In the years after 2009, US stocks has had many risks of a new crash. This opens for a discussion about financial power.
9 August 2011
Financial Balance of Terror
By: Karsten Riise
US stocks and financial power are going down big time these days (at the time of writing - see stock-chart figure below). China can take tough steps that will further break down the informal empire of the USA.
Let us take a look at China's vital interests:
China needs to secure its access to Oil and raw materials
China sees, how US military controls China's security of raw-materials from the Middle East, Africa and even materials like copper from South America. From a pure military point of view, China has an interest in making the US crisis so bad, that the USA will be forced to cut down the power of US military around China.
This will be the fastest and cheapest way for China to secure a free position in relation to the USA. If China tries to build up its forces to the blown up level of US Forces in Asia, The Pacific, The Indian Ocean, The Middle East and Africa, it can cost a trillion, take many years, and the USA can easily be tempted to risk some problematic kind of military pressure on China, before China gets too far.
China mustFinanc already have recognized that USAs debt is bad value
According to China's Xhinhua news agency, China's own rating agency already degraded the value of US government papers last year. Probably 60%, or $ 1,800 billion of China's $ 3,000 billion in foreign exchange reserves are US dollar debt papers (the exact amount is a state secret). For all practical purposes, if China starts to spend these $ 1,800 billion, they will have a much smaller worth,
because market values of US debt papers will be pressed, and if spent internationally, the dollar rate will also go down. If China presses the USA with chunks of sell-outs of US government debt papers, their value will fall on the market, but that will just reflect old realities.
In fact, China's foreign exchange reserves double every 2-3 years - so why should China not buy some international freedom for all this money?
China does not depend on exports to the USA
China is strong enough to make its own internal growth. China's export to the USA was $ 365 billion, just 23% of China's total exports in 2010, according to USChina.org. Even though Chinese exports to the USA still have very high growth rates, other markets long-term have more growth-potential than the USA:
Latin-America, Asia, Africa and the Middle-East.
In order for China to be free to continue to grow, China may want to liberate itself from USAs military control of Oil and rawmaterials. The US military is even built up with money lent from China. If China accepts losses by selling out US debt papers, China can sharply increase the interest rate of US government debt, and force the USA to big military cuts. A down-turn in the USA will even make oil and raw materials cheaper. And poor Americans will need cheap products even more. Chinese exports to the USA fell 12% in 2009, but rose by a fine 23% in 2010.
A new Financial Crisis 2.0 may benefit China in many ways.
Chinese moves against USA
Last Saturday 6 August 2011, the Chinese state news agency Xinhua sent the following hard message to the USA:
".. if no substantial cuts were made to the U.S. gigantic military expenditure and bloated social welfare costs, the downgrade would prove to be only a prelude to more devastating credit rating cuts, which will further roil the global financial markets all along the way."
Xinhua, 6 August 2011
In the coming weeks, expect China to put high pressure on the USA with silent or open threats of selling out of China's US government bonds in a ways, that will break down USAs economic power. Especially, what China does not want, will be if the US national bank again prints fresh dollars to buy up US government debt in order to 'stimulate' the US stock-market (socalled 'Quantitative Easing').
Everytime the US national bank prints dollars to buy $ 600 billions of US government debt papers, then China could sell US debt papers for $ 600 billions and buy Euro, gold, Oil or African railroads and mobile phone companies instead.
If this is not enough for China, then China can sell out chunks of $ 300 billion US government debt papers. China will gain power and cheaper Oil, but also China may force the USA to let China buy US technology companies, transport and communication - and US companies will even become cheaper the more China lets the US economy sink.
The word 'globalization' will take on a whole new meaning, if China buys some of USAs most valuable companies.
A new global world
China has got its own instabilities and problems. Crisis 2.0 will also challenge China, and many things inside China can break. On the other hand, Crisis 2.0 has already started and Crisis 2.0 cannot be stopped anyway. The USA has never been afraid of putting hard pressure on other nations. Therefore, China might as well act in a tough business way to optimize its chances to get the best out of the fall of the US Empire.
It may be China's biggest opportunity in 1000 years.
Karsten Riise
Partner & Editor
CHANGE NEWS &
CHANGE MANAGEMENT
