Monday, October 02, 2006

The great container smuggle

Ralph Schwan sees patterns the rest of us miss looking at the same thing. Think China's commercial success is due to low labor costs? Ralph looks at China's export scheme and discerns a banking op of no mean magnitude. The clues lay stacked behind your local Wal-Mart.

The following piece arrived in my email box just this morning. It's unedited, pure Ralph Schwan. It may explain, for the first time, how China became the world's manufacturer of choice. ~ FTS

There's a lot of talk about what enabled China to become the industrial supplier to the world. Low labor costs are first on that list - but any third world nation will have low labor costs. The thing that really enabled China to fit into that slot was something we miss. It was the really low costs of shipping goods from there to here and Europe. Shipping costs have always been the natural barrier to "world" trade. Were it otherwise, Henry Ford I would have said, "I need to build a plant in Argentina, India or China." George Westinghouse would have said the same. They'd have just shopped the world for the cheapest labor. All cars, motors and TVs would have always been built somewhere else.

Obviously, the shipping costs obviated such a thought from minds back then.

What changed? Really, what has changed since the 1970s?

Best I can tell it's the use of shipping containers, those big steel boxes that'll ride on a boat, a train car or a truck trailer. That's how everything sold at Wal-Mart gets here from China.

It costs about $2000 to ship one from Shanghai to the west coast, Oakland or Seattle. I figure that it costs another $1000, minimum to get it from there to, say Kansas, by train and then truck.

Here's what inspired my thinking about those containers. I was talking to a guy who imports after-market auto parts for pick-up trucks, lots of fancy wheels and other gizmos. They all come from China. He told me that his shipper was having troubles making timely deliveries because their storage yard was packed with the containers. According to him, for every three that come here, only one ever carries anything away. So the shipping yard is packed and stacked full of "empties."

There are only a half dozen shipping companies in the world that own all of these containers. I was stunned to discover that there are 18 million of these boxes! There's enough cubic feet in 18 million 8 by 8 by 20 foot boxes that if one laid the whole human population end to end, then stacked them, we'd all fit! Yup, all 6.5 billion of us! If you lined the containers up, end to end, they'd circle the earth 2.7 times. Packed into one spot, corner to corner, side-by-side, they'd make a square with sides of 10 miles.

If a lot of the containers end up in a storage yard, never being recycled back to China for a new load, it's pretty logical that they'd need that many. But . . .

I build stuff for a living. Most of it's made of steel. I took a look at that big steel box and realized I'd want five figures to build one. In big time production mode, that would drop to $7500. There's that much welding involved. The steel costs alone, FOB a rolling mill in China, are over $2000. Even if I had laborers at 20 cents an hour and a factory 20 miles from the rolling mill, the overhead costs of the shop, 20 mile cartage, electricity, machine tool wear, welding rods, wastage on the steel plate, etc. would force me to a price of $6000. The box weighs 2.5 tons. $6000 ain't a bad number, given what's involved in building one. If I wanted to buy one for storage at my shop and got told, "It'll cost you $6000," I wouldn't even blink at the price.

Tumble the numbers with me. At $6000 each, three cost $18,000. The shipper made 3 x $2000, $6000, to send them to the US, full of Chinese made goods. Only one goes back for re-use. He's instantly down by $12,000, the logical result of a trade imbalance - and that doesn't even account for the fuel costs by the ship to get them here. Nobody is going to ship the empty containers by truck or rail back to a port. That would cost $1000, each. So, the shipper really ought to include the additional costs of $12,000, distributed into every three shipments. Instead of it costing $2000 to get a container full of goods from Shanghai to Seattle, it ought to cost $6000. $2000 + (1/3 x $12,000) = $6000. But even at that number he's just giving the container away at what it cost him - a very bad business practice - so the number has to be greater than $6000.

But if it cost +$6000 to ship it from China, then the Chinese labor discount vanishes from the goods in the box. The product would be the same price, or less (!) if manufactured here!

In trying to figure this out I came on an article,,1518,386799,00.html

It says that the cost of the container in China is $2500. That's nuts. The raw steel, alone, is $2000, probably more like $2300 counting a 15% wastage in cutting it to the sizes needed.

If it sells for that price in China, and I've no reason to doubt that it does, then it's a deal, more like a steal. It could only sell that cheap if the government was subsidizing it to the tune of $3500. The manufacturing company makes the necessary $6000, but more than half comes from the government. That's the sole way the shipping company could be paying only $2500.

Now comes a nifty little Ponzi scheme. The shipper goes to a bank, a big international bank. He seeks a loan. The collateral is the shipping containers. He spent $7500 for three of them. But the fair market value is at least $18,000 (what they'd cost if built anywhere). He borrows $17,000. He buys six new containers for $15,000 and pockets $2000. But the fair market value of the new six is $36,000. He borrows another $34,000, using those six as collateral. With that $34,000, he buys 12 more containers and pockets $4000. I could keep doing the iterations, but you can see the game. It's a doubling up with each pass, with a cash profit of about 15% put into the shipping company each time. To keep it simple I started it at low figures. It's probably running at around 1,000,000 containers a year - given that 18 million of them have been built in only 30 years.

The shipping companies can offer very low rates from Shanghai to Seattle - all they want to do is break even, if that. They have a market incentive for that. They do NOT make money on the shipping. They make money by buying containers for shipping! They have to keep the shipping costs very low, as that's what's driving the whole "globalization" concept. If shipping costs were anywhere near their historical norms, then the low labor rates in China would be offset by the shipping costs, and importation would also go back to historical norms. We'd build far more stuff locally! Then the shipper would make very little money - as ocean shipping would drop substantially. But far worse from the shipper's perspective - he'd not need any more new containers. The scheme collapses.

Does the scenario make sense to you? NAFTA and GATT were what enabled it on a "legal" basis. But in a free market, shipping costs should be a significant aspect of a wholesale purchase decision. They always have been. The only way we'd buy stuff from China would be if the costs of getting it from there to here fell way below all historical precedents. And they have.

Shipping via the containers did cut those costs, as it eliminated the old "stevedore" system, which was slow and labor intensive (at both ends). But the container system has a failing. Oh, it's a grand system where countries are trading back and forth at near even rates. But when those rates go into imbalance the containers will stack up in the importing countries, never getting back to the exporting one.

And those containers are pricey by design. They have to be built of steel in order to be stacked atop each other. They're designed to carry almost 50,000 pounds of goods. The box on the bottom has to carry the weight of all the boxes on top of it when they're stacked. So, they're built to the hilt, with reinforcement welded to the corners to carry the load. They ought to last for 100 years, with a new coat of paint every decade or so.

If they recycled in a nearly balanced-trade world, then the acquisition costs would be a triviality over that century. They'd probably make 600 trips, six a year. The $6000 cost would get amortized by the 600 trips, to $10 a trip, easily covered in the costs of shipping. But they're a terrible concept in a world where manufactured goods flow only one direction.

They end up 1000 or 2000 miles away from a port, having been carried inland by trains and trucks. It would cost $1000 to transport them back to port, empty. Those costs aren't built into the shipping price, as again, it would begin to make more sense to build stuff at home. So, the result is that the containers stack up far from a port.

That should cause the shipping costs to rise very rapidly, as the shippers would have expensive assets sitting in storage yards, earning them NOTHING. They'd also have to acquire additional containers, while knowing that two out of three were going to end up also sitting in storage, 2000 miles from a port and 10,000 miles from the factory in China!

So, they had to come up with a Ponzi scheme where the cost of a container didn't matter, or more properly, did matter but in a positive, rather than negative, manner. The bankers don't mind. The shipping companies are paying interest on the principal they've borrowed. Like any Ponzi game, someday it'll crash. The bankers don't mind that either. Then they'll loan money to move manufacturing back here, and charge interest again! It got China industrialized, so companies in China will now borrow from them, too. Oh, and it really masked inflation by getting cheap goods delivered to consumers in America and Europe. So, the banks probably made far, far more that way than what they'll lose when the shippers finally are forced to default on the "container loans." Plus, I'd bet that the shippers don't default, but get a government to bail them out! That's the plan, I'd think.

The assumed subsidy paid by the Chinese government is a triviality in the matter. It probably amounts to $60 Billion, but it's spread out over several decades. It was a ultra-low cost way to get industry booming there! It's insidiously clever when you think about it. If they'd have subsidized industry directly, they'd have had to spend 10,000 times that. If they'd have directly subsidized shipping, the whole world would have screamed "foul!" But they subsidized just a couple of factories that were popping out shipping containers. Then they got some bankers in bed with them, and the world never even realized what's up. They just set up a rather nifty Ponzi scheme that would drive shipping costs way, way below what they'd be in a "free market" - and the world beat a path to China's door!

Yes, the world had to abandon tariffs in order to mask what was going on. But that was really more of a smoke screen than we realize. It got us blaming our governments and "low third world labor rates." We become stuck at that level, never going beyond it, to look at how it can cost so little to ship the stuff made in China all over the world. At first glance, we attribute that low cost to the shipping containers - since they eliminated the old stevedore system. But we never think about how expensive those containers are or how they'd have to be constantly recycled in order to justify that cost. If they don't recycle, then the shipping costs would need to rise greatly in order to cover the expense of getting them back to the producing country or building new ones to replace those lost offshore.

It's really something we don't think about. If I hadn't bumped into a guy who was complaining about shipping delays, I'd have never considered it. Yet, when he told me that only one in three get shipped back, I was a bit surprised that it was that high. Grain doesn't ship in them, so what were we sending back? All I could figure was that the one in three went back carrying scrap metals or used machine tools from a closed factory here, heading for a new factory there. Even then, It took me a week of pondering it from every angle, trying to figure out how the shippers can stay profitable with that much in asset value sitting useless in storage yards. If 2/3rds of the UPS or FedEx truck trailers were just sitting, unused, in storage yards, then they'd be selling them at huge discounts, raising their delivery rates substantially, or verging on bankruptcy - probably all of that!

The only way to explain how that many of the shipping containers can be sitting here is if there's something running outside of an ordinary market situation. This little Ponzi game is my best guess at explaining it. I can't prove it directly. But I'm absolutely certain that $2500 cost for a shipping container can't possibly be right. It's worth lots more than that. It might be what it costs the shipper, but somebody is paying the manufacturer in addition to that. Of that I'm sure.

I'm also sure that if I could buy something worth $6000 to build, for only $2500, I'd do it. If I couldn't really sell it back into the market, but somebody would loan me $5500 against it at 5% interest, I'd jump at that. And then I'd buy two more and double the gain, ad infinitum - well not to infinity. It obviously couldn't go that far. But I'd do it until the bottom fell out! I'd have those collateralized assets stacked up anywhere I could find room, doing nothing. If I could leave them sitting in somebody else's yard, at their expense, all the better. When the bottom did fall out, I'd just tell the lender, "You can have 'em. I have no use for them." If somebody was dumb enough to loan me that against an asset, an essentially illiquid asset, then how could I refuse the offer?

Bottom line: I'd be enticed into doing the same thing that I see others doing. So, I'm not really accusing - just explaining. The good news is that the bottom will drop out, probably pretty soon. You see, if I stacked them into an equilateral pyramid, with a base of mile, the 18 million containers would stand a half mile tall. They're built for stacking, but not that high! The bottom will fail; it has to.

Wednesday, May 17, 2006

Intellectual genocide

The DaVinci Code effect

I watch what people take on airplanes to read. Years ago, I bought a copy of Lewis Thomas's Lives of A Cell because I spotted it in the hands of more than a few passengers on several successive flights. A couple of years ago, airborne book-spotting impelled me to read The DaVinci Code. Honestly, this one topped them all. It was as though someone were passing out free copies at the ticket counter.

The Code is about conspiracy, and I've been a conspiracy geek since JFK was shot from in front 42 years ago. I study not only who pulls these monstrous capers off but also the mechanisms that discipline the silence of witnesses and make people comfortable believing lies.

I hoped Code would lead me into exciting new terrain, but the more I got into it, the more alienated from the reading public I became. Alas, Dan Brown's book is all trompe l'oeil: it employs false instruments to discover what appear to be hidden truths. It transforms the believing reader into a wise fool. More tellingly, it leads the believing reader to root for the Roman Catholic Church and to sympathize with worshippers of a pagan goddess. The DaVinci Code mangles the perceptions ~ not exactly what a paying customer expects of a book.

I believe the movie will commit intellectual genocide. I don't plan to see it any more than I plan to suck on a sugar cube soaked in LSD.

There is an alternative to this pack of lies, a book that reveals unseen truths that can actually improve the reader's awareness of how the world operates both theologically and politically. This book is entitled Rulers of Evil. Unfortunately, its author happens to be myself, which means the present article will be self-serving, and you're forgiven for abandoning it without further perusal.

I shouldn't have to hawk my own book. That responsibility once belonged to HarperCollins, who dropped it not long after 9/11. Why? My literary agent believes Rulers of Evil contained information Rupert Murdoch wished to suppress because of his many vital associations with the Vatican. That makes sense to me, and I can't blame Mr. Murdoch for wanting to distance himself from my book. Actually, I was careful not to attack the Church of Rome; I simply presented numerous evidences of its rulership of global political systems, including that of the United States of America.

More than a few readers of my book, who call themselves ROEders, have commented on the similarities between ROE and DVC. Both contain shocking information, but page for page, there's more in ROE than in DVC, and it's infinitely more useful since DVC is fantasy and ROE is fact. "It's the difference," one ROEder wrote me, "between junk food and health food."

Talk about goddess worship. A goddess named "Freedom" stands atop the U. S. Capitol building. That is undeniable fact. Also factual is that she's officially classified as “the only authorized Symbol of American heritage.” What you probably don't know is where she came from. Do you? If not, you'll find out in Chapter 22 of Rulers of Evil. It's an amazing story, and it's not fiction.

Let me tempt you. On December 8, 1854, Pope Pius IX defined the doctrine of Immaculate Conception, the notion (suggested nowhere in the Bible) that the Virgin Mary, like Jesus, was conceived free of sin. Within days of Pius's encyclical, Congress hastened to pass legislation that assured the construction of a cupola atop the Capitol, to be surmounted by a divine woman. According to the official publication The Dome of the United States Capitol: An Architectural History (1922), "Never before or since has an addition to the Capitol been so eagerly embraced by Congress."

Bear in mind, most members of Congress at the time were protestants traditionally leery of anything that smacked of Catholicism. Yet the goddess was sculpted in Rome, and her installation in December 1863 was layered in hidden Roman Catholic ceremony ~ which Rulers of Evil discloses in context for the first time ever.

How could a goddess answering the definition of the Roman Virgin Mary have been hoisted to a position of sovereignty over the lawmaking body of the United States? Rulers of Evil answers this provocative question as well. Catholicism takes control over non-Catholic legislatures through a military organization of which the CIA is merely a component. This is not fantasy. It is fact supported by hundreds of footnotes pointing you to viable sources.

But that's just for openers. ROE establishes that Rome's influence over American government began long before Freedom was set atop the Capitol. In fact, the evidence will lead you, as it did me, to conclude that the American Revolution was a product of Vatican military strategy in which two protestant nations, England and her American colonies, were pitted against one another in bloody battle ~ the ultimate victor being the invisible instigator. Roman victory over the United States was sealed in the American Constitution's prohibition against religious tests being required of governmental office-holders. Today, the majority of Congressional and Senate committee heads are subjects of the Roman papacy, as is the United States Supreme Court. Fantasy? No way.

These facts are not presented in an argumentative, angry manner. Indeed, no one is more comfortable with them than I. There exists in the Bible scriptural authority for the Papacy to do the things it does, and I commend Rome for the sheer cunning and proficiency of its secular operations.

In the latter chapters I discuss how Roman America handicaps only those who choose to ignore the reality of its existence. To know this reality is the first step in establishing one's personal freedom from it. For although Rome rules its subjects harshly, it peaceably excludes all who demonstrate they are ruled directly by the Authority upon whom Rome relies. This kind of knowledge can be incredibly profitable, and is why Rulers of Evil is subtitled "Useful Knowledge About Governing Bodies."

Well, if you've read this far, maybe you're wanting to own a copy of Rulers of Evil. You can find it on the net at all kinds of inflated prices, starting with Amazon and Ebay. If you don't have any money, you can probably find a copy in your local public library.

My website still sells some collector's first edition autographed copies for $50.00, and the regular HarperCollins edition at $19.95. Go here, and pay with PayPal.

They'll never make a movie of Rulers of Evil because it's already running ~ in, through, and around your own life. You won't see it until you open the covers and start reading.

Wednesday, April 19, 2006

A Little Conspiracy

Contributed by our Great Lakes Bureau Chief, Ralph Schwan

Here's a strange little conspiracy for your consideration, Tupper.
E-85. That's coming to a gas pump near you, and soon. It's just corn likker (ethanol) at 85% denatured with 15% gasoline.
It's pretty obvious that the automotive companies have been designing engines toward burning this stuff for near a decade. That's where the conspiracy falls, as it's something not discussed. In order to fire off the stuff an engine needs a rather high compression ratio, something in the 10:1 range. That's gear-head stuff to you, T, but such compression hasn't been seen since the muscle cars of the late '60s. (and we gear-heads all ran Shell premium, back then, because it was 98 octane).
E-85 is inherently "high octane." 105! The nearest equivalent is "Racing Fuel," a very specialized gasoline sold only to gear-heads (and allegedly Tim McVeigh) who have built a custom, high output engine to burn it.
In order to burn either gasoline or E-85 (known as "flex-fuel") the engine control computer shifts around the timing. That's done by analysis of the oxygen coming out the exhaust. It's pretty simple stuff (to a gear-head). But to burn the E-85 the high compression ratio has to be present. So they've been building engines with compression ratios in that 10:1 range, and actually degrading the timing to burn gasoline.
There are about 4,000,000 vehicles currently on the road able to burn E-85. But only 10% of the owners realize that! The salesman never pointed out that this "option" was included. It's a "free" option. Honest. When do you last recall an automobile company offering an option at Zero additional cost? I'm gonna guess, a very low guess, that another 50,000,000+ cars can probably burn a 50-50 mix of it, by the owner pumping half a tank of the lowest grade of "regular" and topping it off with E-85.
Like I said, there's some sort of strange little conspiracy here because it's just not being discussed.
The aspect of it that you'll find intriguing is the years involved. The automotive firms had to have been put on notice to go this route a very long time back because engineering and development don't happen in a year or even three.
And the bottom line is that they were ordered to do that bit of engineering and development that long ago because somebody either knew that oil prices were destined to go stratospheric or that imported oil was going to dry up. Pick one. Pick both!
Just a crazy little conspiracy. Nobody is talking about it. Gotta be a gear-head to even realize that it exists - and we are few and far between.

Monday, February 06, 2006

The First Chinese-Americans (?)

Who were the first American Saussys? What brought them here?
Haun Saussy's article explains it all.

Haun is my son. He teaches comparative literature and Asian languages at Yale.

Haun's article ran recently in Ex/Change, a publication of the Centre for Cross-Cultural Studies at City University of Hong Kong.

Thursday, January 19, 2006

10 Easy Questions About Money

Watch out for a tsumani of inflated Federal Reserve currency starting about springtime.

As the fixed-income crowd shells out more and more paper dollars for the same goods and services, some might actually start looking at what the Constitution says about money. (The quick course is my little book "The Miracle On Main Street," if you can find a copy. It's almost out of print.)

Thinking that in the original edition there had been a section of ten questions to ask any judge, James, a 6th-edition MOMS reader, asked me to reiterate them. Well, there were no ten questions, but I sat down and thought about it, and they just wrote themselves.

I don't envision posing these in a courtroom, but rather in a fireside chat with a friend who happens to be a judge (or maybe practices law). Judges resent surly questions, and can ignore them with impunity. So be careful with these things.

1. Can Congress pass a law that would cause a State to violate the Constitution?

2. Can a State declare anything whatsoever to be a legal tender for all debts public and private?

3. Can Congress declare anything whatsoever to be a legal tender for all debts public and private?

4. Does the Constitution declare anything but gold and silver coin to be a legal tender for all debts public and private?

5. Does Congress have any power not given it by the Constitution?

6. Can a State do something the Constitution denies it power to do?

7. Has Article I Section 10 of the Constitution been amended?

8. Has any Supreme Court decision rendered null and void the provisions of Article I Section 10 of the Constitution?

9. If Congress cannot cause a State to violate the Constitution, and if neither a State nor Congress can make any thing but gold and silver coin a legal tender for the payment of all debts public and private, and if the Constitution does not empower Congress to employ a monetary system other than consists of gold and silver coin, then why does Congress provide, and State and federal courts enforce payment of debts in, a monetary system which the Constitution prohibits?

10. How should a United States citizen exercise the civil right to the monetary system already provided by the Constitution but denied by Congress and the States?

Tuesday, January 03, 2006

The Christmas Litmus

I have numerous friends who rant at secular humanists for trying to remove "Merry Christmas" from the American vernacular. They charge that certain Jewish powers would eradicate Christ from our national heritage by doing away with Christmas verbiage and iconography. I think perhaps the charge has substance, but I also think changing "Merry Christmas" to "Happy Holidays" might be a good thing. Before you call me infidel, please hear me out.

The Bible tells us that to deny Jesus Christ is the promised Messiah is to be his enemy. David, under God's inspiration, tells us that God converts Christ's enemies into footstools for him, low seats for resting the feet. In other words, God drafts Christ's enemies into Christ's service. Therefore, we can expect Christ-deniers ~ regardless of whatever personal motives may be driving them ~ to serve the will of God. Remember: it was Christ-deniers that made the crucifixion succeed as the mechanism by which all repentant sinners have been brought into the family of God. God uses the ignorance and hatred of his enemies to carry out his purposes.

Christian historians are now fairly certain that Christ was not born in winter, but indeed in the fall, and that Christmas is nothing more than the delightful pagan Saturnalia repackaged in Christian imagery. If this is so, then the institution of Christmas is the work of lying tongues, which God despises.

Persuaded of this, and also that scripture discourages commemorating birthdays at all (in fact, the only two birthday celebrations reported in the Bible are associated with grisly death), I became convinced a dozen years ago that Christmas-keeping was paying homage to a lie. An enquiry into biblical languages informed me that the very term "Christmas" in Greek signifies "Christ-detester" (Christ-miseo); in Hebrew (Christ-m'ss') gives us "Christ-trial" in the sense of "Christ-testing of men" or "the Christ test." Christmas litmus. The word seems to be telling us that if we buy into the messiah's birth on December 25, we buy into haters of Christ and sing and preach and pray with a lying tongue. By our own demeanor we prove the Christ we adore is the fake one. And this would be a sin to confess and repent of.

So I approve of efforts to expunge Christ from the season of winter solstice. I consider separating Christ from Christmas a work of God preached and administered, like the crucifixion, by his enemies.

And how do I observe the season? Well, I enjoy the Saturnalian tradition of partying, decorating, and gift-giving ~ let one and all take respite from an otherwise dark and dreary time of year. But the baby Jesus stuff I regard with benign disdain, in the spirit of "Father, forgive them for they know not what they do."

I look very carefully at how people handle the above information. Do they seek validation with a willingness to repent? Or do they crucify the messenger? That's the real Christmas litmus.

Wednesday, July 27, 2005

Who speaks for Al Qaeda?

Every government has the resources to create and maintain an enemy. The more nebulous the better. A nebulous enemy that looms large in the public imagination can be a cash cow, especially if it can be portrayed terrifyingly enough. The people will spare nothing defending against it.

Federal planners know this well. The ground rules were expressed in the famous pamphlet published a year prior to September 11, 2001 by the Project for the New American Century (PNAC), whose members are a roster of the present Bush administration.

PNAC declared that in order to create an American presence in the middle east, particularly Iraq, a new Pearl Harbor would be necessary. 9-11 provided the necessary catalyst to put PNAC's global war plan into effect.

On September 12, 2001, Donald Rumsfeld advocated invading Iraq. Congress immediately allocated $40 billion to fight terrorism. The U.S. defense budget for 2002 increased nearly 12 percent over 2001. The budget was increased exponentially in the years following, in line with the PNAC manifesto.

Al Qaeda is the perfect nebulous enemy. The irony is that television programming burgeons with forensic criminal investigation shows, yet the most important theatre requiring forensic investigation ~ terrorist bomb sites ~ waive forensic investigation because everyone believes the government's (and media's) assertions that Al Qaeda is the culprit.

"But Al Qaeda admitted to the London bombings." Okay, and how do we know it was Al Qaeda that admitted? Which impartial magistrate has cross-examined Al Qaeda? How would Al Qaeda go about proving the admissions were made by an impostor? Who speaks for Al Qaeda? How would such spokesman avoid being arrested upon identification and detained indefinitely, detained incommunicado?

Meanwhile, the people are obliged to receive statements of government and media spokesmen as gospel truth. What a moneymaker!