- The Washington Times - Monday, August 1, 2005

China and interest rates

Alan Reynolds would like one of the “bubble babblers,” as he calls them, to explain what “chain of events they imagine might make interest rates and/or unemployment soar.” (“Bubble babble,” Commentary, Sunday).

Chinese capital plays a major role in subsidizing the U.S. housing bubble. When we buy Chinese stuff at Wal-Mart, profits in the form of U.S. dollars flow back to China. China runs one of the largest trade surpluses in the world and has a staggering $711 billion of foreign-exchange reserves. Everyone knows that the Chinese buy massive amounts of U.S. Treasury debt.

Those purchases drive up bond prices while simultaneously driving down long-term interest rates. All mortgage rates are ultimately set off of the long-maturity U.S. Treasuries, so indirectly, Chinese capital is responsible for the stubbornly low rates fueling the housing bubble that Mr. Reynolds says doesn’t exist.

Unfortunately, as the newly freed yuan rises over time and Chinese goods get more expensive, the Chinese won’t have as many dollars to plow back into Treasuries. When a shrinking demand is coupled with the U.S. government’s insatiable desire for more debt, higher long rates are completely unavoidable. Higher Treasury rates will drive mortgage rates up.

The point is one that Mr. Reynolds, a libertarian, ought to easily understand — the government has got to sell those bonds to get more money, and without the Chinese there to buy so many of them, they’ll have to raise the yield to compensate.

THOMAS H. DESABLA

Silver Spring

Alternative energy resources

Yet again I am discouraged to read that the new energy bill will not get the job done (“Energy bill blues,” Commentary, Saturday). There is a solution to the energy crisis that seems to plague our nation.

We need to convert from oil to hydrogen as our main source of energy. Hydrogen gas would provide us with unlimited energy for the future.

I would propose that the Congress and the president initiate an energy policy based on hydrogen as the primary resource. It is high time that we faced up to the energy crisis that confronts us. The government needs to enact a program that would begin the conversion from oil to hydrogen.

I for one would like to see a federal program similar in scope to the Manhattan Project that developed the atomic bomb or one like the moon landing. Nothing is too complex for our scientists to overcome given the time and money needed.

There are some major problems with changing from oil to hydrogen, but so too with nuclear power, liquefied natural gas and oil refinery pollution, to say nothing of atmospheric pollution from fossil fuel consumption.

Hydrogen offers a clean non-polluting power source (the major end product of burning hydrogen is water vapor), an essentially unlimited supply and a secure future for generations to come.

It is understandable why the oil interests would oppose such an effort, as it would directly affect their livelihood. A major effort would be necessary to convert the nation from oil-based energy to hydrogen.

We should continue the call to conserve energy and pursue other energy resources until such a time as hydrogen becomes the centerpiece for our future requirements.

Conservation is a good thing as regards oil consumption but it will not solve our future energy needs. The time has come for us to get serious about what we are willing to do to make our nation self-reliant energy.

In the meantime, it would behoove us to revisit the Fischer-Tropsch process used by Germany during World War II to convert coal to petroleum. The Republic of South Africa has used this process to produce petroleum products to meet its ever-growing need for energy. With the price of oil reaching all-time highs I think it is time to revisit this process to meet our growing demand for petroleum and to help resolve our dependence on foreign sources of oil.

The United States has vast resources of coal, so much so that we export a considerable quantity each year to foreign nations. Why not tap into this domestic resource until such time as we can convert to a hydrogen-based energy economy?

JOHN CORRICK

Olney

The income gap

Your article (“Income gap grows in U.S.” Sunday, Page 1), was worthwhile reading, not least because it discussed the real-estate boom, instead of rounding up the usual suspects of globalization, tax cuts for the rich, and not enough unions, as well as the real problem of educational deficiencies.

The next step would have been to note that the real-estate boom is primarily a boom not in building prices, but in land; as Will Rogers said, they aren’t making any more of it.

As a remedy, I suggest cutting other taxes, including the property tax on buildings, and raising the tax on land. This will cut taxes on homeowners, who have improved and use their land, and raise taxes on speculators, who buy and hold unused land to make its value appreciate. This would make land for homes and new businesses more affordable for those struggling to climb the economic ladder, while reducing the fortunes of those who possess resources which they did not create. The reduction in other taxes, meanwhile, would relieve people of burdens and increase the incentives for productive work, construction and investment.

NICHOLAS ROSEN

Arlington

The article “Income gap grows in the U.S.” states, “The nearly 80 percent of Americans who rely mostly on hourly wages barely maintained their purchasing power, according to the Labor Department.”

What is to be expected when Wall Street and the chambers of commerce are importing cheap labor from abroad? Some of this labor is brought to the United States through H-1B visas, L-1 visas and illegal immigration. U.S. wages have been depressed and continue to be depressed.

Federal Reserve Chairman Alan Greenspan is mistaken in blaming this outrage on education. Since when has the United States produced as many CEOs as high-school graduates? Not all high-school graduates are college material. Since this country began, we’ve had Americans working farms, construction, landscaping and cooking meals in restaurants. Corporate America is waging war against American workers by importing illegal-alien cheap labor which is subsidized by taxpayers. All the Greenspans in the world cannot cover up this fact.

HAYDEE PAVIA

Laguna Woods, Calif.

Massachusetts family values

“Santorum calls out Hillary on raising children” (Page 1, yesterday) addressed the furor over Sen. Rick Santorum’s opinion that the liberal environment in Boston contributed to the clergy scandal there. Since the modern liberal view is that committed marriage is just one form of union, and no more valid than other unions (homosexual or cohabitating), and since this liberal viewpoint has long been accepting of casual sexual encounters (with appropriate “protection” of course), and since it is established that the liberal viewpoint has been dominant in Boston and much of Massachusetts for decades, then why should the senator’s conclusion — that disdain for sexual restraint was a product of this modern liberalism — be so controversial? Whether this liberal viewpoint specifically endorses the behaviors that precipitated the clergy scandal is less material than the cultural climate it produced. The one who leaves the henhouse unlocked bears some responsibility when the fox strikes.

THOMAS M. DORAN

Plymouth, Mich.

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