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The German Finance Minister, Peer Steinbrück, recently had an interview with the BBC during which he said that Germany “must decrease its dependence on foreign trade”.

He goes on to say: “We have to strengthen our internal, our domestic demand in Germany… to reduce this dependency on foreign trade,”

Of course, Germany is the top exporter of the world, with $ 1.530 Trillion in exports last year. This is more than China or the US. If Germany were to reduce its dependence on foreign trade, its exports and its imports would have to be reduced. There is no way for the German consumer to pick up that much slack in exports, which means Germany would have to produce fewer goods, and therefore many German workers would have to be fired. Foreign companies would not be particularly eager to open new factories in Germany (they already are losing eagerness over Germany’s union participation laws and increasing costs) because of the limited market for its products there (if it can only sell to Germans). This would raise unemployment, decrease revenues, increase debt, and send Germany tumbling into a recession far worse than what it might be experiencing now.

Of course, we believe Mr. Steinbrück knows this, so why would he make a statement like that, to the BBC no less? Well, let us look at what he said. He said “We have to strengthen our internal, our domestic demand in Germany…”. This can be achieved in many ways. An easy one is a tax rebate, similar to what Americans received last year, although it can be as simple as a marketing campaign as well. What would this accomplish? There would be a minor spike in domestic demand, which would reduce Germany’s export levels as a proportion of demand temporarily, thereby “reducing dependence on foreign trade”.

Notice how this would not involve decreasing exports, nor would it involve creating barriers to entry, both of which would be against EU and WTO regulations and could start costly trade wars. All he said was that the government is trying to find new ways of countering the 6% drop in exports due to the worldwide recession. Of course, saying Germany is “reducing its dependence on foreign trade” has the added benefit of appealing to a growing number of consumers, which is another problem. Unfortunately it looks like this problem will not be dealt with, at least until exports start picking up.

“The people may be made to follow a path of action, but they may not be made to understand it.”

It seems as though the Chinese leaders are interpreting this Confucian quote according to their needs, but the Chinese people are showing they understand much more than given credit for.

The Economist reports on the accuracy of Chinese companies’ corporate earnings, or lack thereof, in a recent article. It seems that in 2007 China adopted more internationally accepted accounting standards, at which point their share prices were expected to rise and fall more in line with corporate earnings. It turns out this was not the case. The most glaring examples have been in odd debt restructuring plans that have become commonplace in China (but rare elsewhere). These are boosting corporate earnings, but leaving share prices flat.

Why do we mention this? Because it reiterates our view that share prices are one of the most precise forms of indicator we have for a company’s health. If a Chinese company has a strong balance sheet, a steady flow of imports and exports and has big gains in corporate earnings, these can all be good signs. A falling share price, however, can say much much more.

While it is much harder for non-Chinese to buy Chinese company shares, those who do buy them, no matter where they be from, buy them to make a profit. Even if we cannot use this information to buy the shares, we can use it as indicator of the Chinese companies’ overall strength. When these share prices are going one way, while corporate earnings another, it is the former that will paint a more realistic picture of the company’s health. It looks as though the Chinese have understood this and are following their own path of action.

Gloss at any Economics or Business best-seller list these days, and you will see a sign of the times. While the year 2000 brought us The Millionaire Mind, by Thomas J. Stanley, The Millionaire Next Door, by William Danko and Thomas Stanley (Stanley kept busy) and Jack, by Jack Welch, 2006 brought us Why We Want You to be Rich, by Donald Trump and Robert Kiyosaki, The Tao of Warren Buffett, By Mary Buffett and David Clark, as well as The Starbucks Experience, by Joseph A. Michelli. 2009, however, is turning out to be a different story.

These days you will see The Black Swan, by Nassim Nicholas Taleb, A Drunkard’s walk, by Leonard Mlodinow and Outliers, by Malcolm Gladwell. How are these so different? Well, The Black Swan is about how unforeseen events can control our lives; a Drunkard’s Walk is about how Randomness rules our lives, and Outliers discusses how the luck of the draw has more of a say in success than any innate abilities. Add to these the obvious Ultimate Depression Survival Guide, by Mar­tin D. Weiss and Suze Orman’s 2009 Action Plan, by Suze Orman and you can see where the trend is.  Also worrying is the inevitable emergence of books such as The Myth of the Rational Market by Justin Fox.

Our guess is that, while the recession continues, we will see more of these, and many more like House of Cards, by William D. Cohan (about the fall of Bear Sterns) while companies keep requiring bailouts and declaring bankruptcy. Meanwhile, Thomas J. Stanley hasn’t written a book since 2000.

The “Great Recession” has generated a great deal of uncertainty. Markets are in turmoil, so are many countries’ economies. People are trying to make it through this turmoil, knowing that once the dust settles the landscape could be very different from how it was before. Could the United States, and possibly Europe be in for a prolonged recession, while China and the rest of Asia recover more quickly? Could China’s foreign reserves help give it much more sway in the future, propelling it to a top spot?

These are all possibilities, of course, among many others. But should you speak to chinese economists, they might go one step further. They might say that the system of economics as we know it is over as well; that this financial turmoil has shown that the “western” way of finance has run its course and now it’s the turn of the “chinese” way.

A Buttonwood article in the Economist shows us that this is not as farfetched as many of us may think.

We at Dumbagent are not against a shifting of economic powerhouses, nor are we against a global currency (one of the ideas mentioned lately by the Chinese government, which would greatly reduce the Dollar’s importance). We do hope, however, that if the reins were to be handed over, China would realize that Economics, Finance and World Trade are too fluid and complicated to be state controlled. If they do not, then their turn at the helm will be short-lived indeed, and we may be looking past them, possibly back to the West.