Economic Warfare?

November 17, 2008 – Is the U.S. under attack, in the form of economic warfare?

By The Cerebral Aesthetic Vagabond

I had sort of an epiphany this morning regarding the incessantly growing U.S. debt situation. For a long, long time I’ve wondered how the U.S. debt can simply keep growing. In particular, why do the creditors to the U.S. keep lending to the U.S.? This is a question I’ve asked myself for years, especially following my recognition some years ago that paying back all the debt accrued up to that point was impossible.

One could cavalierly assert that our creditors are “stupid,” but I doubt that’s the case. Even if the leaders of various countries aren’t too bright, they certainly have subordinates who are sharp enough to recognize the same problem that I have.

One could attribute the continuation of lending to an insolvent debtor to momentum and the difficulty of changing course. There’s a certain validity to this view, but one who recognizes a problem and doesn’t change course is a fool, and I don’t believe our creditors are fools.

One could assert that the world economy revolves around U.S. dollars, so the world has no choice but to prop up the value of dollars. This is true, yet one would expect to witness at least baby steps toward an alternative, and I think we are witnessing that today. Still, this view doesn’t afford me a satisfactory explanation for why countries such as China keep lending us hundreds of billions of dollars every year.

In China’s case I had another epiphany recently: that China was propping up the U.S. in order to acquire its manufacturing base, which, over the long run, is worth a whole lot more than the trillion or so dollars China has lent the U.S. By lending to the U.S., China maintains the flow of exports to the U.S. That, in turn, gives U.S. manufacturers an incentive to relocate to China to reduce labor costs. China slowly builds a new manufacturing infrastructure, while the U.S. goes deeper into debt. China must recognize that in relinquishing its manufacturing base, the U.S. is even less able to repay its debts, because manufacturing is a fundamental source of wealth generation. So my guess is that China has a broader, longer range objective than merely getting its loans repaid. In the meantime, maintaining the flow of exports aids China’s domestic political climate, as it keeps hundreds of millions of workers gainfully employed instead of rioting. If in the future economic warfare deteriorates into hot warfare, China’s possession of a powerful manufacturing base, at the expense of the U.S.’s loss of such, would give it an advantage. It was the U.S.’s powerful manufacturing base that gave it a distinct advantage during World War II.

Yet even this epiphany doesn’t explain why other countries, notably Japan, Russia and the Middle East oil countries continue to lend to the U.S., since they are not acquiring its manufacturing base. As usual, I think the full explanation is multifaceted. That is, there isn’t a single explanation that applies to all parties involved.

One explanation that does encompass more parties is that they are engaged in economic warfare against the U.S. I’m not paranoid in the sense that I think all the countries of the world are out to “get” the U.S., although they certainly have cause! However, some countries have more such motivation than others, namely Russia, China and some of the Middle East countries. Frankly, I’m surprised and disappointed that some Middle East countries have not taken a stronger stand against the genocide that Israel is perpetrating against the Palestinians. But perhaps they are, through the back door. (Disclaimer: my family is Palestinian, so my views on this matter are obviously biased.) I read a fascinating article this morning which catalyzed my epiphany about economic warfare. The article, titled Sharia Finance: Last Gasp of a Doomed American Economy, described how the U.S. is so desperate for money today that it’s being forced to accept whatever conditions its creditors, such as the Middle East nations, wish to impose. Among other things, borrowers are required to make donations to Islamic organizations. Now, I’m not religious, so I couldn’t care less about the distinction between Islam and Christianity. What intrigues me about this article is that the people who have money are now in a position to dictate the behavior of those who need money, and are doing so.

My observation about the subservient relationship of debtors to creditors may explain why our creditors continue lending to us: they want us deep in debt so they can call the shots. In other words, instead of invading and occupying the U.S. the old fashioned way, they are taking control of the U.S. economically. Therefore, the deeper in debt the U.S. becomes, the better. And once the U.S. is hopelessly in debt to foreign entities, if it refuses to submit to their will, then the foreign entities can take the drastic step of “pulling the plug” and effectively destroy the U.S. economy, again, without firing a shot.

Viewed in that light, the continual lending by China, Russia and the Middle East countries makes perfect sense. But what about Japan? Well, Japan is a polite nation, but an ambitious one. I would expect that Japan would seek to increase its influence over world affairs quietly, such as by lending the IMF money. Since the IMF plays such a vital and growing role in world finance, being a lender to the IMF, as Japan seeks to be, confers considerable influence upon that lender. Eventually, even the U.S. may have to submit to IMF dictates, which would then give Japan indirect influence over the U.S.

Many people will scoff at the idea the other countries are waging economic war against the U.S. right now. It sounds outrageous, but why? I’ve long wondered why the rest of the world tolerates the U.S.’s belligerence and hegemonic goals. Well, maybe the rest of the world has had its fill and is doing something about it, in the least painful, least destructive, least risky and most fruitful manner, by reducing the U.S. to a dependent debt junkie.

Were the U.S. Government to recognize that it’s under “attack,” it might retaliate in kind, say, by taking down the price of oil. After all, a lower oil price benefits the U.S. and hurts both Russia and the Middle East oil countries, two of its potential adversaries in this putative economic war. Taking down the oil price incidentally harms Venezuela – icing on the cake from the U.S. Government’s perspective.

The End