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Has WWIII already started?

by rdf Sun Apr 27th, 2008 at 11:53:59 AM EST

I'm not one who likes to base an argument on historical analogies too much, but sometimes it makes for a useful framework for a contemporary issue.

Before WWI and WWII there were a series of regional conflicts and internal unrest in some of the states later involved in the conflicts which foreshadowed the larger wars to come. What they all had in common was that they were really proxy wars for the major power realignment that was underway.

It is possible that we are seeing something similar at present. The conflicts in much of Africa make little sense unless one can figure out which super power is favoring which local faction. A similar situation seems to hold in Latin America and East Asia as well.


In prior conflicts those pulling the strings were mostly European powers. In the cold war it was the US vs the USSR. These days it appears to be the US vs China. While people have been diverted by Iraq (a classic resource grab), China has been cementing relations with states in the regions mentioned above. In many cases their influence has remained invisible, but recently this cloak of secrecy has been lifted. For example China's role in Sudan has become increasingly visible as has their heavy hand in Zimbabwe. In many cases their influence has been hidden behind commercial contracts which exchange technical expertise in the African state for long-term resource contracts.

Now that resource pressures have become more visible these deals are starting to get more notice. The US has been so charmed by the deal that they have gotten from China over the past decade that these concerns have been ignored. Big business in the US has been able to shift production to low wage China and increase its profits, while simultaneously decimating organized labor. Consumers have been lulled by low prices and the government has been financing the deficit caused by the wars and unwise tax cuts by borrowing from China.

What could be better than buying from a supplier who also lends you the money to pay for your purchases? This deal is coming to an end. The dollar has already depreciated, China has reduced its holdings of US treasuries and internal consumption pressures in China are causing wages to rise. Most important is the recent competition for resources. China is now a net importer of several key commodities, especially oil, coal and iron ore.

The US military command has already drawn up plans for future wars with China and several other scenarios. I don't have access to these plans, so I'll just speculate.

The PR campaign

The public never accepts a naked grab for resources as a justification for military action, so each war needs some socially plausible moral cover. In the past this has included stories of rape and baby killing, human rights violation, religious persecutions and impending attacks against the homeland or vital regional interests. I'll leave the matching of the excuses to the specific prior war to the reader. The case against China is now building, once again, not only concerning Tibet, but the dictatorships in Africa mentioned above, and the socialist presidents in South America.

Objectives

In many cases the economic relationship between the warring states was not central to their respective economies. Trade between Germany and France or Britain was not high enough that destroying the productive capacity of the opposing state would have negative consequences back home. The case was even stronger for the US. In WWI and WWII European trade was not vital to the US and this was also true of the proxy wars during the cold war with the USSR and its satellites. So destroying the economic strength of the enemy had little domestic downside while achieving the objective of removing a competitor state. This is not true in the present case with China. If all trade with China stopped tomorrow the US (and much of the EU) would suffer immediate economic dislocation. We just don't make much of that stuff here anymore and can't just pickup the the lost production. The objective has to be the removal of international competition for resources and markets while preserving enough economic activity internally that China can continue to be a supplier to the West. This seems a hard set of conditions to satisfy, our previous efforts to just replace the governments haven't gone well: Korea, Vietnam, Iran and Iraq, for example.

Military Campaign

I know very little about military strategy, but judging from recent history the US technique is to destroy the manufacturing infrastructure and civil engineering infrastructure as quickly as possible. This is probably a remnant of the thinking popular during WWI and WWII which turned out to be wars of attrition. As long as the warring states could continue to build military hardware the wars dragged on. Using this lesson the US has flattened Iraq even though it had no military capability. It is (implicitly) threatening to do the same in several other Middle East states, especially Iran. To attempt this with China would present several difficulties. First, China is much larger than other states which we have had conflicts with. Second, we want to keep the productive capacity intact so that they can remain a low cost supplier. Finally, China is heavily armed and could be expected to retaliate using missiles and nuclear weapons. This leaves intimidation rather than military action as the only viable option. (Note that warring states don't always act rationally, there were no "winners" from WWI or WWII in Europe, just survivors.)

One could look at the cold war as a model as to how competition could be kept within reasonable bounds. An explicit war between the US and the USSR would not have served either well, so competition was kept to regional conflicts and economic scuffles. The situation was different, however, because there was no real trade between the blocks. This is not the case with the west and China. The prior policy of mutually assured destruction (MAD) was designed to keep both sides from starting a conflict. In the present situation we want China to adopt a subservient position unilaterally. What we wish to see is a decline in domestic economic growth, a reduction in resource demands and a cessation of deals with producers states in Africa and elsewhere. In other words, as close to a traditional colonial relationship as possible, but without the burdens of occupation or management.

Intimidation

So MAD doesn't work, this only prevents overt conflict, but doesn't change internal behavior of the rival state. What is needed is intimidation that works in only one direction. I only see one approach, but it has problems of its own - space-based intimidation. The US is already working on weaponizing space (while denying this) and has stated that any attempts to interfere with present military uses of space will not be permitted. Most people take this to mean anti-satellite efforts, such as the recent destruction of a satellite by China. It is true that the US military is now too dependent on satellites to conduct distant wars. Much modern missile and remote vehicle systems would not function without the GPS system. The EU is so worried about this monopoly over navigation that it is creating an alternative system. Similar efforts are underway in Asia. Losing satellites would put a big crimp in modern military operations, and are hard to defend against, especially if the country doing the attacks is willing to see the bulk of the world's satellites disabled at the same time. A few detonations in the proper orbits would knock out hundreds of satellites in a short time.

This is not the type of system that can provide intimidation. Such a system needs to be autonomous and immune to attack. Much of the current projects in space engineering make no sense from a scientific point of view. This is just a cover story. There is nothing to be learned from the International Space Station or flying men to Mars. However establishing a permanent weapons platform in space, above the usual satellite orbits or on the Moon could be the basis for military intimidation. Objects dropped from orbit ("Rods From God") can destroy targets on earth with no need for explosives. Missiles launched from the Moon could not be prevented. Either system could use stellar navigation and thus function even if the satellite system was destroyed.

Would the fear that any spot in your country could be destroyed at a moment's notice be enough to force compliance with the demands of the west? Would China risk a nuclear war if it tried to retaliate against such an attack using missiles? Desperate times lead to desperate men.

Display:
... the period as a rising economy begins to overtake the current economic hegemon tends to be tumultuous ...

For instance, the Second Boer War at the last turn of the century, as Britain was being overtaken by the US, or the American War of Independence as Britain was threatened with being overtaken (but in the event was not ... the hegemon does not always get passed at the end of a Long Cycle, after all).

However, the World Wars tend to follow a little later in the cycle ... the Napoleonic wars after Britain re-established its position, the Great World War from 1914-1945 after the US had passed Britain.

And of course, there's no guarantee that it will be China that both passes the US and becomes the hegemon ... it could be that the Chinese leadership do not successfully hurdle structural problems that always come with rapid growth, and the new hegemon turns out to be Europe, or India.


I've been accused of being a Marxist, yet while Harpo's my favourite, it's Groucho I'm always quoting. Odd, that.

by BruceMcF (agila61 at netscape dot net) on Sun Apr 27th, 2008 at 01:37:01 PM EST
no hegemon. A world hegemon looks rather unnatural to me. Only the historically unpreceeded technological developement of the west led to this kind of world hegemony. In the future we will have a much more levelled playing field and no single blog will have the power to impose its will on most of the others.

Der Amerikaner ist die Orchidee unter den Menschen
Volker Pispers
by Martin (weiser.mensch(at)googlemail.com) on Sun Apr 27th, 2008 at 06:53:34 PM EST
[ Parent ]
... we have hegemony precisely because no one power has the ability to impose its will. When a power can impose its will, then within the area within which it can impose its will, that is no mere hegemon in a system of competing states, but rather the metropole of an Empire.


I've been accused of being a Marxist, yet while Harpo's my favourite, it's Groucho I'm always quoting. Odd, that.
by BruceMcF (agila61 at netscape dot net) on Mon Apr 28th, 2008 at 12:04:16 AM EST
[ Parent ]
It is a matter of degree, but a hegemon has to be superior in a sense. As well there is the question if a military and economic superior country is seeking for direct commanding power or not. It becomes pretty difficult to pretend to be the good guys, when you use your military power directly to enforce your will.
Would you deny that during the cold war the US was a hegemon in western Europe or that western European states have never done anything purely because they were urged to do so by the US?

I think, as you can see now in Africa, today and more so in the future countries will simply change their partners when one partner demands things which seem to be unbearable. That was close to impossible in the past and especially the US was so important for everybody that nobody really can turn his back on it.

Der Amerikaner ist die Orchidee unter den Menschen
Volker Pispers

by Martin (weiser.mensch(at)googlemail.com) on Mon Apr 28th, 2008 at 07:58:01 AM EST
[ Parent ]
Precisely.

I think, as you can see now in Africa, today and more so in the future countries will simply change their partners when one partner demands things which seem to be unbearable.

That is exactly why this phase in the Long Cycle has always been fairly tumultous ... its been a time when it is much easier for semi-peripheral countries to contemplate playing one core economy off against another, because the prevailing hegemon has lost much of its edge.

Just as, for example, the American colonies played the British and the French off against each other (though as it turned out to the greater eventual damage to the French government that was our ally than to the British government that was our adversary).


I've been accused of being a Marxist, yet while Harpo's my favourite, it's Groucho I'm always quoting. Odd, that.

by BruceMcF (agila61 at netscape dot net) on Mon Apr 28th, 2008 at 09:07:36 AM EST
[ Parent ]
so can explain why this phase should come to an end? I know it is a bit easy to predict the future will just be the extrapolation of ongoing trends, but I can't see what should end this phase, except the diary becomes true, which I don't see as a likely outcome.

I'm not a fan of Hegelian automatism in history prediction, except their is a reason. Many historic phases have had 'cycles', which finally came to an end, so just pattern recognition really is not such a reason, if other parts of the historic situation are completely different.

Der Amerikaner ist die Orchidee unter den Menschen
Volker Pispers

by Martin (weiser.mensch(at)googlemail.com) on Mon Apr 28th, 2008 at 10:04:36 AM EST
[ Parent ]
Because it would be such an incredible coincidence if two great powers were exactly evenly matched in the first place, and even more if they stayed exactly evenly matched for a long period.

  • Hegemonic wars start because different great powers, seeing the fading of the importance of what used to be dominant power resources, have different views of where they stand relative to the other great powers.
  • The hegemonic war settles which power resources really are the dominant combination.
  • Winning the hegemonic conflict puts the hegemon in a position to work on reforming the previous world order, normally in its interests, and that reinforces the hegemon's position.
  • But ongoing social and technological change ensures that no set of dominant power resources is permanent, so sooner or later the benefit of the power resources that lead to the dominance of the hegemon begins to fade.
  • It is one of those powers that are gaining under the new conditions that is most likely to pass the incumbent hegemonic power to become a new hegemon, but of course its always possible that the existing hegemon develops the power resources that end up being critical in the next cycle.

So like cycles in economics, its a standing wave ... not driven by exogenous shocks, or by some kind of interplay of ideal underlying forces, but a self-perpetuating dynamic system.

Its most closely associated with the rise of Europe (and then a former European settler colony) from LDC backwater status pre-1500 to world dominance. There is of course much dispute (that is much of the relevance in the fight over the dash and capitalization between world-system theory and World System Theory) whether that's an extension of an older pattern or a pattern that was launched in the second half of the previous millenium. For Wallerstein, it is a pattern that is typical of the European world-system, which grew from a region of the world in 1500 to nearly encompass the world by the 1800's, others have other views on that.

And it is certainly not seen as the only possible historical pattern ... for example, if a hegemon continues rising in power to the point that it establishes an Empire, then the dynamic of rival powers vying for their position in a system of state does not apply, and that would break the standing wave.

Indeed, one of the concerns of both world-system and World System theorists is how to disrupt the perpetuation of the pattern so that we can avoid having "the next" hegemonic war ... which in an age of nuclear and biological weapons is a terrible thing to contemplate.


I've been accused of being a Marxist, yet while Harpo's my favourite, it's Groucho I'm always quoting. Odd, that.

by BruceMcF (agila61 at netscape dot net) on Mon Apr 28th, 2008 at 11:05:45 AM EST
[ Parent ]
but not a determination.
I would say what makes the time pretty unique is, that
  • the most advanced economies have a demography which simply does not need nor sustains empire like expansion. The Romans wanted an empire in 0. Napoleon wanted it, the German Kaiser, Hitler, and Stalin wanted it, Dshingis Khan, the Ottoman califs,.... Most people in the current developed world don't.
  • distances in todays world still matter. A world hegemon is by far not a self evident outcome compared with more regional developments. The EU e.g. shows, that this has not to be violent. Sure the EU is unique in a sense up to now, but ASEAN or the AU perhaps take a similar direction. Long range transport of military equipment is very energy intensive, especially if it must be fast. (FAZ wrote last weekend, that inland water transport has an energy need proportional to speed^(3.5)) That's really nasty for oversea military operations.
  • the weapons you named make it nonsense to start open conflict. So far leaders have acted very reasonable.
  • there can be more than 2 parties, which cancel each other out. UK was not a hegemon in Europe in 1900. With a simple politics of balance of power - ally with the weaker - there is no need for a hegemon. Sure, this is not necessarily a long-term stable situation, but today there are so many international contracts, that I guess it is much more stable than ever before.
The outlined problem in the diary is resolved in a capitalistic system. You give the resource to the person who is paying the most. My personal guess is, that the European countries with their very low level of military spending as a share of GDP are doing exactly the right thing. There will be no serious war in the foreseeable future and the big armies some other countries have are just resource drags.

Der Amerikaner ist die Orchidee unter den Menschen
Volker Pispers
by Martin (weiser.mensch(at)googlemail.com) on Mon Apr 28th, 2008 at 11:39:17 AM EST
[ Parent ]
... China quite definitely cannot continue with its current political economy based on the resources of its region alone, so it must look to project influence abroad ...

... and hegemony is not empire. An "empire" could be a participant in a system of states, but if the entirety of a relevant arena of power conflict is within an Empire, like the Mediterranean world under Rome at its height, then that is not hegemony. Hegemony is something less than imperial power, but something more than equality.

... the UK could not be a hegemon in Europe in the 1900's because at the time Europe was part of a larger international system, and the UK nothing more than a medium power in that international system.

... more than two great powers is the situation of all of the hegemonic wars of the last 500 years, so the existence of more than two great powers does not seem to be a great consolation.

... on the other hand, the weapons of mass destruction could well be a game changer. In the end it is often observed by protagonists of hegemonic wars that few participants were winners ... by the time that the hegemonic war is well underway, all that many participants are hoping for is survival. If more political elites are more convinced at the outset that nobody will be the winner of a war, will it be possible to avoid the war?

I would have been more optimistic on this score before the Bush Residency. The US military industrial complex may be in the same position as the military establishment built up by Napoleon after he seized power in France, of being an unsustainable system that requires external wars of aggression in order to keep things running.


I've been accused of being a Marxist, yet while Harpo's my favourite, it's Groucho I'm always quoting. Odd, that.

by BruceMcF (agila61 at netscape dot net) on Mon Apr 28th, 2008 at 11:58:35 AM EST
[ Parent ]
no single blog will have the power to impose its will on most of the others.

Damn, I thought that was the ET plan. Will have to be reworked.

Un roi sans divertissement est un homme plein de misères

by linca (antonin POINT lucas AROBASE gmail.com) on Mon Apr 28th, 2008 at 04:45:17 AM EST
[ Parent ]
... compelling source of material that ET would emerge as the unparalleled opinion leader on the issues within its remit.

Since bloggers are often lazy beasts at heart, and if you make good material available to them, they will copy it and riff on it.


I've been accused of being a Marxist, yet while Harpo's my favourite, it's Groucho I'm always quoting. Odd, that.

by BruceMcF (agila61 at netscape dot net) on Mon Apr 28th, 2008 at 11:14:31 AM EST
[ Parent ]
What is the Long Cycle theory? What do you mean by hegemon?

When the capital development of a country becomes a by-product of the activities of a casino, the job is likely to be ill-done. — John M. Keynes
by Carrie (migeru at eurotrib dot com) on Mon Apr 28th, 2008 at 05:17:23 AM EST
[ Parent ]
What is the Long Cycle theory? What do you mean by hegemon?

In economics, Long Cycle Theory is the theory that there are regular cycles (but not with mechanical regularity) of international economic activity, encompassing multiple trade cycles. People dating long cycles have tended to find periods on the order of eighty to a hundred years. There is, of course, much controversy over whether they exist, over the period of history for which they exist (if they do), and what are the proper ways to measure them (if they exist).

In political geography, there are a variety of competing theories about the system of competing states that can appeal to this economic long cycle, on one or more variant (several of them arrived at independently) of the argument put forward by Organski in 1958, Power Transition Theory (wp), which is that:

War is most likely, of longest duration, and greatest magnitude, when a challenger to the dominant power enters into approximate parity with the dominant state and is dissatisfied with the existing system. Similarly, alliances are most stable when the parties to the alliance are satisfied with the system structure.[3] This leads to the view that when the balance of power is unstable (ie. one or two nations have taken a dominant role in geopolitics), the likelihood of war is less.

Different versions of the argument go under the headings in political geography of World Systems theory and World-Systems theory.

The closely related Long Cycle Theory does not rely as heavily on the economic theory of the Long Cycle, since it focuses heavily on maritime projection of power and so is more about arguing about counts of ships and bases.

With nation states divided between great powers, which typically possess power projection beyond their region, middle powers that are influential in their region but with little influence beyond and therefore little ability on their own to challenge the existing system structure, and small powers with little influence in their region.

The hegemon is then the term used for the leading power among the great powers, based on the prevailing power resources of the day. Under any version of power transition theory, a period of balance of power is a tumultuous period likely to have a lot of conflict, and then hegemonic wars occur after a period of balance of power when a potential new hegemon has emerged, and one or more dissatisfied challengers make a move to carve out a stronger position for themselves in the emerging international system.

One of the concerns of some students of the cycles of hegemonic wars in political geography are how to establish a system were we can avoid having hegemonic wars.

In terms of ability to project power beyond their own region, it would seem that the great powers of the day are the US, China and the EU, with India being the only obvious candidate medium power with the prospect for emerging as a great power.


I've been accused of being a Marxist, yet while Harpo's my favourite, it's Groucho I'm always quoting. Odd, that.

by BruceMcF (agila61 at netscape dot net) on Mon Apr 28th, 2008 at 09:38:52 AM EST
[ Parent ]
The problem with this theory is that it doesn't take into account resource monopolies. The Saudis have effectively been running US foreign policy for the last couple of decades. Iraq was as much about keeping oil in the ground and oil prices high - and also settling a few personal scores - as it was about a naked resource grab by the US.

US policy is also seems to be strongly influenced by the Israeli lobby - which might seem paradoxical, but when the interests of Israel coincide with the interests of the Saudis, war-like things often seem to happen.

I'd be tempted to consider Organski a cold-war artifact. I'd guess he's suggesting that war with the USSR is likely in his near future, which was very much the establishment dogma of the day.

Today we don't just have nukes, we also have multinationals. Overt war is far less likely than economic war - which China has already won, because it could bankrupt the US tomorrow if it decided it was in its best interests.

by ThatBritGuy (thatbritguy (at) googlemail.com) on Mon Apr 28th, 2008 at 04:52:03 PM EST
[ Parent ]
WWII was finished in 1945 ... a little late for a hegemonic war, but the US dragged its feet on pushing the structure of the international political order after WWI ... Organski  wrote in the 1950's, so regarding ...

I'd guess he's suggesting that war with the USSR is likely in his near future ...

... the clear implication of his argument would be that war with the USSR was unlikely in his near future. No guessing required. In any of the long cycle theories, great powers do not start a new hegemonic war so soon after the previous one has finally concluded.


I've been accused of being a Marxist, yet while Harpo's my favourite, it's Groucho I'm always quoting. Odd, that.

by BruceMcF (agila61 at netscape dot net) on Mon Apr 28th, 2008 at 05:25:38 PM EST
[ Parent ]
One of the concerns of some students of the cycles of hegemonic wars in political geography are how to establish a system were we can avoid having hegemonic wars.
To what extent did the UNSC work to avoid a hegemonic war by giving all world powers a veto on the legitimate use of force? Then, UNSC veto power becomes the definition of world power, and the tension between a hegemon and an aspiring hegemon is replaced by the tension between the current group of recognised world powers and aspiring world powers.

For instance, Britain and France can hardly claim to be individually as powerful as they were after WWII when they retained their colonial empires. However, we have the EU slowly configuring itself as a world power to replace Britain/France and (thankfully) avoiding the question of Germany as a world power.

The breakup of the Soviet Union has also somewhat diminished Russia, but it seems fanciful to claim Russia is not a world power given its size, its resources, its level of development and its military.

Then there's India which is not recognised as a world power but might well be. A UNSC with the US, EU, Russia, China and India as veto-wielding members would make a lot more sense than the current one. So maybe the biggest potential conflict is actually between Britain/France and India/Germany, and the EU could help resolve that peacefully if Britain decided to finally blend in.

In my opinion neither Russia nor China have any interest to start an overt confrontation with the US: that's just the US neocon propaganda in search of an adequate bogeyman.

The real problem with the current world system is that the hegemon, the US, has been busy dismantling it since the end of the Cold War.

When the capital development of a country becomes a by-product of the activities of a casino, the job is likely to be ill-done. — John M. Keynes

by Carrie (migeru at eurotrib dot com) on Tue Apr 29th, 2008 at 06:01:30 AM EST
[ Parent ]
... how the hegemon at the end of a hegemonic war gets a big influence in the form of the international order. The United Nations was something that quite clearly needed looking after, and the Security Council was established to prevent the General Assembly from being an arena where an effective political counterweight to the hegemon could be developed.

Allowing the objective of establishing the United Nations to be subverted is the whole point of the Security Council. China not ending up as a frontline containment state for the USSR was kind of an oops, but.


I've been accused of being a Marxist, yet while Harpo's my favourite, it's Groucho I'm always quoting. Odd, that.

by BruceMcF (agila61 at netscape dot net) on Tue Apr 29th, 2008 at 02:47:44 PM EST
[ Parent ]
Allowing the objective of establishing the United Nations to be subverted is the whole point of the Security Council.

How's that?  The primary objective of the establishment of the UN was to prevent direct armed conflict between the great powers. Allowing it to act against the will of one of those powers would have the reverse effect.  

In any case, I don't see the moral case for greater GA power. One country one vote is inherently undemocratic as is the representation of authoritarian governments.  But that's fine, justice, fairness, and democracy  aren't the point here.

I agree with Mig that the composition of the permanent members group is out of date and that you'd want a merger of the British and French seats into one EU one while giving India a seat.  But the original make up was sensible. The US, France, UK, and Soviet Union were clearly the most powerful countries in the world at the time. China was hobbled by civil war, but as the most populous state it also got in. Who else would you have wanted - Brazil? Canada?  (Germany and Japan were out for obvious reasons, India was still a colony)

by MarekNYC on Tue Apr 29th, 2008 at 03:20:05 PM EST
[ Parent ]
... GA power ... I had not idea there was a moral case for greater GA power, but preventing the GA from having power was the point of the Security Council.

The issue at hand in the mid-40's was not, of course, the make-up of the Security Council ... the system of permanent members consisting of the main victorious allies in WWII was pretty much automatic as soon as someone came up with it, and the system of rotating memberships with watered down voting rights fairly obviously the most that the other members could hope for ... but the powers of the Security Council.

Whether the institution as actually established was more effective in its role than it would have been otherwise ... quite possibly. Just because the US got its way does not mean that it was an unalloyed disaster that it did.


I've been accused of being a Marxist, yet while Harpo's my favourite, it's Groucho I'm always quoting. Odd, that.

by BruceMcF (agila61 at netscape dot net) on Tue Apr 29th, 2008 at 03:33:34 PM EST
[ Parent ]
Whenever a new great power emerges, throughout history you see, as a great power emerges, rising levels of tension and rising danger of conflict.  But China is emerging in a massive way without creating any tremors.  Now that requires enormous geopolitical dexterity.

And one of the most brilliant moves that the Chinese government made -- because they knew that at some point in time the United States might try to contain China (I mean, you don't have to be a genius to anticipate that) -- so what did the Chinese do?  They launch a pre-emptive strike.  And what is their pre-emptive strike?  They export their peace and prosperity to all their neighbors.

And this explains why the fastest growing trade flows in the world are not in Europe, not across the Atlantic, not in North America, not across the Pacific, but between China and its neighbors.  And this represents a major geopolitical decision, whether it's within China and Japan, China and India.

And I can tell you that one of the most brilliant moves that the Chinese did was to propose a free trade agreement with South-East Asia.  You know, South-East Asia you might call the "soft underbelly" of China, right?  Five-hundred million people who in the past had been used by the United States to contain China in the Cold War.  So what does China do?  Propose a free trade agreement.  And not only did they propose a free trade agreement, they concluded it record time.  And even before they concluded it, they gave the ASEAN countries (the Association of South-East Asian Nations) an early harvest by giving them unilateral concessions to the Chinese market.

Conversations with History - Kishore Mahbubani (18'45"- 20'32")

(Is it oversimplistic to suggest that this approach -- to let other countries become rich and grow strong by feeding at the trough of one's huge domestic markets [consumer or labor] -- is similar to the U.S.'s economic policy after World War II?)

Despite the hysterical nationalistic passion of Chinese (mostly youthful) demonstrators on display around the world over the past month, China's leaders are doing their best to ease that country's rise onto the world stage like grown-ups who are not interested in conflict or violence.  Unfortunately, they always have to keep an eye on the prickly, burly kid across the street, the high school football superstar who has a hard time realizing that his adolescent athletic prowess won't guarantee continued success into adulthood but who bitterly resists learning new skills and attitudes and keeps trying to resolve his problems and frustrations the only way he knows how: by using his overdeveloped brute physique, which now has become so much muscle mass replaced by fat from too many hours guzzling beer and playing Call of Duty.

Any calm, reasonable grown-up knows that war with China would be the most foolish, suicidal notion the U.S. could entertain.  But unfortunately, there are still too few signs that the U.S. has grown beyond memories of its adolescent glory days.  (Or if this a midlife crisis we're talking about, then pray we get some serious counseling and don't again splurge on the geopolitical equivalent of a red Ferrari.)

A language is a dialect with an army and navy.

by marco on Sun Apr 27th, 2008 at 05:47:09 PM EST
marco:

And I can tell you that one of the most brilliant moves that the Chinese did was to propose a free trade agreement with South-East Asia.  You know, South-East Asia you might call the "soft underbelly" of China, right?  Five-hundred million people who in the past had been used by the United States to contain China in the Cold War.


Well, I'm sure the US tried...

The main struggle in the cold war was not with China, it was with the USSR. As Nixon showed.

by nanne (zwaerdenmaecker@gmail.com) on Sun Apr 27th, 2008 at 06:36:24 PM EST
[ Parent ]
Trade between Germany, France and GB was big in 1913. Only about 10 years ago world trade as a share of world GDP became as big as in 1900. Germany relied in WW II on US imported goods for military equipment and even financing. The idea is always to buy a stock of needed stuff to fight the war through as fast as possible and resume trade as soon afterwards as possible. In 1914 every important person, at least in Germany, knew that wars are very bad for the economy and worse so, the longer the war lasts.

I think it would be very well possible to produce all needed things without China. There is nearly nothing which is only produced in China and we have the knowledge to produce nearly everything even in the west again (what won't be necessary, because there are still other SE Asian or African countries...). It is much easier than in the previous WWs.

"The dollar has already depreciated, China has reduced its holdings of US treasuries and"
That is plainly false, China is buying up Dollars FASTER THAN EVER BEFORE. The US has a private net capital outflow and still a significant trade deficit. All this is closed from state or quasi-state entities. Don't blame the Chinese for the dollar's decline, blame them, that it did not decline further.


Der Amerikaner ist die Orchidee unter den Menschen
Volker Pispers

by Martin (weiser.mensch(at)googlemail.com) on Sun Apr 27th, 2008 at 07:15:31 PM EST
This is a good, thought provoking diary.  I basically disagree with much of the analysis while still agreeing with the overall premise that an intense competition between the US and China is taking place that could (but only under extreme circumstances) lead to war.

I give little credence the idea that the US lacks sufficient self restraint or something like maturity (if such exists in countries) to prevent it from making unprovoked (nuclear) war on China, or that anyone in the US Government (even GWB) believes China can be intimidated into economic submission with satellites or any other technological marvel. China is not Iraq, Iran, N Korea, Syria, Afghanistan, or any other combination of military/economic lightweights.  The US did not go to war with the USSR or China during the Cold War period when it clearly had military superiority. Why would it do so now? Yes, things are likely to become very very difficult but war on this scale offers no advantage to anyone. I think by now most in the US realize that the genie (China) is out of the bottle and won't get back in on demand.

I can swear there ain't no heaven but I pray there ain't no hell. _ Blood Sweat & Tears

by Gringo (stargazing camel at aoldotcom) on Sun Apr 27th, 2008 at 10:41:34 PM EST
The Miami Herald reported on Friday that the United States has re-established the Fourth Fleet, which was formed in 1943 and disbanded after WW2.

Fourth Fleet to sail again in Latin America

It's official: The Pentagon formally announced Thursday that it is reestablishing an administrative entity called the Fourth Fleet -- to oversee Navy vessels that sail the Caribbean, Central and South America...

''Reestablishing the Fourth Fleet recognizes the immense importance of maritime security in the southern part of the Western Hemisphere and signals our support and interest in the civil and military maritime services in Central and South America,'' Adm. Gary Roughead, the Pentagon's most senior naval officer, said in a statement released Thursday.

Personally, I see it as a threatening move against Venezuela, Ecuador, and other left leaning Latin American governments. Ecuador wants the U.S. out of their country, which also happens to be home to the only U.S. base in South America.

by Magnifico on Mon Apr 28th, 2008 at 02:09:39 AM EST
I think a war on Latin America is much more likely than a war on China.

The US can - maybe - win against Latin America. Latin America has oil, it has peasants workers, it has land, it has supportive regimes, and it's near enough to keep supply chains manageable.

China has the Chinese, which is a whole other proposition.

But considering that the US can't even win a war against a non-country like Afghanistan, or a third-rate power like Iraq, taking on Latin America would still be ambitious.

Taking on China would be suicidal.

by ThatBritGuy (thatbritguy (at) googlemail.com) on Mon Apr 28th, 2008 at 08:38:33 AM EST
[ Parent ]
I'm not sure.  Our politicians don't seem to take Latin America very seriously.  Chavez serves as a nice bogeyman for Faux News, but, beyond that, and beyond the griping about Mexicans and the border, there's just not much going on.  Latin America seems to serve more as a play thing for them than anything else.

And:

But considering that the US can't even win a war against a non-country like Afghanistan, or a third-rate power like Iraq, taking on Latin America would still be ambitious.

Taking on China would be suicidal.

No, we're great at fighting wars.  We can blow shit up in real style.  It's the aftermath stuff that we're not so much for.

But, yeah, I do agree that war with Latin America would still be more likely than war with China.  That's simply not happening.  Or so I think, but with two of our three presidential candidates -- I assume McCain is for it, even though he's never said one way or the other to my knowledge -- being in favor of nuking Iran, I should probably hold my tongue here.

Be nice to America. Or we'll bring democracy to your country.

by Drew J Jones (pedobear@pennstatefootball.com) on Mon Apr 28th, 2008 at 10:00:52 AM EST
[ Parent ]
On the other hand, Latin American countries are not anarchies like Afghanistan or cobbled-together colonial states like Vietraq. In many (most?) Latin American countries, you can enact a quick little coup without having the country fall apart.

In Afghanistan, you can't coup the government, because the government is a paper tiger and in Vietraq a coup would run the risk of an extremely nasty series of seccession wars.

It may be that I'm simply inadequately informed about the regional tensions in Latin America, but my distinct impression is that such meltdowns would be somewhat less likely than in the Greater Middle East.

And then there is my sneaking suspicion that Vietraq and Afghanistan were less about securing sattelite states than about securing failed states from which to run black ops directed against Iran and Russia. The US would have little interest in creating a genuinely failed state in its own back yard - after all, that might allow someone else to run their black ops against the US from a base of operations in comfortable proximity...

Finally, it is possible that Vietraq and Afghanistan were for purely domestic consumption (we have always been at war with Eurasia!), in which case conducting them at a safe distance on a different continent also makes a lot more sense than conducting them in your own back yard.

- Jake

Friends come and go. Enemies accumulate.

by JakeS (JangoSierra 'at' gmail 'dot' com) on Mon Apr 28th, 2008 at 03:42:55 PM EST
[ Parent ]
China can do a big hurt to the U.S. economy whenever it wants to. Such a situation requires prudence on the part of the U.S.

Hey, Grandma Moses started late!
by LEP on Mon Apr 28th, 2008 at 09:09:49 AM EST
Can it? I've started wondering recently to what extent that it can. Is there enough Chinese nationalism to prevent a trade war turning into a revolt of the Chinese middle class?
by Colman (colman at eurotrib.com) on Mon Apr 28th, 2008 at 09:14:25 AM EST
[ Parent ]
I would find it very surprising if China, sensing an imminent U.S. military attack upon it, would not start dumping its huge holdings of Treasury Bonds. The panic in the west would be indescribable. Silly position for the U.S. to have put itself into. Good for the rest of the world though.

Hey, Grandma Moses started late!
by LEP on Mon Apr 28th, 2008 at 09:21:27 AM EST
[ Parent ]
But the treasury bonds would lose value as the attack tension ratcheted up in anticipation of precisely the dumping you're talking about.
by Colman (colman at eurotrib.com) on Mon Apr 28th, 2008 at 09:22:26 AM EST
[ Parent ]
In that case the Chinese wont have to dump. When Treasuries collapse, the U.S. economy collapses. And just as I would not play chess with the Russians, I wouldn't play a numbers game with the Chinese. They're very good with math.

Hey, Grandma Moses started late!
by LEP on Mon Apr 28th, 2008 at 09:27:02 AM EST
[ Parent ]
Of course, when Treasuries Collapse, its mostly the ability of US corporations to exercise economic power outside the borders of the US based on US dollar assets that collapses.

It would certainly be an economic crisis if the US dollar collapses, but its not certain to be an economic collapse.

Of course, a lot depends on whether the government of the day is more concerned with preserving people's standard of living or preserving the international purchasing power of US dollar portfolios of corporations.


I've been accused of being a Marxist, yet while Harpo's my favourite, it's Groucho I'm always quoting. Odd, that.

by BruceMcF (agila61 at netscape dot net) on Mon Apr 28th, 2008 at 09:44:52 AM EST
[ Parent ]
There is a reason why dumping the Chinese US Treasuries is called 'The nuclear option'. Sure there will be a lot of harm to the US if that is done. But as much, if not more harm to China.
From a comment of Brad Setser's latest post:
"The facts that you present show mind-boggling numbers. 750bn$ is an amount of roughly 25% of Chinese GDP in foreign asset growth PER YEAR. As you say, this is now not only an 'imbalance', it is a symptom of a massive transfer of wealth and the entire financial system from other countries."

The Chinese state is buying up FX en masse. Much more than the Trade surplus, which is anyhow melting down at the moment. The Chinese state is buying low yielding overvalued (compared with CNY) dollar debt, and selling more yielding undervalued CNY debt to sterilise monetarily. If their Dollars become worthless, and their CNY shall not become worthless, they have to stem  a big net debt from the currency mismatch on their balance-sheet.
It is trivial, why should the debtor be hurt more than the creditor, when it comes to a default?

Of course the US would have to finance its trade deficit then in another currency. But the west has plenty of currencies, which could take over. Euro, Sterling, maybe SFR.

Der Amerikaner ist die Orchidee unter den Menschen
Volker Pispers

by Martin (weiser.mensch(at)googlemail.com) on Mon Apr 28th, 2008 at 10:22:09 AM EST
[ Parent ]
And, further, the Chinese don't have to dump their US Treasuries to shift their peg to the EUR / YEN / GBP / AUD / SWF ... they just have to stop buying new ones.

Sure, the Renminbi value of the US$ Treasuries they hold will fall, but the purpose of buying those US$ Treasuries was to maintain the discounted exchange rate against the USD, which has already been done ... the "cost" of the process of creating Renminbi to purchase US$ Treasuries to maintain a discounted RNM/USD FXR was the trade of financial return per transaction for increased volume and lower unemployment.


I've been accused of being a Marxist, yet while Harpo's my favourite, it's Groucho I'm always quoting. Odd, that.

by BruceMcF (agila61 at netscape dot net) on Mon Apr 28th, 2008 at 04:04:01 PM EST
[ Parent ]
Yeah, but the Chinese and US economy are tied to each other through that mechanism. It would not be good for China if the US falls.

The resources thing is really the only reason, why one country could benefit from the others gloom. But e.g. for building up a long term energy solution, cooperation would help everybody much more than confrontation. Here is the point, that even in the best possible scenario a confrontation could only give some more years of cheap oil consumption for the winner. A common enemy helps to bring different people together and this common enemy is time/energy shortage.
Peak oil is as much a chance as it is a risk.

Der Amerikaner ist die Orchidee unter den Menschen
Volker Pispers

by Martin (weiser.mensch(at)googlemail.com) on Mon Apr 28th, 2008 at 07:05:05 PM EST
[ Parent ]
Yes, but the US economy is far from the only growth driver for China ... there is Europe and Japan as well as domestic growth ... and indeed, to the extent that China is simply financing the export of Chinese output to try to keep labor intensive producers afloat, that can be done by providing finance to LDC's to purchase Chinese products, with long term resource contracts from shaky governments certainly at a rough par with US Treasury securities ... a shaky command over something (material resources) certain to be of value against a reliable command over something (USD) of shaky value.

If imported inflation threatens to upset domestic growth, then sacrificing competitiveness in the US market may be the lesser of two evils, and China always reserves the power to reduce domestic inflation by increasing the weight of the Euro in its basket peg at the expense of the USD.


I've been accused of being a Marxist, yet while Harpo's my favourite, it's Groucho I'm always quoting. Odd, that.

by BruceMcF (agila61 at netscape dot net) on Mon Apr 28th, 2008 at 07:17:25 PM EST
[ Parent ]
Colman: Is there enough Chinese nationalism to prevent a trade war turning into a revolt of the Chinese middle class?

Does anyone know what critical commodities, products, or services the U.S. exports to China that would be hard to replace (if any)?

A language is a dialect with an army and navy.

by marco on Mon Apr 28th, 2008 at 10:15:28 AM EST
[ Parent ]
Over the last half century, the key strategic resource for the core economies have been the ability to produce productive equipment ... machine tools, heavy turbines, etc. ... and there's nothing on that front that the US producers that the Chinese cannot get from Japan.

Indeed, if thinking of China as a great power, it really has to be the Sino-Japanese system that is the great power.

There may be selected strategic raw materials, but of course between Australasia and Africa, it does not seem likely that the US has any kind of actual lock on strategic raw materials.

I've been accused of being a Marxist, yet while Harpo's my favourite, it's Groucho I'm always quoting. Odd, that.

by BruceMcF (agila61 at netscape dot net) on Mon Apr 28th, 2008 at 11:18:47 AM EST
[ Parent ]
hmmm, here i was wondering whether enough chinese nationalism, aggressively boosted by the rest of the world's criticism re tibet and human rights, would be enough to prevent a revolt of the chinese working poor, as they try to ascend the greasy pole, often without success, or have their farmland taken, or suffocate downwind of the umpteenth coal plant.

one the one hand, this might be the last chance for public opinion to have any influence on the growing economic giant, so embarrassingly dependent on a potemkin olympics for 'national pride' ...here we go again...

on the other, we look like fools criticising china for human rights issues, when our own houses are in such disorder in that respect.

whatever you believe, it seems clear that many chinese are learning to hate and wave their flag, especially if they know about the history of 'our' behaviour regarding them in the opium wars.

 

'The history of public debt is full of irony. It rarely follows our ideas of order and justice.' Thomas Piketty

by melo (melometa4(at)gmail.com) on Mon Apr 28th, 2008 at 03:16:45 PM EST
[ Parent ]
Has WWIII already started?

Yes.

(This has been another edition of Simple Answers to Simple Questions.)

Be nice to America. Or we'll bring democracy to your country.

by Drew J Jones (pedobear@pennstatefootball.com) on Mon Apr 28th, 2008 at 10:02:01 AM EST
My answer would be "I hope not".

Rivalries between great powers have often led to wars, but I would have thought a major conflict would end up accelerating US relative decline not preventing it.

by Gary J on Mon Apr 28th, 2008 at 11:51:53 AM EST
[ Parent ]
... have shown anything, it is that you cannot always count on people avoiding something because the long term consequences are almost certain to be dire.


I've been accused of being a Marxist, yet while Harpo's my favourite, it's Groucho I'm always quoting. Odd, that.
by BruceMcF (agila61 at netscape dot net) on Mon Apr 28th, 2008 at 12:00:21 PM EST
[ Parent ]
Quite the contrary, over the last seven years I've found that betting on idiocy is almost a gimme in the world of pretend-gambling on US policy.

Be nice to America. Or we'll bring democracy to your country.
by Drew J Jones (pedobear@pennstatefootball.com) on Mon Apr 28th, 2008 at 02:11:44 PM EST
[ Parent ]
Not that into looking into the past for figuring out the future, but if you are going to use the pre WWI period as a template you should note one interesting fact. Namely, there were two rising powers - Germany and the US. One chose to take on the hegemon, the other allied itself with it against the other rising power. So playing your WWIII = WWI scenario - US = Britain, EU = France, China = Germany, Russia = Austria-Hungary, ? = the US (India perhaps?).
by MarekNYC on Mon Apr 28th, 2008 at 01:13:21 PM EST
Two chose to take on the hegemon, one had an elite that wanted to support the hegemon and an electorate that had to be dragged kicking and screaming into war.


I've been accused of being a Marxist, yet while Harpo's my favourite, it's Groucho I'm always quoting. Odd, that.
by BruceMcF (agila61 at netscape dot net) on Mon Apr 28th, 2008 at 03:12:23 PM EST
[ Parent ]
With EU and US together, India as supporter (could be even USSR in historic comparison, which means main bearer of losses) there is simply no point for China and Russia to try militarily (and not economically).

I have a bit the impression China is build up as a bogeyman to blame to have a reason to finance new military technology. Not that I believe China has good intentions, but there is so much hype in the description of Chinese power, which simply is not there to that extend.

Der Amerikaner ist die Orchidee unter den Menschen
Volker Pispers

by Martin (weiser.mensch(at)googlemail.com) on Mon Apr 28th, 2008 at 03:23:53 PM EST
[ Parent ]
in much the same way as the threat of the USSR invading Europe was magnified out of all proportion.

Any idiot can face a crisis - it's day to day living that wears you out.
by ceebs (ceebs (at) eurotrib (dot) com) on Mon Apr 28th, 2008 at 03:27:36 PM EST
[ Parent ]
The idea that China or Russia have any interest in "trying militarily" seems laughable to me.

When the capital development of a country becomes a by-product of the activities of a casino, the job is likely to be ill-done. — John M. Keynes
by Carrie (migeru at eurotrib dot com) on Tue Apr 29th, 2008 at 06:18:34 AM EST
[ Parent ]
A World War is one in which each country is compelled to choose a side, even if the disputes that led up to the war are largely irrelevant to some of the countries in question. That is why Bush promoted "You're either with us or you're against us." He badly wanted to start a world war. So far, he has not been able to achieve that goal... unless rdf is correct.
by Ralph on Mon Apr 28th, 2008 at 04:44:26 PM EST
Now that I've laid out a possible conflict with China, let me offer an alternative.

China is rapidly sinking into anarchy and civil unrest. The number of protests by injured citizens is estimated at 80,000 per year. The social service network that existed under the pre-capitalist economic model has been removed. Health care and employment are no longer guaranteed. As a result there are many people who are now suffering from ill health who would not have before.

The loss of jobs in government enterprises and the take over of rural land by corrupt local governments and entrepreneurs has displaced many who now constitute a roaming band of marginally employed. They have no ties to the communities where they find employment.

The disproportionate growth in the cities to the detriment of the countryside has put a strain on resources and has led to the need to import raw materials (and apparently food). This has led to an increase in costs worldwide and created the tensions seen in much of the third world. Perhaps China can still extract resources from corrupt regimes in Zimbabwe and Sudan, but what will happen when people are starving elsewhere in Africa and see their resources being shipped off to China while they get no benefit?

In addition to resource shortages the rise of a middle class in the cities has produced internal dislocations. Beijing is already stealing water from nearby regions. Grain is being diverted to livestock feed thus pushing up the cost to those still dependent on a traditional diet.

Rapid expansion in both the industrial and building sectors has led to much quick and dirty construction and policies, which are now severe enough that Beijing won't be suitable for the Olympics without shutting down much of this activity for several weeks. The health effects of pollution from coal power plants and automobiles are now of serious concern.

What all this means is that there is a high probability for yet another internal revolution. Each time things have gone wrong since 1948 the Communist Party has come up with some policy to "fix" it. The "Great Leap Forward", the "Cultural Revolution" and several others have all been disasters. With no democratic structures to provide for debate and feedback the leadership can impose ill-conceived schemes on the whole populace at once. There is no reason not to expect this to happen again.

Parts of the economy may be partially privatized, but the party and the army are still in control. When the seams crack open too wide the response will be disproportionate and cause China to fall back into third world status - at least for a few decades.

Many people are willing to postulate that the US is losing its super power status and rotting from within because of bad policies, so why shouldn't China fall victim to the same sort of fate, especially since has no checks and balances?

Finally, on the issue of what would happen if China "dumped" its treasuries. To do this would require a buyer, there are none who can absorb the amount that China presently holds. Furthermore what would they pay for them with, dollars?

More likely we will see China investing in treasuries less than before and/or using some of their foreign exchange to buy US assets directly. It's never happened before, but the US can also put restrictions on redemption. Other countries have done this in the past and those holding the notes just have to lump it. During WWII the US seized German owned assets in the US and sold them off later. The US could decide to treat Chinese owned assets differently than others and maintain some sort of credibility in world markets. Whether this would work in practice I'm not smart enough to predict.

So instead of WW III we see the Asian Tiger implode and the US gets several more decades of free lunch.

Choose your scenario.

Policies not Politics
---- Daily Landscape

by rdf (robert.feinman@gmail.com) on Mon Apr 28th, 2008 at 05:50:56 PM EST
there were over 600 riots last year in China but they are publicized.  These were about a variety of issues but it shows that more and more, with the economy becoming freer, people feel that they have a right to express themselves.  (I forget where I heard this number)

there are also lots of riots in African countries because the Chinese companies import Chinese workers to work in their entreprises in Africa.  They consider them to be cheaper and more reliable than the Africans.  There is also ill feelings towards the Chinese who open $ stores in African countries and sell things cheaper than the native merchants do.
there have been riots in Tunisia for these reasons, but we don't get to hear much about them either.  

by zoe on Mon Apr 28th, 2008 at 06:04:54 PM EST
[ Parent ]
Why don't you give us one where both the U.S. and China -- not to mention the rest of the world -- end up for the better?

A language is a dialect with an army and navy.
by marco on Mon Apr 28th, 2008 at 07:02:30 PM EST
[ Parent ]
I'm the house pessimist. Why don't you do it?

Policies not Politics
---- Daily Landscape
by rdf (robert.feinman@gmail.com) on Mon Apr 28th, 2008 at 07:04:13 PM EST
[ Parent ]
Because I'm not qualified, either with respect to economics or to China.  But I am optimistic (stupid?) enough to believe that one exists.  I'll keep looking.

A language is a dialect with an army and navy.
by marco on Mon Apr 28th, 2008 at 07:22:32 PM EST
[ Parent ]
... the US adopts a crash program of Sustainable Energy Independence. No longer needing to look at Africa as a potential source of oil, it is free to pursue a policy of balanced trade of finished goods for finished goods, leading to an a surge in high value added agrarian and urban products from Africa, released from Thirlwall's Law constraints.

Latin America is drawn into the system, with Mercosur in the South and a new Caribbean Basin trade zone including Mexico through Venezuela, the Spanish Caribbean, CARICOM, and spilling over into Peru and Ecuador breaking through the old national market constraints that plagued Latin American domestic industrial development.

China, continuing in technological chase mode, adopts as much of the technology that the US makes available, and the US sees no reason to sit on any of it, given that the more sustainable energy resources tapped by more nations means more energy resources for all.

And, uhhh ... Europe, North Africa, Russia and India also do stuffs thats are teh bomb.

Sweetness and light, except the part of wresting the American economy from the cold dead fingers of the Military Industrial Complex and putting it onto the task of serving the interests of the American people. That parts a bit messy, but I'll just close a curtain on that part.

I've been accused of being a Marxist, yet while Harpo's my favourite, it's Groucho I'm always quoting. Odd, that.

by BruceMcF (agila61 at netscape dot net) on Mon Apr 28th, 2008 at 08:07:12 PM EST
[ Parent ]
rdf:
Finally, on the issue of what would happen if China "dumped" its treasuries. To do this would require a buyer, there are none who can absorb the amount that China presently holds. Furthermore what would they pay for them with, dollars?

It is true that there is only an actual market price if transactions take place.

But this misses the point, because China's motive in selling would not actually be to sell, but to fuck the US economically.

Such trading conduct - aimed at wounding its target economically - was essentially the "Economic Terrorism" which was the subject of a conference I attended of the Geneva Centre for Security Policy (www.gcsp.ch ) three years ago - a conference sponsored by the US Dept of Homeland Security, with the CIA and lots of Euro Spooks there.

My thesis was (and is) that the energy market is dangerously exposed to "market discontinuity" by the concentration of risk in "single points of failure" aka Clearing Houses. I went on to say that the only difference between hedge funds and economic terrorists is motive.

I digress.

Whenever a buyer emerged, China would sell to them, and then on to the next bidders (who would rapidly dry up)

The result would be a market "discontinuity" on a cosmic scale.

China would make known (to everyone) that they are massive sellers (the opposite of prudent trading where you try and hide big orders).

So in fact China probably would not ACTUALLY sell that much because who would buy knowing they are going to be instantly losing?

The result would be a fucked market, with who knows what consequences.

"The future is already here -- it's just not very evenly distributed" William Gibson

by ChrisCook (cojockathotmaildotcom) on Tue Apr 29th, 2008 at 02:43:20 PM EST
[ Parent ]
Finally, on the issue of what would happen if China "dumped" its treasuries. To do this would require a buyer, there are none who can absorb the amount that China presently holds. Furthermore what would they pay for them with, dollars?

Euros, Swiss Francs, GBP, Yen, Australian Dollars.

And at whatever FXR the holders of those currencies wish to offer, because as long as the Chinese are holding THOSE exchange rate at a discount against the floating market rates, they will be creating renminbi to buy those currencies ... so the size of their foreign exchange reserves is not relevant to whether their exchange rate policy can succeed or not.

As long as they are not trying to defend an overvalued currency, the question of how much foreign exchange reserves they have on hand is moot ... any nation with its own currency can always depress its exchange rate by creating domestic currency to purchase foreign exchange.

Its not like they were buying the USD securities "as an investment in the securities" ... the purchase of the USD securities was a tool to depress the renminbi/USD exchange rate.


I've been accused of being a Marxist, yet while Harpo's my favourite, it's Groucho I'm always quoting. Odd, that.

by BruceMcF (agila61 at netscape dot net) on Tue Apr 29th, 2008 at 02:54:19 PM EST
[ Parent ]
Perhaps, but not with the sides that have been mentioned so far.

The U.S. is obviously playing the part of 1900-era Imperial Britain, but the growing power is China (playing the part of 1900-era America) and the resource holders are the Middle Eastern Arabian and Persian states. I would propose that as it develops, China's huge demand for external resources and her perhaps even less fluent approach to foreign policy will result in a war between the Arabs and China, or possibly between Europe and China over control of Arabia.

The current action in the Middle East is a sideshow compared to what will happen when a country openly tries to take the oil by force.

When considering the U.S., it is easy to forget that the New World still has a low enough population density and enough unexploited resources that both Noth and South America can run good economies in isolation. It's the Far East and Europe that have the problem of resource constraints.

by asdf on Mon Apr 28th, 2008 at 11:22:18 PM EST
When considering the U.S., it is easy to forget that the New World still has a low enough population density and enough unexploited resources that both Noth and South America can run good economies in isolation.

No, the Americas on their own are not enough ... Southern to Central Africa is also required to have a full complement of strategic resources.


I've been accused of being a Marxist, yet while Harpo's my favourite, it's Groucho I'm always quoting. Odd, that.

by BruceMcF (agila61 at netscape dot net) on Tue Apr 29th, 2008 at 02:55:48 PM EST
[ Parent ]


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