The New Cold War

The United States is turning our attention to the vast potential of the Asia-Pacific region.

— Barack H. Obama

From al-Jazeera:

When it comes to China policy, is the Obama administration leaping from the frying pan directly into the fire? In an attempt to turn the page on two disastrous wars in the greater Middle East, it may have just launched a new Cold War in Asia – once again, viewing oil as the key to global supremacy.

The new policy was signalled by President Obama himself on November 17 in an address to the Australian Parliament in which he laid out an audacious – and extremely dangerous – geopolitical vision. Instead of focusing on the greater Middle East, as has been the case for the last decade, the United States will now concentrate its power in Asia and the Pacific.

“My guidance is clear,” he declared in Canberra. “As we plan and budget for the future, we will allocate the resources necessary to maintain our strong military presence in this region.”

Given that a proliferation of American military hardware and components — including crucial semiconductors — are now made in China, the notion of America truly asserting itself on the Asia-Pacific region is absurd. If relations with China breaks down then trade with China breaks down, and America loses the ability to manufacture and import certain military hardware. Furthermore, it loses the free lunch of Chinese goods that furnish the heartland of American consumerism, and placate an American people whose real incomes and purchasing power have consistently fallen since the 1980s. Worst of all, it jeopardises the global energy infrastructure upon which America’s agribusiness and infrastructure depends. While America is moving closer to being able to exploit “tough oil” hotspots in North Dakota, Alaska and the Gulf of Mexico, those oil production capacities cannot be brought online overnight.

Not only this, but America funds her military adventurism through unsustainable debt acquisition (a huge part of which is Chinese-held) rather than productive output. The strange reality is that American assertiveness against China can be cut off by China refusing to buy America’s increasingly debased debt. Unsurprisingly, China is already reducing her American debt holdings.

Simply, American attempts to assert itself on China risks alienating a nation upon which America is totally and inexorably dependent. While this is difficult to recognise for blustering “national security” neo-conservatives like Mitt Romney — the archangel of American imperial decline — or Obama, it is as inescapable and undeniable as the sunrise.

The remedy is not more American imperialism. It is not more debt. It is not more bravado or self-aggrandizement. It is an open and honest commitment to the truth — America’s imperial strategy, based on oil supremacy and the petrodollar — is an anachronism. Its time has come and gone. To get over this hump America needs to commit to a greater degree of energy, and manufacturing independence. American imperial policy acts as a humungous subsidy on the price of oil. Ending such a subsidy will allow the free market to do its work, and make all kinds of alternative energy — from solar, to hydro-electric, to synthetic oil, to thorium – far more competitive.

Only by accepting the changing realities of geopolitics can America prepare herself for the coming realities of the 21st Century.

Further Reading:

The Only Chinese Hard Landing will be on America’s Head 

America’s Eurasian Endgame

Huntsman Cable: China and US Trade War Heating Up

Team America: World Police

The Problem with Military Keynesianism

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Military Keynesianism & Iran

From the Guardian:

Washington is stepping up attempts to isolate Tehran after accusing factions in the Iranian government of a plot to assassinate the Saudi ambassador to Washington on US soil.

The US announced new economic sanctions against five Iranians, including four senior members of the Quds force, the special operations unit of the Iranian Revolutionary Guards, which American officials have implicated in the alleged plot.

Sanctions were already in place but the US secretary of state, Hillary Clinton, said a “very strong message” needed to be sent to the Iranian regime.

She said she and Barack Obama want to “enlist more countries in working together against what is becoming a clearer and clearer threat” from Iran.

What was that someone said about war being the easiest way to wipe the debt clean? Instilling a sense of purpose in divided, angry and confused populations? Creating humungous profits for the military-industrial complex?

Oh yes!

From Marc Faber (via Zero Hedge):

The problem I have with the investment universe is that I find it difficult to envision how the US and western Europe can return to healthy sustainable growth without a complete purge of the financial system and some type of catalyst. Something that restores some measure of social cohesion among people;  it could be hyperinflation, a complete credit market collapse, widespread sovereign defaults, civil strife, major military confrontation.”

As I have continuously noted since the very beginning, America has a hell of a lot to lose through drift (not least the dollar-denominated status of energy and resources) — power is drifting Eastwards, and an increasingly indebted, self-doubting, nihilistic and stagnant population is shifting America from its cherished status as world policeman to that of a second-rate economic power.

Simply, all the capital that America has exported in exchange for the Nixonian energy and consumption free lunches will come back to buy up American productive assets.

No amount of nuclear weapons, and no amount of currency manipulation allegations can save America from this fate.

So Washington’s present rationale might well be that with Eurasia strengthening and uniting behind an increasingly untrustworthy, authoritarian and anti-American set of leaders (Ahmadinejad Putin, Wen), now might be the last chance America has to preserve American imperial hegemony (and the dollar as the global reserve currency). Throw the dice, sell some weapons, shake the barley, see where the chips land.

After all, if the people of Eurasia want (American style) democracy and capitalism, a regional war would be the best chance that they have of taking the Arab spring up an echelon, and onto the streets of Tehran, Beijing, and Moscow.

The problem with that great-American-hope is that it’s not the people of Eurasia who seem to have a problem with their government, but the people of America. For better or worse, Eurasian autocratic dirigisme seems to be yielding better economic results on the global stage than American-style liberal democracy.

After the dust settles and the debt is purged we can again walk the road to sustainable economic development. The problem, and the great worry, is getting there.

Huntsman Cable: China & US Trade War Heating Up

I have talked at length before about the dangers of a U.S.-China trade war.

Now, former U.S. Ambassador to China and Presidential candidate John Huntsman weighs in.

From Wikileaks:

a. “Sino-U.S. ‘trade war’ is heating up again”

The Shanghai-based Shanghai Media Group (SMG) publication, China Business News: “The United States provoked a trade war again by imposing high anti-dumping duties on Chinese-made gift boxes and packaging ribbon.  This once again shows that 2010 is off to a difficult start for Sino-U.S. relations.  It also reflects that, because of the mid-term elections, Obama is eager to prove to the American voters that the U.S. Administration’s China policy is tough so as to restore his declining support rate. Yao Jian, the Ministry of Commerce spokesperson, issued a statement on February 1, saying that following the financial crisis American trade protectionism has risen.  China has become the biggest victim of the U.S.’s abusive implementation of trade remedy measures.

b. “The United States no longer sits still; it frequently uses evil tricks to force China to buy U.S. bonds”

The Shanghai-based Shanghai Media Group (SMG) publication, China Business News: “This time the quick change of the U.S. policy (toward China) has surprised quite a few people.  The U.S. has almost used all deterring means, besides military means, against China.  China must be clear on discovering what the U.S. goals are behind its tough stances against China.  In fact, a fierce competition between the currencies of big countries has just started.  A crucial move for the U.S. is to shift its crisis to other countries – by coercing China to buy U.S. treasury bonds with foreign exchange reserves and doing everything possible to prevent China’s foreign reserve from buying gold.

If we [China] use all of our foreign exchange reserves to buy U.S. Treasury bonds, then when someday the U.S. Federal Reserve suddenly announces that the original ten old U.S. dollars are now worth only one new U.S. dollar, and the new U.S. dollar is pegged to the gold – we will be dumbfounded.

Today when the United States is determined to beggar thy neighbor, shifting its crisis to China, the Chinese must be very clear what the key to victory is.  It is by no means to use new foreign exchange reserves to buy U.S. Treasury bonds.  The issues of Taiwan, Tibet, Xinjiang, trade and so on are all false tricks, while forcing China to buy U.S. bonds is the U.S.’s real intention.”

And considering that using military means to force China to continue to reinvest in treasuries is completely pointless it seems like America’s free lunch will soon be coming to an end. Most interestingly of all:

The nature of such behavior is a rogue lawyer’s behavior of ‘ripping off both sides’: taking advantage of cross-strait divergences, blackmailing the Taiwan people’s wealth by selling arms to Taiwan, and meanwhile coercing China to buy U.S. treasury bonds with foreign exchange reserves and extorting wealth from the mainland’s people.

No doubt, America’s divide-and-conquer tactics have been highly successful, and highly advantageous to America. The real question, of course, is how long will it be ’til both the Chinese and Taiwanese governments tire of sending their productive capital to America (either for treasuries, or weapons) so that Americans can have a free lunch? A dollar devaluation? War on the Korean peninsula? QE3? QE4? QE Gold?