There is madness in the town square

Sign advertising a pool hall near my house, Shilin, Taipei

The U.S. government last week decided to sell Taiwan $US6.5 billion in military hardware,

including advanced interceptor missiles, Apache attack helicopters and submarine-launched missiles. China is furious and had threatened to cut military cooperation with the U.S. China regards the Taiwan issue as a domestic affair, and considers arms sales to the "renegade province" as a deep insult to all Chinese people. Taiwan has been pushing the U.S. for a huge arms purchase for some years, and for the U.S. this is great timing to push through the deal. The Bush regime is on the way out, and any new government can easily distance itself from the decision without reversing it. Also, it will give Taiwanese 18 to 20 year old boys some new toys to play with, as Taiwan still has a policy of compulsary military conscription. It also goes a small way to counter the more than 1000 ballistic missiles that China has pointing at Taiwan. Perhaps it will also help to support the crippled U.S. economy for an hour or so. It's interesting to note that the U.S. dollar has remained strong during the past few days of market carnage, while other world currencies have taken a hammering, despite the fact that the federal reserve has had the printing presses working overtime producing dollars out of thin air. This is in China's interests as most of China's foreign reserves are in U.S. dollars, $ 1,808,828,000,000 as at June 2008. This gives China the power to destroy the U.S. economy by flooding the foreign exchange market with U.S. dollars, but they don't want to do this as it would most likely destroy their own economy as well. They had an opportunity to shore up the U.S. markets when they began crashing a couple of weeks ago, but now that there is panic and madness in the town square it is too late for that now, it's "every man for himself", to quote the prime minister of Iceland, whose country is at risk of bankruptcy. Icelands currency has become all but worthless, and it's three largest banks have been nationalised to save them from bankruptcy. Hundreds of thousands of English investors as well as English town councils have billions of pounds invested in Icelandic banks, due to agressive promotion there of high interest accounts. They are now unable to withdraw their money, causing quite some diplomatic tension between Iceland and Britain. Perhaps the Chinese will wait until all is lost in the U.S. and Europe then come in with their stash o' greenbacks and buy up what's left. Up to now they have been buying large shares in western companies at top prices, now they can scoop up some real bargains, but only as long as the U.S. dollar remains strong.