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A Question of Honor

By Larry Doyle on March 14, 2009 at 7:45 AM in Banking Institutions, Current Affairs, Economy, Foreign Affairs, International Monetary Fund, Sense on Cents (Larry Doyle blog)

***Cross-posted from my blog, Sense on Cents. Come by and visit!

On January 31st, I wrote a lighthearted piece, Know Your Customer, about my personal experience with an Asian counterparty. The lesson I learned from that experience back in the late 1980′s was that business dealings in Asia are ultimately “a question of honor.” Are you honorable in your manner? Are you honorable in your engagement? Are you honorable on a going forward basis? Are you honorable in both word and deed? Obviously in a meaningful relationship, this code of honor must run both ways.

Our relationship with the People’s Republic of China hinges on American consumers’ purchase of Chinese exports and ongoing Chinese purchase of U.S. government debt. As I just highlighted in my most recent piece, Chinese exports fell 26% in February 2009. Numbers like that will make any government uneasy. During challenging economic periods, the tenuous nature of any economic relationship is captured in understanding the nuances of the Prisoner’s Dilemma.

Well, the Chinese occupant of the cell next door appears to be getting increasingly nervous. He just slipped us a note inquiring whether we will “honor” our promises in protecting his investments. The full note reads, China’s Premier Wen Worried on Safety of Treasuries.

Is this a mere sign of a nervous investor? Hardly. There is no doubt that the Chinese Premier is launching a shot across our bow prior to the highly anticipated G-20 Meeting in the U.K early next month. Please recall that the surplus nations in our global economy, primarily China, have very limited voting power in our global financial intermediaries, such as the IMF. This Chinese statement is an attempt to create increased leverage over the negotiations which will transform the global economic landscape.

How honorable!!

Linda C.

I agree Larry. China is going to exert her power now as a bigger world player. They have simply figured out how to create that power by exploiting the West’s greed and uber materialism.

They financed our war in Iraq and then got the oil. They are cozy with the Sudanese government. Since the aid workers have been kicked out, the people of Darfur will slowly starve to death and not much we will be able to do about it. We are being compelled to buy their unsafe products or at least their continued importation.
LD

The G-20 meeting will be very interesting to see the undercurrents and crosscurrents that develop and are made public.

The stakes in this “game” are definitely increasing.
Sassy

We have seen China’s iron-fisted rule over their own populace.
Now they can easily expand their influence.
Our huge indebtedness to that country poses problems for us, both short and long term.
They have the U.S. over a barrel, so to speak, and I would be far more comfortable if it was another country that was not hostile to our standards.
Glennmcgahee

It seems we have more than one way to pay back the Chinese other than with cash. We just sacrifice our young men and women in the military so that they can exploit the natural resources of Aghanistan. Obviously, we will setup our bases there to guard their workers. I put this particular link in because it also shows that American Companies wished to get at this copper but the Chinese will be getting it with our help.
http://www.azstarnet.com/sn/news/283335.php
jangles

I can not wati to see Obama in his first real world leader forum. Something tells me that the world leaders who show up may not give him the center of the stage in the usual fawning way of his Obot world. Wonder how that will work for him? Maybe he will “duck and delegate”—think he will put the SOS out there to take the 3:00 am call from the world about US debt and financial recklessness? Sounds to me like the world may be just a little po’d that the US let its financial house go nuts.
FLDemFem

What is going to be interesting is what the world leaders coming together there end up thinking of Obummer. He won’t have a Teleprompter and will have to speak about the issues on his own. Then they will realize that an empty suit with an ego inhabits the Oval Office. And there will go American prestige, such as it is, and any respect that might remain for the American people who elected this putz.
FrenchNail

I propose a very good way to offset our debt to the Chineses. Hold them financialy responsible for the clean up of their dry walls.

And for all of you who just read this with a “HuH???” on their faces, think Asbestos of the 21st century.

About every major builder involved in the recent post-2000 construction boom has used dry wall sheets manufacured in China, directly or indirectly imported from there. It is now coming to light (in the past two months or so) that some of the components used by the Chinese were not to specs and that toxic replacement components were thrawn in the mix.

People are getting sick. 100 of thousands of houses and condos will have to be vacated and gutted in the very near future. This is the next bomb ready to explode in the real estate market.

I think that the Chineses should be called on their honor they like so much.
Peggy Sue

Good grief, French N. I hadn’t read this before. Everytime you think it can’t get worse, it does.

Maybe we need a new definition of “honor.” The old one seems to outlived its usefulness. If this goes down [toxic buildings for real] along with the commercial real estate market collapse on the horizen, 2009 will be unforgettable [and not in a good way]. We can certainly kiss any bear market rally good-bye [which I don't trust anyway].

Oy!
cynic

We seem to be overlooking a few important questions here:

Why were defective building products allowed to enter the United States to begin with? What happened to the federal regulatory agencies that previously carefully monitored such things? Who changed that, and when?

Don’t blame the Chinese.
Ferd Berfle

Don’t blame the Chinese.

While I agree regulatory oversight has been dismal under Shrub (who I didn’t vote for twice) that is a completely irrelevant argument. By your selective reasoning, it is permissible to make a bad product as long as one doesn’t get caught.

Spoken like a true bot.

You duds also foisted a President who doesn’t work on us. Can we return him to you for a full refund?
cynic

I rather imagine potentially toxic wallboard might be produced in China for domestic consumption. Basically they’ve turned into a heavily industrialized state overnight, racing to catch up without the cautions and safeguards that emerge when things happen at a slower pace. Their rapid progress has given them urban air unfit to breathe and manufactured products unsafe to use. The desire of American retailers for cheap products with enormous high-volume profits has given the Chinese access to American consumers–who are finally waking up to the fact that cheaper comes with hidden costs.

I’ll happily pay double for American-made items that aren’t so shoddily-made that they’re like disposable dixie cups. Unfortunately such things are becoming increasingly difficult to find. Figure on replacing your bathroom faucet every five years, and wondering about the lead that might be leeching into your water every time use use it.
cynic

BTW, when was the last time anyone bought an extension cord or ceiling fixture bearing the Underwriter’s Laboratory seal of approval? That little tag used to be on just about everything.
Linda C.

American oil companies didn’t get the oil contracts in Iraq either. China did.

So did we invade these countries for what? To spread democracy or the Chinese economy?
Linda C.

cynic
The technology to manufacture safer products is also there. So I am not going to give China a pass. It is all a race to the bottom. I personally think that our government is “so lax” regarding such imports is because of our reliance on the Chinese government for money. It has more to do with “looking the other way” when it came down to the last administration and I am not so sure this one will be any different.