How China Conquered the US without firing a single shot! It is called bankruptcy.

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The financial collapse, rising unemployment, rising inflation, rising energy costs and the falling Dollar are ALL SYMPTOMS of failed US policy towards China. By manipulating the US dollar, China has artificially suppressed their currency making it cheaper to buy their goods and more difficult (or expensive) to export USA products. This manipulation resulted in significant cash outflows to China, who in turn did not buy US goods, but instead acquired significant energy resources in the world thereby driving up global energy costs and sped up the domino effect that led to the financial collapse.

Standing back and it becomes as clear as mud how China conquered, or bankrupted, the US without firing a single shot! They have stolen the USA's liquidity and totally undermined the US strategic capability worldwide.

Since the early 80's, China has been manipulating their Currency (Yuan/RMB) artificially Low against the US Dollar making their goods (US imports) cheaper than manufacturing in the US (or NAFTA for that matter). Additionally, US exports are considerably more expensive compared to China's when competing in the global market, or even in China. Jobs and entire US Industries were outsourced. Additionally, Inflation was artificially low driving the US towards becoming a 3rd world nation.

As a result of this effect, the Chinese market has been growing at an artificially high GDP because of the significant cash surpluses and the excessive cash circulation in the Chinese market. These cash surpluses were then used to acquire extensive energy resources that drove up our energy costs.

US Trade Deficits with China:
1985 ($ 6 Million) (Yes only Millions at this stage)
1986 ($ 1.6 Billion)
1987 ($ 2.8 Billion)
1988 ($ 3.5 Billion)
1989 ($ 6.2 Billion)
1990 ($ 10.5 Billion)
1991 ($ 12.7 Billion)
1992 ($ 18.3 Billion)
1993 ($ 22.8 Billion)
1994 ($ 29.5 Billion)
1995 ($ 33.8 Billion)
1996 ($ 39.4 Billion)
1997 ($ 49.7 Billion)
1998 ($ 56.9 Billion)
1999 ($ 68.7 Billion)
2000 ($ 83.8 Billion)
2001 ($ 83.0 Billion) Crash Slowed down US purchases for a bit
2002 ($ 100.3 Billion)
2003 ($ 124.1 Billion)
2004 ($ 161.9 Billion)
2005 ($ 201.5 Billion)
2006 ($ 232.6 Billion)
2007 ($ 256.2 Billion)
2008 ($ 270.0 Billion estimated)

On the opposite end, the US GDP was growing at a much lower rate than presented. When one removes the Government borrowed funds expenditure from GDP calculation, the picture looks much worse. The US has basically been in a recession for about 20 out of the past 30 years. GDP does not take into consideration borrowed money and therefore it is easy for the US Government to manipulate the GDP by just borrowing more money and spending it. It then artificially increases the GDP calculation artificially. It is basically a form of manipulation that would have landed CEO's and CFO's in prison yet our government uses it to hide behind failed strategies and policies. It is like paying all your company expenses with borrowed money and not accounting for the liability incurred.

Over the past 30 years, this manipulation by China gradually siphoned of the US's biggest strategic resources, namely cash, extensive credit and access to large well capitalized markets. The US government in turn has hidden this to make the world and voters think that the market is stronger than it really was.

It should also be noted that every dollar typically circulates 5 to 7 times per year in the US and hence the outflow of every dollar has a 5-7 time worsening effect in the US. Even if the exact dollar finds itself back in the US several months or years later, the decline in US circulation from a ~6:1 down to a more international ~3:1 could alone cut the US cash flow, liquidity and wealth by more than 50% and significantly impacts markets, financial liquidity and Tax revenues.

In the late 70s, Carter met with the Chinese to normalize relations as a counter against the former USSR. China was allowed to sell products into the US, but it was with various controls and Chinese infrastructure was so weak that they had little capability to leverage this advantage. Additionally, there were many restrictions on trade in place.

During the 1980s, the economy failed to recover from the OPEC days and Reagan used partially flawed Keynesian economics to avoid stagflation but it left the US in significant debt in its wake. It did however make the GDP APPEAR to be healthy for a while, but it was a false sense of security because it did not account for the extensive debt that would have to be repaid. I guess Reagan's biggest bluff was not Star Wars against Russia but rather the US GDP manipulation or shuffle.

In 1988 Bush Sr. was fortunate in that he was able to pass the most expensive Federal cost, namely the military onto other nations with operation Desert Storm for a few years. The world basically subsidized the US military and a large portion of its operations by funding the military infrastructure for a few years. This payment enabled Bush to set the stage for a partial economic recovery towards the end of his term. At the end of his first term and after the war, Bush realized he had to raise taxes when the Military burden shifted back to the US government and we all remember his infamous "read my lips" speech that also hurt him during his re-election. (Midget Perot did not help him either).

In 1992 Clinton got lucky when his VP, Al Gore, as part of the paper reduction efforts liberated the little known inter-government system called the internet by opening it to the public. This resulted in significant investment into the US which did help drive a real but temporary economic recovery.

The downside was that in 1999, the republican congress and Clinton introduced and signed China permanently to the MFN (Most Favorite Nation or now called Normal Trade Relations) agreement, enabling the CHINA low tariff privileges and exasperating the situation (See data above). China had enjoyed the status for a few years but when it was signed as a permanent law in 1999, the wheels came off and all sense of accountability flew out the door. Within a matter of months, much of the infrastructure manufacturing shifted offshore to China and the bubble burst sooner than it should have.

Greenspan and Republican idea was that China's market was so large that the US would buy a lot of goods from China and China in turn would have to buy a lot of goods from the US. It was sold by Republicans that the increase in trade between the two countries would be to the benefit of all. A good theory, but it "assumed" that China would act responsibly and in kind to the US by opening its markets totally and buying goods from the US. It did not account for the fact that China would place restrictions on company imports, foreign held corporate ownership and China's 25% export rebates. (A 2nd indication that China deliberately siphoned cash from the US).

China by this stage had become a well organized industrial machine, pumping out products and siphoning cash (liquidity) out from the US. To worsen the 20 year developing problem, China had more strategic ideas, such as securing oil in and Gas in Nigeria, Kenya, Libya, Cuba, Qatar, Canada. Since 2004 China's significant dollar surpluses were spread all over oil rich countries and the circulating dollar now took even longer to return to the US. Hence the US continued to sink deeper into a hidden recession and the US government kept borrowing to artificially inflate the GDP. (Yes to keep us content).

China's significant increase in energy demand and surplus expenditure by the excessively fast growing Chinese economy significantly drove up energy costs for the world, including the US who was more dependent on energy than other nations. This forced not only significant cash out to China but now also to energy rich countries in bad parts of the world. Hence the artificially inflated oil prices were also driven by the Chinese Forex manipulation.

To keep the bubble from bursting, China was very eager to loan the US more money so that they could continue to re-siphon the US dollar from the US market and thereby continue to artificially stimulate their economy but placing an increasing interest burden on the US.

By 2000, the Recession became apparent and could no longer be hidden.
In 2000 and after Congress approved the Financial deregulation, and after 911, the Federal Reserve lowered interest rates significantly. This effect create false cash as house loans became too cheap which in turn drove up housing values to preposterous levels. Folks were borrowing against the homes and the perceived extra wealth made us borrow and banks eager to loan cash to anyone who had a house. Heck it felt like the good times, but was a bubble in the waiting. The US government was borrowing money like never before and the GDP looked healthy, but once again it was misleading.

In 2005 the US started placing pressure on China to float their currency and China realized that the US dollars they held would be worth a lot less in the future so China started extensively buying international energy and mineral resources to dispose of the dollars before truly floating the Yuan without intervention or manipulation. The Chinese energy expenditures significantly drove up energy costs. This effect forced US citizens in making choices between filling their car to get to work and making the house payment on time and that was when the final house of cards collapsed. House payments were delayed and that started sending the shock wave into the market and the whole financial system came tumbling down. Congress is now seeking people to blame when in fact it has been their own weakness and lack of vision and understanding that is the root cause of this catastrophe. They failed to address the Chinese imbalance and failed to recognize the weakness in the GDP model they are using to measure national prosperity.

In contrast, let's go back and examine very briefly what would have happened if the Chinese did not manipulate their Forex. As the US bought more goods from China from China since 1980's, the cash inflow into China would have gradually increased the Yuan Forex rate versus the dollar. Certain US industries would have remained or become more competitive versus China and the US would have been able to compete in the open markets with their products against the Chinese products.

Additionally, the increased Yuan would have been gradually inflationary (for various reasons) and the US Federal Reserve would have had to increase the interest rates to slow down the gradual inflation. The higher interest rate would have made house loans more expensive which would then have prevented the housing bubble and financial crisis. Additionally, salaries in the US would have likely increased as unemployment decreased and would have been a much more accurate reflection of housing affordability (as opposed to short term cheaper loans).

Hence this very simple very high level summary shows that in a truly free floating forex, would have helped prevent the Global financial crisis. It is apparent that GDP calculations need to be revised to be Net government expenditure, exclusive of loans in any forms whether it be from Social Security or any other instrument or country.

But all is not in despair, a new President with Vision, the right team and perseverance can make a difference but it will force some hard choices and a difficult road to recovery. The new US President must slow down the cash outflow to China and Saudi Arabia and must re-engineer the business fundamentals to make the US company friendly and more competitive versus foreign markets.

So how does the next President and Congress steer the US economy out of recession and stagflation? It is all about cash and corporate competitive advantages. (They will need this plan to get the cash they require for their social programs)

Two basic issues: Restore market liquidity and improve US business operational advanteges.


I will not elaborate into too many details as it will take to long and we don't have time as the election is close.

Place Import Duties (25%) on ALL goods from ALL countries (Currency zones) with trade imbalances, including China, Saudi Arabia, etc., even if it is painful. Once the trade imbalance is less than 10% of its annual US trade, then eliminate the duties. This will force other countries to freely float their currencies and the duties will help cover the government debt and interest until such a time when the lower US dollar will increase exports. This effect will immediately slow down cash outflow and provide the US government with extensive cash liquidity. Please note. This is not a form of market control but rather a method of fair trade enforcement.
The US should also encourage the US companies to buy lots of goods and services from countries who themselves have a trade deficits with the US (US Surpluses) to be fair and to provide incentive for these countries to buy US goods over other country's goods. (Fair trade should always be a two way street)
Eliminate or significantly reduce ALL federal Taxes on Corporations for 15 years. Similar to Hong Kong, Ireland, Cypress, Isle of Mann, etc. (Perhaps 10% Federal Tax rate). Then increase the upper personal income tax given that many private held companies will be significantly more profitable and hence once cash is taken out of companies, then they are taxed higher, too make up for the double taxation they would have been subjected to under corporate taxes.
This will make the US very attractive to large and medium size foreign owned and US Offshore corporations. Trillions of Dollars will flow back into the US within months thereby significantly stimulating the US liquidity, economy and salaries. I expect the market will hit 20,000 within three months after such legislation. (The loss in taxes will be offset with the increase in import duties as mentioned above in 1.)
Corporations will hire more people and pay higher salaries when unemployment gets to be too low. This in turn will mean that people will have more disposable income and spend more thereby driving the US cash flow and the economy. The government will also be able to have a larger tax base given the higher salaries and increase in employment
By liberating companies from tax burdens, they will be able to compete more effectively. See other third world countries have to rely on corporate taxes as their salary bases are too low. By stimulating this change, the US economic engine, namely business will drive employment and salaries. (It will basically make companies 30% more cost effective overnight)
Increase the FDIC to $500,000 for corporations (at a higher cost to corporations). Given the risk of banking and financial systems around the word, Billions of dollars will flow to the US to reduce risk of losing cash in banks. (Example The Netherlands only ensures accounts for only up to 20,000 Euros per entity or person, not per account like the FDIC.)
With the significant extra cash, liquidity, renewable energy tax breaks, make significant investments in new energy resources. (Nuclear, Wind, Solar, Tidal and drilling short term in the gulf to avoid China from sucking US oil supplies through Cuban waters.)
Ensure that all non-foreign renewable energy revenue sources are tax free for 15 years to help drive the transition and investment in the transition. (Be careful of not falling into the Synfuel tax rebate energy fraud or manipulation.)
Have the Feds buy mostly only natural gas cars to drive infrastructure changes in distribution channels.
Paragraph 1 will should also help keep the cost of energy imports higher to help fuel the local energy conversion making the transition viable, even if it is a bit painful at the pump.
Force every US employee to take "Major Medical Insurance" for their family which is much more affordable than traditional comprehensive or HMO based insurance. It should be partially paid for by the employee and the employer as it does not really costs that much.
Government should state what will be covered as a minimum in these policies.
Paid just like Social Security, these policies will help stop the 1 million bankruptcies that occurs every year and therefore help lower the cost of normal medical visits given the reduced write-offs
Convert the US government to buy goods over the next 15 years to 100% Metric. The US cannot export many of its goods as the rest of the world is Metric. When the Federal Government buys Metric, then the rest of the US market will follow and it will be easier to export standard product out of the US without having to retool.

Needles to say an entire 200 page thesis can be written on strategically managing the US economy from the hole we are in but the details would bore the average reader to death. One concern as always is that Politicians will try to milk good ideas into half measures for their own greed and benefit and hence the final outcome could remain at risk unless clear decisive and strong leadership guides the process.

Hence, the US requires STRONG and VISIONARY leadership from the next president that is willing to listen to both sides of the isle, pick up ideas from folks with business and economic experience, frame concrete well thought out policies around these steps that are accurate and comprehensive and follow them through in detail.

The solution to this crises starts with you. Do not ask or expect someone to speak up for you. Write to your congress person and senator a letter asking them to read and implement the PULLEN ECONOMIC RECOVERY PLAN of 2008.

Copy and paste the entire letter for them to read. Your Congress leader can be located at:

Congress Person:

The American Economic Revolution starts with your actions right here and now.

Written by:
Donovan Pullen, P/K E MBA Pepperdine University, 2002
Majority Shareholder of a Chemical company

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