China, Taiwan, Four Asian Tigers and 1997 Asian Financial Crisis

Posted by PITHOCRATES - June 18th, 2013

History 101

Both Mao Zedong and Chiang Kai-shek were rather Brutal to any Political Opposition

Today many of the things we buy are stamped ‘Made in China’.  Because the Chinese can manufacture things cheaply.  For they have a booming export economy.  Which the Chinese built by introducing a little capitalism to the communist state.  And some things that were as un-capitalistic as you can get.  Like artificially low interest rates.  Currency manipulation.  Cheap labor.  And the strong arm of the communist ruling party to keep that labor cheap.  All of this to make their exports about the most inexpensive in the world.  Giving them a huge trade advantage.  Filling stores around the world with products stamped ‘Made in China’.

But before there was ‘Made in China’ there was ‘Made in Taiwan’.  Taiwan.  Officially the Republic of China (ROC).  Not to be confused with the People’s Republic of China (PRC).  AKA mainland China.  Taiwan (or the ROC) is an island in the Pacific Ocean off the China coast with Japan to the northeast and the Philippines to the south.  And is where Chiang Kai-shek and his Chinese Nationalists (Kuomintang or KMT) fled to during the Chinese Civil War when Mao Zedong and his communists conquered mainland China.

Both Mao Zedong and Chiang Kai-shek were rather brutal to any political opposition.  But while the PRC suffered some of the world’s worst famines and abject poverty Taiwan at least modernized into an advanced industrial economy.  Helped in large part by the KMT taking China’s gold reserves.  Their foreign currency reserves.  As well as the intellectual and business elites.  Who typically flee ahead of advancing communists.  As those are the people the communists usually kill or send off to reeducation camps.

International Investment poured into Southeast Asia and Spread the Asian Miracle beyond the Four Asian Tigers

Taiwan is one of the Four Asian Tigers.  Taiwan, South Korea, Singapore and Hong Kong developed advanced economies beginning in the early Sixties.  Thanks in part to laissez-faire economic policies of free trade, open markets, privatization and deregulation.  They also shrunk the size of their public sector.  And had a high savings rate.  Providing the capital for their industrialization.  While keeping personal and public debt levels low.  Because debt matters.  And the more of it you have the more difficult it is to get through a crisis.

But some of these countries also implemented non-laissez-faire economic policies.  Such as keeping domestic interest rates artificially low.  Even having special low rates for select export industries.  And there was some crony capitalism.  Government loaning to their crony capitalist friends.  Some of which disappeared thanks to a certain amount of corruption.  While a lot of it was used to make bad investments.  What those in the Austrian school of economics call malinvestments.  Investments not driven by the laws of supply and demand.  But for non-business reasons.  Growing big for the sake of being big.  Expanding just because of cheap interest rates.  Or the government choosing which businesses to expand.  And often choosing wrong.  Because those decisions were based on political reasons.  Or just a poor understanding of business in general.

The Asian Tigers served as a model for other nations.  Who followed their lead.  And got onto the export bandwagon.  Some even attracted foreign capital to build an export economy with high interest rates.  And pegged their currencies to the U.S. dollar.  To further encourage foreign investors to invest in their countries.  And it worked.  International investment capital poured into Southeast Asia.  Spreading the Asian Miracle beyond the Asian Tigers.

The Asian Tigers recovered the quickest thanks to their Laissez-Faire Economic Policies and their High Savings Rate

Then came the 1997 Asian financial crisis.  Starting in Thailand.  A nation that had a lot of foreign investment.  And a currency pegged to the U.S. dollar.  Then came a massive speculative attack on the currency.  Speculators were trying to force a devaluation of the Thai currency (the baht) by selling mass holdings of the baht.  In hopes of profiting by entering into agreements to repay a debt in baht at a later date.  If the baht devalued they could repay that debt with a cheaper baht.  Thus making a profit.  Thailand fought this devaluation, though.  By selling their foreign reserves to buy baht to maintain the peg to the U.S. dollar.  But they eventually ran out of foreign reserves to sell.  And had to let the baht float.  Causing a massive devaluation.  Making all that foreign debt much more expensive to repay.  Leading to defaults.  And bankruptcies.

Worried foreign investors started pulling their money out of Southeast Asia.  As they sold their holdings they flooded the foreign exchange market with these devalued currencies.  Putting additional pressure on exchange rates.  At the same time the United States was raising their interest rates to head off inflation there.  Those nations that pegged their currency to the U.S. dollar had to strengthen their currencies, too.  Raising the price of their exports.  Making them less competitive.  So exports fell.  Those higher U.S. interest rates made investment there more attractive.  Increasing the capital flight from these countries.  To try and stop this capital flight countries raised their interest rates.  Which further hurt their economies.  As it was more difficult and more costly to borrow money.

Before it was all said and done currencies, stock markets and other assets lost a lot of value in countries hit by the crisis.  Including the Asian Tigers.  But thanks to their laissez-faire economic policies and their high savings rate (except for South Korea) they recovered faster from the crisis than the other Southeast Asian countries.  Of the Four Asian Tigers South Korea suffered the most.  Thanks to a high level of foreign investment.  And numerous corporate bankruptcies.  Because of those malinvestments.  The causes of the 1997 Asian financial crisis are still debated today.  However what can’t be disputed is that those who suffered the least were those nations that embraced laissez-faire economic policies the most.  And those who interfered with market forces to stimulate an export economy tended to suffer more.  Something China (PRC) is doing.  Interfering with market forces to stimulate an export economy.  And making a lot of malinvestments.  As they try to bring their economy up to the standard of Taiwan (ROC).  Only without the laissez-faire economic policies the ROC used.  All but guaranteeing another financial crisis in the region.

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LESSONS LEARNED #31: “Islam and guns are a lot alike. And yet when something bad happens, we try to ban one and forgive the other.” -Old Pithy

Posted by PITHOCRATES - September 16th, 2010

PEACE IN OUR TIME

What do you know about the Goths?  The Visigoths?  The Ostrogoths?  The Vandals?  The Franks.  Do you even know who these people are?  The Romans did.  And they were a pain in their ass.

The Great Migration of Huns from Asia into Europe displaced these European Germanic tribes.  Which brought them into contact with the Roman Empire.  The Romans then brought some into the empire.  First into the legions that were protecting the frontier against these displaced Germanic tribes.  Then some Germans commanded these legions.  Then the Romans built entire legions from these Germanic people.  Germans faced Germans on the frontier.  Loyalties tugged between empire and blood.  When the empire began to crumble, blood often won out.  And when the Western Roman Empire fell, these Germanic tribes stepped into the void.  Picked up the Roman banner and became the Holy Roman Empire.  Some of the Germanic tribes founded nations.  Spain, France and England.  But not Germany.  Not yet.

 It took the Franco-Prussian War (1870) to unite the German people into a nation.  And into the dominate Central European power at that.  That dominance ended in 1919 with the Treaty of Versailles.  Germany lost Alsace-Lorraine (which they took during the Franco-Prussian War).  She lost territory that became a reconstituted Poland (which separated her from East Prussia).  She had to take sole responsibility for causing World War I (which was unfair to say the least).  And pay reparations to the victors that would take forever and a day to pay.  The German people were not happy.  As was a decorated army corporal.  Adolf Hitler.

Hitler made it clear that he was going to restore the German empire.  The third in the line of empires.  A Third Reich.  Successor to the Holy Roman Empire.  And it would last a thousand years.  He established the official Nazi ideology (racial purity and the Master Race).  He renounced portions of the Versailles Treaty.  Began to rearm.  These actions worried the Allies.  But Hitler assuaged their worries in a speech given 5/21/1935.  He said Germany wanted peace.  And only peace.  The Allies breathed a collective sigh of relief.  Then he remilitarized the Rhineland.  Annexed Austria.  Then came Munich.  Great Britain’s Prime Minister, Neville Chamberlain, met with Hitler, concerned.  Hitler assured Chamberlain that this was his last territorial grab.  After all, Germany wanted peace.  And only peace.  So those at Munich gave the Czechoslovakian Sudetenland to Germany.  (Incidentally, the Czechs weren’t at Munich).  Chamberlain returned to England announcing they had attained “peace for our time.”  Soon thereafter, Germany took the rest of Czechoslovakia.  And one non-aggression pact with the Soviet Union to partition Poland later, Hitler invaded Poland, starting World War II.  So, no, they did not have peace in for their time.

FROM STETTIN IN THE BALTIC TO TRIESTE IN THE ADRIATIC AN IRON CURTAIN HAS DESCENDED ACROSS THE CONTINENT

Franklin Delano Roosevelt loved Joseph Stalin.  He liked what he was doing in the Soviet Union.  Now there was some Big Government doing big things.  Just like he was doing.  Only on a grander scale.  Then that non-aggression pact with Nazi Germany just broke his heart.  But the gods were smiling down on FDR.  Hitler turned on Stalin and invaded the Soviet Union.  Killed some 20 million Soviets.  FDR was elated.  He could embrace Uncle Joe again.

FDR said he could talk to Stalin.  Turn on the old FDR charm.  So he tried.  At the Yalta Conference where the Big Three (FDR, Churchill and Stalin) discussed the post-war world.  His plan was bold.  Give Stalin everything.  Ask for nothing.  And then Uncle Joe will work with him in establishing world peace and democracy.  He had a hunch it would work.  I mean, once he turned on that FDR charm, well, FDR got what FDR wanted.

But his administration was full of Soviet spies.  He stayed in the Soviet embassy (to show his trust of Stalin).  They bugged it.  The Soviets knew everything.  Not a strong negotiating position.  For FDR and Churchill, that is.  It was a very strong position for Stalin.  He could whisper whatever sweet nothings FDR wanted to hear.  Lie through his teeth.  In the end, he got Eastern Europe.  Instead of a Nazi occupation, it would now be a Soviet occupation.  Some saw Stalin for who he was.  Winston Churchill, for one.  Later, in 1946, he tried to warn us about Stalin.  He came to America and spoke at Westminster College in Fulton, Missouri.  He said:

“From Stettin in the Baltic to Trieste in the Adriatic an iron curtain has descended across the Continent. Behind that line lie all the capitals of the ancient states of Central and Eastern Europe. Warsaw, Berlin, Prague, Vienna, Budapest, Belgrade, Bucharest and Sofia, all these famous cities and the populations around them lie in what I must call the Soviet sphere, and all are subject in one form or another, not only to Soviet influence but to a very high and, in some cases, increasing measure of control from Moscow.”

The old warhorse was right.  Stalin had no visions of democracy.  He wanted to conquer.  To spread communism.  And he did.  In Eastern Europe.  Wherever the Red Army was at the end of World War II the Red Army stayed.  Where they weren’t he tried to use the local communist parties (i.e., the Fifth Columns) in their stead.  To stir up trouble.  Eat away the nations from within.  To gradually convert them to communism.  Sometimes he used blunt force.  As in the coup d’état in Czechoslovakia.   American aid helped Western Europe, Greece and Turkey to rebuff Stalin’s advances there.  West Berlin, inside of East Germany behind the Iron Curtain, was a thorn in his side.  So he tried to blockade it.  Which we relieved with the Berlin Airlift.  Our guy in China (Chiang Kai-shek) lost to Mao Tse-tung in the Chinese Civil War making most of Asia communist.  This was the Cold War.  East vs. West.  Communism vs. Democracy.  The Soviet Union vs. the United States.  The Cold War at times got hot.  As the two superpowers fought each other by proxy.  In Korea.  Cuba (the Bay of Pigs was the hot part.  The more dangerous part was the cold part, playing nuclear chicken).  Vietnam.  The Iran-Iraq War.  Nicaragua.  And in a place called Afghanistan.

MR. GORBACHEV, TEAR DOWN THIS WALL

The Soviet Union supplied a lot of military hardware that killed a lot of Americans in the Vietnam War.  We returned the favor in Afghanistan.  And helped liberate the Afghanis from the Soviet Occupation.  The Soviet mechanized army and their Hind attack helicopters fought an impoverished and ill-equipped force.  The Mujahedeen.  Who soon got international support.  And U.S. antiaircraft Stinger missiles.  And the Soviet Union had their Vietnam.

Ronald Reagan grew weary of the Cold War.  He wanted to end it.  He understood collectivism.  And he knew history.  Capitalism worked.  Collectivism didn’t.  So he would turn up the pressure.  While the Soviets bled money in Afghanistan, he modernized our nuclear forces.  Proposed the Strategic Defense Initiative.  Spent money on defense.  And gave America an unprecedented decade of prosperity.  The Soviets tried to keep pace.  But couldn’t.  They couldn’t even feed their own people.  On June 12, 1987, in front of the Berlin Wall, at the Brandenburg Gate, Reagan said:

“We welcome change and openness; for we believe that freedom and security go together, that the advance of human liberty can only strengthen the cause of world peace. There is one sign the Soviets can make that would be unmistakable, that would advance dramatically the cause of freedom and peace. General Secretary Gorbachev, if you seek peace, if you seek prosperity for the Soviet Union and Eastern Europe, if you seek liberalization, come here to this gate. Mr. Gorbachev, open this gate. Mr. Gorbachev, tear down this wall!”

In time he did.  Or, rather, stopped trying to prevent it from happening.  And Reagan consigned the Evil Empire to the “ash heap of history.”  Which left the Mujahedeen well armed, well financed and without a fight.

TO THE VICTORS GO THE SPOILS

The Western Roman Empire fell to the Germanic tribes but the Eastern Empire held on for a few more centuries.  It wouldn’t be the Germans causing her ultimate demise.  No.  The Eastern Empire fall to the Arabs.  Islam spread west from the Arabian desert into Egypt and across North Africa and up into Spain.  Saladin (revered Islamic hero) wrested the Holy Land from the Christians and then fought off the Christian Crusades when they tried to take it back.  Islam advanced across the Bosporus and into the Balkans before the European Christians finally stopped them.  A good chunk of the Christian Roman Empire was now Muslim.  And remained so for centuries.  Until World War I.  When Ottoman Turkey was on the losing side of the Great War.

After the war, Great Britain occupied some of the former Muslim lands.  Protected the Suez Canal for her shipping lanes to India and the Far East.  And to her oil interests.  Also, the League of Nations designated that Great Britain should administer the territory comprised of Palestine and Transjordan.  This British Mandate also included a provision for a future Jewish homeland in the Palestine territory.  Long story short, that happened in 1947 when the United Nations General Assembly voted to partition these territories into Jewish and Arab states.  The following year, May 14, the day before the British Mandate expired, the state of Israel came into existence. 

The Arabs didn’t agree to that deal.  Of course, the Jews didn’t like the Roman occupation.  And the Christians didn’t like the Muslim occupation of the Holy Land.  But to the victors go the spoils.  Not enjoying being on the loser’s side, they wanted Palestine back.  In fact, they want all of the land that used to be Muslim back.  Lands they gained by military conquest but later lost to military conquest.  They want to re-conquer lost land.  And conquer new.  One man in particular.  A Saudi who joined the Mujahedeen.  Osama bin Laden.  Who would lead his unemployed freedom fighters into a new line of work.  In a new organization.  Al Qaeda.

WORLD CONQUEST ISN’T NEW

The Romans conquered the known world.  Hitler had ambitious plans to do the same.  Ditto for Stalin.  (Even Mussolini wanted to restore the Roman Empire.)  And on 9/11/2001, that’s what Osama bin Laden was trying to do.  His devastating attack on the U.S. was to cause a spontaneous uprising by Muslims throughout the world.  There was none.  He failed.  He would be no Saladin.  He would rule little more than a network of caves on the Afghanistan/Pakistan border.  And be remembered as just another terrorist.  But his dream is shared by others.  And they’ve no doubt learned a lot from the Nazis.  And the Communists. 

There are elements within Islam, the so-called few who pervert this great religion of peace, that want to see bin Laden’s vision realized.  They’re using force.  Lying.  Trying to convert from within.  And turn to our constitution whenever anyone confronts them.  But these ambassadors of peace won’t condemn terrorist organizations or recognize the state of Israel.  They demand that everyone accommodate Islam while Islam accommodates only Islam.  They say that the U.S. was responsible for 9/11.  Even that the U.S. orchestrated 9/11 and blamed it on the Muslim world.  There is cause for concern.

A FEW IS ENOUGH

Not all Germans were Nazis but we still fought Nazi ideology.  We fought the communist ideology because it called for the conquest of western capitalism.  Ideology counts.  Not all Muslims are ‘the few who pervert’ but we should, at least, be on our guard against Islam.  Because how do we know who is lying?  If we err on the side of caution, all Americans (including Muslim Americans) are safe.  If we don’t, Americans can die.  Including Muslim Americans.

History has shown that the descendents of empire want to restore empire.  That people who lost land want to get that land back.  And ideological purity kills people.  That tells me we should be wary of a highly ideological people who once had an empire and desperately covets land.  And if we can’t know who those few are, it would be irresponsible not to be on our guard against anyone who might be one of those few. 

www.PITHOCRATES.com

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