US And China Trading Places?
Today I watched a video by a financial expert that was meant to scare me into hiring him to manage my portfolio. It was sent to me by a friend who has recently inherited wealth and went from being on SSI to being a millionaire. I don’t have a portfolio. I don’t have any savings at all besides what is under the mattress.
The argument presented by this genius is fairly straight forward, he says the government is printing money to cover up the fact that it is in debt beyond any realistic ability to pay and the more money that gets printed the less the dollar is worth. Over simplified, he then claims there is a deficit bubble and when it collapses there will be an economic price to pay that will make Greece look like nothing.
Here is the video link
It’s called “The Great Default”
http://finance.moneyandmarkets.com/reports/SMR/TGD/?ccode=0815125232123SMR&em=yourz2day-banks@yahoo.com&sc=MAM&ec=5232123
He ignores the fact that all wealth is based on trust in the system and since the USA is the lender of last resort, the world will simply let the USA write off its debt before they let the USA default, and even if the US defaults, what is the alternative? No power is going to step in and repossess the USA’s sovereign right to rule the seas. The USA might as the British did simply bow out to a superior power to which it became indebted to in a great war. Look at World War Two, the British pushed up against the wall took out loans from the USA. Loan guarantees were in the form of assets of territories, and bases but there was an unwritten agreement that the USA would take over as guarantor of world hegemony of the capitalist system. This became the cold war with the USA maintaining a huge military machine justified by the battle with the Soviets over the fate of who would run the worlds markets and dictate the means of accumulation and distribution of resources and wealth.
An interesting article on the subject.
“The Peaceful Transition of Power From the UK to the US.”
http://cjip.oxfordjournals.org/content/1/1/83.full
It is by a Chinese author. Interesting, perhaps the Chinese are using the analogy of the British-US transition to create the conditions for their own peaceful transition. The author is going back to the war of 1812 as the beginning of the transition, in his case he is speaking of the Monroe Doctrine, but that was a rather indefensible position until the end of the 19th century when the USA built up a large modern navy and had a coming out with the Spanish American War. Teddy Roosevelt used the navy in his Gunboat Diplomacy sending it on a world tour. But this is getting off the subject which is the fate of the USA as the senior world power, if China is to take that role, they need to build up their navy and essentially buy the American debt in exchange for American bases around the world. The USA would then retire from being the world policeman and the Chinese would be ascendant with the priority access to world resources and the subsequent policy requirement of being willing to involve itself around the world as required to protect its now world wide interests.
This is the point of a Chinese space program. They have to prove to the world that they can replace the US and Russia as the world power numero uno. That means winning more medals at the Olympics, it means going to the Moon and perhaps beating the rest of the world to Mars. It has followed the American model of becoming an economic powerhouse, and now it has to become a major naval power. This is not in the Chinese tradition, but their military is chomping at the bit wanting a test case in the South China Sea. If the USA backs down, and the Chinese are able to assert hegemony, half the battle is won. The US will lose face among all the Asian nations and China will de facto become the the new boss. All that will be required is the deal to take over the American debt and gain the American bases. The British and others will have no choice but to fall in line.
This is another position on the American - Chinese Transition
“Steve Chan, China, the U.S., and the Power- Transition Theory: A Critique”
http://chinaperspectives.revues.org/4789
This is a quote from the article. It sums up much that I think may happen if things are finessed properly.
“Many theorists of power transitions have seen the twentieth century’s world wars as conflicts started by Germany seeking to replace Britain as a world hegemon. Contemporary application of that paradigm suggests that America, while still strong, might muster resources to resist China’s rising power. Steve Chan argues, however, that this version of power-transition theory is inaccurate as a description of the past and self-fulfilling as a prophesy of war. He likens the future Sino- American power shift to smoother transitions, such as that from Britain to the US.”
On the other hand the Obama administration is planning to prepare for a show down in the South China Sea. The Chinese Communist Party does not feel ready for a confrontation and at this point the US naval might is dominant. Ten years from now, the situation might be different, two years from now, it all depends on when the US debt crisis becomes so great that international bankers no longer see the USA as the safe home for investments. As it is even with the instability that exists in the markets, the USA is still the preferred place to invest.
This is from Jakarta Globe
http://article.wn.com/view/2012/07/26/China_s_Hawks_Gaining_Sway_in_South_China_Sea_Dispute/
Boston Herald
http://article.wn.com/view/2012/07/28/US_dilemma_in_South_China_Sea_response_c/
From The Diplomat
http://thediplomat.com/flashpoints-blog/tag/china/
A series of articles on US-Chinese Tension.
So our fear mongering friend is being premature and even if the US does trade off with the Chinese, the result will be a clean slate for the USA. It might very simply become, like London, a financial center, protected ironically by the Chinese. The collapse, if it comes down to it won’t hurt the rich, but the rest of us are already adjusting to the new reality. Low wages, expensive energy and soon to be expensive food as global climate change turns the Midwest into a desert.
Here is a scenerio, the US deficit gets to be 200% of GDP. Pressure is being brought on the US to reign in the debt, all discresionary spending is cut. Hawks want to save defense, doves want to save entitlements. Stalemate. The President decides to mothball half the fleet and reduce the active army. Medicare and Social Security eligibility are raised again to age 69. A Franco-German coalition decide to take control of the EU. Great Britain and Poland call on the US to aid them. Russia joins the Franco-Germans, China decides to occupy the South China Sea and disputed territory with Vietnam. Taiwan is threatened and calls for American support. The US military is overextended. The US makes a deal with China, take over our debt, we let you take Taiwan and the South China Sea. China demands bases around the world and the retirement of the US fleet to the Americas and the Atlantic theater. US no longer capable of supporting a two front war, makes peace with the Chinese, give them control of the Western Pacific and the Indian Ocean. This is the first step. The Chinese open a second front against the Russians, they withdraw from supporting the Franco-Germans, US is able to contain the the European threat but the new Europa is no longer an ally. Weakened the US withdraws to the Americas. Chinese naval forces occupy bases in Iceland, Great Britan, Azores, Senegal, Angola and South Africa and becomes arbiters of peace in Atlantic. Latin America acknowledges Chinese military as well as economic dominance leaving the USA isolated with its Canadian and Mexican allies.
Tags: Trading Places