Real Steel

Week ended March 16, 2024. interesting news items to look at this week were:

1. Real Steel: Real Steel is an American movie about Charlie Kenton (Hugh Jackman) who used to be a prizefighter but lost his chance to win a title when heavy, towering robots took over the boxing ring. Now working as a small-time promoter, Charlie pieces together scrap metal into low-end fighters, barely earning enough to make it from one underground venue to the next. After hitting rock bottom, Charlie reluctantly teams with his estranged son, Max (Dakota Goyo), to build and train a championship robot for a last shot at redemption.(Fig. 1)

Last week when I wrote China was never a National Security Issue for the Anglo American Empire but a serious threat to the Ruling Elites, I used two familiar Chinese historical figures to depict the Sino American Conflict. This week we saw the US Congress approved a bill to coerce ByteDance, a Chinese private enterprise to divest its US operations of Tik Tok to American hands, thus eliminating a serious challenge to Meta and the Deep State Controlled Media and Social Platforms. Just ponder why China is relaxed about 68.4 million Apple iPhone users on her shores owned by a hostile superpower with 320 military bases encircling China as against the reasons why the Anglo Americans must nationalize a social media platform dedicated to young creative talents in the US. This deserves our “spoudazo sunago”. When I finish with this discourse, readers will understand why the story of “Real Steel” is a good fit.

(i) Exorbitant Privilege: The term exorbitant privilege (privilège exorbitant in French) refers to the benefits the United States has due to its own currency (the US dollar) being the international reserve currency. In France, it was called "America's exorbitant privilege" by Valery Giscard d'Estaing, then the finance minister of France as it resulted in an "asymmetric financial system" where foreigners "see themselves supporting American living standards and subsidizing American multinationals". As American economist Barry Eichengreen summarized: "It costs only a few cents for the Bureau of Engraving and Printing to produce a $100 bill, but other countries had to pony up $100 of actual goods in order to obtain one. Sadly power corrupts and absolute power corrupts absolutely. This Privilege has in the past gave the Americans an immense advantage but its abuse also condemned US as a sword of Damocles. (Fig. 2)

(ii) Every Credit Card has its Limits: When one gives a prodigal son a platinum credit card, do you think he will develop a habit of savings. In the early days of Bretton Woods, the US society as a whole has net national savings of around 12% of Gross National Income. By Q3 2023, the net national savings is negative 0.6%. (Fig. 3).

By net national savings it means total US household savings plus total US corporate savings minus US government deficits. To show some meagre vitality, an obese person have to resort to a periodic sugar fix to lift oneself from a a weighed down sentiment. Over the past twenty years, nominal US Gross Domestic Product grew by 2.5 times but Federal Indebtedness grew by 5.26 times and Money Supply grew by 10.88 times. (Fig. 4).

The past two decades of near zero interest rates has availed most Americans an opportunity to refinance home mortgages and corporate bonds with successive lower interests thus freeing up cashflow to spend or stock buybacks. All these were at the expense of an accelerated increase in money supply. When the so called “risk free” 10 Year US Treasury Bill rate dropped from a high of 15% to a low of 0.5% in July 2020 (Fig. 5),

price earnings multiple of US Stocks blew out to unprecedented levels simply because there is no alternatives. (TINA). If one think asset price inflation is a good thing because it makes one feels rich, think again ! Sooner or later general price inflation will follow as the debauched currency purchasing power is undermined and labour and suppliers has to demand higher wages and prices as compensation. In the words of the famous economists John Maynard Keynes  “There is no subtler, no surer means of overturning the existing basis of society than to debauch the currency. The process engages all the hidden forces of economic law on the side of destruction, and does it in a manner which not one man in a million is able to diagnose.”  (Fig. 6).

(iii) The Kraken: The problem is once the Kraken (inflation through currency debauchery) is released there will be damages that last for decades. (Fig. 7)

In places like China and Hong Kong where Consumer and Corporate borrowings are mainly on floating rates, the impact of deflation is immediate. However once malinvestments and the speculative froth is cleared, economic order can be restored. In US, both Home Mortgages and Corporate Bonds have fixed rate duration and the impact of interest rate hikes tends to have delay effects. In due course as rollover of debt from around 3% to become 7%, consumers and corporations will see higher costs and reduced cashflow. One estimate puts this average maturity period to be the next 6 years, meaning an economic flat-line with no uptake impulse until 2030. Another important factor is US currently runs a net negative savings, this means the Government has crowded out all domestic savings by deficit spending, primarily in debt service, entitlement programs, wars and military buildup. There is even no money for a border wall because funding for Israel and Ukraine takes precedence.

(iv) The Political Economics of Plunder:  When the well off suddenly found themselves struggling in Poor Street, all kinds of crazy schemes can be conjured. On September 14, 2023 Congress introduced the Prohibiting Adversarial Patents Act, a bill that  would prohibit the issuance of a U.S. patent to any person or entity who is identified to be a threat to U.S. national security pursuant to the U.S. Entity List. Any patent previously issued to companies on these lists would be unenforceable. Hence, US is free from paying royalties or obtain approval for use patents originated from China. This week, US Congress also pass the Tik Tok Ban Bill which will coerce ByteDance to transfer ownership of Tik Tok’s American Operations into American hands. Already former US Treasurer Mnuchin is rubbing his hands to acquire it. (Fig. 8).

 

This US practice of plunder is nothing new, in 1998, Alcatel was pressured to sell its technology division to General Electric for a pittance.

(v) Real Steel and the story of Zhang Yiming, Ren Zhengfei and Wang Chuanfu: Whether Tik Tok would fall into American ownership is a big if. I love underdog stories and my expectation is Tik Tok would stay independent far from the clutches of the American Jewish elites. Neither Zuckerberg nor Mnuchin will end up owning Tik Tok. If I may draw my conclusion by profiling the type of entrepreneurs like how Zhang Yiming of ByteDance, Ren Zhengfei of Huawei and Wang Chuanfu of BYD, then perhaps readers may know more fully the spirit and character of these leading entrepreneurs and determine for yourselves whether they can be KO easily.

(a) Zhang, founder of ByteDance was born in 1983, son of a humble electronics component factory owner in Dongguan City, just north of Shenzhen. Zhang graduated as a software engineer in 2005. Upon graduation Zhang worked for Microsoft for 6 months and frustrated by a lack of challenge Zheng left for his own startup ventures. ByteDance is known as the App Factory of China because of the large number of successful Apps that were introduced. At 38 Zhang resigned as CEO of ByteDance to focus on learning knowledge, systematic thinking, researching new things, hands-on attempts and experiences, and creating more possibilities for the company within ten years. Zhang’s philosophy is “low profile, tolerance and pragmatism”.  

(b) Ren, founder of Huawe, age 74, Ren founded Huawei 30 years ago when he was against the wall having been swindled out of his life savings. Though Huawei is the world’s largest telecommunication enterprise, Ren’s share in Huawei is less than 1% and not even the largest shareholder. All the shares in Huawei are employee owned and Ren flatly reject the notion of get rich quick a public offering of his shares. Ren’s philoshy is: (i) Think about failure every day, crisis is always there. What doesn't kill you makes you stronger. (ii) Only the paranoid can survive. To grow an enterprise, it must have the characteristics of a wolf. (iii) Don't try to be a perfect person. Instead of improving your shortcomings, use your strengths. (iv) Only doing one thing for 30 years. Struggle has no end, you must learn to persevere. (v) Spend a lot of money to learn management. Learn from all the great people.

(c) Wang, founder of BYD, born in 1966, Wang’s father passed way when he was 13 and his mother died two years later. His brother and sister-in-law became the most important people in his life. Wang’s brother and sister-in-law were very helpful in his life. When they discovered that he had a special talent for mechanics, they decided to sell their sister-in-law's dowry to provide for his education. This move not only changed Wang's life, but also had a profound impact on BYD's growth and development. One of the reasons for Wang success is his vicious vision and fearless advancement. Charlie Munger, Warren Buffet’s partner in Berkshire Hathaway described Wang as "Thomas Edison of China" and compared him to Jack Welch of General Electric. Berkshire’s investment in BYD returned 30 folds. However, success is not Wang's only pursuit. Even though he has become a multi-billion entrepreneur, he has never forgotten his roots. He knows that he comes from an ordinary family and is grateful for the help and support of his brother and sister-in-law. He has also been committed to giving back to society and contributing to the cause of activities.

These entrepreneurs all had a humble beginning, all keep a low profile and simple lifestyle, embrace challenges and strife as a necessary and integral part of life. They have proven and will continue to prove to the US Administration that in their dictionary, a KO in the American lingo is but a temporary setback when translated into Chinese.  

Real Steel Final Fight Scene. https://www.youtube.com/watch?v=IvLl2S2qH1E 

II Corinthians 12:6  For though I might desire to boast, I will not be a fool; for I will speak the truth. But I refrain, lest anyone should think of me above what he sees me to be or hears from me. 7  And lest I should be exalted above measure by the abundance of the revelations, a thorn in the flesh was given to me, a messenger of Satan to buffet me, lest I be exalted above measure. 8  Concerning this thing I pleaded with the Lord three times that it might depart from me. 9  And He said to me, "My grace is sufficient for you, for My strength is made perfect in weakness." Therefore most gladly I will rather boast in my infirmities, that the power of Christ may rest upon me. 10  Therefore I take pleasure in infirmities, in reproaches, in needs, in persecutions, in distresses, for Christ's sake. For when I am weak, then I am strong.