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A Reply From Fantasy LandGary Tanashian This morning a flag was raised here in my town for "Grampy" Stoughton Atwood, my wife's grandfather who passed away last memorial day weekend. He was always unyieldingly proud of his country and showed it in his service (WWII) and the way he lived his life. This brought a lot of thoughts to the fore. Thoughts about how Grampy viewed his country. Thoughts of my father, also a veteran, who came from nothing, was willing to work hard, has lived the American dream and ultimately taught his son the value in that productivity. I am proud to be an American even though that is not always a popular sentiment these days. Heck, I continually grouse and issue warnings that we modern Americans had better change our ways before it is too late, which it may already be. It is obvious to those who care to see that the US has willingly, if not totally consciously embarked on a progression of sacrificing its productive resources in order to maintain the appearances of the American standard of living. In short, we have collectively forgotten the lessons of our fathers, our forefathers and all who came before us. You work, you produce and you enjoy the fruits of that productivity. You build a great country. Today, cheap liquidity in the form of debt has taken over the role that actual productivity used to perform, in that it allows people to remodel their homes, buy huge LCD televisions, keep their gas guzzlers filled and generally live up to the standards they see for themselves. But there is a major difference; in a final balancing of the books, those who provide productive resources end up with credits and those who use debt for consumption end up with big fat debits. This is in essence the idea that I have been harping at along with many other commentators. But then I read Puru Saxena's Fantasy Land!, and I must say I was not moved in any positive way by it. While I don't necessarily disagree with his premise equating an American politician's brain with Fantasy Land, Mr. Saxena goes on to paint some pretty broad strokes: "Politicians, policymakers, prominent media broadcasters all seem convinced that a stronger Yuan will reduce American imports and make its own goods more attractive in the international playground. They are all living in a dream world. In the real world, American manufacturers cannot compete with their Chinese counterparts even if they tried. In the real world, American wages on average are about 30 TIMES higher than those of China. In the real world, Americans are dependent if not addicted to cheap imported goods. In the real world, expensive Chinese goods will send American retail prices and interest-rates through the roof. In the real world, any meaningful strength in the Chinese Yuan will prick the debt and property bubbles in the US!" Of course, there is some truth in this quote. But a closer look into Mr. Saxena's "real world" shows the average Chinese worker is virtually an indentured servant to the state, toils under often unsafe conditions and remains impoverished relative to his or her productivity due to the Yuan peg. I have written about hubris in the American mindset, and Mr. Saxena's tone hints at the same affliction becoming possible with the Chinese: "Politicians can exert as much pressure as they want but I am afraid China is an economic powerhouse and will do as it wants and in its own sweet time. To put it simply, China's priority is to keep its own people happy and employed." China's banking system is a mess, their industrial base is being built in large part by American and other western corporations falling all over themselves to set up shop in China to exploit the "cheap" labor pool and lower regulatory costs. Chinese markets are rife with hyperbole, speculation and myth. Which isn't to say China is not a future powerhouse, but the reality of the situation is that they need the keys to the kingdom that America is currently in the process of handing over. But they aren't there yet and have many problems of their own to solve along the way. I found Mr. Saxena's comment that "In the real world, American manufacturers cannot compete with their Chinese counterparts even if they tried" personally quite comical. My recent experience (with Pan-Tec, Inc.) has included customers telling me they contract the widgets to China but wouldn't dare outsource their more complex components. Also, we received an order from a medical equipment manufacturer, after they had outsourced a fairly simple part, waited forever and a day for delivery, and received their "finished" goods dented, dinged, out of dimensional tolerance and made from the wrong material. Guess who ended up producing the quality parts needed under expedited time constraints? Sadly, this story repeats all too often. A corporate big wig or "outsource guru" gets the bright idea to buy from China, and the underlings cringe as they are responsible for making it happen successfully. But through automation, sensible marketing and progressive business practices, Pan-Tec effectively participates in the global economy despite the road blocks often set up by American corporations in their zeal to exploit the "China productivity miracle" aka massive global labor arbitrage. Still, Mr. Saxena does see the ultimate truth in the situation. The US has become a pale representation of its former self from an economic standpoint. The Chinese are excellent at producing all manner of goods that their manufacturers have been "tooled up" for (as opposed to the more custom requirements I noted above), and their people are willing to work hard for that "powerhouse" future that may well be in the cards. My intention here is not to slam China, as a previous article called Now I Get It! shows. The situation is merely what it is, a rising power v. a declining one. My critique lies squarely on American shoulders, rest assured. But we have not, I repeat not totally lost all our productive assets. This I know from daily experience. One day, a typhoon is going to wash across American shores that will wash away a giant paper edifice made of debt and promises. We don't need politicians and sound bites blaming the Yuan peg for our problems, we need to re-value our productive resources while they still exist. We need to realize that somewhere beneath the hail of derivatives gambling, the noise of the bond market, the gyrations of Frankenmarket, that is, the stock market, the real estate juggernaut and speculative excess of all types, you can still hear the hum of some very real enterprises, whether they be manufacturing, technology or what have you. Productive enterprises that add to the credit column. On days like today, I remember that we have a great country. Do not take it for granted. People worked, fought and died for it. The least we can do is wake up and realize that you don't get somethin' for nothin.' I'll leave the last word to Mr. Saxena: "In summary, it would be advisable for the American administration to take responsibility of their own economic imbalances and actually thank China for supporting their currency and for allowing the American public to keep consuming cheap imported goods." May 31, 2005 Copyright ©2004-2006 Gary Tanashian Disclaimer: Gary Tanashian does not recommend that any trading or investment positions be taken based on views expressed here. If you speculate or invest it is suggested that you consult a financial advisor qualified in your area of interest.
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