii all year. It was always unlikely that an inherently dynamic nation like the U.S. could stay in a recession or a near-recession slowdown for five years (since late 2007), and we should expect a mild rebound in 2012, at least by election time — before the deeper reckoning with our massive debt and expansionary money policy comes due. Based on the Chicago-style promises we’re now hearing — debt relief for students, mortgage relief for the underwater homeowner, pay increases for federal workers, non-enforcement of immigration law for the Latino bloc, and recess appointments for the unions and the left-wing base — in 2012 there will be a huge turnout of professional elites, environmentalists, gays, minorities, unions, youth, the indebted, and the needy, with which blocs the Democrats will seek to make up for the loss of the “clinger” states and somehow reach 51 percent of the vote. I guess that alienating the independents and Reagan Democrats, rather than winning them over, is the new fallback strategy, based on the premise they are lost anyway and what chafes them excites the base. Obama had a Democratic Congress for two years, his populism is rendered suspect by his Wall Street fundraising and  intimacy with the likes of Jon Corzine and Peter Orszag, and there have been scandals ranging from Solyndra to Fast and Furious — but I don’t think these will be real issues. The message will probably be: “I, Obama, ended two wars, killed bin Laden, shifted money from the wealthy and defense waste to the middle classes, and would have done even more had an obstructive Congress not stopped me.” We should expect that, despite his obvious delight in public adulation, the president will be probably be less seen and heard. In December, his virtual absence from the public arena did wonders for his poll numbers, unlike his Kansas-type speechifying. The less people see and hear him, the more they think of the old image of Obama rather than the present reality. The far louder Republicans will be cast in their traditional role — the Scrooges forcing necessary budget cuts on the backs of the recipients of Obama’s largess as they work to preserve “tax cuts for the wealthy” — in a pretty straightforward us-vs.-them pitch. There is not a lot for a low-profile Obama to run on, since most everything the old high-profile president has done — Obamacare, cash-for-clunkers, the stimulus, the GM/Volt mess, the Solyndra-like partnerships, the $5 trillion in borrowing, added regulations, and tabling gas and oil development — either is unpopular or hasn’t worked, often both. So Obama will run on the proposition that there were three Bush terms, from 2001 to 2011; that he, the middle-class warrior, will finally be able to free Americans from the damage done by Bush; and, of course, that things would have been even worse had he not put up the fight he did. Quietly borrowing more money is much more popular than loudly stopping it. From the fractious Republicans, in between their attack ads on one another, we still haven’t heard of a simple four- or five-point agenda that rebuts the above, e.g., calls for massive new oil and gas development that will create jobs, new wealth, and greater energy independence; pruning back the size of government; repealing regulations and unleashing the private sector through budget discipline and a complete overhaul of the tax code; entitlement reform; and the preservation of defense. Permalink

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Assignment for Tuesday 01032012

We Need to Talk About Kim (http://www.economist.com/node/21542185)

1.  What happened last week that is important in North Korea?
2.  What does the Economist say about the legacy of Kim Jong Il?  Was he a good leader?  Why or why not? 
3.  Who was Kim Jong Il's father?  When did he die? 
4.  What are the two ways that average North Korean citizens are learning about the outside world? 
5.  The possible outcomes of the new North Korean leadership are a. Internal Collapse, b. Aggression toward South Korea or Japan, or c. Dismantling of its nuclear program and acceptance of economic reform.  Which do you thin is most likely?  Why? 
6.  Given your answer in number 5, what should the United States do right now to prepare? 
7.  What should China do right now to prepare? 

Nuclear Weapons

Check this out on the US nuclear weapons program -

http://www.acq.osd.mil/ncbdp/nm/nm_book_5_11/index.htm

Questions Facing the Global Economy

These are from the WSJ CEO Council

1.  How can the most important bilateral relationship in today's world, between the US and China, be put on a stronger footing?
2.  How can the innovation necessary for strong growth be both promoted and protected in global commerce?
3.  How can the US, whose consumers have powered the global economy in recent decades, shift to more of an export orientation?
4.  How should the global competition for natural resources be managed in the years ahead?
5.  How can the most pressing global health problems be addressed effectively?

These are top priorities for the world's policy makers, and things we ought to be paying attention to as a class.

Video for the Last Question on modern-day Chinese culture

See:
http://www.youtube.com/watch?v=0XbIZqg4v7w

Watch the whole 6 minutes!

World History Plan v02

World History Plan

10/31 – 4.3 “National Unification & the National State”

11/7 – 5.3 “The National State and Democracy”

11/14 – 7.1 “The Decline of the Qing Dynasty”

11/21 – Movie (2 days, China History Video)

11/28 – 7.2 “Revolution in China”

12/5 – 8.1 “The Road to World War One”

12/12 – undecided

12/19 – break

12/26 – break

1/3 – Dead Week (review 1^st semester)

1/9 – Finals Week

1/17 – 8.2 “The War”

1/23 – 8.3 “The Russian Revolution”

1/30 – 8.4 “End of the War”

2/6 – 9.2 “The Rise of Dictatorial Regimes

2/13 – 9.3 “Hitler and Nazi Germany”

2/21 – “Beautiful Life” & Discussion

2/27 – 11.1 “Paths to War”

3/5 – 11.2 “The Course of World War II”

3/12 – 11.3 “The New World Order and the Holocaust”

3/29 – 12.1 “Development of the Cold War”

3/26 – 13.1 “Decline of the Soviet Union”

4/2 – Movie: 13 Days (Cuban Missile Crisis)

4/9 – Easter Vacation

4/16 – 15.2 “Conflict in the Middle East”

4/23 – 15.3 “The Challenge of Terrorism”

4/30 – 16.1 “Communist China”

5/7 – Transforming Beijing (pg. 716-719)

5/14 – 16.2 “Independent States in South and Southeast Asia”

5/21 - Film?

5/29 – Dead Week – Presentations?

6/4 – Finals Week

China Bubble EC

Monday, Oct. 17, 2011

What If the China Bubble Bursts?

By Ken Miller

What's the most important economic question in the world today? One contender would certainly be whether the euro will collapse. Another might be whether the U.S. will plunge into a double-dip recession. But a third, and possibly the most important over the long term, is whether China can find its way out of the biggest housing bubble ever created.


It may seem strange to Westerners, who hear so much about the rise of Asia and growing Chinese competitiveness. But like U.S. Republicans who try to "starve the beast" by cutting government spending, the Chinese Communist Party has been attempting to put a damper on the debt-fueled real estate boom that is at the heart of the nation's economic miracle. This is part of a deliberate attempt that is meant to rejigger the Chinese economy into one that relies more on a domestic service sector and less on manufacturing and exports. If, however, the party's efforts result in a precipitous drop in real estate values, multinational corporations whose revenue and earnings growth are tied to China could be hard hit. And the U.S. could be thrown back into recession. (See pictures of China's 90 years of communism.)


The world has to care about Chinese growth, since it is an important driver of the global economy. China contributed 19% of the world's economic growth in 2010, and that's expected to increase to 24% this year. China's growing strength is essential to both the U.S. and European recoveries.


While Washington has sweated through its partisan debates on budget balancing and economists have bickered over solutions to our low-growth and high-unemployment problems, the Chinese boom of the past several decades has blasted ahead without a glitch. Much of that boom is wrapped up in real estate. In the first six months of this year, Chinese investment in real estate was up 32.9% compared with the same period in 2010, and China's economy is expected to grow more than 9% this year, about equal to its average during the post — Deng Xiaoping era of "communism with Chinese characteristics."


The popular narrative is that China's rise from nowhere in 1978 to its position today as the world's second largest economy has been fueled by cheap labor. While this is one factor, cheap capital and land have been as important. Most Chinese, who are huge savers, have little choice but to put their money in bank accounts that pay interest lower than the rate of inflation; these funds are then channeled into state-owned enterprises whose capital expenditures create the factories and buildings on which the Chinese miracle has been built. (See pictures of China's cutting-edge architecture.)


But the Chinese are pretty smart about money. They see the fortunes the elites have made by buying land at bargain prices and developing it. Ordinary individuals cannot get in on the ground floor to reap the obscene profits made by well-connected officials who facilitate purchases from historical occupants, but they are permitted to invest in real estate at later stages of development, and their wealth grows every year. Anyone who's spent more than a day or two in China knows that real estate is a popular preoccupation. Apartment flipping is all the rage; real estate prices have tripled in the past five years.


The question is whether the building bubble — not only in housing but in commercial property as well — is about to burst. Everywhere you go in China, you see new airports and high-speed train lines under construction; see-through apartment buildings whose empty units loom unilluminated in the night; beautiful underutilized roads, bridges and tunnels; and newly risen ghost towns waiting for occupants. One such town, Kangbashi, in Inner Mongolia, has everything a city needs, including investors who have bought apartments on spec. Yet it remains unoccupied, as reported last year in this magazine. Why does China keep building? Because building creates jobs and wealth for those who are associated with all that development.


Right after Mao came to power in 1949, China experimented briefly with driving growth through internal consumption, but this led to a flight of capital and dependence on foreign borrowing that scared the leadership. The party decided to focus on production and exports fueled by state capital expenditure. The factories that churned out made-in-China goods and the infrastructure that supported the factories encouraged the building boom that has culminated in a glut of high-rises all over the Middle Kingdom. (See pictures of Chinese actors impersonating Chairman Mao Zedong.)


The problem today is that this model, which has worked so well for over three decades, is showing signs of fatigue. Factories that make things the world wants were built long ago (and factories in many other parts of Asia can now churn out goods more cheaply than China). Returns on investment have been declining.
Despite undrinkable water and unbreathable air in many parts of the country, the party continues to enjoy widespread support; its p.r. machine emphasizes its efforts to redress China's humiliation at the hands of the West in the 19th and 20th centuries. Even intellectuals who gripe about personal-freedom and civil rights issues seem to do so through a filter of sincere patriotism. Unfortunately, the strains caused by hell-bent growth are starting to show up everywhere. Mass protests of party abuses — often the taking of land without just compensation — have been rising so steadily that the government did not publish the number of them last year. At government facilities in many regions of the country, there have been explosions set off by citizens so disaffected that they don't care about the consequences.


Beijing knows it's time to change strategy. The party's latest five-year plan shows that it wants to shift away from the old export-and-building-boom model to one that relies more on domestic demand for goods and services. But as it is finding out, this is easier said than done.


One problem the authorities have run into is their inability to stop cheap capital from flowing into state-owned enterprises. These businesses use the money they borrow to invest directly in real estate or lend to others who do so. The business elites owe their management positions to the party, and they continue to arrange access to cheap capital, which allows them to grow their profits while improving their standing in the hierarchy. If the party's attempt to rein in the easy money flowing to state-owned enterprises results in a dramatic decline in property values, the outcome could be an earthquake in the Chinese financial system that would be felt in the U.S. (See what Asia can really teach America.)


In the past, loans made by state banks to big government-related businesses created a significant amount of bad debt that had to be written off. In 1998 and 2004 — 05, a total of about $500 billion was classified as nonperforming loans (which state officials transferred into special investment vehicles in an attempt to create the appearance of containing the problem). But because the state, which owns the biggest banks — and thus the people's savings — ultimately pays the price of the write-off, households bear the cost of the cleanup.
There are rumors around the country that another big round of write-offs is imminent. If Beijing is serious about moving to a consumption model, imposing the cost of these bad loans on citizens again will be a serious impediment to that goal. Household income as a percentage of GDP has been declining in China for almost a decade, and it's hard to see what the people are going to use to buy stuff, even if wages rise, if they have to keep paying for bailouts and can't earn anything on their savings. It is one thing for the government to lower taxes on consumer goods, as it recently did, but unless it can reverse the decline in household income as a percentage of GDP, the people won't spend.


Another problem Beijing has in moving to a new growth model is local and provincial governments' addiction to revenue from land sales. According to the Ministry of Finance, land sales totaled $500 billion in 2010, more than double the amount of the previous year. Because provincial officials are promoted on the basis of their GDP-growth figures and because land sales are an important part of local revenue, it's difficult to curb the enthusiasm of local officials for project development.


Of course, nothing is ever a bubble until it bursts. Even an empty city is not a convincing warning to those who remember that it took Shanghai many years to grow into the now booming Pudong. Although some of these beautiful, ubiquitous new bridges, roads, tunnels and buildings may be underused today, maybe they will prove to be just the catalyst needed to keep the economy driving forward when demand catches up, as the optimists argue. (See pictures of China's high-speed rail.)


But if the bubble pops, it will have serious consequences in the U.S. America sold $92 billion in goods and services to China last year. If China succeeds in moving away from its model of cheap land and cheap capital and makes a smooth transition to an economy based more on domestic demand, hallelujah. But if Chinese land prices plummet, there will be less demand for raw materials and a steep decline in world commodity markets and global trade in general.


That could very easily lead to even higher unemployment in the West. The U.S. economy is already in the strange position of having cash-rich companies that are not spending or hiring. Imagine how much less inclined they will be to do so if they are frightened by a Chinese economic slowdown. And the U.S. government, already shedding jobs in the aftermath of the 2008 crisis, will be in no position to ride to the rescue.


Senior Chinese officials are secretly quite worried about a hard landing. Many observers say a sharp economic decline won't be permitted to happen before the change of leadership in 2012. But the Chinese stock market was not supposed to be allowed to crash in the run-up to the 2008 Beijing Olympics, and it did. The Chinese Communist Party is trying to engineer a delicate redefinition of how its economic model will work going forward. The last thing it needs right now is U.S. sanctions against Chinese imports. A more constructive approach, one that recognizes that the U.S. and China are in the same global economic boat together, would be for the U.S. to incentivize the export of technologies aimed at helping China grow its service sector. The U.S. needs an economically stable and growing China to buy not just its IOUs but also its goods and services.


Miller is managing partner of Keylink Capital International, a strategic financial adviser on international transactions

Extra Credit Questions

1. What are the major problems affecting China’s economy today?  (2 points)
2. If you were an investor, would you seek to invest in China’s housing market today?  Why or why not?  (1 point)
3. Why doesn’t Kangbashi, Inner Mongolia, have any citizens?  Would you live there if nobody else did?  (1 point)
4. How could a China slowdown affect the United States?  (2 points)
5. Which has been more important in fueling China’s growing economy: cheap labor or cheap land?  Explain (there is no right answer here, just back up your answer with quotes from the passage).  (2 points)
6. How is China’s environment?  Is air pollution and water pollution getting better or worse?  How does that affect political stability (i.e. the number of people protesting) (2 points)