Here is the rundown on the first day of talks; The quotes are from Bloomberg.

Paulsen:" today the effort must produce ``tangible results'' to forestall protectionism."

Chinese Vice Premier Wu Yi: "pushing for a quick breakthrough are misguided. ``Some American friends are not only having limited knowledge of, but harboring much misunderstanding about, the reality in China. This is not conducive to the sound development of our bilateral relations."

Translation: Get out of our face. You have nothing to negotiate with, and you will not force us to do anything. We are not threatened by any sanctions that your lawmakers propose since it will hurt your country much more than it will ours.

Paulsen: China is ``so big and such an economic powerhouse that the rest of the world is going to be impatient -- particularly the U.S. -- so they need to accelerate their reforms. He reiterated his and his predecessors' call that ``more currency flexibility is necessary'' in the short term and urged a floating exchange rate in the ``next several years.''

Chinese Vice Premier Wu Yi: "lectured the American delegation on the history of China from Han Dynasty trade across the Silk Road 2,000 years ago to ``barbarian economic depredation'' in the 19th and early 20th centuries until the founding of ``New China'' with the Communist takeover of 1949. She said China must move gradually on changes, underscoring the challenge Paulson faces as Congress prepares to consider as many as 27 bills aimed at curbing Chinese imports."

``Only by focusing on development in the long run can China lay a necessary material foundation for the constant improvement of the people's living standard. Wu pledged to boost imports and take other steps toward a free-market economy over time. China will ``continue to deepen reform'' of the financial system and the ``price forming mechanism'' so that interest rates and exchange rates are set by supply and demand"

Translation: But we do not look at time or timing the same way you do. We are very patient people, and we operate on our own time table and not yours. When we are ready, we will make whatever reforms are necessary, and in our best interest.

Here is the biggest fib of the day;

"Some U.S. legislators blame China's managed exchange rate and other economic restrictions for lost factory jobs and a record trade deficit."

The lost factory jobs are the direct result of globalization, and US corporations closing plants in the US and shipping American jobs overseas. When a company closes a plant in the US and moves its production for US markets offshore, domestic production is turned into imports. This is what has led to our nations record trade deficit. This trade deficit has allowed countries like China to prosper and become owners of capital in the form of US debt which ultimately caused a decline in the value of the dollar.

It is unconscionable for U.S. legislators to blame someone other than themselves, and US corporations for this problem ( Read Mr. Smith goes to Washington). We know it, the Chinese know it, and Paulsen and Bernanke know it.

The message sent by the voters in November was a direct result of the actions taken by our politicians and corporate America. The US delegation to China is a last ditch effort by the globalists to repair the damage that they have done.

With China holding a massive amount of US debt, the US delegation doesn't really have anything to bargain with. On June 8 2005, I wrote an article entitled; "Greenspan Dumbfounded". I said;

On Thursday, Greenspan will testify before the Joint Economic Committee of Congress. He will probably try to sooth the markets by reiterating what he said to a group of bankers in Beijing on Tuesday. In his comments to the bankers, Greenspan practically admitted that he did not know what was going on, and more importantly, that he did not know what to do about the drop in long term interest rates. Admitting that ("We've never run into anything like this before". "The economic and financial world is changing in ways that we still do not fully comprehend ") he doesn't understand what is going on does not provide much comfort to investors as to what going to happen in the future. In fact, one could take his comments as saying that our economic future is no longer being controlled by us. Well hello! That's what happens when you sell your economic souls to China.

If the Chinese remain defiant, the US could begin taking drastic measures by labeling China as currency manipulators, and imposing tariffs on Chinese imports. How will the Chinese react? By halting the purchase of the Treasury bonds that have been financing our deficits and keeping a lid on our long term interest rates. A spike up in longer term interest rates would drive a stake through the heart of our economy and the fragile real estate market.

Maybe the reason Chairman Bernanke has chose to pause raising rates is he fears the Chinese are going to do it for him. Stay tuned.