Thursday, October 25, 2012
Is The World Abandoning The U.S. Economy?
Guest Post by Brandon Smith of Alt-Market blog,
Go to any university, any center of equities trade, any meeting place for financial academia, any fiscal think tank, and they will tell you without the slightest hint of doubt in their eyes that the U.S. economy is essential to the survival of the world. To even broach the possibility that the U.S. could be dropped or replaced as the central pillar of trade on the planet is greeted with sneers and even anger. But let’s set aside what we think (or what we assume) we know about the American financial juggernaut and consider the sordid history of the money powerhouse myth.
Germany, especially in the decade leading up to WWI, was an industrial giant, rivaling Britain in the production of raw commodities like steel, as well as the banking envy of the world. I’m sure very few economists of the era would have given any credence to the idea that the German foundation would in the near future collapse into hyperinflationary ruin. However, that is exactly what it did. In the span of 10 to 15 years, Germany was completely supplanted as the shining beacon of economic prosperity, never to return to a similar glory.
The British Empire from WWII up until the late 1950’s was the primary force in the global trade of oil, and the pound-sterling was dominant in the export and import of raw petroleum between nations. Extreme debt obligations and draining interventions in the Middle East set Britain on the path to currency devaluation, and the loss of its coveted reserve status.
The point is, there is no such thing as an invincible economy, especially if it is predicated on overt debt creation, fiat printing, and reckless foreign policy. When it comes down to the raw data, the American system is just as fragile as any corrupt third world shanty-town nation.
The possibility of a U.S. without financial hegemony is very real. To understand that this possibility exists is one thing; to understand that the process of destabilization has already begun is another. Many analysts with their heads stuck in the mainstream clouds attempt to argue against the “theory” of foreign markets decoupling from the U.S., not realizing that their entire debate platform is pointless because the decoupling is happening right under their noses…
The recent press covering the ongoing plan by BRIC nations (or “BRICS” if you count the latest bilateral agreements with South Africa) to establish their own supranational banking hub merely highlights the fact that developing countries are not simply “talking” about decoupling from the United States, they are taking actions to make it happen:
The response from mainstream financial analysts is, of course, that the project for a BRIC bank will fail. Their argument, however, usually revolves around the assumption that this new central bank is designed to “compete” with the IMF, and is a merely an overreaction to the IMF and World Bank’s failure to give developing nations more inclusion in decision making processes. I see no evidence that the BRICS are trying to create a counter-system which would conflict with IMF control. Instead, it would seem that the BRICS are much more interested in forcing the issue of greater inclusion, and garnering greater favor within the already existing IMF structure:
Last year the G20 discussed heightened participation by China and the BRICS in the IMF’s global basket currency, the SDR. French Finance Minister and later “elected” IMF chief Christine Lagarde agreed with the idea while stating that certain conditions, including appreciation of the Yuan’s value, would have to take place:
Contrary to the belief that the BRICS are building opposition to the IMF, China has on several occasions called for the EXPANSION of the IMF’s power, as well as widespread circulation of the SDR:
How have the MSM talking heads missed this trend? Simply put: Bias, controlled and pre-written talking points from their editors, as well as many half-baked presumptions. The popular belief amongst financial academia is that the IMF is a product of American economic might, and that the organization will do whatever is in the best interests of the U.S. at all times. The reality is that the IMF is fast becoming the central authority of economic operations around the globe, and America just happens to be paying the largest “tithe” to the respective coffers of the banking syndicate. Do you get more control in the operations of the IRS when you pay more taxes?
The IMF’s goal is world centralization of economic control. For them, any sovereign nation is expendable in pursuit of the end game, including the United States. The IMF would not be pushing the issuance of a new world reserve currency to unseat the dollar if they did not intend to follow through, and they certainly would not hobble the greenback if they cared in the slightest about American economic concerns.
Rather than running counter to the IMF, BRIC partners and the newly realized ASEAN bloc are making themselves indispensible to the globalists, ensuring wider partnership in the near future. A BRIC central bank is, I believe, a bargaining chip to be used to open the door to more leadership in the IMF while reducing American influence. To summarize, the BRICS are not in conflict with the IMF, rather, they are in conflict with the U.S., and this conflict is coming to a climax…
Trade amongst BRIC nations continues to climb while exports to the U.S. have diminished. Between 2001 and 2009, exports and imports between BRICS skyrocketed, even amidst the derivatives collapse:
Last year, ASEAN overtook Japan as China’s third largest trading partner. With the announcement of increased participation by Japan in the ASEAN bloc this year, the economic body looks poised to eclipse the U.S. and perhaps even the EU as China’s primary source of export and import business:
Meanwhile, overall exports around the world have dropped for five consecutive months in 2012 on slowing demand in the West. The expectation of a massive resurgence in consumer demand from the U.S. has been proven unfounded, while the recession in the EU is exacerbating the downturn. U.S. exporters, who not long ago held dreams of foreign buyers clamoring for goods in the midst of Federal Reserve inflation and dollar devaluation, have discovered that they are instead floundering:
The mainstream claim is that this is due to a breakdown in general Chinese demand, but with exponential bilateral trade deals (many of which cut out the U.S. dollar completely as a reserve currency) being made between China and major producing and consuming countries, it is clear that this is not just a demand issue in China; it is an ongoing process of removal of the U.S. from the trading picture. That is to say, China is deliberately reducing purchases of U.S. goods and turning towards BRIC and ASEAN partner countries to fill the void. This may be the reason why China recently surpassed the U.S. as the top sanctuary for foreign investment:
A Treasury report on China’s status as a “currency manipulator” already due but now delayed until after the elections may become the catalyst for the final phase of the global shunning of American markets. With China being presented as a primary issue during the presidential debates, it would seem that regardless of who “wins” the election there will be strain applied to Chinese trade relations.
China’s incredible gold buying extravaganzas over the past few years (including an estimated 500 tons in 2011 and another 500 tons so far in 2012) indicate that they are indeed hedging against what they obviously expect will be devaluation in the dollar or multiple currencies around the world including the dollar. India continues its long tradition of gold buying, while Russia is now increasing its reserves by half-a-billion dollars a month. These are the actions of countries getting ready for a break in the financial system, not a recovery, and certainly not a return to the old days of American consumer bliss.
The argument over whether or not the BRICS and the rest of the world can drop the U.S. economy and move onward has, ultimately, been rendered obsolete. Many will claim that a decoupling is impossible, but the fact remains that a decoupling is taking place. The consequences of this fiscal divorce remain to be seen, and the mainstream could very easily predict disaster for the BRICS. The real question they should be asking themselves, though, is which countries are better placed to survive such an event? Is the U.S. economy really built to withstand a loss of the dollar as the world reserve currency? Is the U.S. prepared for plummeting foreign investment and a reduction in its already dismal production capacity (production taking place by Americans on American soil, that is)? Is the U.S. really ready for extreme inflation in imported goods (most of the goods we consume)? Who really needs who more? It is time for the pundits and average Americans alike to set aside their commercialized and subsidized fake patriotism and question how strong our economy truly is. To ignore vast weakness today, is to feel vast pain tomorrow…