It would be a good idea for current and future presidents not to consider appointing New York Democrat Sen. Chuck The Schmuck Schumer to any diplomatic positions. He’s not a particularly good ambassador for his own state, much less America.
Schumer’s latest unwise statement in his reckless pursuit of headlines might have more import than his previous assaults on discount airlines’ pricing policies, verbal skewering of flight attendants or even his clumsy destruction of IndyMac Bancorp. Certainly this episode might do more damage than his previous gaffes.
Why? Because attacking China while their President is in Washington and when the federal government owes them $900 billion isn’t a particularly intelligent idea.
“There’s no bigger step we can take to preserve the American dream and promote job creation, particularly in the manufacturing sector … than to confront China’s manipulation of its currency.”
The message to Hu is “we are fed up with your government’s intransigence on currency manipulation. If you refuse to play by the same rules, we will force you to do so,” Schumer said in a conference call with reporters.
But wait – that’s not all. After attacking the Chinese for their currency practices on Monday, Schumer went back to the well today. This time he was squealing about China’s policy on rare earth materials. It seems the Chinese have cornered the market for minerals like cesium and gadolinium, mining some 97 percent of the world’s supply, and they’re putting the squeeze on the rest of the world.
“From currency manipulation to hoarding rare earth minerals, the Chinese have time and time again violated international treaties and trade agreements to help their economy at the expense of others,” said Schumer. “The time for talk is over, and the Administration must seize the opportunity of President Hu’s visit to press China to end these practices, which are damaging companies and job growth in Rochester, Buffalo, and across the state and the country.”
There are three things at play here, and Chuck The Schmuck is a fool on all three scores.
First, President Obama – who is of Schumer’s party and one assumes has the Senator’s support – is hosting Jintao this week in an attempt to secure Chinese cooperation on a range of issues. This is, of course, something of a heavy lift – China just showed off a brand-new stealth fighter five years earlier than anyone thought they’d have it, they’re nearly ready to roll out a missile dubbed a “carrier killer” which could put American naval dominance at risk, they’ve generally thwarted the aims of America and our allies in North Korea and they’re stepping up efforts both to pirate our intellectual property and to engage in cyber attacks on our national security infrastructure.
In other words, the Chinese smell weakness – and they’re doing everything they can to press their advantage against Obama. If Schumer wants to be useful, antagonizing the Chinese and creating an embarrassment for the president of a country and a culture in which the loss of face is a very, very serious matter when that president is in Washington simply cannot be seen as productive or helpful for Obama.
So the Schmuck Offensive is a bad idea in principle. If it’s being done as part of some kind of good cop-bad cop maneuver in concert with the White House, it’s a bad idea in execution; the Obama administration would do well to ask for cooperation from a useful Republican idiot with a fetish for microphones like Lindsey Graham or Chuck Grassley rather than enlist Schumer for such a gambit.
But in practice, Schumer’s attacks are moronic as well.
The idea that the Chinese currency manipulation is killing American jobs is asinine. As Jeff Carter at Points And Figures (link is above) notes, Schumer has voted for policies which have done far more damage to us than the Chinese could ever dream of doing. Carter goes further…
Let’s assume Finance expert Charlie Schumer gets his way. China lets their currency float. What would the expected fall out be?
First move would be the value of the yuan would rise significantly. It’s doubtful that it would be worth more than a US dollar, but it might be worth Currently, the peg is $7.75-$7.85 to one US dollar. It’s hard to put an exact number on where it would go, but lets say initially it rises by half. $3.40 to one dollar.
Ask yourself a question, where does America buy most of it’s goods? If you said China, you were right. Everything that you buy from China just doubled in price. I think they call that hyper inflation. Are you ready for that?
Good because it gets worse.
Americans own the lion’s share of their own debt, but China owns a large percentage of it. They have no choice except to buy our debt as long as they are reliant on our consumers to fuel their economic growth. They ship product and receive dollars. Then they repatriate those dollars in US Treasuries. They can buy other things, but the risk/reward because of currency fluctuation is too high. They have to be bidders on US debt.
This makes the borrowing costs for the US Treasury artificially low. Borrowing costs would increase significantly if China didn’t have to buy as much debt. Since we are playing a speculative game, suppose China cut its purchases by half-the same as the currency value. Where would short term rates be? Can you say 3%? That would play out further down the curve. With the amount of debt Obama has issued, it’s not clear where 10 year notes would be but it would not surprise me to see them at 8% or higher.
Higher US Treasury rates increase the borrowing rates for business and slow growth. There is a finite supply of money at any point and time in the economic system. More government borrowing crowds out businesses.
Higher inflation and higher rates would crush the stock market. Stock markets never like those two items. In the pits, we’d call it a puke. The financial crisis might be mild in comparison.
It gets much worse.
The US is uncompetitive in the labor market. Much of this is because we have a much higher standard of living. To get workers to work, you have to pay a higher rate. However, a lot of it can be explained by union rules in many of our labor markets. The higher value of Chinese currency will make our goods cheaper to China. What do we make that they want that they don’t already buy? Additionally, the factories that Schumer has his eyes on, like GM, have so much slack that they would have to hire relatively few workers to keep up with demand.
In reality, the high inflation, high interest rate environment that Financial engineer Schumer seeks would increase unemployment.
Carter does a nice job of outlining what the Chinese could do to the U.S. economy if they ever decided to initiate a trade war with us. He doesn’t of course, address the elephant in the room – namely, that China owns $900 billion in U.S. Treasury debt because Schumer and his friends on the Democrat side have spent us into oblivion since becoming a majority on Capitol Hill in 2007.
As Andrew Marcus says at Big Government, “If politicians are so damned fed up, why don’t they stop taking China’s loans?! Schumer, stop borrowing from them if you are so true to your words.”
We can start to discuss Chinese currency manipulation and its negative effect on the American economy when Schumer and his pals pass a balanced budget and begin paying down the debt. We can start to discuss it when Schumer and his pals start promoting, rather than retarding, domestic energy production so that oil, coal and gas aren’t difficult to bring to the market. We can start to discuss it when Schumer and his pals do more than pay lip service to the concept that American business is overregulated, overtaxed, oversued and overwrought with labor threats courtesy of key constituencies within Schumer’s party.
When Schumer’s party stops making America’s problems in competing with China worse, then he can talk tough about all the mean things the Chinese are doing to sabotage our economy.
Which leads us to the rare earth minerals issue.
First of all, Schumer comes off as a pathetic boob when he whines about how the Chinese aren’t playing fair with rare earth minerals. Is he just figuring out that China is a mercantilist economic power for whom the capture and control of raw materials is of paramount interest? Does he really think that he’s going to get anywhere squealing that businesses in Buffalo can’t prosper because the Chinese won’t turn loose their supply of cerium?
News flash, Chuck. The Chinese want that company in Buffalo to go under. They have their own companies making cell phones or flat-screen TV’s or advanced alloy-coated particles, or whatever – and they’re more than happy to drive ours out of business. When Schumer’s release mentioned also that rare earth minerals are essential to American national security, all he did was reinforce to the Chinese that they’ve got us by the short-and-curlies.
Does Schumer think he’s conveying strength to his purported audience by stating out loud that America can’t stay competitive with China unless the Chinese cooperate with us by selling rare earth minerals to us? Why does he think they’re building aircraft carriers, stealth bombers, “carrier killers” and submarines like they’re going out of style? The effect of his howls will likely encourage the Chinese rather than dissuade them from their current course.
And the question Schumer really ought to be asking, but is too stupid and/or cynical to ask, is why the Chinese are in control of 97 percent of rare earths in the first place. Because it’s not that China is the only place something like cerium can be found – in fact, of the 78 common elements in the earth’s crust, cerium is the 25th most common.
Rare earths are tough to mine, though. In fact, they’re impossible to mine in America using current environmental standards that Schumer and his pals all voted for.
So can’t rare earths be mined elsewhere? Maybe, but it won’t be easy. The good news is that despite what the 19th century chemists believed, most rare earths are fairly abundant. The widely-used element cerium, for example, is more common in the earth’s crust than copper. Geologists are actively seeking new mine locations and investors are opening old ones — although by some estimates, going from discovery to production takes as much as fifteen years.
That’s largely because rare earths are exceedingly difficult and messy to isolate. The ore typically contains radioactive elements, like thorium, radium and even uranium in the case of the Chinese mine. Moreover, the ore needs to be boiled in acid literally thousands of times. This renders the waste stream dangerous — which is another reason China has excelled at producing rare earths. The massive Inner Mongolia mine, on the banks of the Yellow River, is said to be an enormous toxic wound on the earth, but environmental standards in the Middle Kingdom remain lax.
Molycorp Minerals, LLC, a domestic rare earth mining concern, has a mine in Mountain Pass, California, which produced for 50 years before shutting down operations in 2002 for economic reasons – the Chinese were at the time dumping rare earth minerals on the market – and could be returned to commerce. The Mountain Pass mine and another facility in Australia are the two largest deposits of rare earths outside of China; neither are currently in production. Brazil, India and Russia were significant producers of rare earth minerals as late as the 1990’s.
Rather than whining about Chinese business practices, which have hit Japan a lot harder than the U.S., maybe Schumer ought to become a friend rather than an enemy of the rare earth mining industry. All his bluster and preening for the cameras aside, there is nothing Chuck Schumer can do to change a Chinese strategic policy put in place a quarter of a century ago. What Schumer might consider doing is to focus on what he can control; namely, what policies are he and his pals supporting or opposing which might serve to break the Chinese monopoly on rare earths so that he doesn’t look like an idiot chirping in Hu Jintao’s ear.
The idea that Schumer, or anyone else in Washington, wants to do battle with an increasingly antagonistic China isn’t a damaging one. But the Chinese, for all their massive faults, manifest evil and house-of-cards demographics, are strategic thinkers. To avoid catastrophic failure in the attempt to beat these people in the geopolitical game it’s necessary to think strategically as well. And that seems clearly beyond Chuck The Schmuck and his obsession with television cameras; until he and his cohorts in the Democrat Party get serious about a sustainable public fisc and a competitive economy, he would do well to keep his mouth shut rather than rush off to pick an economic fight with an enemy much better prepared for one than America is under its current Democrat leadership.