Gloom and More Gloom--A Few New Books

Today, to fulfill reader requests, we review a couple of fairly new non-fiction books. Both are tough topics but are worthwhile and thought provoking.

The first is a magnificently ambitious effort by Martin Jacques. It is entitled When China Rules the World (The Penquin Press, 2009). The title in a sense tells the entire story. Mr. Jacques builds a compelling case that given its 20% + savings rate, an incredibly motivated population and workforce, and a government that will move quickly when it needs to, China will be the dominant world economic power in a few decades. Copiously footnoted, it is hard to argue with his logic flow. The flaw to me seems to be that progress will be straight line with no setbacks. He does not seem to understand that, for the time being, China needs to sell to us in the decadent West to keep their boom alive.

Politically, he makes some fascinating arguments that I have never seen before. Forget about China flexing its military might for another 50 years or so, he writes. They have never really even had a Navy which is necessary for any empire. Any territorial expansion that China has made has been in contiguous countries such as Mongolia and Tibet. China moves slowly in ways that we do not understand. He made the point incredibly well with a story about Dick Nixon’s famous visit to China in 1972. Chinese Premiere Zhou Enlai was chatting with Secretary of State Kissinger about the French Revolution. When Kissinger began talking of the consequences of the French upheaval, Zhou Enlai said “It is too early to say.” Can you imagine any Westerner thinking that 180 years was not long enough to gain perspective?

Near the end of the book, Jacques rails about the coming collapse of the US dollar and the rise of China as THE global powerhouse. In one passage, he hits it hard: “The West is habituated to the idea that the world is its world, the international community its community, the international institutions its institutions, the world currency—its currency, and the world’s language—namely English—its language. The assumption has been that the adjective “Western” naturally belongs in front of every important noun. That will no longer be the case. The West will progressively discover, to its acute discomfort, that the world is no longer Western.”

Directionally, he is correct. China will be a major power or maybe THE major power. But there will be bumps in the road along the way that he does not seem willing to recognize. America is down right now but not down for the count yet.

The second book is written by a real gloom and doomer—David M. Walker. It is called Comeback America, (Random House, 2009) Your may see him on CNBC or other business news programming giving ominous, and I hate to say it, accurate warnings about our federal deficits and the financial time bombs that will eventually go off with Social Security and Medicare. Walker was formerly comptroller general of the US and is presently CEO of the Peter G. Peterson Foundation which warns us daily of the unsustainability of our government entitlement programs.

The book was actually a pleasant surprise. While dour and humorless and a bit shrill on TV, he is actually a very engaging writer who makes his case clearly and with a bit of humor. His recommendations are not original but he builds the case for draconian measures to turn America around with more clarity and courage than anyone else that I have read or heard.

The suggested solutions are tough but not wildly extreme. They include: Raise the age for when one can tap into social security, cut Cost of Living Adjustments (COLA) in half for a few years, take Social Security taxes on the first few hundred thousand in income, slash spending in many government programs and cut benefits on Medicare and raise income taxes for just about everyone! It is a bold plan by a bold man. But it is not remotely politically viable.

My opinion is that we will need to get to a crisis a la the current debacle in Greece before politicians on both sides of the aisle get religion and do something meaningful to right the ship. And, sadly, the crisis in Greece and maybe Ireland, Portugal, and Spain to come in the next year or so will make the dollar strengthen as nervous people across the world go to the reserve currency for protection. As a result, we may lose a valuable year or two that we could have spent attacking the looming crisis.

While I clearly do not agree 100% with either book, they are both incredibly thoughtful and thought provoking. China will gain at our expense and the U.S. debt and entitlement bomb will someday detonate. Being aware of these issues can help you personally protect yourself and your family with proper diversification.

If you would like to contact Don Cole directly, you may reach him at doncolemedia@gmail.com