NEWS,12.07.2012

South China Sea Dispute Addressed In Meeting Between U.S. And China

 

The Obama administration now has a taste of the difficult diplomacy necessary to sharpen the focus of American power on Asia, seeking investment opportunities alongside reforms from rights-abusing governments and working with China while defending U.S. interests.From democratic Mongolia to once-hostile Vietnam and long-isolated Laos, Secretary of State Hillary Rodham Clinton this week faced governments eager to embrace the United States as a strategic counterweight to China's expanding military and economic dominance of the region, while still lukewarm about American demands for greater democracy and rule of law.And after meeting face-to-face with China's foreign minister Thursday as she began to wrap up a weeklong tour of Asia, Clinton lauded Washington's cooperation with Beijing even as she took up the case of several Southeast Asian nations threatened by the communist government's expansive claims over the resource-rich South China Sea.In the discussions across the world's most populous continent, U.S. officials outlined their belief in greater democracy and freedom for Asian nations. The vision is part of a larger Obama administration effort to change the direction of U.S. diplomacy and commercial policy and redirect it to the place most likely to become the center of the global economy over the next century.It is also a reaction to the region's slide toward undemocratic China as its economy has boomed and America's has struggled."As we've traveled across Asia, I've talked about the breadth of American engagement in this region, especially our work to strengthen economic ties and support democracy and human rights," Clinton told reporters Thursday. "This is all part of advancing our vision of an open, just and sustainable regional order for the Asia-Pacific."Clinton will meet Friday with Myanmar's reformist President Thein Sein and introduce him to American business leaders looking for investment opportunities. The U.S. eased sanctions on the once reclusive military dictatorship this week, opening up new opportunities for the administration as it seeks to double American exports.Still, Clinton said she would urgeThein Sein to do more. "Political prisoners remain in detention," she said. "Ongoing ethnic and sectarian violence continues to undermine progress toward national reconciliation, stability and lasting peace. And fundamental reforms are required to strengthen the rule of law and increase transparency."The tour started in Japan, where Clinton assured a long-time ally the U.S. was committed to its security. From there, she visited four countries in China's backyard, part of a larger economic area among the world's most dynamic. Up to now, however, China has taken the most advantage.In each place, Clinton was careful to make the case for American values alongside American business aspirations. It's unclear, however, if both messages were received.In Ulan Bator, she credited Mongolia with liberalizing economically as well as politically, holding it up as a foil to the Chinese model of growth without freedom. And she offered deeper U.S. partnerships with communist governments in Vietnam, Laos and Cambodia, which have looked to Washington for fear of being swallowed up by China's expanding power.But while two-way trade between Vietnam and the U.S. has soared by 40 percent in the last two years, there has been little improvement in the Vietnamese government's respect for dissidents. Laos may seek similar business relations with the U.S., but has yet to show any willingness to rectify its poor labor rights record.What Washington doesn't want with these countries is what it has with Beijing, a partnership of unprecedented economic integration that stops when the discussion turns to human rights, democracy or sharing a vision for the world. It's a relationship that neither side appears able to change, both equally reliant on the other's goods and consumers, while mistrustful of the other's intentions."We are committed to working with China within a framework that fosters cooperation where interests align, and manages differences where they don't," Clinton said.In probably her most difficult work of the week, Clinton pressed Beijing on Thursday to accept a code of conduct for resolving territorial disputes in the South China Sea, a U.S. mediation effort that has faced resistance from China..Meeting on the sidelines of the Association of Southeast Asian Nations' annual gathering, Clinton stressed the different ways Washington and Beijing are cooperating, while Chinese Foreign Minister Yang Jiechi spoke of building even closer U.S.-Chinese ties.Neither side mentioned the South China Sea while reporters were in the room. Afterward, according to U.S. officials, they got into the sensitive talk of the South China Sea, an issue that has caused grave concerns among China's neighbors and the wider world as tensions have threatened to boil over amid standoffs between Chinese and Philippine ships and competing Chinese and Vietnamese claims.While China's claim over the entire area has driven countries closer to Washington, countless hours of talks between U.S. and Chinese officials haven't led to progress on a lasting solution. The waters host about a third of the world's cargo traffic, rich fishing grounds and vast oil and gas reserves – economic opportunities the U.S. would be locked out of if China were to seize total control.Clinton, however, again framed it as a question of principles."The United States has no territorial claims there and we do not take sides in disputes about territorial or maritime boundaries," she told foreign ministers gathered in Cambodia's capital. "But we do have an interest in freedom of navigation, the maintenance of peace and stability, respect for international law and unimpeded lawful commerce in the South China Sea."She singled out "confrontational behavior" in the disputed Scarborough Shoal off northwestern Philippines, including the denial of access to other vessels. The actions she cited were China's, though she didn't mention the offending country by name."We have seen worrisome instances of economic coercion and the problematic use of military and government vessels in connection with disputes among fishermen," she said. "There have been a variety of national measures taken that create friction and further complicate efforts to resolve disputes."Despite publicly exhorting both China and Southeast Asian nations to diplomatically settle their disputes, a State Department release made no mention of the issue and instead spoke of Sino-American cooperation on everything from disaster relief to tiger protection. The issues were clearly secondary, but reflected an effort to compartmentalize any confrontation with Beijing and paint a larger picture of collaboration.

Will The European Debt Crisis Affect Me?

 

With headlines like these, it's easy to get caught up in the frenzy of what's going on in Europe. But before you do, here's a little background. Causes of the crisis differ from country to country. Essentially, it is becoming increasingly difficult for countries such as Greece, Portugal, Spain, Cyprus and Italy to restructure their debt. These countries owe a lot in relation to what they are making, and asked countries who were more financially stable, like Germany, to back up their debts. The hope was that these countries could get better terms on their loans because the loans would be less risky with a second backer (like parents cosigning a mortgage). The terms are still being negotiated. Because no one knows how the debt crisis will play out, there is a risk that our economy will be affected. In the meantime, however, we may be affected by something called headline risk. News headlines are constantly filled with doom and gloom. News stories can have a negative impact on investments, even if they are unsubstantiated. This is known as headline risk.The predictions in these headlines might be very real; however, we really can't predict the outcome of current negotiations. One common example of headline risk is when a company's shares drop due to negative media coverage of an executive scandal. These headlines and other media hype can encourage people to sell their investments and push prices down even further. This sounds very grim indeed. We might assume that our economy will be adversely affected and that we shouldn't invest in international bonds. These are distinct possibilities, but let's look at some facts in order to make an informed decision. 

1. Exports: The United States' total exports comprise 14 percent of GDP. Exports to the eurozone represent only 14 percent of this total. 

2. Investments: At the end of 2011, 30 percent of worldwide mutual fund investments were based in Europe.

3. More than 50 percent of the sales of American-owned foreign affiliates are in Europe.

4. Germany is the sixth largest economy in the world with a budget deficit below 3 percent of its GDP. This is in comparison to the U.S. budget deficit at 12 percent of its GDP. The U.S. is the world's largest economy though the entire EU economy is larger as a group.

 

If you have a business catering to European tourists you may feel the burn. If you have all your money invested in European bonds, the crisis will have a negative impact on your net worth. The debt crisis will most likely have an impact on us, but how large will it be? The effect the European debt crisis will have is a matter of degrees and exposure. It's hard to discern how these unfortunate events will affect us and what actions we should take. In other words, what do we have control over and when are we just being reactive?It is important to have a financial plan in place that you understand and have confidence in. That way you can stick to it, so it can meet your needs over time. We also want to differentiate between headline risk versus a real problem with the investment. The difficulty in this is that there is no way to predict how investments will perform in the future. Headline risk generally has short term effects causing prices to dip, but the effects do not persist in the long run. Could you lose money if part of a mutual fund you own is invested in these assets? Of course, but that doesn't mean you necessarily want to make a rash or reactive decision.It is critical to understand the extent of your exposure and the purpose of your investments. You should also make note of the reason you chose them and potential circumstances when you should make adjustments. This can all be documented in the form of an investment policy statement. There are a lot of moving parts in our global economy that affect our investments. It's hard to know how to react and what the ramifications will be for events like the European debt crisis, as well as subsequent market fluctuations. However, if we put an investment plan in place, we are better prepared to SaveUp in the long run.

 

Public Debt in France and Europe

 

All European countries find themselves confronted with debt problems that impact sustainable public finances. The crisis has not spared France, the world's fifth largest economic power, something that makes private banks quite happy.No European nation has been spared the problem of public debt, even if the severity of the crisis varies from one capital to another. On the one hand, there are the "good students," such as Bulgaria, Romania, the Czech Republic, Poland, Slovakia, and the Baltic and Scandinavian states, all of which enjoy a debt lower than 60 percent of their GDP. On the other hand, there are the four "dunces" whose public debt surpasses 100 percent of their GDP: Ireland (108 percent), Portugal (108 percent), Italy (120 percent), and Greece (180 percent). Between the two extremes are found the rest of the European Union countries, such as France (86 percent), whose debt oscillates between 60 percent and 100 percent of GDP. Conservative European governments, exemplified by Angela Merkel's Germany, believe in the importance of lowering public debt through the application of austerity measures. Similarly, Pierre Moscovici, despite being Finance Minister in François Hollande's new socialist government, has set "deficit reduction" as a priority and is attempting to reduce the deficit to 3 percent of GNP by, among other means, cutting public spending. Still, it is common knowledge that the austerity policies promoted by the European Union, the European Central Bank and the International Monetary Fund that are currently being applied across the Old World, are economically inefficient. In fact, they result in the opposite of what was intended. Rather than restarting growth, reducing expenditures; depressing salaries and retirement benefits; dismantling public services, including education and health care; destroying the work code and social benefits -- in addition to the catastrophic social and human consequences that this causes -- inevitably lead to a reduction in consumption. Inevitably, companies cut production and wages and lay off workers. As a logical consequence, the resources that flow from the state are cut back, while the entities dependent upon the state explode, creating a vicious cycle, for which Greece is the poster boy. Because of this, several European countries now find themselves in recession.In 1973, France did not have a debt problem and the national budget was balanced. Indeed, the state could borrow directly from the Bank of France to finance the building of schools, road infrastructure, ports, airlines, hospitals and cultural centers, something that it was possible to do without being required to pay an exorbitant interest rate. Thus, the government rarely found itself in debt. Nonetheless, on January 3, 1973, the government of President George Pompidou -- Pompidou was himself a former general director of the Rothschild Bank -- influenced by the financial sector, adopted Law no.73/7 focusing on the Bank of France. It was nicknamed the "Rothschild law" because of the intense lobbying by the banking sector which favored its adoption. Formulated by Olivier Wormser, Governor of the Bank of France, and Valéry Giscard d'Estaing, then Minister of the Economy and Finance, it stipulates in Article 25, that "the State can no longer demand discounted loans from the Bank of France." As a result, the French state is now prohibited from financing the public treasury through zero interest loans from the Bank of France. Instead, it must seek loans on the open financial markets. Therefore, the state is forced to borrow from and pay interest to private financial institutions, when until 1973, it could create the money it used to balance its budget through the Central Bank. With this quasi-monopoly, commercial banks now have been granted the power to create money through credit, whereas previously this had been the exclusive prerogative of the Central Bank, that is to say of the state itself. As a result, commercial banks are getting rich off the backs of taxpayers.Furthermore, thanks to the fractional reserve banking system, private banks can lend up to six times more than the amount they actually have in reserve. Thus, for every euro they possess, they can loan six euros through the system of money creation through credit. As though this were not enough, they can also borrow as much money as needed from the Central Bank at a rate of 0 percent to 18 percent, as we see in the case of Greece. Today, money creation through credit accounts for 90 percent of all money in circulation in the euro zone.This situation has been denounced by the French economist and Nobel laureate, Maurice Allais, who wished to see money creation reserved to the state and the Central Bank. "All money creation must be the prerogative of the state and the state alone: Any money creation other than that of the basic state-created currency should be prohibited in a way that eliminates the so-called 'rights' that have arisen around private bank creation of money. In essence, the ex nihilo money creation practiced by the private banks is similar -- I do not hesitate to say this because it is important that people understand what is at stake here -- to the manufacture of currency by counterfeiters, who are justly punished by law. In practice both lead to the same result. The only difference is that those who benefit are not the same." Today, French debt has grown to over 1,700 billion euros. Between 1980 and 2010, the French taxpayer paid more than 1400 billion euros to private banks in interest on the debt alone. Without the 1973 law, the Maastricht Treaty and the Lisbon Treaty, the French debt would be hardly 300 billion euros. France pays 50 billion euros in interest annually, making this the largest item in the national budget, coming even before education. With that kind of money, the government would be able to build 500,000 public housing units or create 1.5 million jobs in the public sector (education, health, culture, leisure), each with a net monthly salary of 1,500 euros. In this way, French taxpayers are robbed of over 1 billion euros weekly, money that accrues to the benefit of the private banks. Clearly, the state has given the richest group of people in the country the fantastic privilege of enriching themselves at taxpayers' expense. And it has asked for nothing in return, and has not made the slightest effort to do so.Moreover, this system allows the financial world to subject the political class to its interests and dictate economic policy through the rating agencies, which are in turn financed by private banks. Indeed, if a government adopts a policy contrary to the interests of the financial market, these agencies lower the rating scores awarded to states, something that has the immediate effect of increasing interest rates.Meanwhile, when the state and the European Central Bank bail out ailing private banks, they do so with interest rates lower than those same financial institutions charge the state. In reality they are conducting de facto nationalizations without receiving the slightest benefit, for example, being granted decision-making authority within the banks administrative councils.The credit system established in France in 1973, and since ratified by the treaties of Maastricht and Lisbon, has but a single goal: to enrich private banks off the backs of taxpayers. It is unfortunate that a debate on the origins of public debt is not occurring in the media or in Parliament itself, even though resolving the debt problem would require nothing more than restoring the exclusive right of money creation to the Central Bank.