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"Commulism Series" - Part 8

By Brock Novak  Posted by Brock Novak (about the submitter)     Permalink

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Analyst's Opening Statement:

The (new) term is “COMMULISM” (COMMUNISM fueled by CAPITALISM), one never before mentioned or annunciated in either the public or political lexicon. Here is Part 8 of a comprehensive, integrated 10 part article “Commulism Series”; providing an Analysis, Assessment and Commulism Response Framework on this, the most significant threat to long term U.S. national and economic security.

This 10 Part "Commulism Series" was seven months in development. Considering how fast data changes, the Analyst has strived to keep current the volumes of relevant data throughout, recognizing there may be a few data points that might not be absolutely current at publishing date, particularly during these past few weeks of highly volatile financial market activity. However, the threat assessment, core themes and Counter-Manual (Framework) Guidelines remain fully supported, and not sensitive to the day to day data fluctuations.  

Also, the Analyst views (and intends) this document to provoke public debate on the theme article issue and that the White House/DOD/State Department, et. al to read this, "acknowledge" the threat, and revise the following proposed "Commulism Response Framework" accordingly. The ideas presented are aggressive, if not unconventional in some areas, as they must be, given the seriousness of the threat. They are provocative, for the sole purpose of sparking that much needed, yet currently absent public and government debate, in the vital interests of collective U.S. national and economic security.

Finally, it would indeed be refreshing to hear one of the 2008 Presidential hopefuls in either party or a soon to launch Independent, move beyond petty badmouthing of the other candidates. Instead, have them prudently focus on something of substance both the American people and themselves have yet to recognize and mention, but promptly need to become aware and understand. It is an issue/term/moniker ("Commulism") the media, nor anyone else, has ever mentioned. Who on the campaign trail is ready to broach and champion an issue which dwarfs other issues in terms of future U.S. national/economic security impact, yet has never been mentioned in the public or campaign lexicon?

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Part 1: http://www.opednews.com/articles/opedne_brock_no_080125_u_s__economic_securi.htm  concluded with the integrated "5 Pillar Superpower (Commulism) Sustainability Framework" to support the core ideology - Communism.

                      Economic/Military/Social/Technology/Partnerships   

Note: For the visual, see the illustrative Commulism 5 Pillar Structure Chart at the end of article (also included in all 10 Parts). The columned look was chosen to denote the insidious nature of Commulism, by capturing the underlying Communist ideology intent to displace Democracy.

Part 2: http://www.opednews.com/articles/opedne_brock_no_080126__22commulism_series_22__.htm provided the first half of the analysis and assessment of the first of the 5 Commulism Pillars - "Economic".  

Part 3: http://www.opednews.com/articles/opedne_brock_no_080127__22commulism_series_22__.htm  completed the Commulism "Economic Pillar" analysis and assesment with "What's the Endgame?"

Part 4: http://www.opednews.com/articles/opedne_brock_no_080130_part_4____22commulism_.htm provided analysis and assessment of the next three Commulism Pillars - Military, Social Order and Technology.

Part 5: http://www.opednews.com/articles/opedne_brock_no_080202__22commulism_series_22__.htm provided an analysis and assesment of the fifth and final Commulism Pillar – Strategic Partnerships (and Polarities). 

Part 6:http://www.opednews.com/articles/opedne_brock_no_080205__22commulism_series_22__.htm moved into the action plan, the  “What to Do” about each Pillar - The Commulism Response Framework (CRF). Also known as the Counter-Commulism Framework. It led with “U.S./WEAST Awareness”, followed by the first (of three) part of the Economic Pillar - Counters.  

Part 7 :http://www.opednews.com/articles/opedne_brock_no_080207__22commulism_series_22__.htm addressed the second (of 3) part of the Economic Pillar (part of the Commulism Response Framework), titled the Commulism Impact Factors - Bernanke Strategy, Oil, Gold and Rate Cuts. This is Section B of the Economic Pillar.

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Part 8 is the third of the 3 part Economic Pillar section (part of the Commulism Response Framework), and addresses the Trade Imbalance, Counter-Leveraging and Economic Sovereignty components.

Recall the Commulism Response Framework (CRF) Objective:

The CRF is built upon the premise that if any or all of the 5 Commulism Pillars can be removed or substantively weakened, Commulism will stifle and/or topple. Here then is a baseline plan for the White House/DOD/State Department to enact and build upon to “attack each of the 5 Commulism Pillars” to make that happen.  

Section 2 - Economic Pillar (cont.)

C) Fix Trade Imbalance:

Level the trade playing field - Employ a “Counter-Protectionist” Strategy: Adjust the huge cost/pricing imbalance to U.S. goods sold in China and Chinese goods sold in the U.S., thereby reducing the U.S. trade deficit and its China dependency.  

A 4 part, integrated effort is required: 

1) Substantively Increase Safety and Quality Control/Assurance (QC/QA) Requirements/Standards (demands and penalties) of all imported Chinese products, thereby raising Chinese per unit costs and export pricing (and U.S. consumer safety/satisfaction).  

Objective: Enact a “Proximate Fault & Pay” (PFP) or “They Stray, You Pay” Law/Bill & Related Government Oversight Agency (Analyst Proposes creating the “Foreign Product Regulatory Commission” - FPRC) vis-à-vis Congressional hearings with the CPSC and FTC (outlined below). 

Chinese per unit cost increases as QC/QA requirements/demands/penalties increase. The result being raising their per unit cost, thus making Chinese imports less competitive with domestic goods.   

How to do this?  

Perhaps counter-intuitively, NOT by (directly) going after the Chinese entity. This would be a total waste of time and resources. That challenge made even more difficult now with the Chinese attitude that their manufacturing, production facilities and operations are state of the art, world class. That belief being helpfully further buttressed by Mr. Warren Buffett’s recent glowing praise of but one factory. The Chinese will leverage (exploit) that single statement as one which exemplifies the way the country in its entirety conducts itself, and use it as a crutch to avoid investing further in product quality and safety control, and thereby continuing to (artificially) minimize production cost.  

Therefore, the “push to improve” product safety and quality, and in doing so raise Chinese production cost, rests solely and squarely through (leveraging) the U.S. contracting party, not “hoping” the Chinese get the message. 

So instead of going directly after China, create a protocol called “Proximate Fault & Pay”, which targets and burdens the U.S. entity as the mechanism to achieve desired safety/quality/pricing behavior change from China. 

Essentially, the only way to attack the combo quality/pricing problem and in doing so, driving up Chinese cost is to put the quality control/quality assurance burden solely and squarely on both U.S. based companies that contract manufacturing services in China, as well as on U.S. distributors who import goods (e.g. canned seafood, etc.) directly from Chinese companies for distribution in the U.S. Those two entity groupings are the only pressure points available to upgrade the quality and safety of Chinese exports, and ironically as a major byproduct benefit in forcing those production/manufacturing upgrades, squeeze Chinese manufacturers/producers with adding cost. 

The mechanism to do this will be a new regulation or law built upon a theme of “Mutual Wrong, One Pay” or better yet “They (China) Stray, You (U.S. Company) Pay”.  

Call it the Proximate Fault & Pay” (PFP) Law/Bill (or the “They Stray, You Pay” Law/Bill).  

Meaning if there is a quality control or safety issue with any imported Chinese product, both the U.S. contracting firm and the respective Chinese manufacturer or Chinese company and its U.S. distributor are considered complicit in the loss, yet only the U.S. entity is directly (and severely) penalized. The U.S. company’s neglectful lack of “direct oversight” in both contract set-up and actual Chinese manufacturing operations, is then considered the reason for the loss, hence the “Proximate Fault”. As such, that party will “Pay” the penalty. 

The burden then is placed squarely on the contracting U.S. company to do whatever necessary to avoid and prevent such a product safety/quality breakdown. 

Specifics of the proposed PFP (or PF&P) Framework include: 

a) Establish New Government PFP Oversight/Enforcement Agency - To be created and named the “Foreign Product Regulatory Commission (FPRC)”. This is assuming the Consumer Product Safety Commission (CPSC) and Federal Trade Commission (FTC) are deemed during Congressional hearings (see below) to neither have the culture (pro-active versus reactive) nor infrastructure necessary to undertake this massive new additional role/responsibility. However, FPRC still would work closely in necessary hand/glove fashion with the CPSC and FTC. 

Alternatively, for cost/efficiency purposes, weave the CPSC and FTC, in whole or in part, into an even broader and more robust FPRC, with FPRC now taking the overall leadership role. 

b) Oversight/Enforcement Model: Parallel Path – Government and Corporate, both derivatively modeled after the NRC: 

Government (FPRC): The FPRC is modeled after the Nuclear Regulatory Commission (NRC). The NRC provides experienced staff (safety) inspector personnel (2 per reactor), permanently assigned at and to each of the 104 licensed operating nuclear power reactors in the U.S. The NRC also provides inspection oversight at all qualified non-power generating nuclear facilities. 

Envisioned will be the FPRC doing two things: 1) Creating the specific PFP oversight/execution criteria/protocols and inspection personal/staffing infrastructure “by industry”, with each “FPRC industry team” pro-actively enforcing the PFP on companies within the respective industry group, and 2) Creating and imposing the PFP “Penalty feature” (see below). 

Note: On FPRC staffing/infrastructure model, that includes both the domestic and international components. The international piece will create (within China)a region/industry staff to be the (NRC-like) check and balance on the U.S. companies MRE teams (see below). The FPRC teams will be allowed “no-notice” inspections into any Chinese facility contracted by a U.S. company. This access is a State Department “to do” to secure with the Chinese government. 

U.S. Companies: Create an FPRC-like organization, the MRE organization, staffed to support a permanent safety and quality monitoring team at all major foreign contracted manufacturing firms manufacturing/production facilities, that that U.S. company engages. The head of this new MRE corporate function/group is a C-Suite position and directly links into FPRC. 

c) New Manufacturing/Production Contract Language – The FPRC will develop specific contract language for incorporation into all China et al manufacturing/production contracts, thematically including: 

- The Chinese manufacturing/production company/facility will permit a respective U.S. company’s PFP “Monitoring and Regulatory Enforcement” team (i.e. coin it the XYZ Company’s “MRE” Team” – of course not to be confused with Army MRE’s – “Meals Ready to Eat”) 24/7 unfettered access in their manufacturing and production facilities.

- The U.S. company will in advance, include that MRE cost to the Chinese who will factor it into their proposed production/contract cost.

- The Chinese will immediately respond and correct any safety/quality violations identified by the MRE Team. The local (in China) MRE team will immediately report to the XYZ Company corporate MRE leadership in the U.S., any resistance or problems in real time.

- The Chinese company will pay 50% of any PFP penalties assessed the U.S. company by the FPRC.

- The FPRC will create a list of bad actors, those Chinese companies who either do not cooperate or consistently violate PFP standards. A “three strike you’re out” bad actors list, meaning after three willful events/violations, that Chinese company goes on the bad actor list and U.S. companies are no longer legally allowed to conduct business with that Chinese entity. That is until if and when it gets removed by FPRC at some later date when the FPRC is convinced the company has satisfactorily changed its ways. That review is triggered only when the Chinese company makes a formal appeal to the FPRC. 

Note: If the Chinese company under contract consideration refuses the regulatory language, the U.S. company must do two things: 1) notify FPRC, and 2) seek an alternative manufacturer who will accept the language, either within China or globally elsewhere. 

d) Reporting – Any company conducting business in China must file a quarterly report (parameters TBD) to FPRC regarding PFP violations and action taken and any relevant issues the FPRC should be aware of. 

e) Penalties: To encourage rigorous safety and quality standards compliance and enforcement by U.S. companies, the FPRC will create a (severe) TBD penalty system to be solely imposed on the U.S. company, thematically involving: 

- Failure to include the new regulatory language in the signed Chinese contract. This is deemed an “intentional act to violate the law”. 

Penalty – Treble damages (3x’s the 50% net annual profits from products received from that Chinese factory/company). 

- Failure by XYZ's China based MRE team to aggressively enforce contracted FPRC MRE Team standards at the Chinese facility. This will likely first be caught by the FPRC inspector review and/or further downstream CPSC/FTC generated complaint. 

Penalty - 50% net annual profits from products received from that Chinese factory/company. 

- FPRC “No-Notice” Inspections at U.S. company contracted Chinese facilities. 

Penalty - A TBD penalty menu by FPRC, based on specific violations noted, that should have been picked up and addressed by the respective XYZ Company MRE team, but were not, but should have been. 

- Others - TBD  

Analyst Note on PFP/FPRC Section: 

Probably to no surprise, the CPSC and FTC are “reactive organizations”. Meaning they do not pro-actively on a broad and granular basis seek out problems. Instead they are “complaint based”, relying on the “honor concept” that companies will regulate product safety/quality themselves. A challenge to ensure even in domestic manufacturing. An impossible guarantee with regards to contracted foreign based manufacturing. These are safety and quality complaints coming over the transom from consumers and/or businesses and/or other government agencies. 

Case in point this Q/A from the CPSC website:

Q.Does CPSC test or certify products for safety before they can be sold to consumers?
A. No. CPSC doesn't have the legal authority to do that. However, responsible companies test their products before putting them on the market.

With the object of this part of the Commulism Response Framework to increase Chinese product safety and quality (and therefore Chinese cost), the Analyst notes the CPSC defers “quality” to the FTC. Interestingly, the FTC attempts to address this by ensuring competitive marketplaces, meaning breaking up monopolies and ensuring an anti-trust business environment. In reviewing the FTC website, the theme comes across that if competition exists, then so to must quality. In fact, this Analyst would argue quite the opposite. Competitive marketplaces seek to ensure competitive price, NOT necessarily quality. Quality, unless regulated will often be at the expense of low price to many/most (not all consumers). 

Bottom line, the combo of “complaint based” and “wishful thinking (i.e. competition drives quality)”, suggest the CPSC and FTC leave a gaping hole in the oversight chain and need a lot of help. And why the new FPRC and PFP Law collectively fill the void to protect the consumer and businesses. And in doing so, raising China’s cost and improving the trade (Im)Balance. 

Analyst (Strong) Recommendation: The mechanism to make the “PFP et al” come to fruition is a Congressional Hearing on the China et al foreign product safety/quality (& related trade imbalance aspect) control matter with the CPSC and FTC.  

Congress should promptly convene joint CPSC and FTC hearings with Acting CPSC  Chairman(woman) Nancy A. Nord and FTC Chairman(woman) Deborah Platt Majoras to conduct a comprehensive joint safety/quality “Gap Analysis” (with China as the focus) to identify what is in place and what is missing to ensure across the board that all U.S. safety and quality standards are being met, with confidence. Not the case now on either front. 

This Analyst will pre-empt the result of those hearings with a prediction that the Congressional Committee decision will be to create the PFP Law and FPRC (if CPSC and FTC deemed not able to take on the added oversight/intervention responsibility). The FPRC then becomes the proactive problem identifier and problem feeder to the CPSC and FTC to address the violations. With the FPRC and its pro-active problem finding, the in-flow of violations to CPSC and FTC will be substantial if not explode, and likely require significant but necessary staffing upgrades.   

Of course, with the initial barrage of violations and new penalties imposed per PFP, over time and quickly the U.S. companies and Chinese manufacturing behaviors will improve, as will the Chinese being less competitive - i.e. improving the trade imbalance. 

Will U.S. consumers be less than thrilled that actions by the U.S. will drive up costs of products previously purchased at a reduced price? The answer is most definitely yes, for those that don’t see the forest through the trees. Therefore, the majority. But again, this is a big picture decision when national security outweighs myopic public sentiment. 

And for those that will cry this to be protectionism too, just like the tax/tariff recommendation earlier, it certainly is not. It’s counter-protectionism. No choice but to. All’s fair in an adversary created non-competitive environment. See Analyst note at the end of Part 8 regarding all of Section 2 (Economic Pillar).  

2) Tariff and/or tax Chinese goods, as the Chinese do U.S. and WEAST goods.

A quid pro quo approach.  

For those that will cry this to be protectionism, it certainly is not. It’s counter-protectionism. No choice but to. All’s fair in an adversary created non-competitive environment. See Analyst note at the end of Part 8 regarding all of Section 2 (Economic Pillar). 

3) Re-visit and Re-engineer or (preferably) Cancel all Free Trade Agreements 

Even though none exist with China, the ones that do exist elsewhere (grossly) negatively impact U.S. global trade competitiveness and therefore indirectly seriously weaken the U.S. positioning against Commulism.  See Analyst Note at the end of Part 8 for more detail why.   

4)  Rescind Most Favorite Nation (MFN) status, (renamed Normal Trade Relations (NTR)) for both China and Russia, and any other designated Commulism countries (Vietnam?).  

Additionally, demand quid pro quo country equivalent NTR status from all Commulist regimes for U.S. products.  

On rescinding NTR, the U.S. will hear loud complaints and threats from China for doing this but if steadfast in fending off the bully response, this is a prudent (i.e. anti-Commulism/thwarting) action in the long run. It restores significant (huge) lost leverage for the future. If China (or Russia) wants anything (and they desperately want NTR status), that should tell the U.S. something. In effect do the opposite – don’t give it to them. Unless of course there is a quid pro quo more heavily in favor of the U.S.. It’s analogous to a game of major league hardball. Unfortunately, the U.S. has so far played the game as if it were grammar school softball.  

Going forward, the U.S. and WEAST must take the “quid pro quo - plus” deal making approach called WIIFM (wiff-um) –“What’s In It For Me”, with Commulist countries. The historical approach has been to give China what it wants in return for really nothing more than political goodwill. The recognition needs to be immediately made that Commulism doesn’t substantively reward but rather ravenously devours political goodwill, leaving absolutely nothing in its place. Instead of goodwill, something equally or more significant and tangible has to be awarded U.S./WEAST in any tradeoffs whatsoever with China (and other Commulist countries). 

That said, here’s an integrated, yet radical WIFFM idea (recommendation), provided if nothing more than to provoke the necessary debate, that the U.S. (WEAST) is in fact being taken to the cleaners and needs to receive much more than it historically and going forward gives: 

Initial (Radical - to provoke debate) WIIFM Recommendation (based on the fact that the U.S./WEAST want the Yuan to freely float (to get stronger) and China wants NTR status):  

Upon rescinding NTR status above to get China (and Russia’s) attention, then offer NTR status back to China but ONLY if a) it removes all fixed constraints (”currency manipulation”) on the Yuan and allows it to float freely AND b) agrees to a swap (“Yuan for Gold”) of the U.S. gold bullion reserves at Fort Knox for an equivalent amount of (grossly) undervalued Yuan, replacing the vault gold with Yuan. Add in the debt factor “sales leaseback” provision to the discussion too. Given the delay this recommendation will take to be executed, the Analyst would suggest this exchange (would) be done conveniently in the $1,300-1,400 per ounce range outlined in Part 7, arguably the “tulipian peak” of this price cycle, a peak achieved before the Yuan is predictably “really” allowed by China to freely float and substantively strengthen.  

Analyst Note: With “everyone”, including the local city cabbies, suddenly interested and talking gold (call it “gold fever”)at the $930 plus level, as opposed to no one even mentioning it just 1-2 years ago at dramatically lower price levels, suggests an intermediate correction is near. Therefore, a pullback from the $930 plus level back to the $775-825 confluence level as outlined in Part 7, before the price upswing resumes and moves substantively higher would seem reasonable, if not expected.  

Having earlier debunked the Fort Knox super myth and exposing the gold “backstop” there as being a paper tiger, not at all significant in the global scheme of things, the U.S. should require China to trade “Yuan for Gold”. China buys that gold and the U.S. replaces the gold at Fort Knox with Chinese Yuan. Why? Simply stated, the Yuan, in terms of comparative potential percentage appreciation over the next 5 years, is better than gold, assuming the swap at the $1,300 per ounce giver or take level. Gold will be peaking (and then will arguably settle substantively lower into the Fibonacci confluence pricing area), while the Yuan is grossly undervalued. This undervaluation recently reported as 40% or more against the dollar and increasing by the day – noting that that estimate was before factoring in the recent series of 225 basis point rate cuts by the Fed, which would drive that percentage even higher. The arbitrage over the next few years should propel the value (Yuan) of the Fort Knox “backstop” dramatically higher, as well as provide further needed currency leverage in the future. Treat it as a golden, leveraged investment opportunity. And a boost to U.S. economic/national security. 

D) Counter-Leveraging:   

“Counter-Currency” Leverage Plan - U.S. (and WEAST) Treasury(s) create a “Paulson Plan et al” to aggressively purchase the Yuan.  

Doing so achieves three objectives: 

1) Drives the (grossly) undervalued Yuan valuation versus dollar up over the longer term, thereby enhancing competitiveness of U.S. exports and diminishing competitiveness of Chinese imports to U.S. and WEAST.  

Important notes:      

- The Yuan as noted above is currently an absolute value bargain (arguably a steal) and getting cheaper by the day, relative to China’s current and projected growing future economic strength. Compounded by the fact that Chinese currently do not let it float against other currencies, means it’s therefore likely to remain artificially low in the short term. The U.S. and WEAST should therefore consider it a fire-sale and be purchasing every Yuan they can – non-stop.    

- Authors David Hale, Economist and Chair of Hale Advisors and Lyric Hughes, founding publisher of Chinaonline.com make a gross conceptual error as respects Yuan valuation. In their January/February 2008 Foreign Affairs article titled "Reconsidering Revaluation", they suggest the answer is not strengthening the Yuan but rather integrating China into the global economy.  

The Analyst argues this theme is fundamentally flawed from the simple premise that China does not want to be integrated into the global economy. Rather it wants the global economy integrated into its own. Under the latter realization, and to prevent that from occurring, strengthening of the Yuan is an absolute must, and becomes one of the key counter-Commulism objectives.

2) Provides huge investment return opportunity. The artificially undervalued Yuan versus China’s current and future economic leverage, creates huge investment upside potential. 

3) Offsets the “dollar hostage” leverage effect the Chinese government has with its $1 trillion (part of $1.4-1.5 trillion) dollar denominated foreign exchange reserves. At some point, and in this analyst’s view - now, that counter-leverage (i.e. buying the Yuan) will be mandatory. 

E) Ensure Economic and Country Sovereignty: 

1) Create Counter-CIC (and SAFE) Strategy/Plan 

With the goal of maintaining “economic sovereignty”, the U.S. and WEAST should establish a comprehensive “authority driven” study group with “actionable output” (unlike the Iraq Study Group for example where there was none); its objective to develop a mandated strategy/protocol to aggressively counter China’s newly created Sovereign Wealth Fund, China Investment Corp (CIC), and its sourcing point - SAFE.  

CIC (SAFE) is part and parcel the Chinese government, and it’s the principal and lead vehicle to externally execute the main phase of the Commulism game plan. That is, optimally leveraging its nearly unlimited foreign exchange resources to secure critical control and chokepoints in the global economy. If CIC (or SAFE) is anywhere (regardless of degrees of separation – all strategically important deals should assume it is and be scrutinized in that fashion; i.e. guilty until proven innocent) linked in a potential deal or investment regardless of degrees of (strategic) separation to the potential transaction, CFIUS and WEAST equivalents should intervene promptly and very aggressively with a broad and aggressive set of counter parameters.  

Analyst Note: In general, U.S. companies and the U.S. government need to quickly recognize and understand that Sovereign Wealth Funds, regardless of country origin, are not the capital sourcing panacea the investment community currently views them to be. Some are more benign and transparent than others. Then there is CIC (and Russia) which is not - at all.  

The Bush/WEAST interest in establishing an “International Code of Conduct” for Sovereign Wealth Funds is a complete and udder pipedream, and deserves not the light of day (the Analyst puts this idea in the same heap as the 2008 Economic Stimulus Plan - useless).  

The SWF countries that are already generally transparent in their intent and operations (e.g. Norway), will continue so. The ones that currently are most certainly not (e.g. China and Russia), will continue not to be, regardless of any and all “gentlemen protocols” put in place. As respects “threat SWF’s” like China and Russia, as opposed to “friendly SWF’s” like Norway, the ONLY defense is a “dramatically upgraded” FINSA 2007. FINSA 2007, while an improvement to Exon-Florio, still has a gaping loophole (or two or three). See Coming Section 5 in Part 10. 

In fact, SWF’s in general, opportunistically and parasitically prey upon U.S. dollar weakness and associated asset devaluation and balance sheet erosion from credit losses to “buy the U.S.”. While it may be a welcomed near term euphoric shot in the arm, this is analogous to looking down the road at the high cost (pain factor) to pay/endure as there is analogously from withdrawal from any addictive drug. In some cases as above with CIC, more akin to letting the fox in the hen house.  

Weave in a (real) upgraded Exon-Florio Provision. 

Note: FINSA (E-F “Upgrade?”) is fundamentally flawed – see why and how to fix in Part 10.  

2) Mitigate (dollar cheap) U.S. Asset Sales/Loss to foreign investors vis-à-vis a (real) upgraded Exon-Florio Provision. 

The Jan. 20, 2008 New York Times notes the lower dollar creating disturbingly unique buying opportunities of U.S. assets for all foreign entities, whether it be China or any other. Unfortunately, the absolute need for a low dollar now creates this vulnerability, which must be accepted as a price or cost for the last decade or two of gross “trade et al negligence” with China.  

That is, allowing the U.S. to become so totally trade/debt dependent on China, that it finds itself in the vulnerable situation it does now. The cost or price for such negligent policies and behavior then may be the sale of certain valued assets and real estate to foreign entities similar in nature to the Rockefeller Center type deals of the 1980’s to the Japanese, but this time on a much grander and more granular scale. However, this does not mean completely give away the store. In fact, the only thing that can be done to “minimize” this historical “trade policy negligence cost” or “loss of America” is to put a greatly upgraded Exon-Florio provision in place to ensure any and all deals of strategic size and/or technological significance are more fully vetted, scrutinized and denied if they present any link whatsoever to Commulism.       

Note: FINSA (E-F “Upgrade?”) is fundamentally flawed – see why and how to fix in Part 10.  

3) Defend NATO-east:   

To ensure continued “country sovereignty” vis-vis sovereign economic security, create a protocol to counter the Russian approach of “buying off/buying back” the former (now NATO) Soviet Union Republics and too Warsaw Pact entities.  

On that note, see coming NATO Article noted earlier. In that article, the Analyst addresses the flaws of NATO Treaty article V, and provides a draft re-rewrite reflecting the new Commulism threat. 

4) “Immediately” Cancel the Economic Stimulus Plan: 

Unleash an “Anything But (the Stimulus)” public campaign. 

Cancel it and redirect the funds to areas that will reap a (meaningful and substantive) return. That is, targeting them directly or indirectly impacting/thwarting Commulism and/or directly improving U.S. citizens safety and quality of life. For example, bailing out the bond insurance industry, re-engineering/revamping the aggregate U.S. intelligence community to meet the Commulism threat, rebuilding U.S. infrastructure - roads, bridges, tunnels etc. etc.  

Create a new American public rallying cry (campaign) designed to send a message to Congress as regards to stop the total and unequivocal waste and what to (not) do with the stimulus package funds. 

That being, unleashing the “Anything But” public campaign. 

Note: The rebate checks won’t go out until May/June so there is still time to stop this fiscal lunacy. 

5) (SEC) Regulate the Bond Insurance Industry (see earlier CCMP discussion in Part 7): 

This industry has the ability to wreak havoc on the economy if not managed (regulated) properly. Failure to properly manage it as has been seen, puts the economy and therefore its sovereignty at risk. Regulate vis-a-vis the SEC.

Note: Changing analyst rotations at S&P and Moody’s is NOT a solution. 

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Analyst Note (Regarding entire Economic Pillar): 

For those that may read the actions recommended in Economic Pillar section  above, and in knee jerk reaction scream “protectionism”, they most certainly are not. Rather, consider it counter-protectionism or better yet as the Analyst will coin “economic survivalism – or econalism”.

Wikipedia defines “protectionism” as the economic policy of restraining trade between nations, through methods such as tariffs on imported goods, restrictive quotas, a variety of restrictive government regulations designed to discourage imports, and anti-dumping laws in an attempt to protect domestic industries in a particular nation from foreign take-over or competition.

Ironically, the situation here is that China is pursuing aggressive protectionist practices even though without such measures, it is already (easily) the more competitive player; its products pricing well below market as a function of cheap labor costs, artificially undervalued Yuan and questionable quality (based on recent news reports). Call China’s strategy then “enhanced protectionism”. In other words, China is fundamentally the more competitive player and therefore should sensibly have absolutely no need for protectionist practices. However, the fact China doesn’t need to employ these (yet), but aggressively does corroborates the point that China is being overtly exploitive and abusive in leveraging protectionism to not only beat, but totally crush all competition.  

This is not to say at all that China is immune to inflationary pressures as its economy overheats and productivity improvements decelerate. In fact it is as vulnerable as is any economic player and beginning to substantively experience those effects now. Philip Bowring in his Sept. 12, 2007 International Herald Tribune article titled China's Money, makes the point “China has turned decisively from being a deflationary to an inflationary factor in the world economy. Just as the falling cost of manufactured goods driven by China enabled the industrialized world to enjoy nearly stable consumer prices despite very loose monetary policies, so now the reverse is beginning to happen. Loose money has taken a grip on China and its effects will feed back to the West.”  

Problem is that when some semblance of parity arrives at some distant future point, China will already have achieved its objective. That is optimally exploiting its pricing advantage for a long as it could for as much as it can secure in foreign exchange reserves, in fact a treasure trove, an economic war chest.

And for those who may argue that the booming trade surplus numbers reported by the Chinese government are nothing but smoke and mirrors, being solely a function of mis-invoicing and transfer pricing, then this Analyst would argue those naysayers seek corroboration of the data from China’s own trading “clients”.

Note the analyst’s use of “client” rather than “partner” reference. “Partner” constitutes a collaborative two way exchange, which is probably not the case here. These “clients” (e.g. the U.S.) can and do verify the data as accurate.  For example, note repeated references to U.S. Census Bureau data throughout this piece which validates the Chinese assessment. If the U.S. government data sources mesh with the Chinese data, one can reasonably assume the Chinese numbers are real and accurate. 

Those inflationary effects however are only now just beginning to emerge and only slowly creeping into China’s export pricing structure, but still not yet anyway, of the significance to derail or impede at least in the short to intermediate term, the velocity of trade imbalance inflows created by that differential. This pricing differential will certainly continue to deteriorate over time but for the immediate future, China will certainly optimize and exploit its controlled, undervalued currency and trade balance competitive advantage/leverage differential to maximize growth in its foreign exchange reserves. 

Note: As China begins (already) to succumb and grapple with “some” labor market inflation, it too interestingly is beginning to offshore some manufacturing to countries with even cheaper labor costs like Vietnam for example.   

Therefore in both leveraging its pricing differential advantage AND employing protectionist practices, China not only maintains but further exacerbates/accelerates growth (in the short to intermediate term) in its already bloated and ever bulging trade surplus; its dual “price (low cost) plus protectionism” global export/import trade competition model being effectively a run away freight train money maker. That robust machine cranks out obscene wealth for China, that wealth fueling the Commulist global economic domination agenda.  

It’s also worth noting that that trade surplus grows in the aggregate from all its trading partners at mind boggling rate of approximately $1-2 billion per day. 

With that said, the 3 choices then to respond to the Chinese protectionism factor: a) Do nothing, b) Complain, or c) Counter it. The first two leave the U.S. in the same status quo non-competitive, perpetual losing situation. Counter-protectionism (econalism), however does not. It becomes an unfortunate but necessary reactionary response to market irregularities created by China's aggressive pursuit and fostering (unnecessary) protectionist policies/practices. China is acting as a de facto economic bully, and as is the case with any bully (situation), will continue to do so until it is aggressively (counter) challenged and pushed back upon.  

If there is a historic precedent to consider in evaluating geo-political bullyism as a practice and proxy for China’s own geo-economic bullyism, one need only look back at Neville Chamberlain’s valiant but disastrous attempt in 1938 to appease Germany. The lesson he and the rest of the free world learned, and much to late, is that you cannot appease a dictator, no matter what derivative form, including economic, they assume. 

Free trade is a wonderful concept. In fact, the antithesis of protectionism. But it must be fair trade too. Only when all parties play fair and on a level playing field do we have true and fair competition. Until the Chinese are willing to support that “fair free” trade philosophy in both words AND more importantly actions, and cease their overtly unnecessary and therefore exploitive use of protectionism, the U.S. and WEAST have no choice but to remedy with econalism (counter-protectionism). Without econalism, the economic bleeding and hemorrhaging will only worsen. 

In reviewing the Economic Counter Framework, in the aggregate, the bottom line being the incurred “prudency cost”, associated with these multiple, yet complex and disciplined mitigation actions being but a mere pittance when compared to doing nothing different and the associated predictability of enormous future economic hostage concessions and/or nationalization of U.S. and WEAST corporate assets.  

Economic Pillar Section Conclusion: 

As respects the CRF and addressing the Commulism Economic Pillar, the question becomes “will the parties that need to execute on this Framework, do so?”. This Analyst argues there is absolutely no alternative but to do so, and do it now.  

However, it’s indeed interesting how huge the uproar regarding Microsoft’s intent to acquire Yahoo and the associated perceived impact on competition. Interestingly and ironically too, the one viewing it as the biggest threat to competition is none other than the company with 75% plus market share – Google. 

Consider then the many orders of magnitude more significant issue (Commulism) and the fact that China’s drive to dominate the U.S. economy and greatly reduce if not eliminate all competition, is being met with not so much as a whimper from the same investor/public community up in arms about Yahoo and/or Microsoft/Google.  

Where’s the loud “China anti-trust protests”? Perhaps it is not to be expected. Afterall, recall that none of those (or for that matter anyone else, anywhere) vocal “pro-competition” people have so much as yet even uttered the term “Commulism”. It’s perhaps therefore to much to assume they’d much less take tangible action.   

Perhaps the embryo beginning of a future Harvard Business School Case Study on “tempest in a teapot (Yahoo), lack of big picture (Commulism/China)” itis. 

Coming Next: "Commulism Series" - Part 9.   

Part 9 addresses the CRF approaches to the Military and Social Order Commulism Pillars.                                                     

                                                

 

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