A6 OPINION

Monday 10 September 2012 Shanghai Daily

US debt crisis makes Europe look like picnic

Shawn A. Mesaros WHEN I borrow money as a private citizen, the bank charges an interest rate that is perhaps relevant. It is a rate that likely matches the expected work product or profit expected from my endeavor, with a cushion added for safety. This is called money creation since the borrowings did not exist before. This new money buys maybe productivity and I get a return on that productivity. When that debt is repaid, I am destroying money by removing it from the system and repaying my principal. The government borrows heavily in recession, saying that this activity is good for the country, that it saves jobs, etc. And yet after the recession, the debt is not repaid and somehow this productive pursuit was good for America. What we see here is that the more spending that is not repaid, the greater the amount required the next time. In fact, the current scenario is much worse since while Americans deleverage or are at least supposedly attempting to deleverage, we have a government that is going the other way, and at light speed.

PRESS NOTES

Fights and outbursts rise and Outbursts rise Fights with growing with Growing inequality social Social Inequality
THE increasing reports of scuffles over trivial things have greatly embarrassed our citizens who are taught from childhood that China is a country with ancient civilization and timehonored traditions of etiquette. In a series of cases, we see people being slapped in the face for refusing to offer their seats on public transport, an air attendant being beaten up by an army officer, and two drunken men starting a brawl in a European flight. In a money-oriented and power-mad society, many of us, especially those who fail to achieve material success, privately label themselves as part of a vulnerable group due to selfdeprecation and a lack of self-esteem. While they are certainly to blame for their bad temper and manner, these people somehow fall victim to an unequal society caused by delayed reforms and inadequate justice. For example, many regional authorities turn a blind eye to officials bad temper and brutal actions towards people. In many cities, urban management inspectors have frequently mauled vendors, even beating people to death. Such unacceptable behavior has serious negative social influence and, unfortunately, misleads some people into following their example. The government should ease the deeply rooted public outcry and create a cultivated, rational and peaceful environment by improving democracy and the legal system. (Peoples Daily website)

While Americans
deleverage or are at least supposedly attempting to deleverage, we have a government that is going the other way, and at light speed.

and when theres a clear inability of the American taxpayer to actually repay the principal on the debt that the government has foisted up the American public? Recessionary spending should be called what it truly is a permanent tax on the system as a whole. Not some transitory thing like a home loan that is paid off, or a small student loan to help someone get through college. These kinds of debts are retired through productive pursuits, and then typically, in a stable society, not normally re-created in the same form. Politicians would say that recessionary spending enhances the effectiveness of government to which I would counter that recessionary spending effectively pillages the sacred altar of individual sovereignty which all Americans view as a birthright, as Americans.

Illusion of benevolence
And yet sadly, with each successive economic cycle, each successive (and greater) borrowing binge, that historic view of individual sovereignty as an American is probably going the way of the idea of gold as money, which from 1981 to 1994 was in decline, only to outperform almost all major asset classes for the next 18 years. Recessionary spending creates the illusion of government as effective, politicians as benevolent, leadership as visionary, for what? Four years? I can spend someone elses money for four years and look like a genius as well, but then I get to leave office with a lifetime pension paid for by the electorate! Wait. You cant make this stuff up. Its true. At the rate of ludicrous borrowing and spending, America does not have 18 years to figure out the path of truth (and borrowing) again. All sovereignty is extinguished when you cannot pay the debt you have created. Ask Europe, try calling them on the phone to ask what happened, but their telephone lines have been disconnected for failure to pay. Government creation of prosperity through borrowing on behalf of their taxpayers is a centuries old, welltested falsehood. So long as theres more per capita borrowing in America, the per capita productivity when measured in US dollars is going to rise, as is the GDP since it is targeted by the Federal Reserve Bank. If America ever repaid the debt, the money supply would contract violently due to the sheer quantity of debt outstanding. What that means is that productivity would have to be gauged by actual return on capital employed and this ideal is completely lost in the current Keynsean Neoclassical School of economics. GDP cannot rise if the government pays off the debt, any more than money is created when I pay off my personal debts. This epic contraction in the money supply (at the consumer level) through prudent repayment of debt is what the current administrations trying to avoid at all costs. It means that America would be forced to own up to the fact that a non-industrialized economy relying on consumerism vs production (for GDP growth) cannot effectively and productively absorb capital, so the only way to RIG the system is to continue borrowing and spending so that productivity has the appearance of growth.
Shawn A. Mesaros is managing director of Pacific Asset Management.

Theingovernment, an effort
to keep prices higher and create the fiction of well-being, prints a boatload more money to match the repayment of principal elsewhere, and make up for the loss of economic activity through sheer printing of money for itself.

Printing money
Why would this happen? Repayment of principal and reduced borrow ing destroys money, so the government, in an effort to keep prices higher and create the fiction of well-being, prints a boatload more money to match the repayment of principal elsewhere, and make up for the loss of economic activity through sheer printing of money for itself. This policy doesnt actually help America, as it has been sold for so many decades. It primes the pump for future elections, and yet one must continue to consider the biology of this grand money experiment inflicted on the American People. If repayment of principal is then considered the destruction of money in the banking system, and if that repayment is considered good for each individual American, then what in the name of sanity is the government doing permanently racking up trillions of dollars in debt? Especially when the American People are choosing to deleverage and save money,

Breast beauty contest degrades campus culture

A CAMPUS beauty pageant in Wuhan, capital of Hubei Province, is in the spotlight for requiring contestants to have perfectly proportioned bodies, including breasts with nipples more than 20 centimeters apart. Beauty contests are common among Chinese universities and play a major part in campus culture in an age when male students dare to comment in public on beautiful girls and vote for their dream campus queen. A nationally broadcast campus queen competition used to require ladies to display their symmetrical figures, excellent talents and quick wits. However, the Hubei contest reduces beauty to measurements, which lowers the class of the event and degrades the school atmosphere. At any rate, we do not encourage universities to launch these competitions because educational institutions are supposed to be the nations pure realm of uncontaminated intellectual and spiritual life. Competitions promote the unhealthy notion that study is useless, which distorts social values and misleads students into obsession with physical beauty. Meanwhile, the profit-seeking organizers create vulgar hype that grabs attention but does social damage. Universities are a refuge for literature, culture and science and play a vital role in nurturing young people. We need to avoid breast beauty selection as we improve campus culture. (Sichuan Online)

Illustration by Zhou Tao/Shanghai Daily

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