Ray became the first member in his family to graduate from college and eventually wound up as the CEO of a national corporation. Since retiring from the executive suite, he’s refocused his life and is now striving to help lift and inspire other youth- just as he had been as when he was young.
Alan: I'm here today with Richard Dasher of the US-Asia Technology Management Center on Stanford campus. Richard welcome to today's show.
Richard: Thank you Alan, appreciate being on.
Alan: So Richard, I understand that you recently finished a trip over to South Korea, and we're seeing in the news of the military situation in North Korea, how is it affecting the economic relations in in that country South Korea as well as the other far east countries?
Richard: I think you have to make a real distinction between the security relationship and the economic relationship. On the security side, the South Koreans have had big war games with the US recently. That was one of the things that the North Koreans were reacting against and as soon as North Korea does a missile test they will test some bombers or tests and missiles over on the South Korea side. Japan is really becoming much more serious about rearming itself even talking about changing their constitution and I think that the North Korean situation is a big reason that they feel like they need to do this, but on the economic side you're dealing with a very small country- North Korea. The total GDP of North Korea is somewhere around 40 billion dollars and by comparison, the annual sales of one company- Samsung- in South Korea last year was 170 billion dollars US. So North Korea is very small, it's very isolated, it's very top-down. There wasn't a whole lot of trade back and forth between North Korea and just about anybody else except for China. China has accounted for over three-fourths of North Korea's trade and certainly the economic sanctions are slowing that down to the extent that China is really honoring those sanctions and that they're really being enforced. Until the latest set after the North Korean missile went off last week, there was really quite a few loop holes the Chinese were using to continue a lot of their business back and forth with the North. There's one other source of income for North Korea that people don't think about much and that's workers from North Korea who have been sent to places like China or Russia or even Kuwait and they're doing work and sending remittances back home to North Korea, that has finally been addressed in this latest set of sanctions so I think that you're seeing a very minor dip when I was in Seoul, it was business as usual. You really couldn't tell anybody being particularly worried about an invasion from the north or an artillery barrage from the north. That hasn't happened yet but worry hasn't really hit people yet.
Alan: It's interesting when you mentioned that the size of the scale of North Korea putting in a perspective forty billion which is even third of what Samsung sells alone are doing. On the world stage for the economic purposes you know putting in perspective North Korea does not have substantial income.
Richard: That's correct.
Alan: I want to move over to China because clearly some of the supporting that that the trade there and China has remained relatively silent until the last few weeks. What do you feel is influencing China to behave any differently if it is at all true?
Richard: Well I'm really glad you asked about China because I think that to understand the security situation between North Korea and its neighbors, South Korea, Japan and also the US, you really have to look at North Korea-China relations. I'm guessing that if we think Kim Jong-Un is sort of hard to deal with, he must really be a thorn in the side of the Chinese because they are trying to really step out onto the world stage after the US got out of TPP and after the US seems to be moving down a more isolationist road, the Chinese really want to pick up influence all across Asia. They have this one belt one road policy that is kind of imitating the old silk road that Marco Polo went across in the Middle Ages, and as part of this they need a good security buffer in North Korea. For them they want to keep things like it is, although there are some people who think they would love to get rid of Kim Jong-Un. We don't know that's speculation, but it's clear that the Chinese are bearing the brunt of the economic sanctions negative impact outside North Korea. It's certainly affecting things in the north we would think, but it's Chinese companies and Chinese banks that are really having a more difficult time because of these sanctions. They're paying the price.
Alan: I'm visiting here today with Richard Dasher of the US Asian Technology Management Center at Stanford campus. Richard and I need to take a quick break, but when we come back, I want to jump into China and their view on the crypto courtesy recently in the news. We'll be right back after these messages.
Alan: Welcome back I'm here today with Richard Dasher of the US Asia Technology Management Center in Stanford campus and Richard, in the last segment we were touching on North Korea and I think the conclusion is, okay there's two issues one is a security issue, the other is an economic and essentially the economic is a nonissue in terms of getting back to the US economy, but China as it is bearing the brunt to this has made an interesting movement in the last two weeks on the area of crypto currency can you comment?
Richard: Well I think that China is quite happy to see the difficulties that are starting to emerge with the US dollar as a world currency. They've for several years ago started promoting a basket of world currencies for international transactions as opposed to curly dollar-denominated currencies. That has not happened, I think that to them Bitcoin looked like an interesting alternative, two dollars, now the anonymity that's usually possible with Bitcoin made me amazed that China became a place with very active Bitcoin exchanges as much as they did and the only kind of explanation I think is that the people who ran those exchanges knew how to keep the government happy there. I think that the reaction against Bitcoin may be control over markets period, the Chinese government tries to diffuse bubbles and tries to avoid bubbles bursting in a way that they can't control and I'm guessing that so much was being put into Bitcoin that they just decided, wait we've got to put on the brakes.
Alan: So in the world of Bitcoin they made a declaration of it closing down the servers and then Jamie Diamond, the CEO of JPMorgan, goes out and publicly denounces a whole cryptocurrency is not real. I want to not move too deep into this because obviously it's a very fluid situation, but when we roll back into what is what is a world currency, it's still the US dollar per say?
Richard: More or less I would say that, but think about the dollar, when was the last time that you saw a silver certificate note where they would pay you the equivalent in silver for your piece of paper. We all agreed that the currency has value and that essentially makes it pretty close to bitcoin. If people agree that it has a value and the markets can determine the value, then that's how it's usable. I think that there's a certain disingenuous nature to that comment about Bitcoin being a fraud or whatever because at the end of the day so much value is being transferred around the world, all of these units of currency are basically abstract.
Alan: I'll often get the question of where the US dollars going, is it real is it going to collapse and then you know we look at the US political scene and you see the barbell effect and depending on what side of the barbell you're on, there's there is no longer really a middle ground. So what I want to do Richard, I'm running up against the break right, now but when we come back, I'd like to move into the drivers of why the US dollar is still looked at on the international exchange and how the central banking system has an influence on world currencies as a whole. We'll be right back after these messages.
Alan: Welcome back and busy hair day with Richard Dasher of the US Asian Technology Management Center on Stanford campus, and Richard in the last segment we rolled into China, the influence they have on cryptocurrencies, we've touched on North Korea, I want to move back into the world banking system, because I think this is kind of an interesting play about where the US dollar is heading. A lot of people are losing confidence saying let's go to gold let's move to cryptocurrencies and tying that back to China, China is not a member of the G7 nations.
Richard: That's right.
Alan: If we could go to the G8, say we put Russia in there, but China does come to the table in the G20 summits, so as we move through the trade economics and across the border, we're still seeing that the US has a tremendous amount of influence there, but ultimately- and this is this is tossed in there with the question of where the US dollar is going. Do you see the likelihood of in the short term of anybody moving away from the US dollars as the basis for trading?
Richard: Unless there's some sort of a real crisis or calamity, I doubt it, one reason is because China is the US's largest trading partner and that means that that business is probably going to continue to be in dollars for quite some time. So even if China wants to increase its relative influence in world markets by encouraging some basket of currencies or moving away from the dollar, a lot of the business it's actually doing is still going to be dollar denominated. I think you also have these worldwide supply chains. Global trade is not bilateral trade it's something where the raw materials come from Indonesia and the parts are made in Malaysia and the final assembly is done in Shenzhen, China and it winds up being sold in Canada first before it comes down to the US. You have these worldwide global supply chains that you can hedge an awful lot of risk if you keep the same currency involved and also it needs simplicity, it needs to be completely accessible, it needs to be completely liquid. Right now there's really no substitute for the dollar, however I do know the people who were really telling me to buy gold. There are a lot of people who are worried that there will be a calamity, that there will be some kind of crisis, if it happens, it may be us undoing ourselves.
Alan: It's interesting, for the for the listeners, I once had in the early days of the iron curtain coming down a group of Russians that had come over and they were actually trading for the country and they were explaining that because the ruble was not recognized in the world currency market they they had to go to the Chicago Board of exchange and and trade Russian oil contracts for coats in Korea and thereby they put the US dollar smack in the middle as the exchange agent. We saw in January a very interesting thing happen the biggest buyers of the US Treasury bills were China and Japan. Of course their economies are very dependent on the US but they began to to sell off positions and ironically Russia who is not a big trade partner of the US ended up being a buyer. Now I don't know what to make of that but that when we roll forward nine months into where we are now, can you make sense of why Japan, who's so dependent on the US as a trade partner would begin to liquidate positions in the US Treasury bills?
Richard: That's a very interesting kind of question, except that Japan has a very high degree of its own government debt. So maybe they were buying back their positions in order to pay off some of the domestic debt that their own government has. In terms of how Japan is trying to revitalize its economy keeping the yen relatively low has been very important to their industry becoming more competitive in international markets. So it doesn't seem logical that they would want to weaken the dollar my guess is that they figure that there will be a buyer for the currency and what they need is they need cash to pay off their own debts.
Alan: I want to roll into to Southeast Asia, Vietnam. What's going down there?
Richard: Southeast Asia is in some ways the new engine of growth. China is going through a major structural change where it's GDP growth has dropped from 10% a year to somewhere around six percent a year. Southeast Asia has stayed constant around six to seven percent of your growth and you've got a young labor force, you have a rising middle class, you have awareness of incredible opportunities precisely because the infrastructure has been late to develop. One third of the people in Southeast Asia do not have bank accounts. So guess what, there's an amazing amount of investment in FinTech that's giving people mobile access to funds and the ability to transfer funds in new ways that kind of leapfrog the system we've had.
Alan: That's interesting you know I had on the show one of the first customers or clients of blockchain and for the listeners can we run through what is FinTech?
Richard: So FinTech is the use of new technologies whatever they are for the purpose of financial business- you know financial industries. I would say that the main kinds of areas in FinTech, one has to do with access to money, one has to do with analysis of people's behavior so as to minimize risk and maximize profit and I think that you have things like blockchain that separate from all the Bitcoin really allow for new types of security that may work in our current heavily networked world where everything's in the cloud blockchain works pretty nicely because it distributes the access codes of distributes security and it also maximizes the traceability of a transaction so that you can tell whether something is fraudulent or not much more easily. I think that it's one technology that's easy to get over excited about but it's certainly one of these elements that's really moving things in a different way.
Alan: The stock market is crazy. Nothing seems too taking that in a downward direction. You had Hurricane Irma, the infrastructure of Houston and of Florida wiped out, you got the US Congress passing a three hundred eighty six billion dollar you know budget to fund government, but nothing seems to be affecting directions on the market. I want to switch this over in terms of the context where you know when we look at Asia and the trade it still tends to be a lot of manufacturing is done abroad and brought into the US- these trade imbalances, what's in it for the US to continue to be more of an importer of these goods?
Richard: Well if I understood the market I probably wouldn't be here, but I think that certainly the market is expecting a continued increase in value an increase in the creation of value. What I'm worried about is that we are so much more global intrinsically speaking than we're even aware that really foreign companies account for hundreds of thousands of jobs in California and without the ability to move freely in international markets probably you know 80 percent of California GE GDP would be at risk we really depend on access to other markets as well as the US market and so we cannot build an economic wall that doesn't work. What worries me is that people don't see this. They see the outflow of jobs to places that are cheaper not realizing that Silicon Valley is probably as much a criminal and culprit in terms of causing job loss through technology innovation and you know you have to get used to things. We do need better government policies to take care of the people, but it's really important for us to remember that when you open up an iPhone or an Apple watch you're looking at 12 or 13 different countries that were involved in making that watch and that allows us to have things that make our lives better and we really depend on that. It's not a luxury, it's an essential part of our economic structure now.
Alan: Would you say that because the US imports so much goods made throughout the world that in exchange of positions itself to have a US dollar dominated world currency?
Richard: I think that we've benefited from that to a degree that we don't even realize. Partly because we don't know any other way. Your example about the Russian group that came through that had to go through the Chicago commodity exchange in order to do a trade with South Korea is a very good example. We have been the blood that flows through the world economy with the US dollar and we need to keep that flow and we need to make it positive and trustable. There's there's a lot of work that always has to be done but we are benefiting by being the world currency.
Alan: I've been visiting here today with Richard Dasher of the US Asia Technology Management Center. Richard we're out of time but I really appreciate you being on today's show.
Richard: Alan thank you very much.
Alan: And for the listeners out there, to get a replay of today's show, we'll have it posted up on Groco.com, Richard thanks for being with us and thanks for joining us here on American Dreams and join us right here next week on this station. Have a good week