Are we on the eve of a turn in the Great Game? | 79 comments (79 topical, editorial, 0 hidden)

Re: Are we on the eve of a turn in the Great Game? (none / 0)

What I mean is that, just as there are not enough German bonds for international investors to hold, there are not enough Russian bonds.

A society committed to the notion that government is always bad will have bad government. And it doesn't have to be that way. — Paul Krugman

by Carrie (migeru at eurotrib dot com) on Sun Apr 27th, 2014 at 02:17:40 PM EST
[ Parent ]

Re: Are we on the eve of a turn in the Great Game? (none / 0)

"there are not enough Russian bonds." Were investments in Russian bonds seen as secure from US originated currency manipulation and attack any shortage of Russian Bonds could be readily remedied. And if Russia can get internal growth going again at 5%/yr or more for a few years the size of the entire rouble denominated world economy could increase. Already there is a demand for Chinese bonds outside of China. Everyone is seeking yield.

"It is not necessary to have hope in order to persevere."

by ARGeezer (ARGeezer a in a circle eurotrib daught com) on Sun Apr 27th, 2014 at 07:34:21 PM EST
[ Parent ]

Re: Are we on the eve of a turn in the Great Game? (none / 1)

Everyone is seeking yield and there is market demand, but governments with substantial C/A balances will not oblige.

A society committed to the notion that government is always bad will have bad government. And it doesn't have to be that way. — Paul Krugman

by Carrie (migeru at eurotrib dot com) on Mon Apr 28th, 2014 at 05:19:05 AM EST
[ Parent ]

Re: Are we on the eve of a turn in the Great Game? (none / 0)

On of the significant uses of eurodollars is for financing development in developing countries. Much of this has been done with eurodollar bonds from The City, or so I learned. But this is only one model. China and Russia could both engage in such development in Africa and Latin America either with bonds or direct financing. But, to me, the most salient characteristic of an international currency is the ability to settle trades in that currency and simply having a trade surplus facilitates that function. I wouldn't be worried about the lack of bonds for rentiers to hold.

"It is not necessary to have hope in order to persevere."

by ARGeezer (ARGeezer a in a circle eurotrib daught com) on Mon Apr 28th, 2014 at 11:09:22 AM EST
[ Parent ]

Re: Are we on the eve of a turn in the Great Game? (none / 1)

I'm not talking about rentiers. The developing countries who use petrodollars for development are usually net exporters (or raw materials). Or, in the case of China, net exporters of manufactured goods. US$ bonds are needed to invest current account surpluses ("recycling of petrodollars").

A society committed to the notion that government is always bad will have bad government. And it doesn't have to be that way. — Paul Krugman

by Carrie (migeru at eurotrib dot com) on Mon Apr 28th, 2014 at 11:36:57 AM EST
[ Parent ]

Re: Are we on the eve of a turn in the Great Game? (none / 0)

That is how the capital account balances the current account for any nation where the nation with a current account deficit is structurally unable to run a trade surplus, especially the USA. That is the mechanism Varoufakis describes in The Global Minotaur. But it is not necessary for either trade partner to run a deficit if they can both balance their current accounts. They could just trade raw materials for manufactured goods. But FDI by one side is a capital account activity and it too can be repaid in raw materials and/or agricultural goods. Raw materials could also be traded for capital goods so that the country receiving FDI could add value to its exports. The requirement is that Current Account = Capital Account for both countries, by accounting identity. Else, what am I missing?

"It is not necessary to have hope in order to persevere."

by ARGeezer (ARGeezer a in a circle eurotrib daught com) on Mon Apr 28th, 2014 at 02:25:24 PM EST
[ Parent ]

Re: Are we on the eve of a turn in the Great Game? (4.00 / 3)

You are missing two points:

First, the US has the privilege of being able to run nearly unlimited foreign deficits, because the US is the man with the gun.

Second, currency reserve operations can drive FDI and current account, not just the other way around. If the Chinese central bankers think they have a dragon's hoard of US bonds, then they are delusional. What they have is the accounting shadow of thirty years of tribute paid to the Americans.

- Jake

Friends come and go. Enemies accumulate.

by JakeS (JangoSierra 'at' gmail 'dot' com) on Mon Apr 28th, 2014 at 03:07:56 PM EST
[ Parent ]

Re: Are we on the eve of a turn in the Great Game? (none / 1)

Well, I am aware of the power of the USA to finance its overseas empire by simply printing units of the international currency and I recognize the role that military power has played in supporting that function. But China can surely provide US Treasuries to trading partners in need of them from its reserve and that is a positive for them. In addition to an accounting shadow what the Chinese hoard of US financial instruments represents is the price of undervaluing their currency wrt the US$.

Carriers are a significant means of power projection, and so are bases such as on Diego Garcia and in Thailand and Okinawa. But these are of limited utility on the Asian continent from Russia east. So China and Russia will not be feeling constrained except for agricultural production any time soon.

The point I am trying to make in this diary is not that Russia, China and the BRICS are trying to eliminate the USA as a major international power, but rather that they are creating an alternative sphere not controlled directly by the USA, thus giving trade partners a choice.

"It is not necessary to have hope in order to persevere."

by ARGeezer (ARGeezer a in a circle eurotrib daught com) on Mon Apr 28th, 2014 at 04:03:44 PM EST
[ Parent ]

Re: Are we on the eve of a turn in the Great Game? (none / 1)

But only those trade partners which have contiguous land connections to Russia or China.

Which, with the exception of Northern Indochina, are basically already in either Russia's or China's sphere of influence.

This may make it more difficult for the US to pry away Russia's Central Asian colonies. But that was always a half-hearted, opportunistic, and, most importantly, loss-making enterprise for the US anyway.

- Jake

Friends come and go. Enemies accumulate.

by JakeS (JangoSierra 'at' gmail 'dot' com) on Mon Apr 28th, 2014 at 04:34:15 PM EST
[ Parent ]

Re: Are we on the eve of a turn in the Great Game? (none / 0)

It is true that US sea power could block Russia and China from conducting trade in large parts of the world. But that would be an overt act of war. It is certainly something to watch for, but I don't think we are very close to that point yet, and certainly not against China. And, were the USA to get into a war with China it could be very dicey for Japan, the Philippines, Singapore, Malaysia, etc. Power over the sea ways can be exercised from air bases as well as from the deck of a carrier. Japan could start having problems importing fossil fuels, for starters. Which way would Vietnam go? How secure would the new US access to Philippine bases be? I sincerely do not want to find out.

"It is not necessary to have hope in order to persevere."

by ARGeezer (ARGeezer a in a circle eurotrib daught com) on Mon Apr 28th, 2014 at 09:30:28 PM EST
[ Parent ]

Re: Are we on the eve of a turn in the Great Game? (4.00 / 2)

It wouldn't be war with Russia or China.

It would be war with the American colony that trades with them without paying its tribute to the Americans.

That this happens to impact Russian and Chinese trade, well too bad, so sad.

- Jake

Friends come and go. Enemies accumulate.

by JakeS (JangoSierra 'at' gmail 'dot' com) on Tue Apr 29th, 2014 at 01:45:09 PM EST
[ Parent ]

Are we on the eve of a turn in the Great Game? | 79 comments (79 topical, 0 editorial, 0 hidden)

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