Tuesday, September 8, 2009

How to cease being the world's superpower in two easy steps...

... in a post, by the way, that has nothing in particular to do with either Presidents Bush or Obama.

Step One: Borrow so much money from the Chinese that you are no longer allowed to criticize them, but they are empowered to critique your performance, hint that they can crash the dollar any time they so desire, and threaten to displace the dollar as the world's reserve currency....

Step Two: Swap out your dependence on Saudi oil with a dependence on petrochemical exports from greasy Vlad Putin's Russia:

Russia has taken center stage in oil exports. For the first time Russia has topped Saudi Arabia in oil exports. Russia exported about 7.4 million barrels per day in the first quarter compared with Saudi Arabia's 7 million barrels per day.

Russian supplies of energy to the US jumped 33% in the past six months compared with a drop of 29% for Saudi Arabia in the same period.

Short-term some folks see this as good news, because Russia currently needs petrodollars badly enough to want to undercut OPEC. Long-term, however, this means that both the wizened old men in Bejing and the once-and-future-Russian imperialists in Moscow will each have acquired a functional veto over US foreign policy....


tom said...

I'm feeling slow today.

Explain to me again why it would be a bad thing for the dollar to be replaced as the world's reserve currency. Particularly if it is replaced by a commodity backed currency such as gold, rather than some sort of SDR scam.

Libertarian in Colorado said...

Tom... in general it's not a bad thing. The problem is the terms in which it happens. If China decides that they want to crash the dollar one day, they can do it quite easily.

We can take steps to prevent them from being able to do that ourselves. But if we don't address the issue, and China decides to destroy the dollar, we'll really be up shit creek.

But, the conventional wisdom is that China would never start economic warfare with the United States. That wisdom is flawed.

If you want to see the US fall apart, destroy the dollar. They can't touch our military, but they can destroy us economically.

That would be their "nuclear option."

tom said...

China doesn't have to try to destroy the US$.

Congress and the Federal Reserve are doing it for them.

Libertarian in Colorado said...

That's not true. Not as long as there is a demand (which China is currently providing).

Congress and the Fed are performing a passive destruction. China is assisting. It's symbiotic. If China didn't buy dollars, it'd all go to hell.

Right now, the difference is that China is actively moving towards lessing the blow within their own borders by encouraging internal consumption. We're digging ourselves deeper in the whole by deficit spending.

Eventually, their nuclear option won't have mutually assured (economic) destruction as a deterrent for them.

tom said...

It is rumored that the Fed is keeping the illusion of demand up by purchasing up to half of all U.S. debt offerings via proxies.