Economic Warfare

[Fabius Maximus]

Is the fall of the US dollar good or bad? Both, neither. It's the wrong question. Is a fever good or bad?

Both are symptoms. The US consumes more than it produces, the difference met by foreign borrowing -- seen in the current account (c/a) deficit. The gap has grown worse since 2000, with the c/a running over 6%.

How bad is that? The saying goes: when they see a nation running a 3% c/a deficit the IMF staff prepare the bailout plan; at 3 1/2% they buy their airplane tickets. We're at 6%, a level seen only before by 3rd world states and (briefly) Ireland and Greece (during their dark days).

It is an ugly combo, a large c/a deficit and large foreign debt. Hence private lenders have largely abandoned us, with the c/a deficit funded by a small number of central banks (loosely defined as State buyers of foreign exchange). Mostly Asians (esp China) and oil exporters (mostly Saudi).

Over the past 5 years this situation has been extensively modeled by academic, ngo, commercial, and government agencies. The consensus is that it is not stable. As the debtor at the center, "rebalancing" will hurt us the most.

As kenenry1 and shek both not, economics is largely about rates of change. If this resolves itself slowly, we can pleasantly adjust. Not so good if done rapidly. As I said on my blog, "currency flight" means nothing to most Americans -- unlike those of nations that have experienced it. We too may have this interesting experience.

Shek, it is not hyperbole to say this is "potentially a regime changing event". Most major experts in the field have said so, in one form or another. The BWII system assumes accellerating debt accumulation in the US, matched with US dollar reserve accumulation by foreign central banks.

That system is ending now. Russia is opting out. The Middle East oil exports are talking about opting out, as pegging their currencies to the USD means rising inflation. And China over the past year has made it increasingly clear that their policies are changing. Cheng Siwei's comments on Nov 8 (vice chairman of the National People’s Congress in China), which hit the dollar hard, we probably another signal of this slow policy change.

In a different way, so are the creation of Soverign Wealth Funds. Instead of t-bills, our creditors want something more useful in exchange for the goods they give us.

[slapout9]

I remember Nixon's comment after leaving BW "We are all Keynesian now" (reference to the UK economist John Maynard Keynes). The separation of the dollar from a gold standard to a "production standard" meaning if your country can expand it's productive capabilities it can expand it's money supply.

If your country adopts a policy of exporting it's "productive capacity" to other countries you will be in deep trouble because your currency will end up being worthless!

If economic warfare is in play I would think a country such as China would have an objective in mind as opposed to just general financial chaos...so what is it??? maybe offer the US a debt swap for high tech military technology....access to patents without any royalties to be paid....advanced oil exploration technologies?? Just thinking out loud.

[Fabius Maximus]

Peak oil is a doomsayer's tool. ... Also, let us not forget that some of the pain of the 70s was due to poor fiscal policy choices in the 60s coupled with the fallacy of price controls and a weak Fed response.

I am not aware of any major energy-related institution that says global oil production will not peak. It's like death, the question is when. Due to lack of knowledge about reserves in the Middle East and Former Soviet Union, there is a wide range of estimates -- from now thru 30+ years, clustering in the 15 year range. Since a crash adaptation program will take roughly 20 years, we're already on the clock. The major agencies -- us DOE and the International Energy Agency -- have been clear on this challenge, esp this year. I recommend reading the IEA's World Energy Outlook 2007 (here's the free Executive Summary)

Which is why the 1970's period tells us so much. As Shek notes, some nations adopted wise policies and did quite well -- global growth was strong for the full decade -- while some (e.g., the US) acted foolishly and suffered.

For more on this see my blognotes:
What's needed to adapt to Peak Oil - part I
Peak Oil - part II

[wm]

Originally Posted by Norfolk
It is only logical then that (sadly) many business types have long been devotees of Chinese strategic and military thought (amongst others).

Indeed. And wisely so. Entrepreneurs are the terrorists of the business world. One does well to look carefully at them to see how they rise from one or two guys with an idea into a global juggernaut.

Concur. Microsoft remembers its roots and therefore spends a lot of time and money squashing other IT entrepreneurs. And of course there's Larry Ellison over at Oracle.

[Rex Brynen]

Proxy wars - Muslim Brotherhood, PIJ, Hezbollah, the insurgency in Kazakhstan, etcetera, most insurgencies (http://www.tkb.org/Home.jsp) are also proxy wars. (Proxy war meaning they are supported from outside by a nation or a tolerated financial support system for political ends.)

The Muslim Brotherhood is hardly anyone's "proxy warrior."

Cultural warfare - In this area exclusively we excel. MTV, Disney, our movies, to a mild degree our news media. All of that undercuts them. It is one of their motivators, to fight us by indoctrinating their children in madrassas. Their defense is madrassas, and it has worked pretty well.

Madrassas (and I assume by this you mean Islamist madrassas, since the word itself is simply Arabic for "school") are relevant in some areas--and completely irrelevant in others, where education is overwhelming state-run.

I'm not sure how effective Disney or MTV is in undercutting anything. After all, a fondness for video games and sports bars didn't stop the 9/11 hijackers.

support of dissidents and subversion - See what Walid Shoebat, former Palestinian terrorist, has to say about this. ( http://www.shoebat.com/ ) I watched a protest when he spoke, and it required serious security.

Oddly, Shoebat claims:

As a young man, he became a member of the Palestinian Liberation Organization, and participated in acts of terror and violence against Israel, and was later imprisoned in the Russian Compound, Jerusalem's central prison for incitement and violence against Israel.

Actually, the PLO doesn't have "members" --its possible to be an employee (which he wasn't) or a member of a constituent organization (Fateh, PFLP, etc).

The Russian Compound, among other things, houses a police headquarters and an interrogation center. While individuals may be detained there for limited periods, it generally isn't used as a prison for extended detentions.

If I am banned for this post, you will know why, and you will understand that the information/cultural warfare's tentacles extend right into this "Small Wars Journal", where simple discussion of facts not allowed.

They were highly stereotyped non-facts, Brian, which is why Jedburgh called you on them.

However, you may have a point--I've always wondered if he might be a really, really, really deep cover AQ sleeper.

[kehenry1]

I am not aware of any major energy-related institution that says global oil production will not peak. It's like death, the question is when. Due to lack of knowledge about reserves in the Middle East and Former Soviet Union, there is a wide range of estimates -- from now thru 30+ years, clustering in the 15 year range. Since a crash adaptation program will take roughly 20 years, we're already on the clock. The major agencies -- us DOE and the International Energy Agency -- have been clear on this challenge, esp this year. I recommend reading the IEA's World Energy Outlook 2007 (here's the free Executive Summary)

Actually, the immediate problem is not necessarily "oil peak" in regards to reduced oil deposits for extraction, but the eventual "peak" of extraction and production capabilities. On any given oil field there are only so many points of extraction and so much oil producing infrastructure. It's this in the short term that is being outstripped by demand and will continue so.

Silver lining? Maybe force us to move into other energy resources sooner or risk a severe recession caused by inflated oil prices due to increasing demands.

and, yes, I fear a shift in economic power if we do not have a significant change in trading practices.

One reason why I have been torn on the immigration situation in the US. The only way to keep us viable is to be able to compete in the labor market. We need significant immigration of low skilled workers to re-invent our manufacturing capabilities. We also need to watch artificially increasing wages with minimum wage hikes. We also need to reduce federal spending significantly. We have to be able to survive our own economic war devices.

Right now, I sometimes feel like we are calling the bombs down on top of our position so to speak.

[Fabius Maximus]

I don't know the protocol of this, but anyway...I just posted this on my blog, stimulated by this excellent discussion!

1. 4GW war is a conceptual tool. Debates like these show its power, generating new perspectives. Look at the comments posted at SWC {here}. Note how they assume that States are the only significant actors. 4GW suggests that this is not so. {as the discussion has continued, this is less so, note the previous comment!}

Major states, the important ones in global finance, tend to be reactive, incrementalist, slow, and conservative. For example, it is as likely that the head of the People’s Bank of China will push the red button on his desk – instantly selling a trillion+ dollars of US bonds – as President Bush firing off ICBMs at China.

But private actors are major players in global finance.

a. Asian and European institutional bond investors hold hundreds of billions of US bonds. Their losses as the USD loses value, esp. the EU investors, have been horrific.

b. Hedge funds wield over a trillion dollars in assets, far more than when they wrecked Europe’s Exchange Rate Mechanism on Black Wednesday 1992, or initiated a depression in SE Asia in 1997.

c. US investors in foreign bonds, esp. in Canadian, Australian, and Euro bonds, have had large returns.

Relatively small moves by US or international investors could destabilize the dollar – currency flight. Or a massive move against the dollar by speculators could do so.


2. We would know if we were on the brink of a crisis, wouldn’t we?

WWI was inevitable and obvious, the result of growing tensions in Europe. Or so the standard history reads. William Lind says…

One pebble touched off an avalanche. It did so because it occurred, not as an isolated incident, but as one more in a series of crises that rocked Europe in its last ten years of peace, 1904-1914. Each of those crises had the potential to touch off a general European war, and each further de-stabilized the region, making the next incident all the more dangerous. 1905-06 witnessed the First Moroccan Crisis, when the German Foreign Office (whose motto, after Bismarck, might well be, "Clowns unto ages of ages") compelled a very reluctant Kaiser Wilhelm II to land at Tangier as a challenge to France. 1908 brought the Bosnian Annexation Crisis, where Austria humiliated Russia and left her anxious for revenge. Then came the Second Moroccan Crisis of 1911, the Tripolitan War of 1911-1912 (a war Italy actually won, against the tottering Ottoman Empire) and the Balkan Wars of 1912-13. By 1914, it had become a question more of which crisis would finally set all Europe ablaze than of whether peace would endure. This was true despite the fact that, in the abstract, no major European state wanted war.
But this was not obvious to people at that time! Harvard historian Niall Ferguson looks at the prices of UK government bonds (gilts). These show complacency right up to the brink. City investors read of the mobilization orders, panicked, and the markets imploded.

Of course, we are much smarter than they. We would know if the world was on the brink of a crisis…

(I do not have a link to the Ferguson article. Will post when I find it).

[slapout9]

Right now, I sometimes feel like we are calling the bombs down on top of our position so to speak.

Couldn't agree more. A big reason for this is under the US Constitution Congress has the power to print and coin money........until they gave it away to the Federal Reserve Board which most people don't realize is a PRIVATE Corporation not a government agency.

This one act set the conditions for private players to enter the seen which in the long run can transfer power to private groups or individuals not Governments. If you can control interest rates and loan policy you pretty much can run the show no matter who gets elected.

[Global Scout]

With crude oil prices nearing $100 a barrel, there is no end in sight to the redistribution of more than 1 percent of the world's gross domestic product. Earlier oil shocks generated giant shifts in wealth and pools of petrodollars, but they eventually faded and economies adjusted. This new high point in petroleum prices has arrived over four years, and many believe it will represent a new plateau even if prices drop back somewhat in coming months.

"There's never been anything like this on a sustained basis the way we've seen the last couple of years," said Kenneth Rogoff, a Harvard University economics professor and former chief economist at the International Monetary Fund. Oil prices "are not spiking; they're just rising," he added.

http://www.msnbc.msn.com/id/21718926/

By way of introduction, this first post may appear to have a liberal slant to some, but only if you view our national security issues from a political party perspective, where the facts are too often confused with agendas. I have always been an independent with a slight lean to the right, but in the end equally despise both parties and pray for a viable third party.

The enclosed article has little to do with economic warfare directly, but everything to do with your facts and assumptions if you’re a strategic planner looking at future threats to our national security, and as we all know there are other than military threats. Any political party in office would attempt to deny that we are experiencing an energy crisis on their watch, so you’ll start seeing so called experts come out of the woodwork saying there is no such thing as peak oil, or increased demand, and that our infrastructure if sufficient, etc., which is another case of facts being confused with agendas. However, the government is taking steps behind the scenes to address these very real problems.

Our national level instruments for waging war, shaping behavior, however we want to phrase it are diplomatic, information, military and economic (DIME). Unfortunately, all of these instruments have been weakened since our invasion of Iraq. We can overcome this setback with a strong economy, because the bottom line is that money is still king and enables all the other instruments, and our adversaries know this, so it only makes sense that they would wage economic warfare against us to weaken our center of gravity, which is our economy.

We’re definitely vulnerable now with our national debt, foreign investment keeping us afloat, an increased demand for energy resources worldwide, and to top it off our excessive credit based economy is starting to bite us in the butt with the real estate correction and its second order effects. Add to that the costs of the long war, Hurricane Katrina, and the other disasters that are normal drains on any nation and you can see the challenge. It isn’t a disaster if we develop appropriate responses and fiscal policies, but if an adversary wants to influence our economy now with a few hostile acts (informational, military, terrorist, economic policy, etc.) it very well could be, and the way to address it isn’t by being in a state of denial.

[Global Scout]

Fabius: Excellent post on empowered individuals, I remember when the Asians were blaming on international investor for the fairly recent economic down turn in Asia. Very few investors are putting their money into the U.S. now, I even recently read that they preferred Egypt of all places for "safe" investments!

Kehenry 1: I second slapout's comments, you couldn't have phrased it better, we are dropping bombs on our own position.

What's nice about a democracy and free press is we can educate the people and throw the rascals out and create new polices.

[Norfolk]

Quote - Slapout:

I remember Nixon's comment after leaving BW "We are all Keynesian now" (reference to the UK economist John Maynard Keynes). The separation of the dollar from a gold standard to a "production standard" meaning if your country can expand it's productive capabilities it can expand it's money supply.

If your country adopts a policy of exporting it's "productive capacity" to other countries you will be in deep trouble because your currency will end up being worthless!

-Unquote

And add to that how the "production standard" is so often replaced in practice by a "speculation standard", and the divorce between apparent economic performance and real production output is not so much an indicator of real economic performance as it is an indicator of how much creation of wealth there has been for an absolute minority.

Fabius: Excellent post on empowered individuals, I remember when the Asians were blaming on international investor for the fairly recent economic down turn in Asia. Very few investors are putting their money into the U.S. now, I even recently read that they preferred Egypt of all places for "safe" investments!

Kehenry 1: I second slapout's comments, you couldn't have phrased it better, we are dropping bombs on our own position.

Agreed on practically all counts here, with all parties mentioned. Just to remind though, the events of the Asian Currency Crisis were not the result of a deliberate attempt to subvert the economic order of South-East Asia, but of a speculator handed too much rope by his own superiors trying to disguise bad investments. A deliberate plot by an individual, group, or state, could not have done a better job of disrupting the economy of entire region.

The potential of economic warfare along the lines of 4GW Theory is demonstrated here, but it is a way of war no more exclusive to 4GW actors than it is to state actors and the like. It is a capability afforded to all who possess the means at hand.

[Fabius Maximus]

Is it war when speculators from western nations damage a foreign nation for their personal profit? It's not conventional war, as we know it in the post-Westphalian order. Perhaps more like Drake and Hawkins raiding Spanish treasure ships, licensed pirates who dutifully split their take with the Crown/IRS.

For another perspective, we should ask the people of SE Asia who were reduced to poverty -- by their standards, far far below the US poverty line. I wonder what they would have deemed an appropriate response, had their nations had sufficient strength.

Have SE Asians forgotten 1997-98? If not, they might prove less-than-helpful when America hits hard times.

I strongly recommend anyone interested in modern warfare read Unrestricted Warfare. {The link I gave below no longer works}. Note these quotes:

During the 1990's, and concurrent with the series of military actions launched by nonprofessional warriors and non-state organizations, we began to get an inkling of a non-military type of war which is prosecuted by yet another type of non-professional warrior. ... Judging by this kind of standard, who can say that George Soros is not a financial terrorist? ...

We believe that before long, "financial warfare" will undoubtedly be an entry in the various types of dictionaries of official military jargon. Moreover, when people revise the history books on twentieth-century warfare in the early 21st century, the section on financial warfare will command the reader's utmost attention. The main protagonist in this section of the history book will not be a statesman or a military strategist; rather, it will be George Soros. …In addition, we have yet to mention the crowd of large and small speculators who have come en masse to this huge dinner party for money gluttons, ...

[slapout9]

And add to that how the "production standard" is so often replaced in practice by a "speculation standard", and the divorce between apparent economic performance and real production output is not so much an indicator of real economic performance as it is an indicator of how much creation of wealth there has been for an absolute minority. Quote by Norfolk


Hi Norfolk, agree absolutely and this is done through the separation of economic policy form what is called monetary policy. It is done intentionally, this not a phenomenon of nature and it allows people to make money instead of creating wealth (useful life support as opposed to changing numbers on a piece of paper) and power will accrue to a concentrated few again regardless of who is elected. It is not called war but it can create the same effect as war because you can most certainly impose your will upon them.

[Global Scout]

We believe that before long, "financial warfare" will undoubtedly be an entry in the various types of dictionaries of official military jargon.

Whose military? Perhaps the Chinese who have some thinkers who may approach war in more holisticly than simply massing their forces on so called decisive points. I can't help but wonder if when the Department of Defense was called the War Department, if it was as restricted to what we commonly call conventional warfare, or if it was more holisitic in its approach? Obviously an area I need to study more, but DoD is not capable (primarily due to authorities) to address financial warfare, so the response would have to come from another, or combination of, other government agencies, orchistrated by the National Security Advisor. DoD could help facilitate blockades, use special operations forces to conduct economic sabotage, or simply seize valuable territory such as the oil fields in Nigeria (or Iraq), but I don't think they would take the lead in developing a response. Where do we develop the strategic thinkers to address these challenges? What is their authorities?

Far out of my area of expertise, but I wonder what type of response is even possible against a non-state actor manipulating the economy through various acts of physical sabotage, subversion, etc.? If a state engages in economic warfare we should have some options, unless that state holds a power card like providing a substantial amount of energy to the emerging world economies, then our options are fewer. Does it really matter anymore if we boycott a product from country X, when every other nation in the world will pay market price for it? 4GW or not, globalism has changed the economy's dynamics and thus the potential responses to economic warfare and to deny that would be, well, to be in a state of denial.

[Norfolk]

It depends upon intentions, means, and consequences as to whether speculators are engaged in war or not. After all, the U.S. Air Force has an unfortunate predilection for friendly-fire, as not only the U.S. Army but also Allied Armies can attest to over the last 60 years or so. The means and consequences were the same for Allied troops as for Axis troops - both died in U.S. Air Force air strikes, but the intentions were much different needless to say. Furthermore, had Allied troops been so disposed, they may have mistakenly considered such repeated incidents for casus belli. But they were not so disposed, and correctly granted the U.S. Air Force the benefit of the doubt, and did not impute an intention to them that they did not have.

Similarly, no such attempt at economic warfare was ever intended by the British financial institution at the heart of the Asian Currency Crisis, though the means and the consequences were much the same as a real economic strike would have been. Utter economic ruin for many, and general economic disruption and lasting damage to lives, not to mention economies. But the intention to do such was completely lacking. That there are those that may have perceived in it either an attempt or an act of war in it reflects on their disposition towards those involved in the means and consequences, not that a war was in fact waged upon the victims by the guilty party(ies).

Fabius Maximus, the work you cite by the two PLA officers was the subject of a discussion on another board. Some of the contributors were experts or at least learned and sensible, although many were not exactly so. But the work in question reveals at least as much about the intentions of some in Asia as it does upon actual means and consequences. Where there is intention together with means and consequences, there is war, in whatever form it is waged.

Similarly, there is a difference in gravity of intentions, means, and consequences between an armed robber on the one hand, who takes down a bank and kills a few people in the attempt, or a brigand who raids towns and kills dozens, even hundreds of people, and an army that conducts wholesale pillage of a country. An armed robbery affects a relatively few people directly, and entails no substantial loss to the society as a whole, and so does not constitute war. Brigandage and piracy are more serious, being as it were organized criminal gangs, but normally amount to little more than glorified irritants to general society and as such do not rise to the level of war; where they do constitute serious threats is to small or weak societies or in striking vital targets, and they can amount to low-level warfare. An army is something with real capacity to do grave harm to a society, and when it is engaged in such, it is war.

And so to return to Hedge Funds, Private Equity Companies, and their ilk: do they wage war? They can, provided they have intention, means, and consequences that are grave, and all simultaneously. But that does not mean that they automatically are engaged in war whenever they cause serious, even grave damage, but rather crime; it does mean that they are criminals when they do so without full intention of causing such damage, rather than "warriors" deliberately engaged in inflicting such damage upon their enemies (I use the term "warriors" in an extended sense of the term that frankly sickens me to hear it used). So no, Hedge Funds do not wage war when they seriously damage economies, when they have no intention of doing so in order to deliberately harm their victims - they are engaged in crime; they are often nonethless criminals in doing so when what they do they know will cause harm, but not out of deliberate malice towards their victims.

War can be waged by anyone who simultaneously has the intention, using means, that result in serious or even grave consequences to a society or civilization, be they an individual, a group, or a state, or either of those in the service of another.

[Fabius Maximus]

Hedge funds are not criminal under our system of laws, no matter how much harm they cause. When they collapse companies or even nations, they are considered agents of the "invisible hand" (Adam Smith) spurring "creative destruction" (Joseph Schumpeter) in the interest of greater economic efficiency.

As we perhaps approach "regime change" (in the economic sense), the rules might change -- as the folks making the rules change. Creditors make the rules, probably over time becoming Asian (in a broad sense) and Middle Eastern elites. They might have different views of speculators, and enforce them.

On the other hand, history shows many instances of societies at first condemning weapons, then adopting them. Like the crossbow and strategic bombing. Perhaps other nations will adopt our methods of (in their eyes) economic warfare, but now wielded by the State (not investors) for national (not private) ends.

[selil]

One thing to mention is that Keynsian economic theory is not the only theory associated with capitalism. Buddist economics also applies to capitalism quite nicely, but is often mistakenly considered a communist ideology.

Economic warfare is not new (there were early attempts in the thread to link it to 4GW). Nation states have used proxies for economic warfare since long before the "East India Trading Company" in US colonial times. Domestic United States treaties, policies, and as example NAFTA could be considered to create hostile and protectionist policies if you are standing on the wrong side of them. Favored nation status for China, and embargo of Cuba are examples of a similar policies that could be considered equally hostile.

Economic warfare is the "E" in DIME (I guess there's something called MIDLIFE Arghhh). What is likely new is the position the United States is finding itself in with declining dollar. Whether that is totally good or bad is not an answered question and likely will be decided by historians. A declining dollar, receding industrial capability, exploding debtor status, critical energy needs, and a polarized political environment would all be considered the harbingers of societal upheavel. The US consumer though is pretty happy and not reacting from fear. The mortgage foreclosure crisis is hitting the basic consumer fairly hard but from the numbers I've seen it isn't nearly as bad as the early 80's.

The energy crisis of the 70's led to major construction projects in energy development and the last big bang (pun intended) in nuclear energy. The end of the cold war in the 80's included absolute financial recession, the savings and loan fiasco, and substantial changes in economic theory with the creating of the information economy replacing the last vestiges of the industrial economy. There are some suggestions that the replacement of the information economy (transitional actually) will be a bio-engineering economic model which the US lags seriously behind due to internal politics (see the mention of polarization above).

I'm not an expert at these things but this is what I've gleaned from my reading and it seems to make sense.

[Shek]

I remember Nixon's comment after leaving BW "We are all Keynesian now" (reference to the UK economist John Maynard Keynes). The separation of the dollar from a gold standard to a "production standard" meaning if your country can expand it's productive capabilities it can expand it's money supply.

Slap,

A clarification here - the gold standard doesn't refer to a rigid exchange rate between gold and fiat currency. Instead, it refers to the fact that one could trade in their fiat currency in exchange for gold. The exchange rate between gold and the fiat currency isn't fixed, and in fact, it shouldn't be fixed. Otherwise, you'd suffer from deflation and price instability, which is a dampener on economic growth. We only need to look back a little over a century to see how a rigid money supply (at the time, tied to the amount of gold) results in severe boom/bust cycles.

Thus, the idea of the dollar (or any other currency) not being fixed fixed to gold was nothing new at time of the Nixon Administration's decision to pull out of the Bretton Woods framework. Money supply could grow to meet production growth to prevent deflation and price instability - the difference became that you could go turn in your dollars for gold.

[Fabius Maximus]

selil correctly reports that the consensus of economists is that the housing crisis will be a normal cyclical event. This is beyond the scope of this thread, but somewhat relevent. There is a minority opinion that this is the end of the post-WWII "debt supercycle" (coined by the people at Bank Credit Analyst)

Each US economic cycle since 1960 has ended with increased household debt. At some point we reach our maximum carrying capacity of debt. That might be now. The housing credit crisis may be the precipitating event. This is known as the Minsky Cycle, and we're at the Minsky moment.

For more on the housing down cycle I strongly recommend this analysis and forecast:
"The Recessionary Macro Effect of the Worst U.S. Housing Bust Ever" by Prof Nouriel Roubini (Economist, NYU). Brief and clear.

[Shek]

Shek, it is not hyperbole to say this is "potentially a regime changing event". Most major experts in the field have said so, in one form or another. The BWII system assumes accellerating debt accumulation in the US, matched with US dollar reserve accumulation by foreign central banks.

FM,

My "hyperbole" comment is how you described the potential realignments as the end of the post-WWII financial order. The end of the post-WWII financial order was the end of Bretton Woods and the fixed exchange rate regime around the nth currency, the dollar, and its peg to gold. There have been financial crises that have come and gone since the collapse of Bretton Woods. If you were to describe the ongoing events as the potential for dollar hegemony to end, then your statement would be on the mark.

Given that, however, it is still not a big fundamental issue. There would be some rebalancing pain, but not a long-term impact. While I'm not a fan of Paul Krugman's NYT columns or his inequality crusade, he is a solid international economist, and I offer up the following two pieces written by him on the impact of the end of dollar hegemony.

http://web.mit.edu/krugman/www/seignor.html
http://www.ecn.wfu.edu/~cottrell/ope...0407/0079.html