29 November 2010

Wikileaks, a Movement

Rumoured attempts by Australia to withdraw Assange's passport will not deter Wikileaks. It is more than a website, and more than Julian Assange.  It is now a Movement, one for transparence in foreign policy and for putting an end to hypocritical public utterances by governments. Crowley's statement that US diplomats are only diplomats is nonsense, a blatant lie. Every US embassy employs in its staff a "political officer" whose job is to gather intelligence. Yet the spineless US media never questions such assertions.

The Korean Option


The present problems are, in part, the fault of both parties. The paranoid and unpredictable regime in the North is highly sensitive to any perceived threat, justified or not, and I believe the joint military exercises of the US/South Korea were  unwise. They served no purpose except to provoke and give the North an excuse for hostile action. The North knows full well that the US will not attack them for two reasons: 1) the US cannot afford to engage in another ground war, particularly against this well armed million man army (and 7 million reservists) with nuclear capability; 2) the second reason is China, which would not tolerate the presence of foreign troops above the 38th parallel and on their border. The answer to this conundrum is to come to an agreement with China that would involve the overthrow of the Kim government and reunification of Korea, but guarantee China no foreign troops on the Korean peninsula, i.e. demilitarise the entire peninsula with Korean security being mutually guaranteed by the US and China. China is not interested in instability in North Korea and an influx of refugees that would bring into China but, they want assurance that the US would have no military presence near its border.

 The US should accept that the Pacific Ocean is no longer an offshore lake of California and that it belongs as much to China as the US. China is just as sensitive to foreign powers being off its shoreline and on its borders in Korea and Japan as the US would be if there were Chinese troops in Mexico or Canada! 

5 November 2010

QE2, Bailout of an imperilled Boat

With the announcement of QE2 this well balanced guide to QE is worthwhile reading. 




As good as the US election  news was for many Americans, there remain serious fault lines in the US political landscape and difficult decisions to be taken on the economy. The latter will have to be addressed on an "as needed" basis, not for political gain and without regard to political party affiliation. In order to put matters right drastic sacrifices will have to be made both by the US public and government. Therein lies the rub....

In this regard attached is an excellent recent article from Foreign Affairs. This article, America Profligacy and American Power, deals with the impact of US indebtedness on both  the domestic economy and America's foreign policy. 


The article is a long  one of six pages, but I have copied and extracted below the opening paragraphs as a sampler and I hope you will read the entire piece.


"The U.S. government is incurring debt at a historically unprecedented and ultimately unsustainable rate. The Congressional Budget Office projects that within ten years, federal debt could reach 90 percent of GDP, and even this estimate is probably too optimistic given the low rates of economic growth that the United States is experiencing and likely to see for years to come. The latest International Monetary Fund (IMF) staff paper comes closer to the mark by projecting that federal debt could equal total GDP as soon as 2015. These levels approximate the relative indebtedness of Greece and Italy today. Leaving aside the period during and immediately after World War II, the United States has not been so indebted since recordkeeping began, in 1792.
Right now, with dollar interest rates low and the currency more or less steady, this fiscal slide is more a matter of conversation than concern. But this calm will not last. As the world's biggest borrower and the issuer of the world's reserve currency, the United States will not be allowed to spend ten years leveraging itself to these unprecedented levels. If U.S. leaders do not act to curb this debt addiction, then the global capital markets will do so for them, forcing a sharp and punitive adjustment in fiscal policy.
The result will be an age of American austerity. No category of federal spending will be spared, including entitlements and defense. Taxes on individuals and businesses will be raised. Economic growth, both in the United States and around the world, will suffer. There will be profound consequences, not just for Americans' standard of living but also for U.S. foreign policy and the coming era of international relations.
THE ROAD TO RUIN
It was only relatively recently that the United States became so indebted. Just 12 years ago, its national debt (defined as federal debt held by the public) was in line with the long-term historical average, around 35 percent of GDP. The U.S. government's budget was in surplus, meaning that the total amount of debt was shrinking. Federal Reserve officials even publicly discussed the possibility that all of the debt might be paid off.
At that time, the United States had no history of excessive federal debt. This was not surprising since, on fiscal matters, it has always been a conservative nation. The one exception was the special and sudden borrowing program to finance U.S. participation in World War II, which caused debt to briefly exceed 100 percent of GDP in the mid-1940s, before beginning a steady return to traditional levels.
But over the first ten years of this century, a fundamental shift in fiscal policy occurred. When the George W. Bush administration took office, it initiated, and Congress approved, three steps that turned those budget surpluses into large deficits. The 2001 and 2003 tax cuts, which will reduce federal revenue by more than $2 trillion over ten years, had the biggest impact. But adding the prescription-drug benefit to Medicare also carried a huge cost, as did the war in Afghanistan and, even more so, the war in Iraq.
These steps were also accompanied by the outbreak of an especially partisan period in American politics. In Congress, the Democratic center of gravity moved left, and the Republican one moved right. This caused the historically bipartisan support for fiscal restraint to vanish. In particular, both the individuals and groups working to lower taxes and those working to expand entitlements were strengthened.
These anti-tax and pro-spending forces joined with President George W. Bush to terminate the strict budget rules of the 1990s. The result was a swelled deficit. Because there was no longer a requirement that any spending increase or tax cut be paid for by a corresponding and deficit-neutralizing budget action, the giant tax cuts were not offset. The "hard cap" on nondefense domestic discretionary spending (which limited increases in such spending to the rate of inflation) also disappeared.
The consequences were predictable. Federal spending grew at two and a half times the rate it did during the 1990s. Two large rounds of tax cuts substantially reduced the ratio of federal revenue to GDP. The overall budget shifted dramatically, from a surplus representing one percent of GDP in 1998 to a deficit equal to 3.2 percent of GDP in 2008. Public debt per capita rose by 50 percent, from $13,000 to more than $19,000 over this period. The eight years of the Bush administration saw the largest fiscal erosion in American history.
Then, on top of this, the financial and economic crisis struck in 2008, and the United States confronted the possibility of a 1930s-style depression. Washington correctly chose to enact a large stimulus program and rescue tottering financial institutions. So far, such efforts have worked, at least to the degree that a depression was averted. A recovery (albeit one that is halting and weak by historical standards) is under way. But the gap between spending and revenues has widened much further. Revenues, which had averaged 20 percent of GDP during the 1990s, fell to nearly 15 percent, while spending reached 25 percent in 2009. The deficit for fiscal year 2009 hit a staggering $1.6 trillion, or nearly 12 percent of a GDP of just over $14 trillion. In nominal terms, it was by far the largest in U.S. history. The deficit for 2010, at $1.3 trillion and nine percent, was nearly as huge.

22 October 2010

Be careful what you wish for: Chinese reliance on Exports

The  US pressures China to be less reliant on Exports and to increase domestic consumption for its economic growth. When that happens, China will indeed be less reliant on the US market and moreover less inclined to buy treasuries and US debt. That could be the tipping point for the US economy. China could then not only cease buying treasuries, it could safely begin selling them. Where then would the US find another creditor so flush with cash and willing to finance its debt?

16 October 2010

Reposting Link on Pakistan Foreign Policy Blunders

Herewith the link requested by respondent Jules:

http://www.atimes.com/atimes/South_Asia/GC24Df03.html

I hope this one opens...

19 September 2010

The Pope, the Nazis and Atheism

Following the Pope's tour of the UK I am somewhat mystified by his statements linking the Nazi movement and Atheism. He seems to impute to Atheists the responsibility for wars and atrocities and refers to "aggressive Atheism". Really? Who started WWI, but a gaggle of Christian nations? Then, there were the Civil War in the US, the Crusades, all the European conflicts of the past 1500 years. Of all those leading nations into war and committing atrocities the only miscreant I can think of as an out and out Atheist was Stalin, a former seminary student.

Regarding the Nazis, and Hitler in particular, the Nazi party, unlike the Soviets was not ideologically atheist, although there may well have been atheists in the party. Even Hitler was ambivalent about religion and certainly never persecuted the Church, as did Stalin. 

As for Atheism being "aggressive", again I am unclear what he means by this. Atheism surely does not conduct missionary efforts around the world trying to convert people to Atheism as do Christians, Mormons, and Muslims for their faith. True, books are written arguing the cause of Atheism but nothing like the tonnes of print extolling the virtues of organised religions, so what are Atheists doing that is so aggressive? 

16 September 2010

Beware the Angry Dragon

China is under fire once again from an American administration desperate to find a scapegoat for the economic malaise in the US.  It is no coincidence that Timothy Geithner’s comments are being made now, a mere six weeks before mid-term congressional elections. Hoping to deflect criticism and dissatisfaction by the electorate, loss of seats in congress and mollify US labour unions, he is raising the spectre of the dreaded Yellow Peril.

Another example of clay-footed US foreign policy.  Making public statements such as these does not help resolve differences; instead it serves only to exacerbate friction with China.

One can argue that China holds $843 billion of US debt (as of today), and that its economy depends on holding and continuing to purchase US debt to prop up its primary export market.  To that equation should be added the $1.60 trillion in US dollar currency reserves China has on its books.  That is a tidy sum to be held by a creditor and one would think the debtor would be grateful and be more interested in staying on good terms with said creditor. But no, the US seemingly wants to tempt fate by twisting the dragon’s tail.

As stated, China, at this point in economic development is still very much hostage to the US market but, as its domestic economy grows and, as other South East Asian and Latin American markets buy more from China, that dependence is due to change. And, threats related to revaluing the Yuan could prompt a potentially disastrous financial crisis for the US.

An article of 13 September on the Bloomberg site deals with precisely this issue: “Evidence of strengthening domestic spending in China undermined the case for Premier Wen Jiabao’s government to resist a faster pace of currency appreciation days before U.S. lawmakers meet to address the issue.:”


It also underscores an argument I have often made, namely that contrary to the views of many pundits, if push came to shove, and US levied punishing tariffs on Chinese imports, the Chinese could retaliate by dumping US treasuries.

I quote again from the Bloomberg article:

“If signed by Obama, the legislation could spark retaliation including the sale of U.S. Treasuries by China, Stephen Roach, Morgan Stanley Asia chairman, said last week. China is the biggest foreign holder of U.S. government debt, at $843.7 billion in June.”

As for US currency, China is cutting back on bond purchases after scrapping its currency peg in June, giving it less reason to buy dollars and invest them in Treasuries. China is also turning more to Europe and Japan, purchasing bonds of both nations. In the meanwhile Barack Obama increases U.S. debt to record levels, counting on overseas investors to buy, as he borrows to sustain the U.S. economic expansion.  And if they, especially China, do not buy………?

We are already seeing moves by China to distance itself from US assets:
To quote Hu Xiaolian, a vice governor with the People's Bank of China:
"Once a reserve currency's value becomes unstable, there will be quite large depreciation risks for assets," she wrote in an article that appeared in the latest issue of China Finance, a central bank magazine.
"The outbreak and spread of the global financial crisis has highlighted the inherent deficiencies and systemic risks in the current international currency system," she said.
"A diversified international currency system will be more conducive to international economic and financial stability," she added, calling for greater cross-border use of the Yuan.

So, China would seen to be sending strong signals that it would not hesitate to withdraw support for the US economy, particularly if the US were unwise enough to challenge the dragon in its den.

11 September 2010

Prescience in Hindsight

 One of the best, and most objective assessments of America's rush to war in Iraq and Afghanistan is a column in the Washington Post today. It is particularly interesting in that it is written by one of the early and staunchest supporters of the war, Ted Koppel, a journalist embedded with the US troops during their march to Baghdad in 2003. 


http://www.washingtonpost.com/wp-dyn/content/article/2010/09/09/AR2010090904735.html?hpid%3Dtopnews&sub=AR


If I have a criticism, it is the same one I have mentioned before, namely the assumption that the local governments will permit the continued presence of US troops in their country. Koppel, like many others in the West, still speaks of the necessity for US troops in Iraq and Afghanistan for many years to come as if it is the decision of the US alone, not that of whatever government is in place. My question remains as always: what if the  local government refuses? As Koppel points out the US does not have the resources to conduct a multi front war in  what would be the hostile environments of Iraq, Afghanistan and Pakistan. If India were to enter the fray to counter Pakistan, we would be faced with a regional nuclear conflict.

The solution, in my view, is simple - withdrawal and containment.

Mexico, a Failed State?

In geopolitical terms, Mexico, in my opinion, now qualifies for the accolade, "A Failed State", the parameters for which are:

  • loss of physical control of its territory, or of the monopoly on the legitimate use of physical force therein,
  • erosion of legitimate authority to make collective decisions,
  • an inability to provide reasonable public services, and
  • an inability to interact with other states as a full member of the international community. (Still some semblance of this)
As a consequence of that and Obama's immigration policies the US are going to experience an upsurge in illegal immigration. The prospect of a failed state on the US border could be as dangerous as a Jihadist one. Mexico is inherently and historically an unstable country, and there is every indication the situation will only deteriorate. The US may well have to shift its priorities (and troops) from Afghanistan and place a heavy military  presence on its southern borders.

19 August 2010

Misconceptions, Bad Investments

Mesopotamia
The US troops have begun departing Iraq shouting "we won, it's over"; Obama says he will withdraw the remaining 50,000 troops end 2011; and in Afghanistan he stands by the promise to "begin" withdrawal in 2011. Alas,  as the pithy old southern American saying goes, "it ain't over 'til the fat lady sings" (originally a southern church saying!).

The remaining 50,000 US troops in Iraq are allegedly there to "support" and train the Iraqi army and are to deploy their weapons only in self defence or at the request of the Iraqi government. They are there, according to the US government today, "to protect our investment of $1 trillion"! In other words they will still be a combat unit. There is no way the Iraqi army will be able to cope with  the continuing and increasing insurgency without the involvement of US military.Even the Iraqi military commander stated that Iraq will not be able to fend for itself until 2020!!! In fact we could well see the return of additional troops in the not too distant future as the situation deteriorates. A government in Iraq does not even exist several months after the so-called elections and in my view there will never be a government which will satisfy the dissident elements in that region. I say region because it is not a nation in the strict definition of nation state. It is a collage of diverse cultures and if they are to survive they must form separate states. 

Afghanistan/Pakistan
In Afghanistan there is similar spin amidst utter failure. As in Iraq there is  no functioning government, there is not even a government that controls territory beyond Kabul. Karzai announced yesterday there would be no election polling in 900 districts because the safety of the people could not be guaranteed in those areas. The army, such as it is, is even less reliable than that in Iraq. The Taliban is gaining strength; the western provinces of Pakistan are a hidey hole for the Taliban and with the pathetic response to the floods by the Pakistani government the Taliban has thousands of new sympathisers and supporters. I would not be surprised to see a military coup in Pakistan and/or a government supported secession of the western provinces. If the latter were to occur, it would assure the Talibanisation of Afghanistan. Then, the US would be faced with either the prospect of an expanded land war of attrition with dwindling resources and increasing debt, or turn tail and leave. A radicalisation of Pakistan would be even scarier with the very real risk of a regional nuclear conflict involving India.

In summary
Since any US administration would be tarred with the charge of "losing" Iraq or Afghanistan (Vietnam redux) by the opposition the only way they could exit with any degree of grace would be at the request or demand of  governments in those countries. In the case of a Talibanised government in Kabul that could be easily done, so they should work with Karzai to cobble together a coalition. Iraq should simply be partitioned and an agreement made amongst the three states to share oil revenues, the big bone of contention.

Democracy, an alien concept.
Democracy  is contrary to the cultures of many countries and attempts to seed it there can only lead to instability and greater suffering by the population. If it is to develop at all, it should come from within as a natural progression not from external intervention by the messianic West. The West tries to portray democracy as an almost divine right and inherent part of human nature when in fact it is a concept that only came into vogue on our planet in the West during the last 500 years long after the rise of homo "sapiens" 500,000 years ago. Of the some 200 countries in the world some estimate the number of democratic government to be only 50-60 and some of those frequently suffer relapses from time to time.

Finis

3 March 2010

Transatlantic Decline


Daniel Korski in his ECFR article argues as Europe and the US are both in decline it behooves them to work more closely together. 

http://ecfr.eu/content/entry/commentary_partners_in_decline_daniel_korski/

Although I agree that both the US and Europe are in decline, I do not see tying itself even more closely to the US as the solution for Europe. Why look to a sinking ship as a life preserver? On the contrary, Europe should work to decouple itself from the United States. The last two years have shown the high risk of following and supporting US policies, both political and economic. As Niall Ferguson pointed out in Foreign Affairs magazine, in his erudite article, “Complexity and Collapse”, to regard the US dollar (and for me the US economy) as a safe haven is akin to considering Pearl Harbour a safe haven in December 1941.

As for the Geopolitical divide mentioned by Korski, again, Europe, rather than accepting it, should seek to bridge that divide and ally itself with the emerging nation bloc. Therein lies the future and salvation for Europe. Europe, to survive, must move away from its past transatlantic reliance and become part of the global community.

27 February 2010

Iran, India Israel, Pakistan and The Bomb




I do not support proliferation of nuclear weapons, for Iran or other countries. However, in the case of Iran, I believe the threat of Iran ever employing nuclear weapons is overblown.  One should look beyond the Iranian government’s intemperate rhetoric.  The government knows full well that a nuclear attack on any country would bring swift and catastrophic retaliation that would result in destruction of the Iranian government and much of the country’s infrastructure. Blustering rhetoric the Iranians are guilty of, but they are not fools

The hyperbole, threats and scare mongering by the US and Israel are surely more about protecting Israel’s nuclear exclusivity in the Middle East. However there is a far more serious issue about nuclear weaponry at stake.

Instead of worrying about Iran, one should be debating what to do should Pakistan go critical and fall into the hands of radical fundamentalists. Such a regime would be far more likely to launch a nuclear attack on either India or Israel than Iran would on Israel or the US. Should such a regime change take place in Pakistan, what would the response be? Bomb the nuclear facilities in Pakistan, initiate yet another war? Encourage India to invade Pakistan and trigger a wider regional conflict of frightening proportions?

This same question about nuclear proliferation could put be put with regard to any other country not considered an ally of the US.  North Korea is far more unstable and less predictable than Iran, yet one hears little in the way of threats by the US or Europe to bomb or invade North Korea.

21 February 2010

US Foreign Policy, an Antonym for Realpolitik

Realpolitik, a definition: Realpolitik (German: real “realistic”, “practical” or “actual”; and Politik “politics”) refers to politics or diplomacy based primarily on practical considerations, rather than ideological notions or moralistic premises;

There is no listed Antonym for Realpolitik, but one can be found in the practice of Foreign Policy of the United States. The US has practiced an unrealistic, impractical policy since the end of World War II and it is a policy that unusually attracts bi-partisan support. Both the Democrats and Republicans are guilty of pursuing a policy clearly inimical to the US national interest.

The US foreign policy is the antithesis of practical no-nonsense national interest, diplomacy. All one needs to do to understand this is the recent row with China, the world’s second largest economy, the world’s number one exporter and most importantly, the US’s major creditor holding over $700 billion in US treasury notes. Without China’s purchase of US debt, the US would be on the brink of financial collapse. In addition, China’s economy is driving the global economic recovery. Yet, rather than applauding China, the US has done all possible to provoke and alienate China by imposing tariffs on Chinese imports at the behest of US labour unions; catering to a the Tibetan Dali Lama as a head of state when he is only a religious leader; supplying arms to Taiwan, regarded by China as a breakaway province. In addition to China’s importance as an economic power it also wields a Security Council veto. It can put a stop to any coordinated attempt to impose sanctions on Iran and could withdraw from the six party talks aimed at containing North Korea signalling the death knell of those negotiations. For the US in particular there is a huge risk in antagonising China. Presently, China buys US debt in order to prop up the US financial structure and thereby its major export market. However, should China’s domestic economy and those of its Asian neighbours mature, China would no longer be dependent on exports to the US market and no longer find it necessary to purchase US debt. At that point the danger to the US economy becomes acute.

Then, there is Georgia that foolishly began a war with Russia and invaded an inconsequential breakaway province, South Ossetia, which had opted to join Russia. The US inserted itself into the conflict supporting Georgia, which was clearly at fault, thereby angering Russia and went so far as to express support for Georgia’s application to join NATO, the North Atlantic Treaty Organisation. Georgia, situated in the Caucasus region on the Black Sea, far removed from the North Atlantic. Little wonder Russia looked upon this bit of foolery as an attempt to gain a military foothold into the Russian sphere. Somehow the US, which regarded the Soviet presence in Cuba as a threat to its national security in 1962 and invasion of its sphere could not understand why Russia should object to the US having a military presence in the Caucasus. Russia, no longer the formidable foe that was its predecessor state, the USSR, is still an important nuclear armed global power, and a member of the five nation UN Security council, like China, with veto power. Without Russia’s support in the six power talks on North Korea negotiations would grind to a halt. Again, without the support of Russia, there can be no effective UN Security resolution regarding Iran.

Without a doubt the most grievous and damaging mistakes made in the name of US non-Realpolitik has been the unstinting support of Israel. That support has led to the alienation of the entire Muslim world and has been at the crux of the rise of radical fundamentalism and attendant terrorism. The US, to mollify and gain the support of the US based pro Israeli lobby, has sacrificed relations with the entire Middle East, and large parts of South East Asia all in order to accommodate a nation state of no strategic value. The only value Israel now has is as an ally is to counteract terrorism, the cause of which was the creation of the state of Israel, and the US support of subsequent Israeli policies. One cannot turn back the clock and remove the state of Israel, but if the US were to be a truly honest and impartial broker in its dealings with the Palestinian problem, perhaps something could be salvaged from what is a geopolitical disaster.  I fear, however, matters have now deteriorated to the point that not even a two state solution is possible, or even desirable. The bloodshed, acrimony and deep-seated hatred is so imbued in the Palestinians that the people will never fully accept such a compromise. In the long term, as one Israeli friend said, demographics will prevail, a separate Jewish state will not survive but will revert to a pre-war single state embracing both the Muslin and Jewish peoples. In the meanwhile, both the Israelis and the Palestinians will continue to suffer.

As so often much of the US foreign policy has been formulated to accommodate US domestic ethnic and religious pressure and lobby groups rather than for the national interest. And when one looks at the current conflicts and potential ones on the boil, most of them can be laid at the doorstep of a deeply flawed US foreign policy.







The EU, a failed State?

The latest economic crisis to arise is that of Greece, a profligate country that has squandered its resources and is now reduced to holding a begging bowl for a financial bail out. Were it just Greece that suffers, one could shrug it off and leave it to the Greeks to sort out. The problem is that Greece is a member state of the EU, and of the EMU, the European Monetary Union, comprised of 16 countries that employ the Euro currency. Thus, the economy of each member state redounds not only upon the other states, but globally. The supposed deficit maximum for all member states is 3% but Greece's deficit has ballooned to 13%! “Greece’s budget gap, which its previous government originally forecast would be 3.7 percent in 2009, was largely the result of “an insufficient response” by Greek authorities as well as expenditure overruns, the commission said. Economic statistics provided by Greece “were completely wrong,”

That, alas, is not the only delinquent country. Greece is only one of the infamous PIIGS countries - Portugal, Ireland, Italy, Greece and Spain - all of which have exceeded the theoretical 3% deficit limit. Other countries, even major economies as France and the UK are on the cusp of surpassing the same limit. The UK, once a leading economy in Europe and the world, although not a member of the EMU Eurozone, now has a Debt to GDP ratio of 456%! Worse, there is now talk of the imminent collapse of Sterling.   The 3% deficit limit has become a joke. There is no fiscal discipline, just empty threats to punish the delinquent nations, and because of the fear of a domino effect, no punishment, instead, bail outs. 

What happened to the dream of creating a major economic union to rival the world's leading economy, the United States?

The answer is 'o'er leaping ambitions'.

The EU began with a core of six countries in 1957, comprised at that time of the major powers in Europe: Belgium, France, Italy Luxembourg, the Netherlands, West Germany - and expanded shortly thereafter to include the UK, Denmark and Ireland. All well and good, but then the rot set in. The EU, in an unseemly rush to incorporate other countries and expand its influence and economic clout, began willy nilly to admit country markets with economies and political cultures incompatible with the core structure. In the 1980s came Greece, Spain and Portugal, and, after the fall of the wall, a veritable flood of new admissions from underdeveloped nations from East Europe. The current membership now numbers 27 countries with another eight awaiting admission: Croatia, Macedonia, Turkey, Albania, Bosnia and Herzegovina, Montenegro, Serbia, and Iceland.  Iceland? Yes, Iceland, which has just suffered the collapse of three banks and a financial meltdown

As more countries with even more disparate cultures and economies are added, the greater the risk of collapse of the EU and the Euro. 

Post Script
As much as China is pilloried for currency manipulation, and authoritarianism by the vaunted free market countries of Europe and the United States it has the healthiest economy in the world. In terms of both Public and External Debt China ranks well below the US and major European economies

Public Debt http://en.wikipedia.org/wiki/List_of_countries_by_public_debt

External Debt http://en.wikipedia.org/wiki/List_of_countries_by_external_debt

Debt to GDP Ratio
Even more impressive is China's Debt to GDP Ratio, 5% against USA 84%, Germany 155%, France 210%. 



31 January 2010

China at the 2010 Davos WEF

Today’s (31 January 2010) NZZ am Sonntag  (Neue Züricher Zeitung), my favourite Sunday newspaper, in the Background Section carried a full page feature article on the Chinese presence at the WEF in Davos titled “ China demonstriert am WEF seine neue Machtposition” (At the WEF China showcases its new power). Alas, the article is ,of course, in German and I am too lazy to translate it in its entirety, so I shall treat you only to some excerpts:

“In the past at WEF it has always been the United States on centre stage with the CNN interviewing and dancing in attendance on a hefty high level US delegation. This week the staging changed dramatically.

This past week the highest profile American was Barney Franks, a Democratic congressman holding forth on discussion panels. The low profile of the US  at the WEFF was signalled by the change in administration and the tone of Obama’s State of the Union Address. In contradistinction to the US presence one saw a high calibre Chinese contingent headed by the Vice Presidential Minister, Li Keqiang, tipped to be the successor to Hu Jintao. Also, interestingly, more Chinese was heard spoken in Davos than any time in the past.

The US is turning inward absorbed by its own difficulties, polarised by domestic politics and severely hit by the economic downturn. Into this gap enter China, and how!  The Middle Kingdom has replaced Germany as the number one exporter in the world and supplanted Japan as the second largest economy.

China now produces more automobiles than the USA and is home to four of the five largest banks on the planet. China, not the moribund EU, has the resources to provide a Greece verging on bankruptcy with funds to prevent it going under.

Ironically, the global financial crisis was the springboard which launched China into prominence. In Copenhagen, China flexed its muscle confronting and denying the USA leadership on the issue of climate change. Negative as that might be seen, on the positive side of the ledger, a recovery from the global recession would be very difficult without the Chinese locomotive.

No one is more conscious of this than the Chinese themselves as evidenced at one of the discussion panels in Davos. Some Western participants called once again for the exchange rate of the Renminbi to be adjusted and declared that China must finally “play by the rules”. To that, responded the head of one the largest Chinese banks, “those are your rules, not our rules. Why should we play by these rules?” Lecturing by the West is no longer welcomed by the Chinese.

The time is long past that one must blindly follow the US capitalistic recipe said one Chinese economist. The central question for China is “what is best for China?”

With respect to relations with the USA, one representative of this new China said to a representative of the USA, “We are not friends, we are business partners”

This sea change and shift in global power couple with continuing economic problems in the USA could give rise to resentment amongst Americans and engender increasing protectionism leading to a trade war.”

Finis

My Italics and Comments
At end of the day, should it come to a trade war, both parties would be sorely wounded. But China holds more economic weaponry in the form of disposable capital, and has a more disciplined population behind it than the USA. The Chinese, having endured sorrow and misfortune over the last two hundred years have steeled and toughened themselves, and the domestic economy of China will soon decouple China from its present dependence on exports, and the USA. This, while the US has grown soft, spoiled,  politically inept, debt ridden and intellectually dissolute.


For China, a double standard


This morning’s Washington Post (31 January 2010) raised flags of concern over a change in China’s tone described as “triumphalist“ and “tough” in its response to US arms sales to Taiwan.

It would be almost amusing if not for the potentially serious nature of this conflict.

The US State Department justifies the sales saying "Such sales contribute to maintaining security and stability across the Taiwan Strait,".

Oh, come now let us be frank. The arms are to support continuing America influence in the Pacific theatre and ensure Taiwan could eventually used as a base of operations in event of open conflict with China.

The US cannot seem to accept that the Pacific Ocean is no longer an off-shore American lake over which it has dominion. With the rise of China to its former glory after two centuries of exploitation by the West, China is resuming its role as one of the great nations of the world and the dominant force in the region.

Taiwan will, in the not distant future, revert to its former status as a province of China, otherwise it will find itself isolated economically, militarily and politically. Economically, because China is its major trading partner, militarily because Taiwan cannot stand up to China’s might and with America’s financial woes and multiple wars cannot expect to be propped up by the US. Politically, Taiwan is also being marginalised by the change in political climate in Japan where the new government led by Hatoyama is moving Japan out from under the wing of the US and toward closer relations with China. Again, as with Taiwan, China has replaced the US as Japan’s biggest trading partner. In fact, China’s dramatic recovery from the recent global economic downturn has served to rescue Japan from recession.

From the assumption of power by the communists in China in 1949 until recently, Taiwan could rely for support on both Japan and the US, but no longer. As Japan logically moves out of the US orbit, so will Taiwan be forced back into China’s fold, whether the US likes it or not.

The reaction and hand wringing concern expressed by Europe, as well as the US, is symptomatic of their inability and unwillingness to relinquish the colonial hold they  held over China for two hundred years. The centre of gravity of global power is moving inexorably to the East and the sooner the European/Transatlantic alliance accepts and accommodates themselves to this the better for them and the world.


25 January 2010

For China the Economic Nuclear Option, option



Much has been written about mutual self assured destruction should China use its ultimate economic weapon as reprisal for US potectionist legislation and interference in internal affairs.

Indeed, by cashing in T-Notes and/or diversifying its enormous US currency holdings away from the US dollar China risks killing the golden goose, its prime export market. Fortunately, however, China’s domestic economy is improving and growing fast and much of its current growth now stems from burgeoning domestic consumption. It is slowly reducing its depndence on exports in general and exports to the US in particular.

However, it will not be wholly independant in the short term and until it is, China will be hostage to a US Democratic congress which is, in turn, hostage to US labour unions.  So, what to do?

Although a full scale counterattack at this stage would harm ist own interests, China could nevertheless fire a warning shot across the bow of the US. China could bring home to the US the eventual risk it faces in provoking the Dragon by simply suspending for one or two months purchase of Treasury notes and, at the same time, devote a large sum of its massive dollar holdings to increasing its Gold reserves, already the world’d largest holdings (1000 tonnes). The US needs a constant infusion, a fix, of several billion  dollars from sale of T-notes each month to keep its financial head above water, and the withdrawal of Chinese support would serve as a loud wake-up call to the present myopic US administration.

18 January 2010

Democracy as a global concept - an observation from the past, a warning for the future

I first posted this blog on 26 March 2005, and because it remains a salient topic I am republishing it.

With reference to my previous posts expressing doubt about the validity and global application of democracy, a friend recently sent me the following:

“At about the time the original 13 United States adopted their new
constitution, in the year 1787, Alexander Tyler (a Scottish history
professor at The University of Edinburgh) had this to say about "The
Fall of The Athenian Republic" some 2,000 years prior.

"A democracy is always temporary in nature; it simply cannot exist as a
permanent form of government. A democracy will continue to exist up
until the time that voters discover that they can vote themselves
generous gifts from the public treasury.

From that moment on, the majority always votes for the candidates who
promise the most benefits from the public treasury, with the result that
every democracy will finally collapse due to loose fiscal policy, (which
is) always followed by a dictatorship."

"The average age of the worlds greatest civilizations from the beginning
of history, has been about 200 years. During those 200 years, these
nations always progressed through the following sequence:

From bondage to spiritual faith;
From spiritual faith to great courage;
From courage to liberty;
From liberty to abundance;
From abundance to complacency;
From complacency to apathy;
From apathy to dependence;
From dependence back into bondage."

End of quote

In that sequence of events I would place the United States somewhere between dependence (depending on foreign financial institutions to buy over $2 billion a day in US T-Notes to finance America’s burgeoning debt and consumer appetite) and bondage (when countries decide not to buy the wonky T-Notes and US dollar, or decide to foreclose, leaving the US up for sale).

17 January 2010

A Swiss View of the USA

A Swiss View of Obama
This one centres on an article in today's Neue Züricher Zeitung, the premier Sunday German language newspaper in Switzerland to which I subscribe and read with my Sunday morning breakfast at a local Café. The article today deals with Obama's first year in office with an assessment of his performance in various sectors where he promised "Change". I should point out that the newspaper, the NZZ, like most European media was harshly critical of Bush and welcomed Obama with open arms. Now, a year later, the ardour has cooled considerably and criticism of Obama throughout Europe has mounted.

Herewith the NZZ analysis of Obama's polices and what he has achieved with respect to the following issues:

The Economy and Employment in the US: Obama claims two million jobs were saved with the stimulus package, a number widely disputed, while unemployment in the US continues to rise.

Financial System: Despite bailouts and multi billion dollar handouts, banks have not relaxed credit and despite threats of reprisal by the Obama administration, the banks continue to award huge bonuses to executives

Healthcare: A health care package has been agreed but the cost of the programme remains unclear, and could further exacerbate the indebtedness of the US.

The Wars in Iraq and Afghanistan: Troops are being withdrawn from Iraq as promised but now, as many expected, unrest is once more on the increase. At the same time troop levels in Iraq are drawn down, the number of boots on the ground is being increased in Afghanistan, so there is no net gain and the war in Afghanistan is becoming increasingly unpopular in the US and seen by many as already lost.

The Middle East Peace Process: Failure. Obama has been unable to rein in the pro-Israeli Lobby in the US, and Netanyahu in Israel, nor stop construction of new settlements.

The Battle against Terrorism: The global terrorist networks continue to flourish and expand and the conundrum of closing Guantanamo is unresolved, the result of the latter being that initial goodwill toward Obama in the Arab world has all but evaporated.

Disarmament: Negotiations with Russia are dragging on with no resolution,

Climate: Obama's performance at Copenhagen was received with disappointment throughout Europe. They looked to him for leadership and got none.

As you see, the only issue on which the NZZ sees significant progress is Healthcare - everything else is is awarded a failing grade.

In addition, the front page headlines today on the NZZ read: "New Pressure on the Swiss Economy by the US". This stems from the threat of the US Treasury to impose a tax of $1 Billion per year on Swiss banks operating in the United States. The Swiss citizenry are justifiably angry.

This, mind you, is coming from a country and newspaper that has been traditionally very pro-American, but which now perceives the US as more of threat to the country than an ally. Whatever goodwill Obama brought with his election has now been dissipated by his policies.

Finis

Reprint China/Democracy Blog



Today's blog, a reprint of one from March 2006, is a long one and, although dated, it still reflects my controversial views about Democracy and in particular how it applies to China. 


Harking back to previous observations on Asia, and China in particular, I should preface my remarks with two of my favourite homemade adages:



1. Democracy is not a panacea for all of a society’s ills
2. American Democracy is like some wines - it does not travel well, and is best consumed in the country of origin.



In order for a democracy to be fully functioning, there are a few basic requirements – a relatively well educated population, cultural cohesion, security, good nationwide communications, and some experience in self government (my requirements).

With respect to China and the first posit, I am not convinced that Democracy is the answer at this stage of China’s development. China is an enormous landmass with a population in excess of 1.3 billion, many of whom are ill educated, low per capita income and with limited health care (like the USA). Cultural cohesion is also not fully developed, only having been begun under communists and central rule since 1949 in recent history; communications are improving rapidly but are not yet ideal. In other words, there are more pressing priorities than free elections, multi party systems and the right to stand on the street corner mouthing obscenities and promoting religion.



In 1960, I read a book, “The Soul of China”, by Amaury de Riencourt. It may be out of print now, but I remember it well because of its revolutionary thesis (for me), namely that Communism fitted Chinese culture and history “like a glove”. The author argued that the Confucian tenets of obedience to central and senior authority were incorporated into Chinese communism. There was more, but that was the essence of his position. Since then, I have read at least three histories of China. In those books they present the view that Communism in China is merely the successor to the world's oldest and most successful autocracy. China, they argue, "is trying to achieve economic modernisation without the representative political democracy that Americans view as their special gift to the world's salvation." They also caution Americans who are prone to bash China's autocratic government to avoid attempting imposition of the flawed American model on China's unique culture.



A longtime Chinese friend, who with his family fled China and the communist take over in 1947, returned to China in recent years and surprised me with the comment, “the best thing to happen to China was the communist assumption of power in 1949”.



As it turns out I, a dedicated capitalist, had already reached the same conclusion, but I was surprised that a dedicated Chinese capitalist such as my friend would have the same point of view. Communism freed China from the grip of the colonial powers – Great Britain, France, Untied States, and Japan and although it took WWII and the invasion of China by Japan to initiate the process. Communism, with the exception of the years and madness of the Cultural Revolution, maintained and strengthened China’s cultural traditions. Communism united China and its disparate parts for the first time in its 4500 year long history and began to implement a policy of cultural cohesion making Mandarin Chinese an official language of communication; it has harnessed the brilliant and innate Chinese intellect and is on the road to making China a superpower in every respect.



China today has regained the pride it lost under the rule of the colonial powers in the Treaty Port “agreements” forced upon them in the 20th and 19th centuries. It has the fastest growing economy in the world; it has education and the free market economy as its major priorities. Security, in a land as large as China, with a large segment of the population still not educated in the ways of democracy can only be possible with a strong central control. Some day China will evolve in the direction of democracy but China recognizes it should not make the mistake of Russia and rush will nilly into the arms of democratic capitalism in which it has no experience or background. I personally do not believe it will ever have a Western style democracy.

As for suppression of religious freedom, organised religion is more of a liability than a blessing. First, religion has never played a major role in Chinese history or culture. If you examine Chinese history you will see that religious influence, with the exception of Taoism (Daoism), in China always came from outside China and has been pluralistic – Islam, Christianity and Buddhism, all foreign influences. Even Taoism never developed into a religious organisation or institution having been practiced as an individual philosophy. None of the religious doctrines have gained universal appeal to the Chinese. The closest to acceptance could be Confucianism’s moral and ethical tenets which people sometimes confuse with religion. Religions such as Christianity ran counter to and conflicted with the imperial claim to divinity and omniscience and the importance of filial obedience and respect. So, when the Christians tried to preach their doctrine of obeisance to an other-worldly authority, they got very short shrift from the powers that be. As much value as there may be in religious philosophy as ethics, I see no value to organized religion. It is a divisive, not a uniting force in society – just look at the history of Western Civilization and the wars that have been (and still are being) fought for religious motives. If China is wise, it will keep religion institutions under firm control.



I frequently hear the term "afraid" when the subject of China is raised, but China need not be feared as an aggressor. China, unlike its former communist cousin the USSR, China has never aspired to world domination or territorial acquisition. Colonialism has never formed part of Chinese history even in its golden Ming period (1368-1644) when its huge maritime fleets navigated all the way to today's Somalia (with compasses unknown at that time in Europe) in 1403 before Columbus lucked and stumbled his way across the Atlantic pond. Its interests then as now were in creating political and commercial alliances not in imposing its culture on others. Any involvement in wars has been to protect its borders. During the Korean War it became enmeshed in that conflict because of the threat of a superpower, the United States, occupying territory contiguous to China. Taiwan is regarded as a legitimate part of Chinese territory and as such, in China's view, has to return to the fold, and will do so in the not distant future.



Taiwan, held up as an icon of democracy, was ruled by a dictator and thief, Chiang Kai Shek, from 1950 until the 1980s and during the 1950s Chiang instituted a wave of political repression called “The White Terror”. So democracy, aside from being a recent phenomenon, has not necessarily been responsible for Taiwan’s success. Hong Kong was also under an imposed government, the British, from 1842 until 1997, the Brits having allowed democratic elections only when HK was about to be turned over to China – perfidious Albion indeed. Hong Kong flourished because it was in a controlled, secure environment, not riven by internal dissent or threatened by external forces. That political and social situation and the inherent Chinese entrepreneurial spirit were responsible for Hong Kong’s progress which was in place long before elections in 1997.



Those points deal just with China and the Chinese. Then, look at the effect and impact of democracy on former colonial territories in Africa. Are they really better off? I for one do not think so – those countries are totally corrupt, engaged in vicious tribal warfare and subjected to horrific atrocities that seldom took place under firm colonial rule. Look at Russia – now with endemic crime, and rampant corruption that I never saw in the years I worked in that country. Russia, under the inept, drunken and corrupt Yeltsin caved into to US pressure and its ideologues to move the country, before it was in any way ready, into democracy and capitalism. Had they followed instead Gorbachev’s formula for gradual change from communism to democratic socialism to democracy the evolution to democracy would have taken longer but it would have had more positive results. Putin is now trying to hold the line and reverse the rot, but it may be too late. Result – the Russians, with the exception of the Oligarchs and local mafia, are increasingly disenchanted with both democracy and capitalism and long for the good old days of Communism and security.



Many of these countries were catapulted from either stone-age cultures or feudal governments into a full blown democracy without any historical reference points. Using the analogy of wine again, for democracy to flower, it requires time and a process of maturation. Democracy is not a system that can be imposed externally (as we are trying to do in Iraq) on an alien culture, any more than one can transplant flora and expect it to flourish in alien soil conditions.



This is particularly true of American Democracy which has its dubious appeal to Americans but does not necessarily suit other cultures. In Francis Fukuyama’s classical book on liberal democracy “The End of History and The Last Man” Fukuyama argues cogently but not (for me) convincingly, that liberal democracy (liberal in the philosophical sense, not political) is the epitome of political evolution. I disagree. There are too many shortcomings, too many inequities in the system to satisfy me and justify such an assertion. Furthermore, I believe there is an inherent defect in democracy raised by both Aristotle and Alexis de Tocqueville (“Democracy in America” – 1830). Aristotle argued that democracy unrestrained can only lead to mobocracy. De Tocqueville, over 2000 years later, after observing democracy in the making in America in the 1830s, posited that “democracy contains within it the seeds of its own destruction”, a theme echoed from Burke to Tocqueville to Ortega de Gasset to Mencken, related to excessive freedom and misguided egalitarianism.

Finis