Some perspective on the risers (amended)

[NOTE: reader Petrer points out the exaggeration effect caused by comparing 1970 dollars to 2008 dollars, meaning inflation is not factored in. So here, don't focus on the magnitude so much as the relative magnitude of growth between nations. I was going too fast on my blog pile, so this was my bad.]

ANALYSIS: "Into position: South Korea; As its corporate groups rapidly expand their presence worldwide, Seoul is finding ways to heighten a geopolitical profile that has a history of humiliations," by Christian Oliver and David Pilling, Financial Times, 17 March 2010.

The article is okay.

What caught my eye was the chart.

In 1970 Korea sits at $295 per capital GDP--less than a dollar a day! LatAm and the Caribbean are at a respectable $650. Asia as a whole is at $240 (Hey Korea! Not bad!). China, still hung over from the Cultural Revolution stands at a pathetic $114, lower than even Africa at $236.

Shift to 2008: Africa is at $1545, China's at $3,292, Asia is at $4,106, LatAm/Carib is at $7,672, and South Korea? A whopping $19,296, or a 65-fold increase!

China, by contrast, has grown a mere 29-fold.

Pipelines make better neighbors--sometimes

WORLD NEWS: "Pakistan Joins Iran in Gas-Pipeline Project," by Tom Wright, Wall Street Journal, 17 March 2010.

Been hearing about this one for a decade now: nat gas pipeline from Iran to Pakistan that was ultimately going to extend to India. India backed out over security concerns. But now Pakistan is following through. The end of the line will be in Karachi, meaning exportable by ship.

America is not happy to see Iran get this outlet.

China will be, however.

India, as usual, will be pissed at Pakistan.

Building authority on transparency versus secrecy: China's challenge

WORLD NEWS: "Openness Brings Tensions to Fore," by Shai Oster and Sky Canaves, Wall Street Journal, 15 March 2010.

A People's Daily reporter had the temerity, during the annual legislative session of the National People's Congress, to ask the governor of Hubei province about a rape case. His reply was to threaten to go to the guy's boss.

The press reply?

By the weekend, hundreds of mostly Chinese journalists had signed an online petition calling for the governor's resignation, a rare direct challenge of the government's authority.

In short, the public's demand for more transparency grows, and it's having impact at the Congress.

Between the formulaic speeches have been some unusually fiery debates. "The discussion is more lively," says Han Deyun, a lawyer from the vast city of Chongqing in western China. "Before delegates could talk behind closed doors, but now it's out in the open."

And so the Congress grows more real in operation. Doesn't mean the Politburo still ain't running the show. Just means that the pressure is moving upward.

Now comes the official investigation on oil shale extraction

WORLD NEWS: "US probes impact of natural gas extraction: Congress concerns over environment; Groups questioned on use of chemicals," by Stephanie Kirchgaessner and Sheila McNulty, Financial Times, 19 February 2010.

I blogged this emerging phenom, said to revolutionize the U.S. energy biz, and immediately I got back comments about enviro damage--first bad water and then bad air from all the fracturing of deep rock using water laced with chemicals.

Fracking is not banned federally, but states and localities are threatening to wade in.

Now Congress steps in, which seems appropriate enough.

Does this break the magic spell or simply make it sustainable?

Time will tell.

The all-important exit strategy

LEADERS: "New danger for the world economy: When the crisis started, governments helped save the world economy. Now they are the problem," The Economist, 13 February 2010.

The danger of market failure replaced by sovereign failure, or the second wave of the Great Recession crisis, with Greece as the poster child.

What great is the danger this time around?

The mag says three factors will determine:

1) How real is the recovery? All stimulus or something more?

2) The perceived scale of the sovereign debt problems, or Do Greece's woes suddenly make everybody bearish on all high-debt countries?

3) The all-important exit strategy for governments, or the winding down of the stimulus packages and other interventions.

Basic argument: the retreat of big government better be convincing.

That would argue for a strong GOP later this year, meaning it would send a great signal to the system.

It might also argue for Obama being a principled/clueless (depending on your point of view) one-term president.

Why? Our general immediate success with the stimulus means we're politically unsure about the exit strategy, as half of America seems to want the government role in the economy suddenly reversed, and the other half seems pissed that the interventions didn't magically return their jobs and lost wealth. Combine that uncertainty on course with the usual Boomerish take-no-prisoners politics, and that's a recipe for inaction, a practice Congress has nearly perfected these past two decades--first under Gingrich and then under everybody else who's followed in leadership.

Whether a third party arises or not seems meaningless. The upshot will be the Dems lose their across-the-board control (never a good thing, it would seem in modern times).

Will the global economy wait til November to be so assured? Or will it simply see in our continued gridlock the long-term prospect of ever-more gridlock?

Either way, here's hoping the cable news networks inundate me with endless shows about how Washington is broken, because I find them so helpful.

Experimenting with financial risk instruments is necessarily playing with fire

SPECIAL REPORT: "The gods strike back: A special report on financial risk," by Matthew Valencia, The Economist, 13 February 2010.

Mastery of risk is what separates the modern world from the pre-modern version, so begins the Special Report.

Of course, on the heels of a global crisis, such a statement is only likely to induce chortling, but clearly it's true. While suffering triggers just as bad as those that induced the Great Depression (along with a fantastic drop in global trade last year), our control structures--both economic and political--clearly responded well enough to avoid the major catastrophe pathway, despite the great heterogeneity of the major regimes involved (true market democracies versus single-party authoritarian capitalist states).

That welcome reality (the bullet dodged) doesn't yield a magical recovery (i.e., everything right back to where it was!); it just means we're able to soldier on as the crisis continues to unfold in all its complexities and pathways. Such crises, by definition, reveal imbalances (if everything--markets, rules-v-freedom, etc.--was perfectly balanced, then no crisis would be possible), and such imbalances, long in the making, typically are long in the unwinding. When are the perceived imbalances corrected? That is a matter of perception, obviously. For example, the too-many-rules-v-too-few-rules debate will never end. Then there's the reality that China and the US have VERY different definitions of what constitutes an "imbalance" in the global system. Then again, almost no two power centers--either within a nation-state or across them--will ever share an identical take on that subject. That's simply the nature of the beast.

So no, we'll never reach the promised land, where we firmly know the answer to the question, What is acceptable financial risk? And do we currently possess adequate measures to manage it?

But clearly, we're out of the perceived low-risk era that marked the long global boom that stretched back to 1982. Unsurprisingly, we accumulated our share of hubris across that quarter-century ride--now duly corrected.

That new paradigm, Valencia argues, was based on three closely linked developments:

1) the huge growth of derivatives;

2) the securitization of risk (decomposition and distribution of credit risk in new packages); and

3) the rise of computing power--and the quants who exploited them.

The result? We became very confident in our ability to model, and defend against, risk in markets, and thus we became much more willing to explore riskier instruments and markets and economies. That confidence in risk-taking helped globalization to expand dramatically over the past quarter century, but clearly, the impetus for envelope-pressing created, in accumulated behavior, the seeds of the Long Boom's demise (with plenty of bumps along the way).

Again, this is all normal unless you believe in perfect markets--yet to be found or created.

The big rule-set gap in the system was/is that a lot of nationally-/regionally-focused markets were stitched together rather rapidly under the assumption that everyone would police themselves (from bad behavior) and that cumulative effort would constitute a passive global policing function (a sort of trust in the supra-market functioning of the global economy, meaning the system of connected markets would invariably punish bad behavior and reward good behavior). Here we're into extreme optimism, like Thomas Friedman's "golden straitjacket" and the disciplining function of the stampeding "electronic herd." Absent virtually any global financial rule sets (we are truly at the beginning of this huge process), such assumptions were rather fantastic, because, as we know from our own history as a mini-me version of globalization, good rules only come after disasters, meaning "black swans" are ultimately good for business, politics, security, integration, etc., in that Nietzschean way.

As usual, the crisis reminds us that extreme events (a definition that changes with time, obviously), happen more often than we assume (armed with all our risk-management tools). I say, "as usual," because this re-learning of the obvious (there's always something you can't anticipate) is a staple of human progress. Go back far enough and a big stick is the sum of your risk-management tools. When somebody shows up with an arrow (total black swan to your dumb ass), you're screwed, and so on and so forth. Fast-forward to today and we have this far larger toolkit (economic, political, security, technological, etc.), but given all the complexity and volume of transactions (and human attempts to game all those dynamics), invariably disruptive points will be reached and crises ensue.

My point is this: the problems get better over time, but it always remains a race against rising complexity. We're in catch-up mode now, with a big part of the debate being, Was it all due to lax rules? Or lax money?

If you answer the former, you push for new global rules.

If you favor the latter explanation, you push for global rebalancing and China to make the yuan convertible.

If you want to cover your bets, you argue for some of both.

The combination argument says that cheap money did encourage higher debt (hard to argue against that), and that, in the absence of hard limits, bad choices accumulated.

Good example: "Fees for securitizers were paid largely upfront, increasing the temptation to originate, flog and forget."

Then there's human nature: the farther away from the last disaster you proceed, the more your caution fades. As everyone joins the dance, it becomes the industry standard, making players even less cautious (Everybody else is jumping off the bridge, Mom!).

Toss in globalization's rapid expansion, and you've got markets working overdrive to allocate capital. To manage all that risk in new globalization territories, cross-ownership of debt was encouraged. But that meant everybody seemed to own a little bit of every debt but nobody had a clear sense of which debts were truly risky--it all become a giant cloud of assumptions.

Now, the global economy's major players argue over which tools make most sense for planning against future disasters (tougher capital requirements, breaking up financial holding companies, the Volcker rule to reinstate a sort of wall between commercial and investment banking, levying a tax on the big firms to create a fund of resources to use in future liquidity crises, etc.).

That's my interp of the upfront summary article. Please correct where you see fit.

The rest of the report gets very detailed, drilling down on the major points raised in the summary--beyond my willingness to delve.

Black history in America defined by waves of migration

BOOKS AND ARTS: "Black history: On the road; 'The Making of African America: The Four Migrations,' by Ira Berlin," The Economist, 13 February 2010.

I love breakdowns of history like this.

Africans-in-America consists of four historic migrations:

1) the "middle passage" to the coastal colonies (the first, forced migration that's best known, this involves about 400k Africans in slave ships across the 17th and 18th centuries);

2) the forcible transport of about 1m Africans to the Deep South in the early 19th century--a fear-filled process almost as badly felt by the victims as the original journey (if you can believe it), in large part because families were summarily destroyed by break-up;

3) the escape migration from South to North across the 19th century, obviously concentrated heavily in the latter half; and

4) the general immigration of Africans to the U.S. across the second half of the 20th century, where we locate Obama and his problems of "authenticity" because he has no slavery past.

We can contain Iran

ARTICLE: Debate Grows on Nuclear Containment of Iran,
By DAVID E. SANGER, New York Times, March 12, 2010

The establishment is coming around to a reality I've been forecasting as inevitable for years now:

Today a version of the same debate about whether containment is the answer is breaking out again, this time about Iran. Prominent strategists like Zbigniew Brzezinski argue forcefully that what worked in the cold war will work with the mullahs. The cover of Foreign Affairs this month is an article titled "After Iran Gets the Bomb"; it draws scenarios for dealing with what many believe is inevitable. Meanwhile, the administration races to add antimissile systems and a naval presence in the Gulf -- an effort to contain Iran's power in the region, officials say, but it sure looks like the building blocks of a nuclear containment policy, a backup in case the next round of sanctions fails to do the trick.

The piece explores the FA piece a bit by summarizing as follows:

Nevertheless, in their Foreign Affairs essay, James Lindsay and Ray Takeyh concede that the Iran case differs substantially from the cold war ones, and that a successful strategy today would have to recognize that fact. They urge Mr. Obama to prescribe three explicit no-go zones for the Iranians: "no initiation of conventional warfare" against another nation; "no transfer of nuclear weapons, materials, or technologies"; no increase in support for terrorists. The penalty, they argued, would have to include "military retaliation by any and all means necessary," including the use of nuclear weapons.

The weird part of that logic? I don't see any difference with our Cold War package vis-a-vis the Sovs: the implied deal was also no starting conventional wars against other great powers (satellites, perceived or recognized, were another matter--for us as well), no transferring tech (which both the US and Sovs did with treasured clients), and no handing off to terrorists or non-state actors (which both we and the Sovs respected).

So where's the big difference?

The counterargument that Sanger offers is weak: "But there is a counterargument: Why would Iran believe the threat if the United States, having said it would never allow Iran to get a nuclear capability, then allowed it?"

Because just getting a nuke has not historically triggered a nuclear response, that's why. The whole reality of deterrence has always revolved around states already in possession--not those seeking it, for all sorts of obvious, duh-like reasons. I just don't get Sanger's argument here.

The better argument:

Few doubt the missile threat can be contained. Strategists worry more that Iran might slip a crude weapon or nuclear material to terrorists, betting it couldn't be traced back to Tehran. (It's not a bad bet -- the science of "nuclear attribution" is a lot weaker than it seems on "24." )

It's a horrible bet for all sorts of reasons and capabilities and programs that don't make it on TV or the pages of the NYT, especially since if it happened, all other nuclear powers would be EXTREMELY incentivized to prove it was somebody other than themselves, meaning Iran would be ratted out in days, setting up one helluva justified retaliation.

And how do we know America is capable of such retaliation?

Read your history. We're the ones who've actually done it--the only ones. And we got away with it. And we felt virtually no guilt.

(Thanks: Ken Nalaboff)

Showdown in Kandahar

ARTICLE: Kandahar slides into lawlessness as Taliban attacks force government to retreat, By Keith B. Richburg, New York Times, March 14, 2010

Kandahar heats up as the American surge nears. You get the sense of a serious set-piece in the works.

The special relevance to central rule attempting to extend itself from Kabul?

In Kandahar city, residents say, real power rests with Ahmed Wali Karzai, head of the council and the younger brother of Afghan President Hamid Karzai. Ahmed Karzai has been accused of vote rigging and involvement in the drug trade, allegations he has consistently denied.

Showdown, indeed.

Comment policy. Capiche?

Here's how people get bounced from my comments section: they consistently challenge my posts from their particular perspective. This perspective is inevitably one I reject. I typically deal with that perspective in a number of posts over a period of time, making my perspective fairly clear. But these people continue the challenging, doing so in a manner that goads me to respond (typical dynamic: I write on something and I get the goading comment that says in effect, "You didn't cover this one bit, and in my opinion, that negates everything you said, so address my litmus test now!"). Why do I respond? I reject the perspective and find its consistent appearance on my site un-useful (big surprise: I didn't create this blog for you!). So I am forced to regurgitate arguments over and over again, in effect, letting the commenter drive my output. I get tired with this and the commenter, thinking to myself, "Why the f--k am I wasting my time doing this? Was it my dream to get to this point in my career to debate this jerk?" [And yeah, they're all jerks to me at this point.] They have their perspective and I have mine. If we're consistently not in agreement, Sean and I suggest the commenter take it to his or her own blog and God bless 'em, but my blog doesn't exist for all comers to persistently tout their alternative visions, demanding a response. I got over that need to respond to all comers a long time ago, because, quite frankly, I consider it playing down. It simply does not elevate my thinking and instead does just the opposite regarding my style and content. Plus, if their stuff is so good, then it will succeed on its own terms and find publication in serious places (and will eventually attract my blogging, because I consider it playing up). I did not spend my time getting to this point in my career to make your dreams come true. Your dreams, my friends, are your own responsibility.

To say the least, most readers are stunned and angry when we make the decision to send them on their way. I am typically flabbergasted by this response, as in, I couldn't care less. I don't leave comments online very often. In fact, it's pretty rare for me. If I see something I like or dislike, I blog it. I'm generally not interested in improving anybody else's argument. I like working on my own. That's why I'm a writer and not a TV commentator/debater. Doesn't make me a saint. Just means this is how I like to operate. If I want a debate, I prefer it live and face to face (without the fake competitiveness imposed by the TV venue), in the questions and answers period following a brief. Believe me, if I don't get it done in the answer, the person will follow up in small discussion right after. If they're cool about it, I will go all night long--especially if they're buying (or until I need to get to the airport). If they're not, I make it clear to them.

Here's how you stay on the comments: We're in enough agreement that when I see something that pisses me off, I look at the name and say to myself, "Fine, so we disagree on this one." When I see your name over and over again in that context, I come to the conclusion that we don't really agree on much. If I don't feel pissed enough to respond (which means I find the logic weak, but in an obvious way that other readers will easily dismiss), then you might glide along for quite some time, never agreeing with me. But eventually we'll ask you to move on. Piss me off regularly enough, and that time comes faster.

Clear indicator: I find myself ginning out this long angry reply and then I stop, wondering why I'm bothering with this. If I wanted to address this less-than-impressive argument (in my opinion), I would do it. So why bother here? It simply disrupts my thinking and output flow. Ah, but then I'm told, "You don't want to debate me, do you?" And if deep down, my answer is, "No, I don't. I find you an asshole," then you're in trouble, just like you'd be with anyone face to face.

And yeah, if you feel the same way toward me, there's the door.

Many bloggers skip the whole comment routine, like Andrew Sullivan. Sean keeps convincing me to keep it because there's plenty of wheat to be located therein--and he's right. That's why I thanked so many readers in the acknowledgements of Great Powers. But we also know that relationships like that--especially overwhelming or exclusively virtual ones--sour and die just like they do in the real world. So Sean and I actively cull the roster with little to no remorse.

And every once in a while, I feel compelled to remind everybody with a post like this, which I hate writing because--you got it!--I consider this a huge f--king waste of my time ("I could be blogging some cool piece right now!").

I love feeling that I must respond to a comment because it intrigues me. I hate feeling that I must respond to a comment because it's that same crap this person's been pitching forever and I simply cannot let it stand. Worse is the tourist that demands a full-course education because they can't be bothered with reading anything besides the first thing that came across that pissed them off. Those people we move along with alacrity--and delight.

There's nothing weird or unusual about that. Same thing happens in the real world. If I talk with you and my consistent feeling after doing so is that I really disliked that exchange, I will stop talking to you. Just because we're on the Internet doesn't mean I have to entertain everybody who walks through the door. This is my workspace. Access is unlimited (the curtains remain unclosed). Participation is not (cranks are turned away at the door).

And I get to be treated like it's my place, just like you get to be treated when you set up your own blog under your own name.

Believe me, I don't feel disappointed when I see that a post got no comments. Relief is the most common response. I got all I wanted or needed when I wrote the post. I put it on the web simply because storing all this info on my own is too much effort to maintain and protect and access.

If that sounds selfish, then you've merely bumped into the original logic of web logs.

Analyzing Iraq post-election violence

ARTICLE: After playing down election violence in Iraq, U.S. military reassesses, By Ernesto Londoño, Washington Post, March 11, 2010

U.S. military now admits about three-dozen Iraqis were killed in election attacks.

For some perspective: in the U.S. post Civil War election of 1868 there were widespread reports of Klu Klux Klan-related murders throughout the South, with concentrations in three states (Louisiana, Kansas and Georgia) yielding a total of at least 5,000 "Negro" deaths. Democrats won handily in all three states.

At that time, the population of the U.S. was not much bigger than that of Iraq today (maybe 35-36m then to Iraq's 31m last year).

But, of course, that's a completely unfair comparison, because it suggests that maybe the North didn't win the war--enough, or that perhaps it wasn't worth it--for some people at least.

Pushing the regional security discussion

ARTICLE: The Petraeus briefing: Biden's embarrassment is not the whole story, By Mark Perry, Foreign Policy, March 13, 2010

CENTCOM bosses have long chafed under the bit about having Israel-Palestine belong to EUCOM.

There are some great practical reasons for this, like Israel not being diplomatically recognized by several of its regional neighbors, but it does undercut the whole "whole of government" approach thinking.

Pretty much all smart thinkers on the subject admit to the regional security scheme need, to include Israel. The Israel-first crowd naturally worries about being sold down the river in that process, like being forced to accept Iran's nukes (as if anybody controls either that process or the response to it).

But we've spent years pursuing various idiosyncratic, bottom-up approaches to peace in the region, and none have really worked.

With Iran's coming nukes likely to trigger similar status for Turkey and Saudi Arabia (I tend to doubt the Egyptians will make the effort), the top-down solution emerges with a sense of inevitability (as in, you know what the other ultimate option is).

Our military sees that, and admits the larger security ecosystem that is the region. And so you see signaling like this. Petraeus knew the idea would go nowhere.

This conversation is just beginning.

(Via World Politics Review's Media Roundup)

The cell revolution

EDITORIAL: The Revolution Has Gone Mobile, New York Times, February 19, 2010

Nifty little summary of the connectivity revolution that is cellphones. This is a gloriously Gap-centric development that undercuts all the arguments of de-globalization, especially when the internet access and payment-by-phone emergent realities are factored in.

Anthrax 'fellow traveler'

ARTICLE: F.B.I., Laying Out Evidence, Closes Anthrax Case, By SCOTT SHANE, New York Times, February 19, 2010

History seems intent on labeling the anthrax letters crisis as a fellow traveler event, meaning Ivins took advantage of the post-9/11 environment to push his own particular agenda.

I think this is the best explanation we will get.

Fellow travelers are a constant in what I call System Perturbations, because the initial triggering event is large enough to call into question all sorts of existing agendas and rule sets, so it's very tempting for people with their own particular agenda goals to dive into that mess hoping to grab some control by amping up the fear/damage/"chaos".

Distributed nuclear power as an emerging vision

FRONT PAGE: "Small Reactors Generate Big Hopes," by Rebecca Smith, Wall Street Journal, 18 February 2010.

Neat article on small reactors being considered by three big U.S. utilities, who agreed to help the manufacturer get USG approval for commercial use in the U.S.

The article argues that everybody--from companies to investors--sees more distributed risk in smaller reactors. The big ones simply cost too much, scare too much, etc.

The Babcock & Wilcox reactors are like pre-fab houses: built and then delivered.

Why utilities are attracted: the smaller reactors present them with so much more fungibility in their planning.

Naturally, a lot of the same people who hate nuclear power in general, like Amory Lovins (whom I admire), dislike this pathway just as much. I part with Amory on this one.

In general, I see small nukes as a big part of the distributed energy future.

Babcock & Wilcox go back to 1867, and have been supplying electrical generation infrastructure ever since electricity became a utility in this country.

China may not bury us

ARTICLE: There's a new Red Scare. But is China really so scary, By Steven Mufson and John Pomfret, New York Times, February 28, 2010

A brilliant compilation of gag-worthy thinking!

A favorite bit:

This new Red Scare says a lot about America's collective psyche at this moment. A nation with a per capita income of $6,546 -- ensconced above Ukraine and below Namibia, according to the International Monetary Fund -- is putting the fear of God, or Mao, into our hearts.

Here's our commander in chief, President Obama,talking about clean energy this month: "Countries like China are moving even faster. . . . I'm not going to settle for a situation where the United States comes in second place or third place or fourth place in what will be the most important economic engine in the future."

And the nation's pundit in chief, Thomas Friedman of the New York Times, even sees some virtue in the Chinese Communist Party's monopoly on political power: "One-party autocracy certainly has its drawbacks. But when it is led by a reasonably enlightened group of people, as China is today, it can also have great advantages."

Can you feel the cringe?

Better stuff:

"We have completely lost perspective on what constitutes reality in China today," said Elizabeth Economy, the director for Asia studies at the Council on Foreign Relations. "There is a lot that is incredible about China's economic story, but there is as much that is not working well on both the political and economic fronts. We need to understand the nuances of this story -- on China's innovation, renewables, economic growth, etc. -- to ensure that all the hype from Beijing, and from our own media and politicians, doesn't lead us to skew our own policy."

Having lived in China during the past two decades, we have witnessed and chronicled its remarkable economic and social transformation. But the notion that China poses an imminent threat to all aspects of American life reveals more about us than it does about China and its capabilities. The enthusiasm with which our politicians and pundits manufacture Chinese straw men points more to unease at home than to success inside the Great Wall.

Mufson and Pomfret are wonderfully sensible observers of China, having lived there for the duration, as it were, of China's rise to date.

Some brutal stuff here, dished out without mercy:

In other areas, politicians and pundits also have a tendency to overestimate China's strengths -- in ways that leave China looking more ominous than it really is. Recent reports about how China is threatening to take the lead in scientific research seem to ignore the serious problems it is facing with plagiarism and faked results. Projections of China's economic growth seem to shortchange the country's looming demographic crisis: It is going to be the first nation in the world to grow old before it gets rich. By the middle of this century the percentage of its population above age 60 will be higher than in the United States, and more than 100 million Chinese will be older than 80. China also faces serious water shortages that could hurt enterprises from wheat farms to power plants to microchip manufacturers.

And about all those engineers? In 2006, the New York Times reported that China graduates 600,000 a year compared with 70,000 in the United States. The Times report was quoted on the House floor. Just one problem: China's statisticians count car mechanics and refrigerator repairmen as "engineers."

Brilliant piece. Much that needed to be said. Fear-mongers and hysterics put on notice. What's not to love?

(Via World Politics Review's Media Roundup)

Tokyo retakes top spot as U.S. debtholder

WORLD NEWS: "China Unseated as Top U.S. Debtholder: Japan Takes No. 1 Spot Among Foreign Owners of Treasurys, Amid Beijing's Sale of T-Bills, Other Holdings in December," by Deborah Solomon and Mark Gongloff, Wall Street Journal, 17 February 2010.

MARKETS & INVESTING: "Beijing's rebalancing raises fears for Treasuries," by Robert Cookson and Michael McKenzie, Financial Times, 19 February 2010.

China sells a record amount of its U.S. T-bills in December and thus Japan is once again #1 U.S. debtholder.

Has China already "tired" of its role as top creditor to the U.S.?

Some say China is merely rebalancing its portfolio, putting more money into other dollar-denominated assets, like private equity and corporate debt (although this data shows none of that). So yes, a record sale, but when compared to total dollar holdings, a drop in the proverbial bucket.

China, for example, is still buying plenty of the longest-term T-bills, not something one does when doubting America's future. Plus, with the Eurozone's new troubles, the flight-to-safety dynamic is kicking in again, so the numbers may change plenty in January. Plus, China's export earnings simply slowed.

So some suspect that the real underlying trend is that China is letting the short Bills expire and putting a lot of that money in longer ones--pretty smart, one would think, given our near-term circumstances and political leadership.

The thing I would say to remember: if China decided to short the U.S. aggressively, rest assured that this strategy would be so frightening to other great powers/economies that, when forced to choose, I would expect the vast majority to step in and fill the purchasing gap rather than sit back and watch the Chinese commit a sort of financial hara-kiri and hope life would be better in a future world where the Chinese felt emboldened enough to act that rashly.

Plus, the more the Chinese would devalue the dollar, the greater the systemic pressure would be for China to allow its own currency to rise--something also fraught with a lot more danger. Frankly, I like America's odds at political stability with a currency collapse a lot better than China's with runaway inflation.

Anyway, I wouldn't expect such suicidal tendencies from the Chinese Communist Party so long as the renminbi remains pegged to the dollar. After that stops, I think the Chinese will have plenty of problems of their own to manage without picking fights with us.

A genuine insurgency, a genuine COIN effort, and the usual population trapped between

NEUTRALISING THE NAXALITES: "Indian villagers trapped between rebels and police: As conflict between New Delhi and the Maoist movement intensifies, civilians are living in fear," by Amy Kazmin, Financial Times, 17 February 2010.

More interesting details on India's internal shrink-the-Gap COIN effort against the Marxist Naxalites, who have slowly entrenched themselves in the "red corridor" that runs from West Bengal to India's interior south. The Naxalites thrive in "remote, inaccessible parts of rural India," defined as places where the "state architecture" is "detached" from daily life.

China wants to protect/dominate the home market, but also to gain entry into other markets (i.e., have cake, eat it too)

COMPANIES | INTERNATIONAL: "Handset manufacturing: China groups eyes production in India; Assembly line options explored; Move could ease political tensions," by Kathrin Hille, Financial Times, 17 February 2010.

Interesting dynamic to watch: like Japanese or Korean companies of years back that decided it was better to produce in the U.S. versus face growing friction over "stolen jobs," Chinese handset manufacturers are looking to do the same in India. Chinese handsets currently account for 40% of the market, but they're facing a nationalist squeeze.

The way around that, according to a Huawei (world's second largest biggest telecom gear vendor) exec is, "We must be seen as producing Indian handsets, with Shenzhen manufacturing know-how."

Trick for China: while it lets foreign companies do the same to itself in years past, now the push is on to build national flagship brands that both conquer and dominate China's home market while asking for openness from other economies regarding the growing presence of Chinese companies--whether openly or in this stealthier fashion.

How firm is China on the yuan: conflicting messages as usual

WORLD NEWS: China, Firm on Foreign Policy, Bends on Yuan," by Andrew Batson, Terence Poon and Shai Oster, Wall Street Journal, 8 March 2010.

FRONT PAGE: "Beijing hints at dollar peg policy shift," by Geoff Dyer, Financial Times, 8 March 2010.

INTERNATIONAL: "China's Bank Chief Says Currency Is Unlike to Rise," by Michael Wines, New York Times, 7 March 2010.

On Saturday the 6th, China's central bank governor said China will eventually back off from the pegging of the yuan to the dollar, declaring it a temporary response to the financial crisis This is the closest any Chinese official has come to saying the peg will end someday, even though no great hint was offered on timing.

Apparently, the NYT heard no change, while both the FT and WSJ did.

Most economists expect the government to let the yuan appreciate some by the end of the year. The Chinese had let the yuan slowly appreciate prior to July 2008, but then froze it in response to growing market tumult.

Problem for Obama: push hard on the subject in the short-term to appeal to populist impulses here in the States and possibly make the Chinese stubborn in the short-term or wait this phase out.