The Federal Reserve’s QE2 stimulus has stoked a fire storm of global of inflation. What began in the Middle East and North Africa as a rebellion against rising food and basic essentials for some of the poorest people on earth has now spread to supposed success stories, like China. Over the weekend, rioting broke out in Beijing, Shanghai and 11 other major cities to the chant of “We want food, we want work, we want housing, we want fairness”. As inflation moves on from food to rising fuel costs and then mounting raw material imports; the U.S. is about to be hammered by the combination of higher prices squeezing consumer discretionary spending and higher material costs hurting business profits. Americans need to be prepared this fall for the economy’s ugliest witch’s brew: STAGFLATION.

Chinese police deployed in large numbers this weekend to quash what is being called the “Jasmine Revolution”. China’s authoritarian Communist leadership is trying to short-circuit dissent before it spins into the type of popular uprisings seen in Egypt, Tunisia, Bahrain, Yemen, Algeria and Libya; where over 500 people have died. Although Chinese law enforcement tried to crack down on Internet communications, cell phone pictures and videos of protestor’s resentment and desperation is leaking out.

Americans should not be fooled that these protests are someone else’s problems. We may only spend about 10% of our income on food, but much of the rest of the world spends 1/2 their income on food. When people who have little or nothing see what little they have evaporating, there is no downside to violent confrontation with the establishment.

As Federal Reserve Chairman Ben Bernanke is caught in the headlights of world anger over the inflationary ravages from his flooding the world with cheap dollars; he lashed out at investors for fanning inflation.

Blaming investors is disingenuous in the extreme; it has been the financial engineering of the US Federal Reserve’s serial paper money printing that continues to cause havoc around the world. The Fed’s repetition of stimulus spending was the father of the 1990’s tech stock bubble and 2000’s US housing bubble. Like all government intrusions into the economy, the eventual pay-back was the mother of two of the worst economic crashes since the Great Depression and is destined to cause more grief in this cycle.

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On today’s edition of Coffee and Markets, Brad Jackson is joined by Pejman Yousefzadeh to discus the impact of Steve Jobs’ leave at Apple, Hu Jintao’s visit to Washington and Pej’s Chicago Bears.

We’re brought to you as always by BigGovernment and Stephen Clouse and Associates. If you’d like to email us, you can do so at coffee[at]newledger.com. We hope you enjoy the show.

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We were given fair warning on Tuesday when Robert Gates arrived in China. I doubt, however, that we will heed it. Liberal, commercial polities have a tendency to be caught flat-footed at the beginning of an armed conflict, and what is true for them is even more egregiously true for the modern democracies so aptly described as welfare states. War, defeat, and a profound loss of prestige are, I fear, the catastrophes that we are now courting – as the Chinese military ostentatiously indicated by brazenly test-flying their first stealth fighter, one larger than any in our larder, just a few hours before our Secretary of Defense sat down for discussions with Chinese President Hu Jintao.

The blunders that we are now making are by no means unprecedented. The first example that comes to mind is England under William III, which was arguably the first fully modern, fully commercial polity in human history. As Winston Churchill points out in his Marlborough: His Life and Times, England’s Dutch king fought vigorously to maintain in England in the wake of  the War of the League of Augsburg (1689-97) a standing army as a deterrent, but he was thwarted by a Parliament weary of war, unfriendly to taxation, and intent on harvesting a peace dividend. In the absence of an England capable of deploying on the continent of Europe an expeditionary force at a moment’s notice, when the last Hapsburg monarch of Spain died without issue, Louis ignored the terms of his marriage with a Spanish Infanta and connived in installing on the Spanish throne his grandson Philip, who was in line to inherit the French throne as well. Given their immense wealth and their holdings in the New World, the unity of France and Spain would have had as its practical consequence the establishment of a universal monarchy dominant over Europe. This was the very eventuality that the War of the League of Augsburg had been fought to prevent, and in response the English, the Dutch, and the Hapsburgs in central Europe launched the War of the Spanish Succession (1701-13), which the first two of these states were initially – thanks to the natural propensity of liberal, commercial polities – ill-equipped to fight.

Churchill – who was awarded the Nobel Prize in Literature in part as a recognition of his remarkable accomplishment in Marlborough: His Life and Times – composed this magisterial study in the 1930s, and one cannot read it without realizing that writing this work was a central part of his intellectual preparation for becoming a wartime Prime Minister. Britain was caught in the toils of the Great Depression at the time, and he watched in horror and raised his voice in protest as Germany under Hitler rearmed and as Britain and France succumbed to wishful thinking and repeatedly chose butter over guns. The Second World War – and the casualties accompanying it – were the price that was paid for the improvident stewardship of the political leaders of Britain and France.

I mention these disgraceful examples because I suspect that we are following in their wake.

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Here we go again.  President Obama bowed to the Chinese President and the General Secretary of the Chinese Communist Party, Hu Jintao, when they met in Washington yesterday.  This latest bow comes after a string of previously humiliating and ridiculous Bama bows: to the Saudi king, the Japanese emperor, and (my favorite) the Mayor of Tampa, Florida.

After all of this deferential bowing, the Saudis are still supporting and exporting Islamic terrorism and radicalism and the Japanese are still in our face about our military bases there.  I’m pretty sure Tampa must still have some sort of beef with Washington.  But the point is that no matter how much groveling the Bama does, the result is the same: total contempt from those
he’s trying desperately to charm with his “humility.”

The latest example is Hu, who looked completely baffled and slightly amused at the sight of the President of the United States and supposed champion of freedom, bowing before him.  Of course, he read it as American weakness (as he and everyone else in the world had read the Bama’s previous bows).  The result?  Earlier yesterday, Team Obama rushed to the media to trumpet a
breakthrough of sorts with the Chinese over sanctions on Iran’s nuclear program.  Jeff Bader, a top Obama national security official, proclaimed, ”They are prepared to work with us.”

Not so fast.

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How much do we really owe to China? Will America’s exploding debt hamper the US economy for decades to come? Is there any path out of this? We discuss all this and more on today’s Coffee and Markets, a daily podcast from The New Ledger on politics, policy and the marketplace with Francis Cianfrocca, brought to you by BigGovernment.com.

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Related Links:

NYT: Mountains of Debt
SNL: Obama and Jintao
WSJ: The Source of Chinese Savings
TNL: The End of Chinamerica?

Hu Jintao and Barack Obama sitting in a tree, K-I-S-S-I-N-G. Is America becoming more like China under President Obama? Or should we be upset that it isn’t? We’ll talk about the President’s jarring diplomatic trip to Asia and how the markets responded to Ben Bernanke’s New York speech on today’s Coffee and Markets, a daily podcast from The New Ledger on politics, policy and the marketplace with Francis Cianfrocca, brought to you by BigGovernment.com.

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You can subscribe to the podcast by following the links above, and if you’d like to email us, you can do so at coffee[at]newledger.com. We hope you enjoy the show.

Related Links:

WSJ: Common Ground With Obama and Jintao
AP: China and America, Working Together
WP: Obama, Hu vow to continue to strengthen partnership
Niall Ferguson: The Great Wallop
RCW: Asia and the West in the Age of Obama