Like all his predecessors, the presidency of Barack Obama began with the inauguration, and the swearing-in ceremony that took place at 12 noon on January 20th, 2009. With the completion of the ceremony, Obama became the first African American to hold the highest office in America. The swearing-in ceremony was followed with the inauguration address, in which Obama expounded his views on America and the world.
Turning to the world, Obama did not utter a single word about the Israeli genocidal attack with American advanced weapons on Gaza, where thousands of innocent civilians were slaughtered just days before Obama’s inauguration. Moreover, Obama intended to continue George Bush’s war on terror by declaring that “Our nation is at war against a far-reaching network of violence and hatred.”1. He then issued this startling warning to the world: “And for those who seek to advance their aims by inducing terror and slaughtering innocents, we say to you now that, our spirit is stronger and cannot be broken. You cannot outlast us, and we will defeat you.”1.
Obama was militant in tone, and like his predecessor, George Bush, has no remorse for the American war of aggressions that killed millions of innocent people both in Iraq and Afghanistan. It is almost a certainty now that the waging of war will continue under the Obama administration. Just like George Bush, Obama views Al-Qaida as the main foe in the War against Terror. This is a misguided policy, as “Al-Qaida never numbered more than 300 men. There is hardly any left in Afghanistan. Survivors scattered into Pakistan. Finding them is police and intelligence work, not a job for thousands more Western troops.”4.
Over a century ago, Afghanistan was a graveyard for British colonists who had tried to subjugate the local population. Most recently, Afghanistan was Soviet Union’s Vietnam, as her military adventure ended in a quagmire that led to the collapse of the Soviet Empire. Judging from history, Obama’s active involvement in Afghanistan can hardly escape the same fate.
Turning to America, Obama in his address largely blamed the worst economic crisis since the Great Depression on the American people: “Our economy is badly weakened, a consequence of greed and irresponsibility on the part of some but also our collective failure to make hard choices and prepare the nation for a new age.”1.
The new age President Obama talked about is the age of Neoliberalism, which started with the Reagan presidency more than a quarter century ago. However, one can hardly blame the American people for the economic nightmare that is currently raging across America. On the contrary, the vast majority of the American people are the victims of the neoliberal agenda. It was under the aegis of Neoliberalism that the income of the wealthy individuals increased dramatically while the income of average household declined substantially. The outsourcing and corporate restructuring further impoverished the majority, which led to the economic collapse.
Financially, budget and balance-of-payment deficit contributed to the debt accumulation in the American economy. Consequently, American economy became a debt-ridden economy. American government, consumers and corporations were all burdened with a high level of debt. This ultimately led to the debt explosion, which ended in a financial tsunami on Wall Street and the severe debt crisis in the United States.
As a matter of fact, the debt crisis was bought about by the mistaken belief on the part of the U.S. policy makers that America, as the world’s only issuer of reserve currency, can forever expand debt at the expense of the rest of the world, particularly China, Japan and the oil producing countries whose trade surpluses have been appropriated by the United States through the dollar hegemony.
Consequently, “the growth of debt has outpaced the growth of real output. Yet, the solution offered by Obama’s economic team is to expand debt further. This is not surprising as Obama’s economic team consisted of the very people who brought on the debt crisis. Now they are going to make it worse.”2.
With the U.S. budget deficit for fiscal 2009 approaching $2 trillion, Obama wants a stimulus program in the order of nearly $900 billion. One wonders how a deficit of this magnitude can be financed. In the past, many third world countries with a fraction of indebtedness, as compared with America’s, had to go through the structure adjustment programs, which were rigorously administrated by IMF and World Banks. However, as these two institutions were controlled by Washington, America has been very fortunate to escape this horrible fate.
Logically, as an indebted nation, America should be more obliging to her number one creditor, China. Therefore, it was rather startling that on the second day of the Obama administration, Timothy Geithner, Obama’s nominee for Treasury Secretary, accused China of manipulating its currency. Geithner was provocative and confrontational in tone, as he declared that President Obama would “use aggressively all the diplomatic avenues open to him to seek change in China’s currency practices.”3.
Since Deng enunciated the “Open Door” policy, China has developed trade dependency, particularly trade dependency on the United States. As a result, great pressure has been exerted on China to revaluate upward its currency, to allow free flow of capital into China, and open her financial market to become an easy prey of Wall Street financial speculators, enabling the latter to appropriate the wealth of the Chinese people, as in the case of the Asian Financial Crisis.
Co-incidentally, Geithner, who is fluent in Chinese and worked in the Treasury Department in both the Senior Bush and Clinton administrations, was responsible for overseeing the Asian financial crisis of 1997.
The Asian Financial crisis was the result of financial liberalization, brought on by political and economic pressure exerted by the United States. Consequently, the excessive liquidity created by the speculative capital inflow to Southeastern Asian countries resulted in a bubble that ended with the collapse of the real estate and stock market. It dealt a heavy blow to the Asian economy. Overnight, $100 billion of foreign currency reserves were appropriated from these Asian countries by the financial speculators from Wall Street.6. It had been a very painful experience for the Southeastern and South Korean people, as related financial loss even surpassed the level caused by the Second World War. But the U.S. Treasury, with Geithner managing the crisis, “was in no rush to stop the pain.”5. “In fact, it used the crisis in Indonesia, South Korea, and Thailand to force them to abandon policies aimed at self-sufficiency and to impose policies that would open those economies to U.S. corporations and banks. Never mind that the dictates of the Treasury Department and IMF inflicted enormous pain.”5.
Currently, America is in the midst of the worst financial crisis since the Great Depression, and her budget is ballooning with unprecedented deficit, and is much in need of China to support its debt issuance. That leads one to speculate that the Obama administration would play the same old trick as the U.S. did to those Asian countries during the Asian Financial Crisis. It sounds familiar, as with the Asian countries, China is now being pressed to revalue upward its currency, to open her financial market, to allow free capital flow with a flexible currency exchange rate. Thus, one can safely speculate that the revaluation of China’s currency will lead to “enormous capital inflows into Yuan and Chinese government intervention, which would balloon Chinese reserves, and increase Chinese purchases of Treasuries.”7.
The increased purchase of the U.S. Treasury bonds will partly solve the financing problem for President Obama, but it will be a decidedly unfortunate outcome for China, as the savings of the hard working Chinese people will vanish overnight, either through inflation, hyper-inflation or appropriation by the Wall Street financial speculators, repeating the scenario all too familiar from the Asian Financial Crisis.
In recent years, even before the recent economic crisis, America’s debt has been so enormous that its finances have resembled a Ponzi scheme. Ponzi scheme, devised by Charles Ponzi, a fraudster from Boston, was a scheme of promising investors a fabulous rate of return. As it turned out, Ponzi was paying off one round of investors with the money he received from the next round of investors. In the end, he was audited and the bubble burst.
Co-incidentally, a little more than a month before the Obama inauguration, America discovered another shocking Ponzi scheme, that of Bernie Madoff. Madoff, former Chairman of Nasdaq, and a well-respected member of Wall Street elite, was charged with the largest securities fraud committed by a single individual. Madoff admitted to the authorities that his asset management firm was a giant Ponzi scheme. Incredibly, investment funds amounted to $50 billion entrusted by the investors have all vanished, much to their chagrin. He was arrested on Dec. 11, 2008 and charged with securities fraud.
Madoff’s Ponzi scheme was global in scope, as he drew investors from Europe, Persian Gulf, Southeast Asia and even China. It was “a fraud that lasted longer, reached wider and cut deeper than any similar scheme in history, entirely eclipsing the puny regional ambitions of Charles Ponzi.”8.
The Madoff scheme exposes once again the predatory and bankrupt nature of the American financial system, in which the supervisory function is uncharacteristically absent, and the market participants have no regard for risk. In a large sense, the Madoff scandal is a mirror image of the U.S. public finance itself. In Madoff’s case, questions have been raised about his performers over the years, but the regulator looked the other way and took no action. As for U.S. public finance, America has lived beyond her means, incurred budget and trade deficit for a number of years. America has to borrow as much as $3 billion every day from countries like China, Japan and Middle East oil producing countries. U.S. federal deficit for fiscal 2009 will reach close to $3 trillion, and public debts that include future obligations are estimated to be in the unbelievable sum of $65 trillion. The government of the United States essentially manufactured a colossal Ponzi scheme, following the “rob Paul to pay Peter” principle. But there is no credit downgrade of the U.S. debts by the rating agencies, as they are under the mistaken belief that the country with the capacity of issuing world reserve currency will not default its creditors.
However, a strong case can be made that the U.S. has already defaulted its creditors through the debasement of its currency for a considerable period of time. Since 1971 when it became a fiat currency; the purchasing power of the dollar has declined more than 80 %.9. Moreover, with the increased issuance of treasuries securities to the tune of three trillion this year, the pace of debasement of the dollar will be accelerated to the point that foreign investors will completely lose confidence in the dollar as a store of value, thereby dumping the dollar on a massive scale. In such an event, the Federal Reserve will be forced to monetize the federal debt, which has already reached tens of trillions. Monetizing the federal debt on such a scale would be unthinkable for America, as all the debt would become currency in circulation, thus rendering the dollar worthless, and result in hyperinflation in the U.S. economy.
Hyperinflation in America would be disastrous for China; the country has tried hardest to integrate with the United States through trade dependency and hold dollar assets to the tune of more than a trillion. China not only will lose all her foreign currency reserves, which will indeed become worthless, her exporters will lose tens of billions in bad debts through trade credits and other financial arrangements. As a result, China’s economy will be in ruin, and that will come with high unemployment, stagnant or declined wages, abysmal poverty and hyperinflation in China itself.
President Barack Obama came to power amidst the worst economic crisis in the United States. To rescue the economy from precipitous decline that might end in Great Depression, America’s relationship with China, the major supplier of cheap credit, has become the primary importance in his agenda. The central strategy of the Obama administration is to maintain dollar hegemony with China; thereby the economic surplus accumulated by China remains a part of U.S. financial system. The excessive currency reserves accumulated by China will be used to finance the Obama economic stimulus package.
Unfortunately, the outcome of maintaining this kind of relationship augurs for a dismal future for the Chinese people, as the Chinese will be condemned to a perpetual low living standard, and suffer from slow technological progress, environmental degradation and resource depletion. Moreover, this kind of relationship would relegate the Chinese economy to the whim of U.S. business cycle and the recurrent economic crises, which are inevitable in the capitalist economy such as the United States. As a result of the U.S. current economic crisis, exports to America from China has dropped drastically by the last half of 2008, and as much as 67,000 factories have closed in China, with ten million workers being laid-off. As a result, labor disputes and protests over the loss of back pays became frequent occurrences in China. This could contribute to instability in the Chinese society and be ominous for the country.10.11.
The economic crisis of the United States fully illustrated the pitfall of using trade as driver for China’s national development. Obviously, China must change her strategy by avoiding trade dependency, and break away from the American trade orbit. China would then be able to concentrate her effort on developing her own domestic economy, protect her national industries and safeguard the welfare of the Chinese people.
Notes:
1. New York Times.Com: “Barack Obama’s Inaugural Address” January 20, 2009
2. Roberts Paul Craig: “Another Real Estate Crisis is About to Hit”, January 22, 2009 www.counterpunch.com
3. Grey Barry: “Obama administration strokes up trade tension with China” January 24, 2009 World Socialist Website
4. Margolis Eric: “Obama, The Democratic ‘War’ President”, July 22, 2008 LewRockwell.com
5. Rothschild M.: “The Great Recession”, January 28, 2009 Common Dreams.org
6. Bello Walden: “Wall Street Meltdown Primer”, September 26, 2008 Foreign Policy in Focus
7. Goldman David: “Geithner blows up the World”, January 22, 2009 Asia Times Online
8. Henriques Diana B: “ Madoff Scheme Kept Rippling Outwar, Across Borders” December 20, 2009 New York Times
9. Barisheff Nick: “The Outlook For Gold in 2005” January 12, 2005 www. Financialsense.com
10. Wong Edward: “Factories Shut, China Workers Are Suffering” November 13, 2008 New York Times
11. Li Xinren: “Migrant Workers troop home having lost jobs” December 18, 2008 ShanghaiDaily.com
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