by ChrisCook
Mon May 3rd, 2010 at 06:00:38 AM EST
Niall Ferguson raises an issue here that I wrote about in October 2008.
Q&A with Niall Ferguson - Vancouver Sun May 1st
Q Do you think China's threats to sell U.S. T-bills to inflict financial pain are real?
A I don't think they are going to pull a lever as harsh as that over Taiwan. I think if the stakes were high enough, they might very well. If China announced tomorrow `we're selling our Treasuries,' the effect on the bond market would be explosive. And it would cost the Chinese because their dollar reserves would be worthless. But you have to remember most of China's wealth is not in dollars, it is in renminbi. So they would lose on their international reserves, but they would gain on every other asset that they own. I think the question is: What issue is big enough to play that card?
Q What would prompt them to play it?
A There would need to be a major breakdown over something. For example, let's conjure up a scenario where the United States finds itself having to support Israeli attacks on Iran's nuclear facilities. Now, the Chinese would have some good options there. One would be to just let it play out and watch. Another would be to very publicly seek to [exert] their leverage over the United States by saying `no, no you can't do this.' And that would be a very high-risk strategy, but I could imagine how that would work
So, I think at some point, the currency issue and the U.S. debt issue does give the Chinese real power, just as the currency issue and the debt issue gave the United States power over Britain in the 1950s, particularly at the time of the Suez Crisis. So, you have to imagine a Suez Crisis -- where the U.S. does something and the Chinese just decide `we're not going to support that because by not supporting it we will make many friends.' [T-bills] are a strategic lever and they can be used to deter military and other actions.
Q Is it one of their most powerful levers to deter action?
A Yes.
I referred to the 'Suez Moment' in Asia Times and
here in October 2008, at the time of my participation in a major conference in Tehran.
Asia Times Online :: Middle East News, Iraq, Iran current affairs
The problem - 'Peak Credit'
The dollar-based global financial system is continuing a slow, and irreversible, collapse from the point - I call it "peak credit" - in August 2007 when the unsustainable US property price "bubble" finally burst.
The problem is not one of liquidity - that is, the absence of money - central banks can print as much of that as necessary. The problem is a terminal shortage of capital or equity in the global banking system - a solvency problem. The US government was previously able to resolve such a problem, as they did in the 1930s, by deploying unused domestic resources.
The US has brought forward, through its catastrophic waste of resources in Iraq, its "Suez moment". This is the realization forced on Britain by the US in 1956 that economic realities require an end to empire. The US cannot resolve the insolvency of the dollar-based global financial system without the assistance of their international creditors, and this requires a new global settlement - a Bretton Woods II.
It is ironic that Iran has been protected from being infected by the "Anglo disease" by the very sanctions which were aimed at damaging it.
In fact, I believe that China - for whom energy security is every bit as much the same imperative as it is for the US - may actually have discreetly played the card in the first half of 2007, probably in conversation with someone financial like Paulson. I doubt whether China, who tend to operate quietly behind the scenes, would ever take the sort of high profile approach Ferguson suggests
My purely circumstantial evidence for saying so is that I do not believe that the US would ever have allowed this to happen
Iraq revives Saddam oil deal with China - China Institute - University of Alberta
23 June 2007 Financial TimesBaghdad has revived a contract signed by the Saddam Hussein administration allowing a state-owned Chinese oil company to develop an Iraqi oil field, the Iraqi oil minister told the Financial Times in Beijing yesterday.
unless the Chinese had made them 'an offer they could not refuse'.
So I believe the US's Suez Moment and the moment of Peak Credit were pretty much simultaneous.
Oh, and as an afterthought I have been wondering ever since about the Curious Episode Of The Wandering Nukes later that year.
AFP: B-52 carried nuclear missiles over US by mistake: military
WASHINGTON (AFP) — The US military said on Wednesday it was investigating an alarming security lapse when a B-52 bomber flew the length of the country last week loaded with six nuclear-armed cruise missiles.
The blunder was reported to President George W. Bush after the nuclear warheads were discovered when the aircraft landed at Barksdale Air Force Base in Louisiana, a military official said on condition of anonymity.
An air force official, who also asked to remain unnamed, said the B-52, which originated at Minot Air Base in North Dakota, had six cruise missiles with nuclear warheads loaded on pylons under its wings.
Could this have been Darth Vader attempting to create several hundred kilotons of realities on the Iranian ground?
Just because they're paranoid.......
