The hot debate in the United States is over the nuclear deal with Iran, the results of the Israeli election, Ukraine, ISIS, or some celebratard’s Tweet. Yet all around us the world is dramatically changing and no one in the US seems to notice. The US dollar is losing hold as the dominate currency in world trade. The debt ceiling in the Federal Government comes and goes without a bat of an eyelash in concern.
All the while two historic powers are rising again having joined forces to hasten our demise, Russia and China, yet here at home the same play book of scare tactics from my youth are being broadcast over-and-over in my daily dose of government propaganda.
China and Russia have taken the lead in establishing the Asian Infrastructure Investment Bank (AIIB), seen as a rival organization to the World Bank and the Asian Development Bank, which are dominated by the United States with Europe and Japan.
These banks do business at the behest of the old Bretton Woods order. The AIIB will dance to China and Russia’s tune instead.
The geopolitical importance was immediately evident from the US’s negative reaction to the UK’s announcement this week that it would join the AIIB. And very shortly afterwards France, Germany and Italy also defied the US and announced their membership into the new club. In the Pacific region, one of America’s closest allies, Australia quickly joined with New Zealand catching up the rear. The list of US allies seeking to join is growing. From a geopolitical point of view China and Russia have completely outmaneuvered the US, splitting both NATO and America’s Pacific alliances right down the middle.
• In 2002 China and Russia formally adopted the founding charter for the Shanghai Cooperation Organization (SCO), an economic bloc that today contains about 35% of the world’s population, which will become more than 50% when India, Pakistan, Iran, Afghanistan and Mongolia join, which is their stated intention. Russia has the resources and China the manufacturing power to develop the largest internal market ever seen.
• In October 2013 George Osborne was effectively summoned to Beijing because China wanted London to be the base to develop renminbi-denominated financial instruments. London has served China well, with the UK Government even issuing the first renminbi-denominated foreign (to China) government bond. The renminbi is now on the way to being a fully-fledged international currency.
• The establishment of an infrastructure bank, the AIIB, will ensure the lead funding is available for the rapid development of road, rail, electric and electronic communications throughout the SCO, ensuring equally rapid economic development of the whole of the Asian continent. It could amount to the equivalent of several trillion dollars over time.
The countries that are applying to join the AIIB realize that they have to be members to access what will eventually become the largest single market in the world. America is being frozen out, the consequence of our belligerence over Ukraine and the exercise of our perceived economic power through the dollar. America’s allies in South East Asia are going with or will go with the new AIIB, and in Europe commercial interests are driving America’s NATO partners away from us, turning the Ukraine from a common cause into a festering liability mired in financial insolvency and endless civil unrest.
The more one thinks about it, the creation of the AIIB is a masterstroke of tactical genius. The outstanding issue now is China and Russia will need to come up with a credible plan to make their currencies a slam-dunk replacement for the dollar. We know that gold may be involved because the SCO members have been accumulating bullion; but before we get there China must manage a deliberate deflation of her credit bubble, which will be a delicate and dangerous task.
Unlike the welfare-driven economies in the west, China has sufficient political authority and internal control to survive a rapid deflation of bank credit. When this inevitably happens the economic consequences for the west will be very serious. Japan and the Eurozone are already facing economic dislocation, and despite over-optimistic employment numbers, the US economy is a paper tiger propped up by news reports, rosy stock market results, and an unwillingness of average citizens to look coldly at the reality they face. The last thing America and the dollar needs is a deflationary shock from China.
Yet, it is exactly what will get. China knows to assume the role of the dominate currency for international trade, one must drive your competitors to the bottom. See the Federal Reserve with QE1,2,3,……………………
The following is simply my opinion rooted in the facts being reported around the world, but worry not …………..
Iran doesn’t need a nuclear weapon to bring America to her knees, just two financially strong allies in Russia and China…………….couple with an American population still fighting the wars of an era gone by.
History is unkind to those who continually ignore her lessons.