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Monday, October 13, 2008

Memo to America's enemies: Be careful what you wish for

Sol Sanders writes the "Asia Investor" column weekly

The anticipated catcalls from Beijing and Moscow – as well as the usual suspects in the British and Continental and Indian leftwing media – had hardly echoed when the truth dawned on them. The financial screwup that had temporarily wrecked the American economy was the end of Washington’s dominance of the world, the schandenfreudians screamed. For the nth time, the early predictions were for an end to “the unipolar world” and the start of a new multipolar dawn in international relations minus American paramountcy that would bring nirvana. The verdict was unanimous among the usual suspects not excluding the Mullahs in Iran.

But not so fast.

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This time it wasn’t a call on American aircraft carriers for help with victims of a tsunami or emergency food for a starving North Korea or Ethiopia [although those latter requests were coming in again if muffled by the cacophony]. Still the call came just the same, a plea for American leadership. It was a plea that the U.S. get its economy back on track and booming lest the rest of the world fall into an even deeper trap than had befallen the Americans with their 401ks. And when it became apparent that the EU couldn’t get its act together, that the Chinese were cowering fearing a collapse of their financial system, and the Indians tempted to reverse their exit from Soviet-style planning, the world’s finance ministers gathered in Washington for a pep rally from President George W, Bush, the object of so much recent derision.

If the U.S. had been on a drunken binge of leading to borrowers who couldn’t pay in the mortgage market, wrapping it up in undecipherable digital accounting and then peddling part of it to the rest of the world financial community, there were other aspects to the credit orgy. The American forcing of its domestic economy and selling its increasing international debt – especially to the East Asians -- was in exchange for providing the markets for their export-led economies to try to scramble into the modern world.

China, lowering its return to its domestic householders masochistically lending into a banking system that had been bankrupt from its inception by other world standards, is facing a sharp downturn in its growth if the U.S. recession bites hard. Even before the crisis hit the headlines, GNP estimates were at least two or three percentage points below the double-digit growth Beijing has claimed for years. Its exports – largely profitably with all the subsidies only to the U.S. and the EU -- three-quarters of which are in the hands of the multinationals, are at least one-third of the GDP. However much the Chinese Communist politicians might gloat over Washington’s problems, hoping it would reduce the U.S. commitments to defense and stability of its allies in East Asia, they feared even more a drop in the velocity of the American economy and its maw for imports which would, in turn, cripple the Chinese economy. That would bring on even greater social friction that has been mounting steadily as unemployment, rural stagnation, health destructive pollution, and systemic corruption have grown exponentially.

“The blood of the global economy has begun to freeze right from its heart – the United States,” Ha Jiming, chief economist at China International Capital Corp., wrote in a research paper, predicting China's economic growth would drop for at least the next three years. Amen.

The other Asian behemoth, which has just welcomed a patchwork Bush Administration effort to deliver nuclear technology and other high tech goodies for an energy program and to bolster an expanding market in the U.S., was also feeling the cold wind. The Indian stock market, which has lived largely on inputs from Indian NRIs [non-resident Indians], many of them holding high tech jobs in the U.S., was drooping. Mumbai's Sensex index boomed with last year's $17 billion inflow but turned tail with an $8 billion net outflow already in 2008, sending the rupee down nearly 20 percent and more to come.

“Nobody is making a case for liberalizing the Indian financial markets any more. The liberalized financial markets [elsewhere in the world] are going back to ... getting nationalized,” says Anand Tankon, director of equities at Brics Securities, a Mumbai-based stockbroker, told the Financial Times.

That’s all very well. But how is an undercapitalized Indian economy to feed a population soon to surpass China’s 1.3 billion – with much of it already suffering from malnutrition in abject poverty -- if it does not liberalize its banking system and encourage more foreign investment with its attendant technology transfers. That, too, in a world which is now going to feel the capital squeeze as it has not for decades. Those Ambani brothers, building the largest refinery complex in the world on India’s west coast, which aimed at selling product to the U.S. West Coast and the muallahs in Iran from next spring will have to dip into what were the world’s largest personal fortunes to get them through the rough period ahead.

Moscow’s demagogic Vladimir [Ras] Putin was sending his only viable warships into the Caribbean to rendezvous with his pal Venezuelan Dictator Hugo Chavez and bumping U.S. radar with a remnant of the once illustrious Soviet fighter-bomber force. That was supposed to regain Moscow’s position as a superpower, or one the multilateralist machers in the new setup. But the half trillion of currency reserves was dwindling rapidly as Russian officials turned on and off its stock market to stop the rout and poured tens of billions of dollars from spiked hydrocarbons receipts [virtually Moscow’s only export industry] to bolster banks and slow the capital flight. Not even Berlin’s drang nacht osten is going to help that plight – and, in fact, a lot of German companies are going to have to revalue their huge Russian investments and loans. With oil plummeting toward the old Persian Gulf production levels and OPEC threatening to curb production – hardly likely with the Gulf oil sheikhs head over heels in their own over expansion -- Gazprom’s boasts that it was immune to what was happening rang as hollow as such statements had earlier from the Europeans and the Chinese.

All of this to say that like reports of Mark Twain’s death, the writing off of America’s paramount position in the world economy and geopolitics may have been a bit premature. Unipolarism was never as powerful as it appeared to some of its critics, both domestic and foreign. No one seems to remember that it was the long failure of the United Nations to act on Iraq which finally produced the U.S. invasion of Iraq to halt what the whole of the world intelligence community believed was the building of a rogue nuclear power. And certainly attempts at multilateralism have never produced the magical results that many of its proponents, domestic U.S. and foreign, have argued it would at the UN. [Genocide continues unabated in Darfur with the assistance of the Chinese and Soviet veto!] Even the minor multilateral attempts to halt the nuclear arming of pariah regimes in North Korea and Iran [the Chinese supposedly chairing a six-power group in East Asia and the EU reps jawing with the Iranian mullahs for years] are still up for grabs.

Back in the early 1930s when he had created the revolutionary periodicals Life and Time – one gone completely, the other now a parody, degraded by the digital revolution eroding all print media and contemporary Time’s penchant for political correctness and mediocrity – Henry R. Luce coined the phrase “The American Century.” The statement came after Pearl Harbor in the depth of a disintegrating military situation in Europe and in Asia against the Axis Alliance. It didn’t seem likely in those twilight days of European colonialism as the world still struggled, fitfully, to escape the Great Depression, that victory in World War II would usher an era of peace and prosperity – the longest one Europe has known in modern times – and a flock of independent states in Asia and Africa, for whatever they have done with their new freedom.

It’s not just Pollyanna to say that 1] American dominance and leadership is still paramount even if Wall Street [largely with the aid of the Democrats] has stumbled badly, and 2] the spirit of flexibility and perseverance which has always characterized the American ethos will still be needed – and hopefully around – for what could be The Second American Century.

Sol W. Sanders, (, is an Asian specialist with more than 25 years in the region, and a former correspondent for Business Week, U.S. News & World Report and United Press International. He writes weekly for World and

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