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The Global Chessboard Reconsidered
The two main knocks against the US from global investors have been largely addressed. The US budget deficit has been reduced from 10% of GDP to less than 3%. The current account deficit has been halved. Nevertheless, many observers, including some Americans themselves still think that the US is in an irreversible decline that affects all great powers.
China is often touted as the US successor. Some media reports claim that when adjusted for purchasing power parity, China's economy is poised to surpass the size of the US as early as this year. This is an improper use of purchasing power parity (PPP).
In the world of athletics, the equivalent to PPP is evaluating in terms of pound-for-pound. A man who weighs 80 kilos and can lift 160 kilos is said to be stronger pound-for-pound that a man who weighs 120 kilos and can lift 200 kilos. The smaller man cannot lift more than the larger man. He is not stronger in that sense. He is stronger only in a particular and narrow sense. It seems that only a few observers and journalists say that China is bigger than the US because of PPP. Chinese officials do not tread down this path.
China is often portrayed as a revisionist power in the sense that it is challenging the status quo. However, there are some important exceptions. Perhaps unnoticed by many distracted by the recent holiday, but not only did China lose a case before the World Trade Organization, but it announced intentions on complying with the decision.
The US had filed a case challenging China's export quotas of rare earths. The case was later joined by Europe and Japan. China had argued that is quotas were necessary on environmental grounds, but the WTO recognized that the restrictions were really an attempt to boost its domestic electronic manufacturers. There is some evidence that this worked as some foreign electronics manufacturers did relocate to China. Moreover, some Chinese companies found a familiar work around. By lightly processing some of the rare earths, they were able to circumvent the export restrictions.
Faced with an ineffective system and the WTO ruling, China has scrapped its quota system. The US (and Europe) have won several other cases against China's trade practices at the WTO. China, like other countries, have used WTO rulings and international trade agreements to advance their own domestic reform agenda.
This ruling may also be used by reformers in the US. For nearly 40 years, the US has banned the export of crude oil. With the booming US oil production, there is a push in the US to lift the ban. There are some exceptions to the ban, and this is leading to strong US export growth (from a low base).
Many observers had heralded the China-Russia energy deal last may as another nail in the dollar's coffin. Prices were to be denominated in rubles and yuan rather than dollars. The ruble's collapse means that this agreement may need to be re-worked.
China was to operate through establishing parallel institutions as the US has done to exert influence. Its numerous swap lines lie unused. With China's leadership, the BRICS launched their own institution that was to rival the IMF to provide short-term balance of payments support. Yet now Russia could use some assistance but it is not available. South Africa, with a 6% current account deficit and low reserves, may also need assistance if the pressure on emerging markets continues as we suspect it will. However, the BRICS bank is unlikely to be helpful for it either.
China's Foreign Minister Wang offered Russia bilateral assistance as pressure on Russia grew in Q4 14. Many observers saw in this another challenge to US and European sanction regime. However, this may have simply been polite diplomacy, like "sure we can help out neighbor", but it seems nothing concrete has come of these platitudes.
The latest IMF COFER reserve data, which covers Q3 14. shows the dollar was the main beneficiary of the shift out of the euro. We would expect more of the same when Q4 data is released at the end of March.
When the euro was launched, many thought it could rival the dollar. Even at its peak, it was little more than the sum of its parts. Its share of global reserves were about the same share as the German mark, French franc, and ECU together were previously. For a brief moment, some observers thought the Bitcoin could challenge the dollar, with at least one analyst at a major bank calling on central banks to use it as a reserve asset. There has been a flirtation with SDRs (of which the dollar is the biggest component). More recently, the internationalization of the yuan has captured the popular imagination.
There were those who thought the desire for an alternative to the dollar itself was significant. Yet this may say less about the flaws of the dollar and more about the search desire for an alternative for the sake of an alternative. The isolation of Russia and falling commodity prices and poor policy choices in Brazil have undermined the BRICS as such an alternative. With the commodity and emerging market cycle turning, the BRICS have been reduced to IC, which has considerably less marketing appeal.
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You are getting this backward Marc, the deficit has never been the problem, it's a symptom, like blood in the water, from a deep gash.
The debt level is the deep gash, bleeding the US out, the thing the US can not turn around soon enough.
The interest burden will starve the economy via taking money out of revenue needed to sustain and develop the country itself, and its physical infrastructure.
Which means the country can't borrow enough ultimately, it can't tax enough either because it won't earn enough (not enough investment or public funds), it can only print the difference.
So the debt has to go - first.
Inflation has to sky rocket to do that, and then its still takes years of pain - Greece style pain, or worse. There is no will for that. They cancelled the debt-ceiling due to the lack of will.
So they will print until printing does nothing at all that helps anymore, then it will go its own disorderly defaulting way from there, and find where the market really is, and what value really is, as per your name-sake.
You knew all that, you just forgot it. But nice to be optimistic for a few minutes - cheers.
China is too immersed with its own huge domestic debt problem and the moribund maufacturing base that has to be subsidized in a world of declining demand. Social unrests have to be curbed with employment thus more steroids to the economy to keep the manufacturing base from collapsing.
The US$ rise against the RMB is not helpful as China is sucking in more foreign debts. Reforms to turn the economy long term around to be more conumption and service based has stalled in view of the more pressing potential implosions.
It is not going to be a fillip to global demand and in fact imporverishing further its neigbors paricularly the commodity exporters (Asia growth story is a myth).
It is going to take aeons for this 30 plus year of growth to be back on the gowth trajectory. The BRICS hype is a smoke and mirror. All is going well with the containement of its rise from the elites in US albeit of no benefits to the little people everywhere.
Agree with Marc
Still need a mega event to make any change in the global currency order.China is a creation of the Rothschild zionists and will do whatever they are told. An event that could lead to a mega change is Germany exiting the Bolshevik EU and joining with Russia in an Anti Bolshevik Federation. A necessary step of course would be for Putin to delouse his CB of all Rothschild remnants. According to threads of this article, the idea is far from being tinfoil stuff:
https://futuristrendcast.wordpress.com/2015/01/11/world-beware-what-is-r...
Evgeny Federov has been saying the same thing. He says it's a Russian constitutional problem.
http://www.youtube.com/watch?v=btFfyZmJl30
http://www.youtube.com/watch?v=VT085isnyB0
But it looks like your link points to a "tinfoil stuff" site, so were you being sarcastic?
this guy is on another planet.
budget deficit is less but we still owe 18+ trillion
http://www.usdebtclock.org
"The current account deficit has been halved."
which means "The United States recorded a Current Account deficit of 100255 USD Million in the third quarter of 2014. "
http://www.tradingeconomics.com/united-states/current-account
" With the booming US oil production, there is a push in the US to lift the ban. "
@ 40$/barrel
This article is innuedo, half-truths and no-truths all in one. I think you outdid yourself this time dude.
Marc has, yet again, failed. Demographics will sort this out, like they always do. China invent fiat and already has an industrial base and technology base in place. They have a long term view, not a short term one. Trade is the one thing that matters, period. The "customers" in the U.S. are broke or heavily in debt and mostly dependent on government, so, barring any actual structural changes or re-establishment of the rule of law, math and the laws of physics and Nature will do the rest. Only a matter of time now.
Full faith and credit...
Marc...is WAY off the mark...with this article. His basic theme, that any push for an alternative reserve currency, or change in economic influence, is "invented simply for the sake of change"....does NOT stand up well to even casual review.
Much of the world is tired-to-death of American arrogance. Our consumer driven madness consumes massive amounts of food/energy and provides very little in the way of benefit...(for anyone). Our crony capitalist government is every bit as corrupt as most functioning governments....(I exempt multiple African regimes from this list because they don't really "function" in any real sense of the word).
The US is a bully....insisting that the ONLY way to live is the way WE TELL YOU. From my travels, and from daily correspondence with average folks in other countries....clearly, even amongst our allies there is a weariness with America.
America will not be EASY to displace, and changes of this magnitude could take time....but I don't believe the basic premise of this article for one minute.
"Nine o'clock and all is well!" yelled the Town Cryer the night before the revolution.
The Anglo-American empire will not give its power easily. There is no such a thing as a empire giving up power. Empires fall just under war. Terrible and nasty wars. If you think America will let China or something else take its crown you are delusional. The Anglo-American empire has the most advanced army, sets the price of commodities, has the world reserve currency and even dictates the cultural trends. Tell me if China, the BRICS or anybody else can do it?
- What was the last war the U.S. won and who was the enemy?
- China is not interested in taking anyone's 'crown', and besides, they won't have to. Read Sun Tzu.
- The U.S. dictates 'cultural trends' that more and more of the civilized world finds disgusting and repulusive.
- You are correct about the U.S. not ceding it's exorbitant privilege easy. However, the U.S. will do this of their own hand and hang themselves in the process. Reference item #2...
It is hard to wage war with nuclear weapons and wins. Maybe even impossible.
Empires always collapse from overreach and the US is clearly in this phase. Maybe not next year, but is is coming.
The US Empire is based on oil, the decline of oil production is yet to arrive, but the current price crash is a harbringer.
Not maybe, it is definite. To have any hope of winning 'win' you have to hit without warning during a period of low tensions and peace, and mass murder millions. The other nuclear-armed countries see this and will never forgive that, nor trust you, so will immediately attack the attacker who 'won'. There's no other option. The first attacker is on guard for this, can't stop it, but must attack the residual arsenal in return. The result is everyone loses - GUARANTEED.
The collapse began in 2008. It was put off, for about 6 years, by Greenspan and Bernanke holding rates artificially low. The petro dollar is the means the US uses to extract tribute (putting it nicely) from foreign nations. The total doesn't matter as much as total control. That's why Saddam and Moamar had to die when they strayed off the plantation. Now, Putin is targeted. If he survives for a few more years, we could see the next leg down for king dollar.
Up to the point that it doesn't anymore
I nominate this for the Biggest Whopper: "this may say less about the flaws of the dollar and more about the search desire for an alternative for the sake of an alternative."
ALL in all, "The world is not a chessboard" says it all.
Look at all the laws that have been passed (with a lot of support from big business) to subsidize moving production overeas. We have bent over backwards to give countries like China an advantage along with having big business hold their profits off-shore and untaxed. Try doing that as a private citizen. China's economy is damned near as big as ours but they are still a 'developing' country who deserves special treatment. Screw'em, time to play with big league rules.
That'll only happen after Big Corp.'s can't make a profit off of them, anymore. In my mind, that means a huge currency reset. The current QE stoppage, combined with fixed currency rates, tells me Big Corp.'s are set to screw China over big time. Debt defaults will lead to sell offs and possible Chinese wage cuts. If things get tough enough for China, they may even rescind their 51% ownership rule, if they haven't already.
All of this guys posts are low level propaganda pieces. Truly derivative of derivative writing.
Beyond lame.
I marc'd this article to market too: 1 star.
From the article..."This ruling may also be used by reformers in the US. For nearly 40 years, the US has banned the export of crude oil. With the booming US oil production, there is a push in the US to lift the ban. There are some exceptions to the ban, and this is leading to strong US export growth (from a low base)."
How long will the boom be in "booming US oil production" when crude is below production costs?
I am not interested in seeing the U.S. decimated. What I am interested in seeing is its empire mentality going away. Regular schmucks, like myself, would be better off if the US government had its wings clipped. The D.C. crowd directed by their financiers need to be brought down a peg or two or ten. Empires start off targeting the citizenry of other nations until they run out of targets and then they channel their energies back home.
Consolidation of power is never a good thing- Americans need to pressure their government on several fronts. The NSA and CIA are two agencies that the world can live without. They cause more problems then solve and make us less safe than secure. Unending wars to protect the petro dollar must stop. The Middle East should be allowed to function as they see fit. Israel is plenty protected- they are the most militarily advanced nation in the region and if the US stops sending them even more weapons we would be safer.
China, Russia, Brazil, India, South Africa- leave all 200 plus countries of the world alone. Let them form their IMFs, let them use whatever currency they care to. In other words butt out. No one died and left American corporations in charge of the world because that is who is ruling the empire.
Globalization has been good for the elites. Trade treaties labeled as promoting free trade really only direct market share. They help only the big corporations who then don't pay taxes and keep moving from country to country finding the lowest wages until we all are broken and "will work for food."
The ruling elite have no special insight or really any loyalty when it comes to their countrymen. They have no vision that includes what's best for you and me so why do we care if it is China or America who has the largest GDP, based on purchasing power or otherwise.
The title of this article says it all- "The Global Chessboard Reconsidered." People who compare trying to make it in this world to a game are not representative of the majority of humanity. Games are for people who have all they need and more. Games don't have dire outcomes like children dying due to economic sanctions like they did in Iraq. Games don't shrug off killing over a million people in a region trying to protect the petro dollar from its deserved demise. Games don't include having more prisons than colleges (USA.) Games don't include ripping off future generations so agencies like the NSA and CIA can be funded. Games don't see soldiers come home from wars battered on the inside and out. Games don't end with humanity being brought to its knees so a few can live in splendor.
"Yet this may say less about the flaws of the dollar and more about the search desire for an alternative for the sake of an alternative. "
Cause the financial world is known for doing things for no reason.....
How did this article get off the weekend circuit?
"The US budget deficit has been reduced from 10% of GDP to less than 3%. "
Only if you count debt as GDP....
"The isolation of Russia and falling commodity prices and poor policy choices in Brazil have undermined the BRICS as such an alternative [to the dollar]."
That's true today and maybe tomorrow, too. After that, no fricking way. Economic freedom from the dollar dictatorship will eventually be an instinct. Europe aside, not everyone does the Stockholm Syndrome.
As long as you price commodities (or anything for that matter) in fiat, this shit will just keep on keepin' on.
Well, there's that greed thing too.
There is no "desire for China to be a successor". The rest of the world, increasingly views us as an out of control, psychopath country and wants to be rid of us. After all, what do we have to offer, besides regime toppling, drone missile strikes and whatnot? Our biggest export is FRN's. China is well on the way, to having a strong industrial base, something we in the US, disposed of a long time ago. And the effects of a 'Strong Dollar' are not addressed here. Since most of the debt is denominated in Dollars, it takes more foreign currency to make up that difference. China and Russia have been working hard at creating alliances in South America, Africa and the rest of Asia and what are we doing?
What are we doing? Well, the FED ended QE in Oct. in order to turn the $ monetary tide back toward the US. This will create a deflationary wave in the BRIC's and, possibly, temporarily boost the $'s reserve status. The old saying was, 'the FED takes away the punch bowl'. After they deflate a good bit, 'we' can safely counterfeit even more to buy their assets, on the cheap!
China is not "on its way" to having a strong industrial base, it has had one for some years.
As BRICS are in the processes to decouple economies from the Western neoliberal monetary monopoly, they could bring back the gold standard as a base for their transactions, which is much more steady than the paper money unstable financial bubbles. They are ready, because they are emerging economies with billions of potencial consumer tanks and can attract other countries too being victims of the international financial mafia, like Argentina and Greece.