|08-23-2006, 06:34 PM||#1|
Ring of Famer
Join Date: Apr 2005
UK Personal view: Now America goes cap in hand, as Britain once did
Personal view: Now America goes cap in hand, as Britain once did
By Michael Meacher
The financial and trade imbalances that are now severely stretching the US are changing the balance of power in China's favour.
Indeed, what prompted George Bush's recent Asian trip was no new political initiative but, crudely, a search for money. With US net foreign debt of over $4,000bn (£2,110bn) now approaching 40pc of GDP, and a current account deficit of more than 6pc, the US is reduced to seeking financial support from China, just as Britain was obliged to go cap in hand to the US after the Second World War.
And, as was the case with Britain 60 years ago, help will be forthcoming but at a price. The Chinese politely listened, and waved Bush off as he flew on to thank the Mongols personally for sending 160 troops to Iraq. The symbolism could hardly be lost on anybody.
China's investment rate has accelerated to the point where it now exceeds 40pc of GDP, leading to a huge growth in exports capable of financing an equally dramatic growth in imports and still yielding a current account surplus of over $70bn. With Japanese exports to China now totalling nearly £10bn a year, Asia is increasingly forming into an economic bloc focused on China.
The American response to its parlous financial state is eerily reminiscent of the strategy adopted by Britain when its empire faced a similar financial and security challenge a century ago. In the inter-war years Britain still maintained a global military stance dependent on Middle Eastern oil to fuel it but gradually undermined by a weakening home industrial base and rigid domestic wage structure.
World-wide investments built up over the previous century were no longer sufficient to cover the British deficit. With sterling still the reserve currency, the solution sought was a mix of capital controls and imperial trade preference. The British Empire was transformed into an international trading and monetary bloc, with the main net savings surplus countries forced to keep those assets in sterling to finance Britain's deficit.
Today the US appears to be trying to achieve a similar device. The trading range for the dollar, euro and yen has stabilised over recent years, and this has been matched by the stability of longer term bond yields, not least in Japan.
The Clinton administration's strong dollar policy was a move in the same direction. Efforts to lock in Japanese credit flows were explained by the need for Japan to invest its savings overseas to finance an ageing population and, indeed, if Japan's net foreign assets of over $2,000bn were brought within the dollar area, they would cover half the US deficit.
On the security side the US has increased its military presence in north-east Asia, including a new base in the Japanese islands, and Japan has contributed forces to the coalition in Iraq. Above all Japan needs oil and American support is needed to ensure its continued availability.
There are, however, significant obstacles to this US strategy. Hitherto the US has used access to its enormous internal market to finance its growing worldwide military presence and particularly to ensure the continued flow of strategic commodities on to international markets, above all oil. America now has troops in 135 countries across the globe. But there are clear signs that this cannot be sustained indefinitely as US trade and finance deficits continue to grow remorselessly.
First, whilst the US is important to Japan, it is not obvious that Japan would accept being constrained within a dollar bloc. Rather its trading future lies increasingly with China.
Secondly, whilst European independence remains hostage on its energy flank and was prevented by two world wars from gaining dominance over Middle Eastern and Caspian oil, the expanded EU is now increasingly the subject of contest between the US and Russia for influence over this important geopolitical space. Moreover Franco-German opposition to the Iraq War, the deadlock over the French-Dutch referenda and the instability over the recent German elections suggest it is unlikely that Europe will offer a strong partnership.
Third, the US has even less leverage over China. Chinese imports from the US amount to only $4bn a year while Chinese exports to the US account for only 15pc of its total trading. American difficulties are now magnified by the rapid approach of peak oil, the expensive elongation of the Iraq conflict, and the unleashing of increasing opposition to the so-called War on Terror doctrine.
The latter was never anything more than a cover for gaining US control over the lion's share of the world's oil supplies plus a justification for expanding the US military hegemony. However, the strategy depended on integrating Iraq as swing producer into a US-UK-Israeli oil cartel, together with the privatisation under Western influence of the former Soviet oil industry. If this had succeeded, wider gains might have included containment of Chinese expansion and significant limitation of Japanese room for manoeuvre.
This strategy has become badly unstuck. The war in Iraq is as unwinnable as ever, the cost is becoming prohibitive, and the safeguarding of the pipeline transit routes through Iraq and Syria is probably unachievable. The prospect of the oil sector dominating the Russian national interest has been upstaged by Putin's takeover of Yukos.
The US exit from Iraq, which will be enforced under unfavourable conditions, will certainly not be the final day of reckoning. That will come when the US is compelled to make fundamental changes to its current financial-trade-political stance as being insupportable, as happened half a century earlier to Britain at Bretton Woods.
Michael Meacher, Labour MP for Oldham West and Royton, was Environment Minister from 1997 to 2003
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|08-24-2006, 08:10 AM||#2|
Mo' holla fo' yo' dolla!
Join Date: Dec 2002
Location: In a bunker in an undisclosed location
But don't ya know?
The U.S. economy is in great shape, according to Dim Son supporters.