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The U.S. and China - The Defining Issue of Our Day

November 14, 2009, 12:39PM

In his current Asian trip, President Obama visits Japan, then addresses a forum of leaders in Singapore, and eventually ends up in Seoul to discuss nukes and North Korea. But make no mistake, the axis of this week is the time Obama will spend in China, which has catapulted to the forefront of international affairs and is on its way to joining the United States as the alpha and omega of the global economic system.

That China has emerged is secret to no one, but the consequences haven't been fully integrated - either by the United States or by China. The level of intertwinement between the two economies has reached the point where they have effectively merged, forming what I've called an economic "superfusion." But that fusion hasn't yet altered political and cultural mindsets.

Krugman is wrong: Why China won't revalue

October 25, 2009, 4:46PM

Cross-posted at River Twice Research.

For years, Americans have been fulminating about China and its policy toward currency. While many of the debates are technical and laden with econo-speak, they boil down to the simple conviction that China is unfairly manipulating its currency to keep it undervalued against the dollar. The result is to give China unfair advantages in trade - flooding the US with cheap goods, hurting labor wages world-wide, and accumulating massive surpluses in the process. That view is again articulated by Paul Krugman in today's New York Times (http://www.nytimes.com/2009/10/23/opinion/23krugman.html?ref=opinion) which ends with the firm statement: "Something must be done about China's currency."

Superfusion: How China and America Became One Economy

October 17, 2009, 12:21PM

Cross-posted at River Twice Research.

The economic relationship between China and the United States is the defining issue of our day. While debates over health care are vital to American society, and while challenges ranging from Iran to Afghanistan to North Korea are real, nothing will determine the arc of the coming decades - or will shape domestic life and prosperity in the United States - more than the emergence of China as a global economic superpower unrivalled except by America.

The rise of China is hardly a secret, but because it is a complex economic that is constantly evolving, it gets less attention than hot-button issues. Absent a real crisis between the two, the relationship is more about the flow of capital and the nature of global business than it is about heated battles inside the Beltway or on Main Street. And while the rise of China and America's increased dependency on Chinese loans to fund its deficits certainly generates anxiety, it's mostly amorphous barring some specific issue to focus it.

How that relationship came to be is the subject of my new book, Superfusion: How China and America Became One Economy and Why the World's Prosperity Depends On It. While this economic fusion has taken more than two decades to evolve, with the crisis of the past year, it has become both a tighter embrace and one more fraught with tension. It's to the credit of both governments - for now - that those tensions have not boiled over.

The winds are still blowing east

October 15, 2009, 1:11AM

Cross-posted at River Twice Research.

While Washington is glued to the drama over health care, over the past few days, Russian Prime Minister Vladimir Putin has been in Beijing meeting with Chinese leaders including Premier Wen Jiabao and President Hu Jintao. In a series of communiqués, they celebrated the "strategic partnership" between the two countries and charted a course of future close relations.

Among others things, Putin - Russia's man behind the curtain who has also been spending considerable time in front of the curtain - signed off on six billion dollars worth of trade deals Chinese counterparts, including moving ahead with a natural gas pipeline to open up the vast Chinese market to Russia's equally vast supply of natural gas. The two sides also discussed policies to contain and manage North Korea. Trade between the two countries is approaching $60 billion a year, and while that is a faction of the more than $300 billion a year between China and the United States, it is hardly negligible.

China and the United States - a marriage of convenience

July 28, 2009, 9:45PM

Cross-posted at River Twice Research.

As the United States and China wrap up their two-day "Strategic and Economic Dialogue," it's more apparent than ever that the two find themselves in a marriage that neither can easily dissolve and that neither fully wants.

The speeches struck all the rights notes - "the United States and China share mutual interests," President Obama announced. "If we advance those interests through cooperation, our people will benefit, and the world will be better off - because our ability to partner with each other is a prerequisite for progress on many of the most pressing global challenges" Those sentiments were echoed by both Hillary Clinton and Timothy Geithner in an op-ed published in the Wall Street Journal. The Chinese delegation spoke of the two nations as traveling in the same ship, a ship which was wracked by the global financial storm of the past year. In general, the rhetoric could not have demonstrated more clearly that both see themselves as locked in a relationship of mutual dependence.

Earnings - who knew?

July 17, 2009, 5:22PM

Cross-posted at River Twice Research.

With a slew of major companies reporting earnings so far, it's clear that expectations were severely skewed to the negative. Once again, Wall Street analysts overshot - this time to the downside. The substantial margin expansion reported by Intel; the higher-than-anticipated profitability of IBM; and the blow-out quarters of Goldman Sachs and JP Morgan all stand in contrast to sentiment just a few weeks ago, which was grim and getting grimmer. So what happened?

First, the robust results of some of the banks so far is the result of trading revenue and changes in accounting rules rather than a sudden improvement in losses from bad loans. Still, income is income, and the more they generate, the easier it will be to absorb those losses from consumer, commercial and business loans that will continue to go sour for some time.

You can be great at soccer, or globally dominant - you can't be both

July 1, 2009, 11:44AM

Cross-posted at River Twice Research.

So the United States lost to Brazil in the final of the FIFA Confederations cup, in that thrilling but painful tale of two halves, with the U.S. up 2-0 only to see Brazil roar back (or rather dance and prance and glide with balletic ferocity) and win 3-2. All I can say is, thank god.

For the past sixty years, the powerhouses of international soccer (a.k.a. football) either have been empires past their prime and on the decline or countries that dream fruitlessly of empire - England, France, Italy, Germany, Argentina, Brazil, and Spain. To bestride the world as a soccer power is to not bestride it as an economic or military power. In its period of global hegemony, the United States was manifestly not a global powerhouse in soccer. It was mighty in everything but the sport that is played by more people in every corner of the world than any other. And so if the United States had magically defied the odds and the gods and beaten Brazil, it would have been the final sign that American is indeed in decline.

Youssou N'Dour, "I Bring What I Love": An elegaic meditation on faith, Islam and music

June 12, 2009, 12:17PM

Cross-posted at River Twice Research.

President Obama's speech in Cairo last week as well as the candid and heated debates in Iran during its contentious presidential election provide yet another opportunity to revisit the sterile images of Islam that dominate the discussion both in the West and throughout the Muslim world as well. That discussion is framed by Muslim terrorists or extremists on the one hand squaring off against secular but resentful populations on the other. That is one facet of a kaleidoscope, a potent one but in no way the only one.

If there's any doubt on that score, a new documentary focusing on the career of Senegalese singer Youssou N'Dour should dispel it utterly. "I Bring What I Love" is an elegiac, beautiful film, years in the making, and it will start playing in New York this week and then in Los Angeles and elsewhere. Like all documentaries, it will be dwarfed by the summer blockbusters that surround it, but this film deserves an audience.

The unknowable lightness of being

May 20, 2009, 10:45AM

Cross-posted at River Twice Research.

Each month, the Federal Reserve releases its latest minutes of its last meeting along with its projections of economic activity (www.federalreserve.gov). The minutes just released indicate that its prior forecasts have been tweaked a bit, with update projections for unemployment over the next two years, GDP growth, and inflation. As new data become available, the hundreds of economists at the Fed revise and recalculate numbers, which means that any forecast rarely lasts more than a few months.

And yet, the Fed's forecasts - along with the World Bank, the International Monetary Fund, the Office of Management and Budget, the Congressional Budget Office and various others - are used to frame every single meaningful discussion about the economy. They become the fodder for media reports, for budgetary decisions made by companies, and for individuals who digest the sound-bites - "Fed predicts unemployment will level off at 9% next year" - that shapes their sentiment. Investors also turn to these signposts as markers to navigate a complex world.

Enough already

February 23, 2009, 8:31PM

Cross-posted at River Twice Research.

The financial markets are again getting pummeled, both domestically and globally; the nearly $800 billion stimulus package signed with fanfare by President Obama has done little to alter the mood. In fact, if you read through financial websites and assorted blogs on politics, economics, or anything related to those, you will find a nearly endless sea of misery. The level of anger, pessimism, despair, and sheer hopelessness seems to reach new peaks every week, in inverse relation to the movement of global equity prices and the size of individual retirement accounts.

Stimulating

February 10, 2009, 12:26PM

Cross-posted at River Twice Research.

After months of confusion, we are about to close a painful chapter in the economic crisis of 2008-2009. With the imminent passage of the $800 billion stimulus package combined with the roll-out of the next stages of the government-orchestrated bank bailout and recapitalization, we are about to end the talking phase and enter the doing phase. While no one can say for sure whether these plans will work, it's certain that they will have an effect.

Don't demonize debt

January 29, 2009, 9:30AM

Cross-posted at River Twice Research.

As Wall Street continues its slow-motion hari kari, tens of millions of people on the lower-end of the income spectrum are finding that their access to credit is becoming all but nonexistent. As banks set aside ever more cash to cover themselves against potential future losses, the credit spigot that flowed so promiscuously to riskier customers is now not flowing at all.

As Main Street rejoices, Wall Street is a basket case

January 21, 2009, 10:40AM

Cross-posted at River Twice Research.

If you were not one of the 2 million people watching the inauguration on the Mall in Washington, you could watch the spectacle on any number of television channels. Flipping between ABC, CBS, NBC and PBS would have yielded different commentary but largely the same mood: euphoria, awe at the magnitude of electing the first African-American president, and somber urgency about what confronts our financial system and the world. Yet, even as Obama warned of a difficult road, the crowds were wildly enthusiastic, and millions were moved. Main Street has turned a corner.

Nobody knows nothing

December 16, 2008, 8:14PM

Cross-posted at River Twice Research.

Everyday, my mailbox gets inundated with reports from strategists and economists. Two years ago, most were predicting a fairly rosy scenario for the global economy - and to be fair, so was I. Today, most are predicting a dire future of negative growth and economies mired in a deep and intractable recession. The predictions of the past were mostly wrong; there is little reason to believe that today's forecasts will be much better.

The rise of the rest

December 2, 2008, 8:12PM

Cross-posted at River Twice Research.

The current economic crisis has claimed many victims, but what has changed most is the way that the United States is viewed, perhaps permanently. That isn't ideology; it isn't declinism; it's a fact. For all the talk in past year about the shifting balance of power globally, until now it has been just that, talk. Saying that the emerging world of China, India, Brazil and the rest have assumed a new place is like saying that a new army is well-equipped with sharp uniforms and cutting-edge weapons. That doesn't mean it can fight. Until tested in battle, it's just a guess. The economic crisis of the past two months has been such a test, and the results are clear: talk of the emerging world as the wave of the future isn't just speculation; it's a permanent reality.

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Zachary Karabell

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Zachary Karabell is an author, historian, money manager and economist. Karabell is President of River Twice Research, where he analyzes economic and political trends. He is also a Senior Advisor for Business for Social Responsibility. Previously, he was Executive Vice President, Head of Marketing and Chief Economist at Fred Alger Management, a New York-based investment firm, and President of Fred Alger and Company, as well as Portfolio Manager of the China-US Growth Fund, which won both a Lipper Award for top performance and a 5-star designation from Morningstar. He was also Executive Vice President of Alger's Spectra Funds, a no-load family of mutual funds that launched the $30 million Spectra Green Fund, which was based on the idea that profit and sustainability are linked. At Alger, he oversaw the creation, launch and marketing of several funds, led corporate strategy for acquisitions, and represented the firm at public forums and in the media. Educated at Columbia, Oxford, and Harvard, where he received his Ph.D., he is the author of several books, including the forthcoming Chimerica: How the United States and China Became One and What That Means for the World, which will be published by Simon & Schuster in 2009, and previous books such as A Visionary Nation: Four Centuries of American Dreams and What Lies Ahead, The Last Campaign: How Harry Truman Won the 1948 Election (which won the Chicago Tribune Heartland Award for best non-fiction book of the year), and Peace Be Upon You: The Story of Muslim, Christian and Jewish Coexistence (Knopf, 2007), which examined the forgotten legacy of peace among the three faiths. In 2003, the World Economic Forum designated Zachary a "Global Leader for Tomorrow." He sits on the board of the World Policy Institute and the New America Foundation, and is a member of the Council on Foreign Relations. He is a regular commentator on national news programs, such as CNBC, CNN, and a contributor to such publications as The Wall Street Journal, The Los Angeles Times, The New York Times, Newsweek and Foreign Affairs.

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