Weekend Reading; see how the world changed last week

Contents

I.  “The Trillion-Dollar War“, Reason (May 2008) – “The War on Terror is now more expensive than Vietnam or World War I—but the dishonest way Washington is paying for it may prove costliest of all.”

II.  “The Uneven Playing Field“, New York Times Magazine  (11 May 2008) – An illustration of the militarization of our culture.  Warriors without a war.

III.  ”My ‘Racial Harassment’ Nightmare“, New York Post ( 9 May 2008) — Freedom slips away quietly, in incidents like this.

IV.  ”‘Deafening’ silence on analyst story“, Politico (8 may 208) — Pity those of our fellow-citizens who rely on the major TV networks for their news, as they learn all the news that is “fit to see.”  We are forutnate to have so many information media; this is an important bulwark of our freedom.

V.  ”Taking the War to the Mexican State, 4GW Style“, Zenpundit  (9 May 2008) — Excellent analysis of ominous trends in our southern neighbor.

VI.  “Taking stock of the dollar’s global role“, Brad Setser, RGE Monitor  (11 May 2008) — The role of the US dollar is imo one of the central geopolitical questions of our time, like the fate of the Austro-Hungarian Empire was before WWI. 

VI.  “The de facto nationalization of the global financial system“, Brad Setser  (8 May 2008) — Wave bye-bye to the global free market system.  This is imo one of the great under-covered stories of the decade.

The articles and excerpts

Our metastable Empire, built on a foundation of clay

More thoughts on the “dreamland” described by Wolfgang Schivelbusch in The Culture of Defeat.   In the concluding chapter he says…

The West’s victory in the Cold War was, however, the first to be achieved explicitly by the economy in its own name.  Perhaps it is for this reason that the economy received a new nom de guerre:  globalization. 

… The growth in the economy’s power and prestige after 1990 was not confined to its functional efficiency but came to touch areas of society previously monopolized by religion and nationalism.  if people looked toward anything in the hope of salvation or in fear of damnation, it was increasingly the economy.  having lost faith in God, the nation, and utopian politics, they credited the economy with the power to both create paradise on earth and to destroy life as they knew it.  In the West, the threat of collective extinction attached no longer to war — which had in any case become a long-distance media event — but rather to the economy, with its doubt threat of devastating the environment and wiping out jobs

Like Minerva’s owl, our faith in Mammon may have come too late.  A grim future of geopolitical and economic problems presses on our imaginations as we see the end of our hegemonic delusions, founded as they were on unlimited borrowing at low interest rates.  In response we retreat into comfortable dreams.  We can elect leaders with vast ambitions (foreign for McCain, domestic for Obama), but can no longer afford them.  

Framing current events about the global economic and geopolitical system

The daily newspapers display events as string of beads.  Discrete, unrelated.  That masks the key to understanding what is happening:  the systemic drivers at work.  This is in my opinion not a series of isolated events or even a cyclical downturn.  We are experiencing a change in the fundamental structure of the global economic regime.

You might find this series of articles of value to properly “frame” these events, listed from old to recent.  Please share your comments (brief and relevant, please), or email me at (spam-protected spelling) fabmaximus at hotmail dot com.

A brief note on the US Dollar. Is this like August 1914?  — How the current situation is as unstable financially as was Europe geopolitically in early 1914.

The post-WWII geopolitical regime is dying. Chapter One  – Why the current geopolitical order is unstable, describing the policy choices that brought us here.

We have been warned. Death of the post-WWII geopolitical regime, Chapter II – A long list of the warnings we have ignored, from individual experts and major financial institutions (links included).

Power shifts from West to East: the end of the post-WWII regime in the news – We are seeing another western industry ceding dominance to eastern competitors, one more step in a larger process.

Death of the post-WWII geopolitical regime, III — death by debt – Origins of the long economic expansion from 1982 to 2006; why the down cycle will be so severe.

A recommendation to read these bulletins from the front! – A brief note on today’s articles in the NY Times and Financial Times, with Brad Setser’s explanation of why they are important.

We have been warned. Death of the post-WWII geopolitical regime, Chapter II

Our descendants will wonder how America fell from a pinnacle of prosperity and power such as the world has never seen. Our policies for the past thirty years have been both astonishingly foolish and broadly supported by America’s elites (Left and Right). This note focuses on the core of our irrational economic policy, the “twin deficits” — the growing liabilities of the Federal Government (actual debt is only a fraction of this), and the current account deficit (US consumption in excess of our income, financed by foreign debts). Like any drunken binge, this felt good. Now a new day dawns, and the hangover.

We have been warned. Here are a selection of warnings from 2003 and 2004, given by a wide range of experts and institutions. This list could easily be extended both backwards and forwards in time; a few such are included to illustrate this.

As noted in Chapter I, warnings given with sufficient lead time to avoid disaster — allowing battleship America to avoid the ice ahead — were derided as obviously false. Only sightings of peril directly ahead — too late for corrective action — can gain the attention of America’s elites and citizenry.

Now the time for warnings has passed, as we no longer can avoid what lies ahead. The following materials tell what we need to know: our situation, the danger, and how we got to this point. The geopolitical implications will be the subject for a later chapter.

To see Chapter I of this series: The post-WWII geopolitical regime is dying.

The Impact of the Euro on the International Monetary System, Robert A. Mundell (Nobel Prize for Economics), The International Speculator (April-June 1998) Excerpt:

Economic Warfare

There is an excellent discussion of this important and timely topic at the Small Wars Council.  I strongly recommend dropping in!  Here are a few comments.

 1.  4GW war is a just a conceptual tool, but a useful one.  Debates like these show its power, generating new perspectives.  Look at the comments posted at SWC.  Note how they assume that States are the only significant actors.  4GW suggests that this is not so. Major states, the important ones in global finance, tend to be reactive, incrementalist, slow, and conservative.  For example, it is as likely that the head of the People’s Bank of China will push the red button on his desk – instantly selling a trillion+ dollars of US bonds – as President Bush firing off ICBMs at China. But private actors are major players in global finance.   a.  Asian and European institutional bond investors hold hundreds of billions of US bonds.  Their losses as the USD loses value, esp. the EU investors, have been horrific. 

b.  Hedge funds wield over a trillion dollars in assets, far more than when they wrecked Europe’s Exchange Rate Mechanism on Black Wednesday 1992, or initiated a depression in SE Asia in 1997.

 

c.  US investors in foreign bonds, esp. in Canadian, Australian, and Euro bonds, have had large returns. 

 

Relatively small moves by US or international investors could destabilize the dollar – currency flight.  Or a massive move against the dollar by speculators could do so. 

2.  We would know if we were on the brink of a crisis, wouldn’t we?

 WWI was inevitable and obvious, the result of growing tensions in Europe.  Or so the standard history reads.  William Lind says…

One pebble touched off an avalanche.  It did so because it occurred, not as an isolated incident, but as one more in a series of crises that rocked Europein its last ten years of peace, 1904-1914. Each of those crises had the potential to touch off a general European war, and each further de-stabilized the region, making the next incident all the more dangerous. 1905-06 witnessed the First Moroccan Crisis, when the German Foreign Office (whose motto, after Bismarck, might well be, “Clowns unto ages of ages”) compelled a very reluctant Kaiser Wilhelm II to land at Tangier as a challenge to France. 1908 brought the Bosnian Annexation Crisis, where Austria humiliated Russiaand left her anxious for revenge. Then came the Second Moroccan Crisis of 1911, the Tripolitan War of 1911-1912 (a war Italy actually won, against the tottering Ottoman Empire) and the Balkan Wars of 1912-13. By 1914, it had become a question more of which crisis would finally set all Europe ablaze than of whether peace would endure. This was true despite the fact that, in the abstract, no major European state wanted war.

But this was not obvious to people at that time!  Harvard historian Niall Ferguson looks at the prices of UK bonds (gilts).  These show complacency right up the brink.  City investors read of the mobilization orders, panicked, and the markets imploded. Of course, we are much smarter than they.  We would know if the world was on the brink of a crisis… (I do not have a link to the Ferguson article.  Will post a link when I find it).