China, not dependent on the US
China is following the trajectory of by W Germany, Japan and the SE Asian Tigers. Overlaying the growth charts shows that China is at an early stage in the process. It's easy to forget how long China's predecessors sustained their rapid growth rates. And China is much larger.
Ian Flemming wrote Dr No in 1955. In the opening Bond was musing about a fellow 00 agent sent to Singapore, feeling happy it was not him. In 1955 James Bond was afraid to visit Singapore. Look at it now.
China is still in the export-driven growth stage. Despite its rapid export growth, its share of global exports is slightly less than Japan (both roughly 9%). Of course, China is potentially a much larger economy than Japan. The next stage is rapid growth driven by domestic demand; given China's incredible high savings rate, that phase could also be long and powerful.
As for dependence on the US, only 20% of Chine's merchandise exports go to US. Our share of their total exports is even lower (they export other things, like coal). To whom are their exports growing fastest? The EU.
China will participate in any global downturn, but its fate is not linked to the US. But is the reverse true? They hold almost $2 trillion in US IOU's (including Hong Kong and Macao), and we borrow tens of billions more every month.
America seems to have forgotten that creditors make the rules, not debtors. Creditors are masters of their fate, not debtors.
China's US dollar holdings are assets in the same sense as bullets, valuable only in what they can do. They can use them to exert pressure on the US or to buy our tangible assets. And they will use them at some point.
The fall of the US dollar, as your read this breaking through long-term lows, is potentially a historical event -- the end of the post-WWII global financial order. None can say how it will play out, or what lies on the other side.
Much of the 21st century may be events foreshadowed in the 1970's
Quote:
Originally Posted by
selil
At to Tom Clancy and his discussion of an attack on the dollar isnt' that based on stuff that happened in the 70's repackaged?
Great point! The 1970's saw the forequakes of global peak oil production; the real thing will likely occur sometime in the next 20 years (today, perhaps). The 1970's saw the first great US dollar crisis, foreshadowing the real thing which lies in our future (today, perhaps).
The 1970's were a difficult decade for America. And the next few years...
The geopolitical implications of this could be immense. The great emerging powers will certainly take advantage of any weaknesses in America's power.
Who brought down the USSR?
Quote:
Originally Posted by
Norfolk
That said, the U.S. waged a very effective economic campaign against the U.S.S.R. in the 1980's...
Alternative view: the Saudi Princes waged one of the great economic wars of the post-WWII era against the USSR for control of the oil industry. They opened their spigots, crashed the price of oil, and bankrupted the USSR.
We take credit for defeating the USSR just as we often take credit for defeating NAZI Germany. Perhaps neither is fully deserved.
Necessity is the Mother...
Necessity is the Mother of invention...
I believe it was 2006 when the Saudi representative to OPEC said that contrary to popular belief, Saudi Arabia had no interest in unstable and steeply rising oil prices. At that time, he Saudi's had promised to increase production by 900k. His reasoning was very simple. If oil prices continued to rise uncontrollably, eventually, it would effect the world economy and crash the supply demand in world wide recession or depression. Thus, destabilizing their own economy, causing unrest and potentially to internal unpleasantness.
However, this year the Saudi OPEC rep said that they could do no more to increase supply and stabilize the price. Thus, I believe the Saudi's are doing what we are doing and that is waiting to see what the market will do.
Their other fear is that, if the price hits the "pain threshold" for the US and Europe, we will do what we did in the late 70's and 80's like revamp our automobile manufacturing for improved fuel economy or possibly drive towards the invention of alternative energy. I don't think biofuels is a sustainable or long term answer. I believe the answer will return as solar or other energy sources with the advancement of nano-technology and anti-matter. But, that's for another discussion.
Suffice it to say, even with emerging economies and China's growth, if the US was able to develop other energy resources or, if oil finds in other nations (like the recent find in Brazil) can come onto the market quickly, the oil surplus that would be created would cause the oil market to crash. Not only is that bad for Saudi Arabia, its bad for Russia whose economy is also 50% reliant on energy exports. It's why they are in a rush to complete a transnational pipeline for gas and oil to China. They want to take advantage of a long term market growth when there is a possibility of stagnation or loss of market in other regions. Also the reason Iran was interested in pipelines with China. Problems with that to follow.
Economic Warfare with Iran
In regards to economic warfare and Iran, I noted here (scroll down and to bottom for additional links on Economic Warfare and Iran), whether Iran survives economically or not is not just linked to their oil and natural gas income, though it plays a major part, both good and bad.
For instance, Iran is now talking about building eight additional refineries for oil. Right now, they only have one. They are still rationing gasoline, though at a subsidized rate. The problem here is that, however much they are raking in on a bbl of oil, as a net importer of refined oil and gasoline, they are putting out a very large chunk of their income to buy it. It might sound good on paper, but it causes other issues.
Second, Iran is suffering from record inflation to go along with its "growth" period. Inflation is, in fact outstripping economic growth about 4 to 1. Housing prices have tripled. Food prices have quadrupled. This is in relation to both the incredible inflation of oil and the sanctions which have denied credit to even the basic importers. Some have sought an end run by working through third party nations like Dubai and Germany where they set up what appears to be other national companies. Yet, the price to import these food stuffs has increased along with the necessity to use huge, upfront cash deposits.
At the same time, Iran has been busy trying to repress their labor movements that are demanding a pay raise after over a decade of the same pay (most are making about $2/day). These people are having to work two or three jobs just to feed their families, buy gasoline and pay for heating, much less housing now that the rates are increasing so drastically. For the last two years, parts of Iran have had to institute heating rations because the nation is so dependent on exporting their energy resources to sustain their economy. Besides oil and natural gas, the third largest export from Iran is Hydro-electricity to Afghanistan and Iraq.
I posited a theory once that the unrest in Iraq and Afghanistan benefited Iran, not just politically, but economically since it keeps infrastructure from being developed in these nations to offset that export as well as the somewhat limited income from export of manufactured goods.
This need is created by their Soviet style economic system. More than 70% of all working Iranians are employed in a state run business. appx 50% are in the oil and natural gas industry which is just about the only money making industry out of Iran. Another 30% work in the service industry that is largely controlled by the IRGC, but have limited "money making" capabilities since it simply funnels internal funds from one hand to another. They do control certain textile and other manufacturing plants as well as mineral extraction.
At this time, neither their manufacturing nor mineral extraction nor even export of some food stuffs (another reason that food prices are high in Iran) is anywhere near being able to produce the amount of revenue necessary to create a diverse economy. Neither are the only 10% of private entrepreneurs in Iran capable of producing much in the way of export. While the Iranian Islamic Revolutionary dream is to create a self sustaining economy (as was once the Soviet model), it is impossible with the existing business and economic structure.
Their manufacturing and mineral extraction is in bad shape. Earlier this year, one of the showdowns that was happening in the Iranian cabinet was an argument between these two industries and the oil and natural gas industries over revenues produced as well as the amount of money being invested. They were accusing each other of being the cause of the economic problems in Iran. Even with all that energy export revenue, inflation is seriously damaging their capabilities to continue running the nation.
The mineral and manufacturing industries fought back stating that, if they had the infusion of cash that the oil and gas industry had to improve their infrastructure (including machines, transportation and even roads), they could be in a better place to produce revenue. Ahmadenijad settled that by replacing the mining and manufacturing industry ministers.
If you are truly familiar with the economic woes experienced by the USSR pre-collapse, you'd know that they suffered similar problems. Like the USSR, Iran has many price controls in place which means that these industries cannot even make money internally to help improve the situation.
Agriculture is equally damaged from lack of investment and expansion along with orders to export most of the food stuffs that created the net import of grains and other food staples like vegetables and fruit.
All of Iran's economic growth is in oil and natural gas. It is unsustainable. Unless, of course, they can get nuclear weapons and improve their regional hegemony, holding other regional suppliers "hostage" and forging alliances with countries like Venezuela, keeping oil supplies down and the price high by artificial reductions or limits. (Something that would be of some benefit to Russia as well since their economy is so heavily invested in the energy sector).
Other problems that Iran has is that the threats of potential strikes by the US have forced them to spend more on defense, though not much, it is still damaging. In fact, besides the probability of nuclear proliferation by Korea to Syria that precipitated a recent strike against Syria, the fact that Israel was able to easily circumvent Syria's Russian bought air defense system has caused Iran to have to invest in upgrades, further stressing their budget, along with other military equipment and preparation.
This juggling of funds and budgets is also apparent in their continuing inability to pay full monthly fees for the building of the Bushehr nuclear facility. Which has caused Russia to state they will continue to build the facility, but there will obviously be a slow down. In the meantime, Iran is putting a lot of money into buying and making centrifuges and other equipment for creating nuclear technology.
the long and short of it is, all of the money is staying at the top end, within major government structures, one major industry and being spent on imports of equipment and basic necessities outside the country. That is what is fueling inflation and keeping government run entities from increasing pay to workers. Money is not filtering down in the economy to allow for improved internal economic growth. Of course, corruption and Ahmadenijad's insistence on putting old IRGC cronies in position of power over these industries is creating a whole new economic class paradigm in Iran.
It's a point that we should be exploiting in our information warfare. Particularly, as the previous high separation of the economic classes was part of the original causes for the Islamic Revolution. The Islamists promised at that time to institute a more equitable "Islamic" system that had its roots in socialist economics learned in the universities of France and other European nations. the reason, of course, that the leftward, labor movements of Iran originally supported the revolution.
Devaluing the US Dollar: Not All Bad
In regards to the devaluing of the US dollar. It is not always a bad thing. We have been running a significant trade deficit for years. At the same time, this administration has signed a significant number of free trade agreements with nations in South America, Eastern Europe and Caucus nations among the many. In order to make that a real, viable interest of our economy, these nations have to be able to afford to buy our goods. That means that their currency has to be somewhat competitive with ours.
We don't just want to put money in their economies buying cheap goods (thus reducing our trade with China and some of our economic risk), we want them to put it back into ours. As this report indicates, exports to Europe, where the Euro is strong against the dollar, has increased significantly and probably lent a 1 point increase in growth. that is actually good in the long term in creating US manufacturing mobs and staving off severe recession.
Our vulnerability though is the risk of a over extended credit lines and the price of oil. continued economic growth could off set the extended credit problems. the price of oil, on the other hand, can be offset by either a serious down turn in economy, thus oil utilization, an increase in availability through additional drilling either within the states or in new deposits or in old deposits with new technology or a new technology all together when we hit the "pain point".
I am hoping we work on the new technology. Not because I believe we will be totally oil independent, but because it would give us again the upper hand on energy development and control and create a new economic paradigm for the west. The potential income from both small and large markets would be a serious economic boon, not to mention the impact on many other industries like transportation and housing.
so, dollar down turn is not totally a bad thing as long as it is in small increments, over a measured time and stabilizes early enough. Improved economies in this hemisphere would provide a fairly protected market for us and diversify away from the East and the control of our markets by China and the ME.
Wow, hope that was coherent enough. You can visit the other links provided for additional information and reporting on the economic war. Just remember, high oil prices aren't necessarily good for even our most virulent enemies. They have to buy gas, support business, transport goods and maintain their military, too. all with not even a one hundredth of our income or budget.
Think of them as an octopus trying to put their tentacles all over the middle east. Everywhere they seek to expand, they expose themselves economically, politically, and even physically. a country with a 300 bil budget is hard pressed to compete on that level even regionally.
Pardon the length of this post. I hope it is coherent though I know there are many more issues that could be included in this analysis.