The key means of US imperial dominance are Economic, linked to that is political, and military dominance. As US economic power declines its global political and military power is also on the wane.
Pushing for a depegging of the Renminbi from the dollar makes sound financial sense for the US Treasury. Basically it enables the US manufacturing sector to become more competitive with China and hopefully in their minds, allows the US to close its still massive current account deficit. In the short to medium term therefore it could be a boon for the US economy; it could also increase US tax receipts as it would boost US corporate earnings. From this the US government could start to reduce its yearly deficit (although not its overall deficit which will still continue to balloon). So in the short term it makes perfect sense.
But... in the long run this spells the final deathknell for the Bretton Woods system, the final end of US financial and economic hegemony. The US Empire has been in decline since the 1970s. Vietnam represented the end of the idea of an Omnipotent US Empire that could and would do anything to stop the spread of Communism. From then on successive US governments had to chose their wars wisely, conflicts that could be easily won, for instance Grenada, the Gulf War et al. These were wars where US soldiers would be greeted as a liberator. This was to an extent trial and error, sometimes they chose well, but Somalia is an example of a bad choice.
9/11 changed the game, yet again a US administration sort to impose its will on the world; the Iraq War has multiple causes but the three that stand out are Geo-political power in the mid-east, punishing a pariah in order to show that disobedience is not an option in the US dominated world system, and third to open the Iraqi oil reserves up to foreign investment. The war showed the weakness of US military might, but also the inability of a US administration to create an obedient state with military might. It also further indebted the US federal government; when you combine this with Bush's extremely short sighted Fiscal policy (tax cuts), you have an extremely big issue. Add the current banking mess, and economic decline of the United States and you have a perfect storm. The United States today is very close to where Britain was just before it lost its empire. It is a classic example of imperial overstretch, hubris and economic decline.
The Renminbi issue is the final piece of this chain, if the Renminbi is depegged against the dollar it will no longer be a currency subservient to the value of the world's current receive currency. It will compete with the dollar on a level playing field. Now China is growing astonishingly quickly, if the depegging does not disturb this rate of growth, then the Chinese GDP will overtake the United States in the next 20 years. The Dollar has been debased by US imperial overstretch, these debt levels are not sustainable. If the Renminbi is decoupled then the dollar will gradually lose alot of its value. It will no longer be a sound currency because the debasement will make US government debt a bad investment. Therefore this decoupling will result in the end of the US dollar as the global reserve currency, and it will most probably be replaced by the Renminbi.
This will mark the beginning of modern Sino-centric world order. A move away from the current Pax Americana that will live in.
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4 comments:
Hey man! this is an excellent essay, You sound just like a very good economist whilst also including loads of other factors! very impressed.
Peter Atkins
Comrade, that's very nice of you to say. Your blog has some lovely aphorisms and poems. You think in such a different way to me, the density of meaning in every word is so much higher...
two things to say, this is a really speculative piece, but..
1. the british empire was still going strong despite losing money in india, look for the real profiteers rather than viewing this solely from a governmental standpoint
2. the chinese economic system is highly dependant on american patronage (private american/western corporations), the shrewd chinese economists will never allow the value of exchange to be unfavourable to exports (ie raise it against the dollar)
Omar, first point when the British abandoned the gold standard that was the beginning of the end of the British empire, isn't that right?
Second China is only dependent in the short term, in the long term the dependency will be the other way.
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