The chaotic political situation in Washington has given permission to the mentally deranged to unleash their own versions of Presidential behavior. Thus, we can expect more bombings and school shootings. We've lost control of our better instincts. The blood-dimmed tide is upon us. Youthful innocence is drowned. Even the best of us lack all conviction, while the worst of us are full of passionate intensity. Just watch Fox News.

And I want to thank W.B. Yeats for defining the human condition so succinctly. The widening gyre, indeed. 

Tariffs, Trade Wars and Small Businesses

How does a 25% tariff on steel impact a small stove manufacturer in the US?

Here's how the business works:

Every 3 to 4 months or so, your stove Company would buy $2 million dollars worth of steel. This steel would go towards making stoves over the coming months.

With a 25% price increase, the same amount of steel that your Company used to buy for $2 million now costs $2.5 million.

Small companies (say around $50 million in sales) usually don't have $500,000 extra cash lying around in the cash register. To make matters worse, this half million dollars only represents the cost increase for the first quarter of the year. 

So, assuming that your normal cost of steel is $8 million a year, then this means that your Company would need an additional $2 million to cover the cost increase in the first year of the tariff. 

Where do you get this $2 million to cover this unexpected increase?

You'd have to borrow the money. This means having to get a revolving credit of $500,000 every quarter to finance the increase. 

Naturally, this assumes that your Company has a solid balance sheet. A financially unhealthy Company, one that's surviving from paycheck to paycheck, so to speak, can go out of business due to this sudden and arbitrary increase in costs. 

Why? Because Banks won't lend you money if your balance sheet look iffy. Marginal Companies can go out of business due to this new tariff.

But, let's say you get the loan. To keep going, you'd have to increase prices. And you'd have to hope that your customers pay you within 90 days (3 months.) But that's another issue. So let's just stick with the tariff.

Let's say there's $100 worth of steel in your gas range. Now, you'd have to charge $25 more for each range that you sell. 

While a $25 dollar increase on a $1,000 range is minuscule, your Company would have to sell 20,000 units just to recover that $500,000.  

If your sales projections are good, and you achieve your sales goals, then your Company will be OK. The real danger point is getting the additional financing to pay for the cost increase in the first place.

Companies with marginal balance sheets may not be able to get the additional financing; and if there's a slight slowdown in the economy, then even the healthy companies would be struggling to make ends meet. Even a slight decrease in sales will impact your ability to repay your loan.

The risks involved in increasing these tariffs seem much greater than not doing anything at all. Unless, of course, you are loaded with extra cash. But, even then, is it worth the risk? 

Open Letter to Rupert Murdock and Family

Dear Mr. Murdock:

It's my understanding that you are an immigrant from Australia. You came to America to make your fortune, and you have. You are a shining example of the great American Dream. People move here because of the success stories like yours. 

But, when I watch Fox News, your Company, I'm horrified by the stories of undocumented immigrants raping and murdering good American citizens. And, when "Fox and Friends" combine these horrific stories with graphic reports of radical Islamic terror around the world, then I can't help but feel frightened. Clearly, the world is a scary place.

You and Fox News have done America a great service. We will have a Great Wall to keep out the immigrants, and we won't let the Muslims fly into our country to terrorize us. But what about those raping and murdering immigrants who are here? And the Muslims, too? 

You've gotten me scared enough to think that we should build detention camps to house these murdering terrorists. President Trump could issue an Executive Order to do just that. We did it to the Japanese-Americans in WW II. There wasn't one instance of sabotage or terror because all the Japanese were locked up.

While I realize that this is an extreme and inhumane way to govern a free country, Fox News has gotten me scared enough to think about such measures to calm my fears. 

So, Mr. Murdock, as one immigrant to another, what is your end game here? Is it Fox's intent to scare the bejesus out of us so that we will hysterically clamor for extreme, inhumane solutions? (Like the Holocaust and the Japanese Detention Camps?)

Where are you going with your unrelenting reporting of the fear factor? You are not turning into a horror show, are you? Or, is that your true intention? To sell fear and sensationalism?

Respectfully yours,

Paul C. Huang

 

The Chinese Economy

I was in China just before the three-gorges dam flooded one of the longest rivers in the world.  Along most of the 4,000 mile-long Yangtze valley, cities, towns and villages were emptied of people and flooded.  Millions of displaced people were moved and housed in brand new cities.  In effect, these people got free housing from the government.  All the peasants who had previously lived in earthen-floored huts and farm houses (shacks by western standards), now lived in brand new concrete high-rises with electricity and fully equipped modern kitchens. They were also given vouchers for washing machines and dryers during the 2008-2009 credit crisis to help boost the economy.  (Think about it.  Millions of washers and dryers were given away to the people to keep the manufacturers humming!)


Now that these former farmers no longer have their rich valley soil to till, what's become of them?  What do they do to earn their keep?  Well, some went to work to build the washers/dryers.  Others stuck to making such traditional crafts as basket weaving; making furniture out of bamboo; painting porcelain; sewing shoes out of waste cloth; starting their own food processing business by using the family recipe for pickling and preserving vegetable.  In short, they turned their winter work into full-time jobs.  


The older folks were retired and given pensions.  (When riding the Shanghai subway, I noticed that all of the commuters were young people.  Surprised, I asked a commuter: why?  He replied that his parents had been retired by the government at the age of fifty to make room for the younger workers.  He and his wife work while his parents stay at home caring for the grand-children.)  


Today, there are still hundreds of millions of peasants living in abject poverty in the countryside.  (By one estimate, 200 million peasants live on a dollar a day.)  They still work the land like their ancestors.  Not much has changed.  But change is taking place.


What has changed is the people's desire to improve their standard of living.  To make change happen, the Chinese focused on building a workable infrastructure.  Consequently, they've built brand new cities with government buildings, modern office space and residential complexes.  Many of these new cities stand empty and unoccupied.  While infrastructure is easy to build, the new businesses needed to make these new cities hum is somewhat more difficult.  Even for a command and control economy.  


While the government can command and/or request the people to move into these unoccupied locations, what would they do for work once they've moved?  

Clearly, the next phase of China's development is the creation of new, or the reinvention of traditional Chinese arts, crafts, and local industries that the Chinese have thrived on for thousands of years.  But the emphasis would have to be on "new."


Today, Chinese colleges and Universities produce 830,000 graduates a year.  
There are 123 million young people between the ages of 20-25.
There are 6 million educated graduates looking for work.
These young people come from all walks of life, not just the "peasant" class. 


The Chinese government, local, provincial and national, form the largest venture capital entity in the country.  How they fund new ventures will be the determining factor in China's future.


How would they employ this giant pool of bright, educated people?


Start biotech companies?  Done that.


Recruit the best and brightest to do basic research on finding a breakthrough in alternative energy?  Certainly.


Clearly, the country or company that develops and patents a totally new fuel will find itself leading the world into a bright and limitless future.  

Who Lost China?

Generalissimo Chiang Kai-shek was as corrupt as they come.  Both General Stilwell and FDR knew it.  Privately, FDR called Chiang that little Generalissimo.  (Only a megalomaniac would give himself the “Generalissimo” title.)  But the US State Department stuck with the Generalissimo for two reasons: fear of Communism and the concept of “Stability.”  Furthermore, the US Intelligence Community had ordained that with America’s support, Chiang could easily defeat that rag-tag band of peasants led by a man named Mao.

After WW II, the State Department and the CIA was controlled by the Dulles brothers: John Foster and Allen, both hard-line anti-communists.  Both supported the known dictator Chiang, rather than the unknown Mao.  Unfortunately, their concept of stability lasted until 1949 when Mao won the revolution.  So much for the Intelligence Community’s assessment of the situation in China.  

Mao’s ascendancy to power clearly disturbed the “stability” of the global geo-political arena.  

And the first thing to be de-stabilized was the thinking in DC.  Nearly everyone in Washington asked:  Who lost China to the Communists?  Why didn’t Intelligence detect this disturbance when nearly every intelligent person in China knew that Mao would win?   

Did America “lose” China because the State Department chose to overlook Chiang’s corrupt government in favor of stability?

Unfortunately, the "Intelligence" community was not able to recognize the social symptoms exhibited by the people of a foreign culture.  (If your government threw you off your land without just compensation, what would you do?)  The Dulles boys failed to understand communism because they saw it as an emotion issue, meaning that they were fearful of it because Capitalism was what kept them rich.  They could not analyze the situation at the peasant level in China because they had no experience whatsoever with that lifestyle.  How could you when you live a rich pampered life in DC?  (Even today: can you imagine how 200 million Chinese peasants live on a Dollar a day?  Just try to imagine that.)

So, what did the Dulles Brothers do?  They came forth with a policy to Contain Communism.  There was no other alternative in their minds.  And the rationale for this Policy was the “Domino Effect.”   Since China went Communist, then the next would be Korea, Vietnam, Taiwan and so on down the line.  Clearly history proved the Dulles boys wrong when the Berlin wall came down.  Communism doesn't work.  So much for the Domino Theory that ruled CIA thinking in DC for four decades.

The American Intelligence Bureaucracy is still controlled by a few people with definite ideas of their own.  And if they don't or won't recognize what's going on in a foreign country, then they are not going to believe the one smart analyst who does.  Consequently, the CIA missed the collapse of Communist Russia just as they had missed seeing the "loss of China" back in '49. 

So, nothing has changed since WW II.  It would appear that our leaders are incapable of recognizing the people who think out of the box and who's analysis appear to be too different or difficult to accept.  Clearly, intellectual courage is outside of our leaders' mindsets.

Stability is still the catch word for what's happening in the mideast today.  Mubarak repeated the same refrain that the King of France Louis XV exclaimed 15 years before the French Revolution:  apre moi le deluge  (after me, the deluge).  Colonel Gadhafi is also repeating that same refrain about Libya: It’s me or chaos.  They play the stability card because they know it worked in the past.  But, it appears that the price for “stability” is prohibitively high, especially for the average citizen living in the mideast.

Does anybody inside the US "Intelligence Community" understand what's going on in the mideast?  Isn't a CIA operative like Raymond Davis, who clearly thinks with his guns rather then his brains, is a mirror image of the thinkers in DC?  Shoot first, talk later?  If Ray Davis doesn't reflect the DC image of the world, then why is he running amok over there?  Indeed, why are we running amok around the world with guns blazing?  This is a question being asked by our friends and foes, alike.  

Picture this: a Pakistani driving down Fifth Avenue in New York with a Glock handgun, a pocket telescope and sophisticated electronics equipment.  He’s stopped by two Homeland Security Agents.  The Pakistani shoots and kills both men.  The Pakistani is a terrorist and murderer, right?

Now think about this: Raymond Davis was driving in Lahore, Pakistan with a Glock, a telescope and sophisticated electronics equipment.  He’s stopped by two Pakistanis and Davis kills both of them.  Same story, different location.  Is Davis a terrorist and murderer, too?

Presumably, Agent Davis was going to use his telescope to see when the Pakistanis will overthrow their latest dictator.

Meanwhile we wait to hear:  Who lost Saudi Arabia?  

According to the CIA World Factbook, the average Saudi makes $24,200 a year while the people in Qatar, its smaller neighbor, makes $145,300.  Both countries are rich in gas and oil.

There are 7,000 princes in Saudi Arabia.  The King and Princes have Trillions of Dollars; live in HUGE palaces; own homes (palaces) in London, New York; Paris.  And that’s not counting the trillions of dollars in gas and oil buried under the sand.

Why should a handful of Royalty own so much and the average person so little?  Is this just or fair?  You don't have to be a socialist or communist to ask such a basic human fairness question. 

Recently, the King rented the entire floor of a famous New York Hospital for himself and his family.  Clearly this extravagance was seen by the poor Saudis who live in tents in the desert.

So, who is going to lose Saudi Arabia?  Local Dictators with their unique set of dictatorial mindsets, that’s who.  

Corruption in China, Part 2

Transportation was the lifeblood of commerce and war, while food and energy fueled both.  The only difference between war and commerce was that the latter is bloodless.  

With the gas gone, the Army’s movement was limited.  General Li’s escape strategy had been decided for him: the trucks would go as far as the gas in their fuel tanks would take them.  The contents of the Bank would have first priority.  Ammunition and rice occupied the rest of the trucks.  The men would carry food supplies and ammunition on their backs, haul it wagons, push in wheelbarrows and otherwise use whatever means possible to keep themselves alive and in fighting shape.  There just wasn’t enough trucks to carry everything, including the soldiers.  

To minimize the Army’s exposure to Japanese air attacks, the soldiers would march in three columns each taking a different route.  They would converge at the new headquarters roughly three hundred miles inland.  

The General with his wife and two young daughters would ride in his black Buick.  Immediately following the Buick would be the trucks loaded with the Bank’s assets and secret Government files.  Jee-ing would ride in the truck holding those sensitive files.  Her son, Bo, would be carried by two soldiers on a bamboo sedan chair.  

“Remember,” Jee-ing said, “you are the youngest soldier in the Army!  We won’t be separated for long.  Just a few weeks, at most.  Mother will be waiting for you.”

Bo nodded solemnly.  “What happened to the old man, Ma?”

“They shot him,” she said simply.  

General Li requisitioned an entire town and relocated its citizens to neighboring villages.  His military subordinates and supporting civilian bureaucrats established offices and living quarters in the vacated town.  When the body of his massive Army arrived, he ordered his men to take over the surrounding countryside.  The army would need farmland to grow food.  The peasants who owned and worked these farms were told to find work elsewhere.  The soldiers would farm the land.  (During the war, millions of peasants were displaced in this way.  Many joined Mao and the Communists.)

That summer, the weak and the frail died from starvation. 

The war was not going well for the General.  Tax revenues were down substantially because the Japanese occupied the most productive coastal regions.  To supplement their incomes, the Bureaucrats resorted to demanding bribes.  While greasing the palm of a Chinese bureaucrat had been a way of life since the earliest Dynastic days, the modern bureaucrat was not as discreet nor courteous.  The transitory nature of modern warfare had changed the game.  The General and his staff had no prior relationships with the local populace, nor did they think that they would be around long enough to develop one.  Hence, these demands from strangers came across as harsh and heartless to the locals during these difficult times.  

Local politicians, wealthy merchants and influential landowners complained, but their voices went unheard.  Only Jee-ing took the time to read their letters and entreaties.  The rampant corruption among her co-workers at headquarters disturbed her greatly even though bribery (like tipping) was a cultural thing.  What offended her was that they did not even bother to hide it.  And why should they?  The General himself was knee deep in it.  Perhaps the only real secret the General kept from his staff was the two numbered Swiss bank accounts.  Even Jee-ing wouldn’t have known about them had it not been for her accidental viewing.  Once seen, it had not been difficult for her to figure out who owned them and how the gold had been transported to Switzerland.      

After much diligent research and many discreet inquiries, Jee-ing decided to act.  She contacted the most influential and powerful locals and met with them individually.  Those who expressed a willingness to testify to the General’s malfeasance, which all were willing to do, were invited to a secret summit meeting.  There, the group drafted a letter to Generalissimo Chiang Kai-shek.  This letter outlined all the grievances experienced by the people of the region as well as the fact that the Governor-General had been smuggling gold bullion out of China via the ancient silk route through local agents and intermediaries.  The letter was not signed by any individual but by a group known as “Patriots of Modern China.”

While the letter did not accuse the Generalissimo of any malfeasance, it did make clear that the group knew about the gold in the Swiss Bank.  They figured that the Generalissimo could not take the chance of being implicated in such a scandal.  After all, there was a paper trail that led to one of his most trusted subordinates.

A few short weeks later, the atmosphere at General Li’s Headquarters suddenly turned subdued and sullen.  They had been ordered to concentrate on the war effort rather than practice the squeeze on the local populace.  

After the Japanese surrendered, the Generalissimo suggested that his friend take some time off to travel the world.  His assignment was to learn the ways of the western world.  And, upon Li’s return, he had been promised a new job.  One that would be commensurate with his new-found knowledge of western culture.

In May of 1946, General Li, his wife, two daughters and a Nanny boarded a steamship for Europe.  One of the first places they visited was Switzerland.  

In the summer of 1945, Jee-ing took Bo to Chungking where General Joseph Stilwell had his headquarters.  Stilwell had long been recalled to Washington.  One of the reasons for his recall was his vocal and persistent dislike for the Generalissimo.  America could not afford to alienate an ally fighting against their mutual enemy, the Japanese.  It was more expedient to recall Stilwell than to insult Chiang Kai-shek.

Her job done, Jee-ing hired a small river junk to return to Shanghai.  Once again, she and her son changed into peasant’s clothing.  The junk owner had warned her about the lawlessness on the Yangtze River.  The trip down river from Chungking to Shanghai not only entailed riding the turbulent rapids, but also dodging pirates on the water and avoiding bandits who lined the river banks.  Law and order had completely disappeared.  The Communists under Mao were moving in on Chiang’s Nationalist Army.  Chaos ruled.  

Back home in Shanghai, Jee-ing warned her father about the Communists.  In particular she had recounted the way Chiang’s Armies had treated the peasants.  It had not been lost on her that most of Chiang’s conscripted Army came from peasant families.  Clearly, their loyalties were divided.  (As the Civil War progressed, hundreds of thousands of Chiang’s soldiers defected en mass to Mao’s peasant revolution.) 

      

Jee-ing encouraged her father to sell his land holdings in Shanghai before the Communists took control.  Car-lo refused.  The land was not his to sell.  He believed that it belonged to his father.

In May of 1947, Jee-ing and her son reunited with KP, her husband, in New York.  A year later, the Li family arrived in New York after a two-year trip around the world.  They never returned to China.  

Mao took China in 1949.  Chiang Kai-shek fled to the island of Taiwan.  

The Communists let Car-lo Sun live because he had voluntarily given his family’s properties to the people.  Additionally, the new government allowed Car-lo to continue to run his railroad.  When he retired, they gave him a pension.  Car-lo did not live long enough to see the Modernization of his country.             

     

  

           

    

Corruption in China, Part 1

Jee-ing graduated from Yenching University in Peking (Beijing).  Contrary to her father’s wishes (Car-lo wanted her to go to graduate school first.), Jee-ing eloped with her long-time college boyfriend.  The young couple was married by the Ship’s Captain while sailing to America.  Jee-ing’s goal was a Master’s Degree in Child Psychology; while her husband, K.P. Huang’s ambition was to get a Doctorate in Philosophy.  KP wanted to be a Scholar-Official in the Chinese Government--a real Mandarin.  The University of Michigan housed them in the married students’ complex.  

Both wanted the prestige and honor of an advanced American Degree.  In 1935, Jee-in was among some of the first Chinese women to attend a university in America.  

When their son was born a year later, Jee-ing and KP returned to Shanghai to honor Car-lo with the birth of his Number One Grandson.  By this time, all of his objections to the marriage had been forgotten and forgiven.  Unfortunately, KP had to return to Michigan for the start of summer school.  Jee-ing elected to stay a while longer.  

A few short weeks later, the Japanese blockaded the coast and bombed Shanghai.  For four years, the family lived under the oppressive Japanese occupation.  Then everything changed on December 7, 1941.  Simultaneous with the bombing of Pearl Harbor, the Japanese announced that all American citizen in Shanghai will be interned in Concentration Camps.  

Aware of the consequences, Car-lo instructed Jee-ing to burn any and all documents that indicated that his Grandson is a natural-born American citizen.  Jee-ing’s travel documents and her son’s birth certificate went up in flames.  To make doubly certain that his five year-old Grandson would never see a concentration camp, Car-lo arranged their escape from Shanghai.

Jee-ing only had a few days to prepare herself and her young son for their escape.  You are the youngest soldier in China, she said as she gently laid the cloth money belt on the bed.  Then she spilled out the contents.  These are gold coins and diamonds, she explained.  We will have to live on this money, so say nothing to anyone, understand?  Bo nodded as she gently wrapped the belt securely around his small waist.  Say nothing, she repeated seriously.  You will be following your Great Grandfather’s example, Jee-ing said with a smile.  

Mother and son boarded the coastal steamer.  They were immediately separated.  Males in one line and females in the other.  Jee-ing stood facing her son as the Japanese soldiers marched down between the lines.  They inspected the passengers’ papers.  When the Inspector got to Bo, he looked up at the soldier, smiled and handed him some Japanese occupation money exactly as he had been told to do.  Smiling in return, the soldier took the money, bent over slightly to pat Bo on the head, then moved on.

The ship reached Canton a few days later.  There, mother and son changed into worn and patched peasants’ clothing.  Properly disguised, they boarded a salt-laden river junk going west on the Pearl River Delta.  They hid in a secret compartment under the burlap bags of salt when the junk reached the outer limits of the Occupied zone.  

Here the Japanese made one last inspection.  They knew the junk owner.  This was just another one of the junk’s regular deliveries.  The Japanese let the harmless cargo junk pass.

The Chinese underground had assigned Jee-ing to be Governor-General Li’s his private Secretary/Translator.  Being bilingual, she would work with General Stilwell’s command.  

Governor-General Li of Canton Province had been befriended by Generalissimo Chiang Kai-shek at the Whampoa Military Academy, the West Point of China.  The Generalissimo had ordered Li to protect the assets housed in the vaults of the Bank of Canton.  The gold, silver and paper currencies, both domestic and foreign, were packed into unmarked wooden crates, loaded onto heavy-duty Army trucks and driven inland ahead of the invading Japanese.  At this secret location somewhere between Canton and Chungking, Li built his headquarters.  

General Li’s war-time strategy was simple: protect China’s assets.  Li positioned his troops in defensive rings around his headquarters.  There, he sat and waited for the Americans to beat the Japanese.  Li also hoarded the drums of American gasoline flown over the Himalayas.  The precious fuel would be used to continue the fight against the Communists.  This strategy would allow the Generalissimo to use these resources to solidify his control of China after the war. 

The huge stockpile of 55 gallon drums was guarded by General Li’s long-time rickshaw driver.  Rickshaws were obsolete in an modern Army moved by trucks.  But, out of loyalty, the General gave the old man the job of protecting the Gasoline.  This is an important job you know, the Old Man said to anyone who would listen.  No one will sell one gallon of the General’s gas on the black market.  And no one did.  

Then disaster struck.  It was the old man’s habit to sit in his rocking chair in front of the gas-storage facility.  Between his feet was a small metal wash basin filled with chunks of bright burning charcoal.  The heat warmed his feet and legs.  Occasionally, he’d lean over and rubbed his hands over the fire.  One day, he dozed off in the warmth of the winter sun.  His rocking chair suddenly tipped backwards.  The movement shocked him awake and he inadvertently kicked the heating pan.  The hot coals spilled onto the gasoline soaked ground.  Within seconds, just as he shouted his warning, the stockpile of gas exploded sending a column of thick black smoke 1,000 feet into the air.  

Certain that the Japanese would send an observation aircraft over for a closer look, General Li ordered an immediate evacuation.  The first trucks scheduled to move out were the ones loaded with gold, silver and all of the General’s secret documents.  

Jee-ing personally loaded the General’s sensitive and secret papers in his truck.  In her haste, one of the boxes fell open to reveal the contents.  The documents caught here eye.   She had stumbled onto a file of Swiss Bank Account statements.  Knowing that she was on dangerous ground, Jee-ing closed the box and went about her business as if nothing had happened.  
(To be continued...)