China’s New Global Institutions

[Hypersonicmissiles]

It's very complicated, and the Bretton Woods Wikipedia article does a thorough job of exploring the issue, but in short:

The dollar was pegged to gold, and all other currencies were pegged to the dollar, but gold and the dollar traded separately. That meant that whenever the price of gold spiked, the US would have to buy gold to support the convertibility of the dollar. After WWII, once the US started running trade deficits, it was no longer financially possible for the US to buy such massive quantities of gold (which would have caused the trade deficit to explode). As the saying goes, what cannot be sustained, will end. So the US eventually broke convertibility under Nixon, and introduced the modern day free-floating exchange rate regime.

What are other reasons that a gold standard is bad?
1) It is naturally deflationary, which inhibits consumption
2) It promotes a mercantilist system, which essentially destroys free trade and causes tariffs to be erected in order to protect a trade surplus
3) A country on the gold standard loses independent monetary sovereignty, and thus has no control over the money supply or interest rates

In other words, the gold standard just doesn't work. The proof of this is that no country has returned to the gold standard, because if it worked as well as believers in the gold standard posit, then it would be a competitive advantage for a country to use the gold standard. But since it's actually a disadvantage, no country uses the standard.

A return to the gold standard will mean the demise of the fascist regime's currency.

 

[somsak]

Because it does not count the off-shore plants. I don't know if money receive from google "service" is consider good producing or service when google need to manufacture software before she can provide service.

 

[LeveragedBuyout]

Where is U.S. WW2 won gold? Fort Knox?
U.S won WW2 and get a lot of gold from losers.
Is it sound like propaganda that U.S will bankrupt, should she continue gold convertibility,
given the fact that U.S has been the world no.1 gold hoarder since WW2?



Even now U.S is still world 1st gold reserve.

Currently U.S does want deficit. Because it is the trade deficit that could propagate the US dollar out. How can US dollar be the world reserve currency when other country does not have US dollar to reserve? Therefore the current imbalance in financial system is created -because of- USD reserve currency status.

Therefore, If you want U.S to return to surplus, it is the mercantilist policy that gives you the surplus. If you let loose dollar from world reserve currency status, the great inflation will follow, and the price of USD when compare to other currency become lower. This is very painful for American families. However, after this change, US can become mercantillist and draw back all its off-shore manufacturing plants (a lot here in Thailand eg. Seagate). US will be able to control the dollar value w.r.t other currencies, just like all of other countries.

Choose Ron Paul's policy. That is what U.S want for the cure of trade imbalance. The trade imbalance is because of USD world reserve currency status. Trust me.

Not sure how to respond to this. The US only holds about 20% of the gold reserves that it once held at the end of WWII, so we have not confiscated the gold of other countries, or if we did, we sold it off. We may be the largest reserve holder, but that's because no one else is accumulating gold; they are accumulating foreign reserves instead. Why accumulate inedible, unburnable, expensive to store gold when you can accumulate cash that can buy goods and services from your trading partners? China has de minimis gold reserves, but a gigangtic foreign exchange reserve balance. Doesn't that tell the story, here?

Our reserve currency status has nothing to do with our gold holdings, but rather the size of our economy, our historical role in shaping the world trade order, and good creditworthiness. Now that all three components are being challenged, we will not have the reserve status for much longer. But as you can see, gold is not a component of this.

Finally, in regards to the trade imbalance: a trade deficit on its own is neither bad nor good, it's what the holistic situation looks like that determines its significance. We have a capital account surplus, so we can fund the trade deficit. The main issue is the budget deficit, but that relies purely on domestic policies (like theft from productive workers to pay unproductive members of society not to work), but has nothing to do with gold.

Moreover, as I think @Nihonjin1051 indirectly implied, much of the US trade deficit actually belongs to American companies manufacturing outside of the US and then exporting into the US. In other words, that's American money, simply moving from the left pocket into the right pocket, and thus does not have a bearing on the strength of our country.

The discussion around gold is beyond the scope of this forum, and I'm not the one to explain the entirety of it, but it appears we won't convince each other regardless. I would encourage Thailand to embrace the gold standard if it thinks such a mechanism will be helpful to its economy, but I adamantly oppose such a policy here in the US.

 

[somsak]

After WWII, once the US started running trade deficits, it was no longer financially possible for the US to buy such massive quantities of gold

Not sure how to respond to this. The US only holds about 20% of the gold reserves that it once held at the end of WWII

Hi @LeveragedBuyout , please don't feel bad if I have some argument to trade to you.

- I think its my original (not Nihonjin) words that U.S trade deficit is actually U.S investment oversea export back to U.S.
so I agree with that.
- Let me remind you our conversation
Me: USD was gold standard, why do you abandon good principle your forefather made U.S a great nation?
You: After WWII, once the US started running trade deficits, it was no longer financially possible for the US to buy such massive quantities of gold
Me: U.S run out of gold? Common.. U.S is the world 1st gold hoarder since WW2 and never in a single second during this time that she lost her position. U.S. is the strongest economy on Earth!
You: talk a lot but I cannot find relevant coz u seems to forget that we were talking about why USD left gold standard when she was not financially weak at all. (P.S. I don't know what Thailand think, Im just a little guy playing internet. and this is my kind of entertainment)

After all, like you said, Gold standard is a bit off topic. If you don't want to continue talking about gold standard, I respect your decision coz its off topic.

On topic: If China's plan is to institutionalize a Fiat currency system, it will fail. Why do I need to change from USD to CHY when they are doing almost the same thing? Can CHY gives me a smaller trade gap? Given the fact that USD holds the largest amount of trade, oil trade, there is no economic of scale CHY can provide a smaller gap. I welcome a good technical arguments against my words, coz I belief that impossible can make possible by human ingenuity. However, even if it does success like USD, I predict the downfall of such a Fiat system within 30-50 years. This is because a group of Chinese will be able to control money supply just like Fed can QE away their problems. How can a nation have a "food for through" mantra? If this is a computer game its called cheating. I don't feel like to trust this kind of system. Therefore only god's money can be truely trust.

 

[senheiser]

seems our American friend has Stockholm Syndrome about China

Out of curiosity, why do you think no major country has pegged its currency to the gold standard, if it's so beneficial?

the gold standard is the reason why the dollar became a reserve currency in the first place

 

[NiceGuy]

This will never happen, the United States is , like most developed nations, a service-oriented economy. Manufacturing and production capabilities are seen, but is not a major backbone of the US economy. Overseas expansion is the trend.

Think to yourself: Why would multi-billion dollar corporations seek to bring manufacturing back to the 'states when they earn so much more when they are abroad? In fact, it would be poor business sense.

I think US corpotarions wanna bring manufacturing back coz millions US people need jobs now, they can not just survive with little subsidy thats not enough to raise their kids and pay for health care bills

As Karl Max said: "When people r extremely exploited and have No thing to lose, they will stand up, unite and fight against the Govt. ", so the US capitalist must do some thing before the revolution happen .

 

[Jlaw]

It's very complicated, and the Bretton Woods Wikipedia article does a thorough job of exploring the issue, but in short:

The dollar was pegged to gold, and all other currencies were pegged to the dollar, but gold and the dollar traded separately. That meant that whenever the price of gold spiked, the US would have to buy gold to support the convertibility of the dollar. After WWII, once the US started running trade deficits, it was no longer financially possible for the US to buy such massive quantities of gold (which would have caused the trade deficit to explode). As the saying goes, what cannot be sustained, will end. So the US eventually broke convertibility under Nixon, and introduced the modern day free-floating exchange rate regime.

What are other reasons that a gold standard is bad?
1) It is naturally deflationary, which inhibits consumption
2) It promotes a mercantilist system, which essentially destroys free trade and causes tariffs to be erected in order to protect a trade surplus
3) A country on the gold standard loses independent monetary sovereignty, and thus has no control over the money supply or interest rates

In other words, the gold standard just doesn't work. The proof of this is that no country has returned to the gold standard, because if it worked as well as believers in the gold standard posit, then it would be a competitive advantage for a country to use the gold standard. But since it's actually a disadvantage, no country uses the standard.

Not necessarily. US abandoned Bretton Woods so that they can print as much money as possible. Look at US inflation since 1971.

http://jameslawson.ws/wp-content/uploads/2014/05/InflationChart.png

Money printing is inflationary and it hurts savers and people who are smart with their money. In 1971, the price of 1 oz of gold was $35. That could buy you a very nice suit. How much can $35 USD buy now? Not much. Today, gold is $1350, can still buy you a nice suit.

Basically gold standards prevent countries from printing too much fiat currency.

 

[Hypersonicmissiles]

The US don't want the gold standard as it checks its money printing ability. Without gold standard, the Yankee regime can print all the dollars it wants and exports its filthy inflation to the rest of the world. Approximately 2/3 of US dollars in circulation is outside the US. This allows the regime to keep inflation low and interest rates low to fund its budget deficits and allow companies to borrow cheaply.

 

[Jlaw]

The US don't want the gold standard as it checks its money printing ability. Without gold standard, the Yankee regime can print all the dollars it wants and exports its filthy inflation to the rest of the world. Approximately 2/3 of US dollars in circulation is outside the US. This allows the regime to keep inflation low and interest rates low to fund its budget deficits and allow companies to borrow cheaply.

Well of course. But hopefully when more countries like China, Russia, Japan and SK start trading with each other using their own currency, it will weaken the USD further.

 

[Hypersonicmissiles]

Well of course. But hopefully when more countries like China, Russia, Japan and SK start trading with each other using their own currency, it will weaken the USD further.

Less market share for the dollar overseas means less absorption of dollars. More dollars stay in the US causing higher inflation. Thus US has to raise interest rates to counter the higher inflation or destroy their economy. With higher interest rates, the Yankee regime and its empire comes to a halt.

 

[LeveragedBuyout]

Hi @LeveragedBuyout , please don't feel bad if I have some argument to trade to you.

- I think its my original (not Nihonjin) words that U.S trade deficit is actually U.S investment oversea export back to U.S.
so I agree with that.
- Let me remind you our conversation
Me: USD was gold standard, why do you abandon good principle your forefather made U.S a great nation?
You: After WWII, once the US started running trade deficits, it was no longer financially possible for the US to buy such massive quantities of gold
Me: U.S run out of gold? Common.. U.S is the world 1st gold hoarder since WW2 and never in a single second during this time that she lost her position. U.S. is the strongest economy on Earth!
You: talk a lot but I cannot find relevant coz u seems to forget that we were talking about why USD left gold standard when she was not financially weak at all. (P.S. I don't know what Thailand think, Im just a little guy playing internet. and this is my kind of entertainment)

After all, like you said, Gold standard is a bit off topic. If you don't want to continue talking about gold standard, I respect your decision coz its off topic.

On topic: If China's plan is to institutionalize a Fiat currency system, it will fail. Why do I need to change from USD to CHY when they are doing almost the same thing? Can CHY gives me a smaller trade gap? Given the fact that USD holds the largest amount of trade, oil trade, there is no economic of scale CHY can provide a smaller gap. I welcome a good technical arguments against my words, coz I belief that impossible can make possible by human ingenuity. However, even if it does success like USD, I predict the downfall of such a Fiat system within 30-50 years. This is because a group of Chinese will be able to control money supply just like Fed can QE away their problems. How can a nation have a "food for through" mantra? If this is a computer game its called cheating. I don't feel like to trust this kind of system. Therefore only god's money can be truely trust.

Ready for another essay?

I apologize for not giving you the proper credit for the offshoring/corporate profits discussion.

I think we have radically different ways of viewing the world, much like opposing religious beliefs. I'm a "gold atheist," I see no value in gold other than some minor industrial uses. I don't value gold per se, I value gold for what it can do. And it can't do much. You, or at least the "gold bugs," see gold as intrinsically valuable, because... well, just because.

I can't dissuade you from your "gold religion," and you won't convert me, so that's why we've hit an impasse.

As far as you finding my previous comment irrelevant to the US/gold standard discussion, let me try and connect the dots for you to show why the US literally could not afford to buy gold to maintain the gold standard.

Trade Deficit
Note the sharp deterioration in the US trade deficit starting in the 1960s.

Budget Deficit
Note the start of accelerating budget deficits starting around 1970 (thanks to LBJ's Great Society social spending programs, aggravating the drain of the Vietnam War):

So if I can recharacterize your summary:
You: Why did the US leave the gold standard?
Me: We couldn't afford it any longer.
You: But you still have such large reserves!
Me: Those reserves are irrelevant to our reserve currency status, so we don't need the gold standard. Why incur the costs of a gold standard if we don't need it?
You: Irrelevant to our discussion about why the US left the gold standard.
Me: ???

Value of Fiat Currency
One more point about the strength of a currency. The strength of a currency derives from a complex set of factors, including interest rates, projected GDP growth, attractiveness of other currencies, and on a generic and somewhat redundant level, raw demand for the currency (e.g. through the current account). This chart is old, but shows the story of the dollar post-Bretton Woods quite well:

It's easy enough to see what happened. Stagflation of the 1970s made the dollar weaken considerably, as the US economy was in a malaise. Paul Volcker's high interest rates broke the back of inflation in the 1980s, and also made the dollar very attractive to yield-seeking investors. Then as interest rates declined, so did interest in the dollar, until the productivity revolution and economic boom of the 1990s made the dollar attractive again. Then after the dot-com crash and the rise of the emerging markets, the dollar declined once more. Ironically, the chart was created just before the financial crisis, but if it extended a bit more, you would see the dollar strengthen again as the whole world was plunged into recession during the financial crisis.

None of this can be explained by gold holdings. Gold is simply irrelevant when it comes to the strength of a currency.

There are other reasons why the gold standard is terrible, like the fact that the modern, deep, liquid, sophisticated financial system we have today would be destroyed if we returned to the gold standard, but as I said before, I'm not the best person to detail these arguments, and my posts are long enough as it is without writing a full-blown essay about it.

Conclusion
Again, it's unclear to me why you believe my previous comment was irrelevant, but I must be missing a key piece of your argument. All I can see is that we don't use the gold standard, and the world works. No significant country (or any country?) uses the gold standard. The main proponent of a gold standard in the US, Ron Paul, has never adequately explained why the Long Depression and Great Depression are superior outcomes to the recessions we've had since the end of Bretton Woods. If you have a good explanation, or can point to a good modern-day example of the gold standard yielding superior outcomes, I would be happy to read it.

Finally, I want to address your final paragraph: it is not the Chinese government that is buying gold, but rather Chinese citizens. I can't explain that behavior with certainty, but I can speculate that it's because Chinese citizens don't trust their own currency, and since the capital account is closed in China, they can't accumulate foreign reserves privately. Instead, they accumulate the next best thing, gold. Trust is the cornerstone of value in the foreign exchange market: do you trust that a government will pay its stated interest rates, or will it default? Do you trust the country will grow fast enough to sustain its debt load, or will it default? Do you trust the country will have the foreign currency reserves to pay you (if the debt is denominated in foreign currency), or will it default?

Gold engenders a certain trust among a small, semi-religious group of believers. But most of the population is like me, "gold atheists," and don't trust the value of gold. That's why the gold standard will not return.

 

[Aepsilons]

Ready for another essay?

I apologize for not giving you the proper credit for the offshoring/corporate profits discussion.

I think we have radically different ways of viewing the world, much like opposing religious beliefs. I'm a "gold atheist," I see no value in gold other than some minor industrial uses. I don't value gold per se, I value gold for what it can do. And it can't do much. You, or at least the "gold bugs," see gold as intrinsically valuable, because... well, just because.

I can't dissuade you from your "gold religion," and you won't convert me, so that's why we've hit an impasse.

As far as you finding my previous comment irrelevant to the US/gold standard discussion, let me try and connect the dots for you to show why the US literally could not afford to buy gold to maintain the gold standard.

Trade Deficit
Note the sharp deterioration in the US trade deficit starting in the 1960s.

Budget Deficit
Note the start of accelerating budget deficits starting around 1970 (thanks to LBJ's Great Society social spending programs, aggravating the drain of the Vietnam War):

So if I can recharacterize your summary:
You: Why did the US leave the gold standard?
Me: We couldn't afford it any longer.
You: But you still have such large reserves!
Me: Those reserves are irrelevant to our reserve currency status, so we don't need the gold standard. Why incur the costs of a gold standard if we don't need it?
You: Irrelevant to our discussion about why the US left the gold standard.
Me: ???

Value of Fiat Currency
One more point about the strength of a currency. The strength of a currency derives from a complex set of factors, including interest rates, projected GDP growth, attractiveness of other currencies, and on a generic and somewhat redundant level, raw demand for the currency (e.g. through the current account). This chart is old, but shows the story of the dollar post-Bretton Woods quite well:

It's easy enough to see what happened. Stagflation of the 1970s made the dollar weaken considerably, as the US economy was in a malaise. Paul Volcker's high interest rates broke the back of inflation in the 1980s, and also made the dollar very attractive to yield-seeking investors. Then as interest rates declined, so did interest in the dollar, until the productivity revolution and economic boom of the 1990s made the dollar attractive again. Then after the dot-com crash and the rise of the emerging markets, the dollar declined once more. Ironically, the chart was created just before the financial crisis, but if it extended a bit more, you would see the dollar strengthen again as the whole world was plunged into recession during the financial crisis.

None of this can be explained by gold holdings. Gold is simply irrelevant when it comes to the strength of a currency.

There are other reasons why the gold standard is terrible, like the fact that the modern, deep, liquid, sophisticated financial system we have today would be destroyed if we returned to the gold standard, but as I said before, I'm not the best person to detail these arguments, and my posts are long enough as it is without writing a full-blown essay about it.

Conclusion
Again, it's unclear to me why you believe my previous comment was irrelevant, but I must be missing a key piece of your argument. All I can see is that we don't use the gold standard, and the world works. No significant country (or any country?) uses the gold standard. The main proponent of a gold standard in the US, Ron Paul, has never adequately explained why the Long Depression and Great Depression are superior outcomes to the recessions we've had since the end of Bretton Woods. If you have a good explanation, or can point to a good modern-day example of the gold standard yielding superior outcomes, I would be happy to read it.

Finally, I want to address your final paragraph: it is not the Chinese government that is buying gold, but rather Chinese citizens. I can't explain that behavior with certainty, but I can speculate that it's because Chinese citizens don't trust their own currency, and since the capital account is closed in China, they can't accumulate foreign reserves privately. Instead, they accumulate the next best thing, gold. Trust is the cornerstone of value in the foreign exchange market: do you trust that a government will pay its stated interest rates, or will it default? Do you trust the country will grow fast enough to sustain its debt load, or will it default? Do you trust the country will have the foreign currency reserves to pay you (if the debt is denominated in foreign currency), or will it default?

Gold engenders a certain trust among a small, semi-religious group of believers. But most of the population is like me, "gold atheists," and don't trust the value of gold. That's why the gold standard will not return.

I love it! Always feels like an MBA lecture when I read your financial posts, my friend. Thanks, I learned something new today , and my inhibitions about gold standard have been supported, i see.

PS. I would like to start a thread on emerging markets. Pray may i ask you to contribute , too? I value your learned input.


Sincerely
I Remain,

I think US corpotarions wanna bring manufacturing back coz millions US people need jobs now, they can not just survive with little subsidy thats not enough to raise their kids and pay for health care bills

As Karl Max said: "When people r extremely exploited and have No thing to lose, they will stand up, unite and fight against the Govt. ", so the US capitalist must do some thing before the revolution happen .

There are some corporations that are scaling back their overseas adventurism and bringing some manufacturing / production lines to the mainland, however, the vast majority of United States corporations are vested in overseas.

Do you know what remains an impediment for US corporations to scale back overseas activity or to prevent oveseas expansion? The US Corporate taxes are unbearable here. In fact, this past fiscal year, corporations earned over $2 Trillion on profits based on their overseas ventures. That is more than the annual GNP of India. To give you perspective.


Foreign profits held overseas by U.S. corporations to avoid taxes at home nearly doubled from 2008 to 2013 to top $2.1 trillion.

Some of the corporations I'm talking about include General Electric, which earned over $110 Billion overseas. Next were software maker Microsoft, with $76.4 billion; drugmakers Pfizer, with $69 billion, and Merckn, with $57.1 billion; and high-tech group Apple with $54.4 billion.


So , you do the math. Why would corporations want to return back to US production when the US is hostile for corporations, thanks in lieu to the corporate tax system set in place. Unless the United States changes the system, and posits a more favorable environment for corporations, there will be no change in the trend. Unfortunately.



Best,
@Nihonjin1051


Reference:

Untaxed U.S. corporate profits held overseas top $2.1 trillion: study| Reuters

 

[Genesis]

My comment: Posting this even though I find it amateurish. Unlike the US reforms at the turn of the 20th century, which helped the US from a purely domestic standpoint, the Chinese institutions are meant to help China's foreign influence. China's major issue in reshaping the world order is that it lacks allies of substance, and only has allies of convenience. That's likely not enough to institute a new system that will replace the old.

China’s New Global Institutions | The Diplomat

China’s New Global Institutions
Beijing is seeking to shape international institutions to facilitate its emergence as a global power.

By Steven Keithley
July 25, 2014

In January 1907, The New York Times published “Defects and Needs of Our Banking System,” an essay that would have a significant impact on the financial world. Within the extended article, a German immigrant named Paul Warburg railed against the inherent vulnerability of a financial status quo that had forced Americans to rely heavily upon European banking systems, particularly that of England, to “take measures for the regulation of our own household.” Warburg also believed that “so long as it [the U.S. financial system] is not thoroughly reformed, it will prevent us from ever becoming the financial centre of the world.” Thus, for the sake of financial health and the future goals of the U.S., a rising power during the early twentieth century, Warburg argued for an entirely new banking institution. After the Panic of 1907, the Senate brought Warburg on as an economic reform consultant. Within fifteen years, the ideas expressed in his article turned into a concrete reality through the creation of the Federal Reserve.

More than a century later, in a year when periodicals are full of comparisons to the period before World War I, surprisingly few mentions are made of Paul Warburg, whose attitude towards global institutions is very much alive in today’s rising power, the People’s Republic of China.

Similar to how Warburg felt about the U.S. and its relationship with the global financial community at the turn of the century, Chinese President Xi Jinping and his colleagues seem to believe that current institutional arrangements are not ideal for China’s ambition to achieve superpower status. In response, over the past few years, Beijing has created and updated international organizations, bodies and forums with a fervor not seen since the Allies redesigned the global community in the mid-1940s.

The most recent, prominent, and coincidentally most Warburg-esque example of this phenomenon was last week’s announcement of the New Development Bank (NDB), established by China in conjunction with its BRICS partners: Brazil, Russia, India and South Africa. The NDB, created “with the purpose of mobilizing resources for infrastructure and sustainable development in BRICS and other emerging and developing economies,” conveniently serves as an alternative to the Western-dominated World Bank and International Monetary Fund, institutions which China has argued possess “increasingly evident signs of losing legitimacy and effectiveness” and, more relevant for the potential superpower, limits on the voting rights and input of the Chinese delegation. Although the NDB is supposed to be egalitarian, with participation on the basis of equal shares of $10 billion and equal voting rights, the fact that the bank will be headquartered in Shanghai and contains a Contingent Reserve Arrangement whereby China will provide the largest share of a $100 billion fund means that it is not unrealistic to assume that China can and will become the NDB’s senior partner. Now, rather than watching the Western countries that dominate the World Bank or IMF take credit for development projects in Africa, or Japan leading the Asian Development Bank in East Asia, China will be able to play a more significant role in global development through the NBD. The benefits to Chinese global influence are obvious.

Beijing’s work towards crafting institutions friendlier towards Chinese goals goes far beyond finance. Earlier this year, China decided to elevate an unknown security dialogue, the Conference on Interaction and Confidence Building in Asia (CICA), to a level of importance similar to APEC, the premier outlet for promoting economic ties across the Pacific. Why? Because even though CICA is not formally organized and still possesses a nascent mission statement, it offers facilitative potential for Chinese power in two ways, both of which have been acknowledged in some capacity. First, CICA’s role as a security forum, and the absence of Japan or the U.S. as members could ensure that Asian problems are, in Xi Jinping’s words, “solved by Asians themselves.” As the preeminent power within CICA, China would have a much stronger voice on security issues. The second potential gain is that CICA could serve as a nexus between China and Southeast Asia with an agenda much easier for Beijing to influence than the existing ASEAN-sponsored forums. These are likely the reasons behind Xi’s argument for an aggressive expansion of CICA last May. The Chinese President spent the bulk of his keynote speech before the 4th CICA Summit outlining plans to strengthen the group’s jurisdiction and abilities under Chinese chairmanship.

The modification of CICA and the announcement of the NDB are merely the most recent developments in a much longer trend of adapting international arrangements to suit Chinese goals. Beijing continues to tout the importance of the Shanghai Cooperation Organization (SCO), a twelve-year-old political, economic and military group unquestionably controlled by China and used to set the agenda and even shape the domestic policy of several Central Asian member states. At last year’s SCO summit, Xi even stated that “China presents a model of development” for all members. Simultaneously, the creation of an annual BRICS summit has allowed China to have an even greater voice in international affairs, especially regarding global finance (i.e., the NDB). BRICS summits have the opportunity to rival G7 meetings in the international press, and by claiming to be “the voice and representation of emerging economies,” they provide far greater advocacy than previous institutions toward policies that are inevitably friendly to Chinese interests.

Whether these developments will lead to the successes China has envisioned is yet to be seen. There are still at least two significant questions that must be answered. First, how will China reconcile a demonstrated reluctance to embrace multilateralism (see the South China Sea issue) with a desire to strengthen and legitimize multilateral institutions beneficial to Chinese goals? Second, does China have the clout required to make international organs like the NDB truly rival the two created at Bretton Woods in 1944? The World Bank and IMF were readily accepted partly because of the unprecedented goodwill towards the powers that designed them. While Beijing is favorably viewed across the developing world, tensions over territorial disputes and disruptive “great power” rivalries remain just beneath the surface.

These issues aside, what China has been doing is novel. Much like Washington more than a century ago (thanks to men like Paul Warburg), Beijing has recognized that the future it desires cannot be achieved within the current status quo, and has taken significant steps to alter the current circumstances. There is a common saying that China seems to have reversed, “if you can’t beat them, join them.” Having tried the latter for many decades, China has now finally embraced that former. If history can repeat itself, Xi and his successors have much to look forward to.

Steven Keithley is a graduate of the Asian Studies Program at Georgetown University.

Can China change the global order with current allies? No, but it's a good start. Realize we are still a 10 trillion dollar economy and 7000 per capita. Nominally. Within about a decade we will reach more or less 16 trillion, about the same as America. Before anyone use fake data, don't, Chinese data isn't accurate, but not for the reason you think it is and it's not less.

Economy may not change the mind of Japan, Vietnam and Philippines, but it may change Australia, singapore and South Korea amongst others. Not that they will cut ties with the US, but they wouldn't mind being in a world where China is strong.

I don't think it will replace anything, China and US will just co-exist, if US is smart enough to realize pulling out of Asia and letting China reign in Asia is for its own good. US and China is different than WW1 for a very obvious difference, we both have our own field of influence, we don't need to, nor can we go into the other's territory unless the other is too weak, like China is now, but won't be for much longer.

Unlike the cold war, China is the leading trade nation, and our riches will soon rival and then surpass America.


The question isn't so much can China do it? Or are we making mistakes, it's can the second biggest economy and soon biggest be kept out of the world stage? If yes I like to hear it.

 

[LeveragedBuyout]

I love it! Always feels like an MBA lecture when I read your financial posts, my friend. Thanks, I learned something new today , and my inhibitions about gold standard have been supported, i see.

PS. I would like to start a thread on emerging markets. Pray may i ask you to contribute , too? I value your learned input.


Sincerely
I Remain,



There are some corporations that are scaling back their overseas adventurism and bringing some manufacturing / production lines to the mainland, however, the vast majority of United States corporations are vested in overseas.

Do you know what remains an impediment for US corporations to scale back overseas activity or to prevent oveseas expansion? The US Corporate taxes are unbearable here. In fact, this past fiscal year, corporations earned over $2 Trillion on profits based on their overseas ventures. That is more than the annual GNP of India. To give you perspective.


Foreign profits held overseas by U.S. corporations to avoid taxes at home nearly doubled from 2008 to 2013 to top $2.1 trillion.

Some of the corporations I'm talking about include General Electric, which earned over $110 Billion overseas. Next were software maker Microsoft, with $76.4 billion; drugmakers Pfizer, with $69 billion, and Merckn, with $57.1 billion; and high-tech group Apple with $54.4 billion.


So , you do the math. Why would corporations want to return back to US production when the US is hostile for corporations, thanks in lieu to the corporate tax system set in place. Unless the United States changes the system, and posits a more favorable environment for corporations, there will be no change in the trend. Unfortunately.



Best,
@Nihonjin1051


Reference:

Untaxed U.S. corporate profits held overseas top $2.1 trillion: study| Reuters

RE: emerging markets thread, I'm not an economist, so my contributions would be from a tangential standpoint (i.e. from the finance angle, as they are here), but I would be more than happy to participate where I can. Beyond that, anything that is contributed would be highly educational for me. You have my vote.

Also, I am behind you 100% as far as corporate tax rates go. We need a leading-edge corporate tax system to promote investment in the US.

Can China change the global order with current allies? No, but it's a good start. Realize we are still a 10 trillion dollar economy and 7000 per capita. Nominally. Within about a decade we will reach more or less 16 trillion, about the same as America. Before anyone use fake data, don't, Chinese data isn't accurate, but not for the reason you think it is and it's not less.

Economy may not change the mind of Japan, Vietnam and Philippines, but it may change Australia, singapore and South Korea amongst others. Not that they will cut ties with the US, but they wouldn't mind being in a world where China is strong.

I don't think it will replace anything, China and US will just co-exist, if US is smart enough to realize pulling out of Asia and letting China reign in Asia is for its own good. US and China is different than WW1 for a very obvious difference, we both have our own field of influence, we don't need to, nor can we go into the other's territory unless the other is too weak, like China is now, but won't be for much longer.

Unlike the cold war, China is the leading trade nation, and our riches will soon rival and then surpass America.


The question isn't so much can China do it? Or are we making mistakes, it's can the second biggest economy and soon biggest be kept out of the world stage? If yes I like to hear it.

We've been through the "America is keeping us down!" argument before, so I'll cut to the chase and say that China can do whatever it wants. China has agency--it can draw in allies in Asia and gradually marginalize the US (we are not leaving: we are also an Asian power), or it can aggravate its neighbors in Asia and draw the US in. So far, China's pursuing the latter course, but China's fate is in its own hands, not that of the US.

I can't think of an example where the US has demanded "us or them" in our diplomacy. That's not the American way, but it seems to be the Chinese way, if @Chinese-Dragon 's posts are any indication of mainstream thinking in China. If you present an "us or them" choice, don't be surprised if some nations answer "them."

 

[Chinese-Dragon]

I can't think of an example where the US has demanded "us or them" in our diplomacy. That's not the American way, but it seems to be the Chinese way, if @Chinese-Dragon 's posts are any indication of mainstream thinking in China. If you present an "us or them" choice, don't be surprised if some nations answer "them."