Revisionist power, did you say revisionist power ?

Foreigns affairs American think tanks are actively discussing the rise of china.

Those speaking events while being a must if you are interested in those subjects seems to cross on an important point, the question is almost framed as follow : China is very probably a revisionist power, and if so,then there’s how things are going to unravel. Thenceforth it seems logical to think alongside well known historical precedents. The story line that follow is simple. Germany and Japan were strong and powerful revisionist powers do you remember how it ended ?

These are bright people to be sure; yes historical precedents are almost all we have. but one can wonder why they use such an easy way to elaborate on a complex and versatile situation. Our answer is two fold, such an angle is easy listening for the audience as everybody know what was going then, more importantly, framing the subject in such a way lead to reassuring conclusions. Our opinion is that sadly the second argument is probably the one to keep in mind.

Even, as we are not an expert in that field we can suggest that other parts of history could have been invoked convincingly. Ashton Carter reminded us of the dreaded thirty years war comparing it to the messy business in the middle east, pointing particularly the conflict between Shiites and Sunnites. We saw there a powerful historical parallel that he probably didn’t have in mind.

Framing the discussion in an other direction.

At the dawn of the 17teen century Spain was still the most powerful western empire. Charles Quint split his empire between his heirs in order to create manageable estates, administration was so cumbersome and byzantine that the term state is probably too strong. The western estate took with it the Americas and Philippines as well as Spain, the Low Country and various places in Italy. The eastern part was an even stranger peace of statecraft. The Holy Romain Empire found itself ruled by a Habsbour who found his power on Austria and Bohemia witch were imperial lands as well as parts of Hungarian and Croatia. All in all the second branch inherited considerable prestige from the imperial title as the western branch enjoyed the generous stream of revenues coming from the Americas.

With time it was inevitable that each one of these greats houses would go in his own way, guided by the flow of a changing world. But two things played a powerful role in keeping the international politics of the two Habsbourg branches being played in a cooperative mode. The Habsbourg played a very strong role in the counter-reform, religious bias were shared, those people thought they were defending the true faith and in the case of Spain Inquisition was there to enforce what was a state policy. More importantly both had a powerful neighbor on the rise again after having suffered terribly from the religious trouble : France.

That country was a producer of wheat, wine, lumber, textiles and so many others things, it’s population was great and more important it’s state was very strong and competent if compared with the state of affair prevailing in the habsbourgs estates. Worse, having remained catholic by the grace of Henry IV senses of real-politic it was a contender in the matter relatives to the holy roman church. France had been a foe during the 16teen century, it would be again now and it was dangerous for both houses.

But the Holly Roman Empire was too weak to risk a direct confrontation. First it had to build a powerful administrative structure, Protestant had to be put in their place, and princes had to bend before the emperor. Then and only then it would be possible to take on the only power that could oppose them. That’s what Ferdinand Of Habsbourg embarked on, starting what would be known as the thirty year war.

At first France could and would do nothing, but time passing it became obvious it couldn’t allow Ferdinand’s scheme to be allowed. So it’s started to spend money and to give a push to every protestant ready to fight. War in Germany became uglier and uglier despite a very promising start for the Habsbourg. Then at the tipping point, Gustav Adold’s the swede guy camed in a rush making the odds of a positive outcome for Ferdinand less and less possible. It’ was time for Spain to put it’s weight in the balance, France could do no less that to follow suit. What was a very nasty war by proxy had become a full blown war between the great powers of the time. The conflict was now clearly out of control. Spain ran out of men and treasure, Austria was exhausted, the disaster of Rocroi made it clear to the world an entire army could be wipe out in one engagement. It was hard to see a positive outcome on the side of the Habsbourg it was time to search for a settlement.

Incidently it’s worth noticing that the long search for it founded the institutional framework that some in the USA though outdated, who is revisionist ?

What is the point ?

Spain had both the best army (the feared tercios) and money (gold and silver from the americas), it was too strong at sea to be seriously challenged. But in the end it would never be able to manage a come back from what was a devastating enterprise. France was a producer of goods and raw materials, it edge it’s opponents in population and management, it played a long strategic game keeping it’s options opens. It’s game became clear late in the process.

15 year ago USA felt threatened by the rise of China, it was already foreseeable that it was becoming formidable again after a two century eclipse. So it felt compelled to put it’s hand on the world greatest prize (middle east oil) without sharing “fairly” with it’s old gang, against the international community. Doing so, it entered a world of hurt as every power had an interest to make their life harder in those place not even counting the locals which were reluctant to say the least. Now another great player entered the game using his considerable strength to make his point, Russia, the one that was supposed to be tamed. China is not even officially involved and things are already going very sour. Prestige, money and innocent people blood have been spend in enormous amount. Meanwhile the social fabric of that great nation suffered heavily as the current election cycle underscore . Here it is : that’s my theory of the reluctant declining great power. It should be said that the passing of the torche was relatively easy between the two Anglo-Saxon powers, thanks to the Germans thumbling their hand again and again. One century sooner the defeat of France under Napoleon came at a great cost for everyone, and as i just reminded the reader: the Habsbourgs fall in a blood bath. Perhaps those in Washington should better to think along those terms from time to time.

It’s time for humility

Every comparison could be used, up to a point. We do not think that our example is that pertinent but it has some things playing in his favor. The question is now simple, why our American thinkers are using such a simplistic geopolitical framework of reference ? I can understand that public and academic life being what it is, being polite is an important part of the exercise but i suspect a more sinister reason behind this bias : those people really believe what they are saying, not in every point of course, but the framing is a good way to understand their point of view nothing could go very badly. Perhaps that the powerful think-tanks as wise and knowledgeable as they are have a very difficult time to embark on a real critical discussion of what’s going on. That would be sad, a failing global strategy can’t be address by an intellectual elite that apparently started to believe in it’s own pie in the sky stories. As you can imagine by know I think those stories are dangerous, sadly, probably a warning of more blunder to come. But who knows what is going to happen, our strongest guess is it will surprise the good people of the Wilson center, CFR and many more and, if things go smoothly, even myself.

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The game is rigged folk’s, there will be blood !

Perhaps most of us won’t find it that funny, but is that important considering the great schemes of things ? I think not. Yes, everything seems blurred, market mismatch are every where, oil is in the crapper, in good company China is there too.

 

The feeling I have is very different. From my prospective, the game is pretty clear indeed.

 

The Washington consensus died when Lehman got bankrupt. From this day on, central bankers worked very hard to gain time for states around the world to find a new global modus vivendi. Currency, banking and oil are at the forefront of the next great deal, no big news there. A  newcomer, gas stand proud in the international game, two wars under his belt. Yes ,Ukraine, Syria, are gas issues.

 

Considering oil, one can find surprising that it’s price is falling very sharply . At this very moment India is gearing up. Despite a world depression, oil consumption will be millions barrels per day higher in a few year. What is happening now to explain the current state of affairs ?

 

Is that not surprising, in the USA, juniors made the bulk of the growth generating huge amount of debt ? Why Exxon and it’s fellow majors did not jump into the game, they got bored of easy money ? Pushing the production in the USA was costly, around 500 billions dollars, a big chuck of money even for an oil giant. Was it not more adequat to pay this investment with printed money ? Is that not smart to push the newcomers into the abyss to buy their asset for a penny on a dollar ? Yes it is, and that’s what is going to begin this summer. In short, the current state of affairs is very profitable to the majors, in the long run.

 

One could ask :  “is that not very dangerous to push the financial sector over the edge once again, is that not a bridge to far ?” This one is easy to answer considering how our financial system appeared following the oil crisis of the 70’s. The money which was taken from the pocket of the consumer by the Saudis and others, came back immediately on the Western financials markets. That’s why deficit didn’t matters, for a very long time, fresh money was to be coming for sure. Bankers where given the heavy duty to manage it in the best interest of the public, in order to prop a good healthy economy. It was a tremendous success, Alleluia ! That game is now over, deficit have became too heavy, structural unbalance are too enormous.

 

Following my argument, one should understand that our financial system will change deeply very soon. Hard times are coming for New York, London and Paris, London especially, sorry for you UK ! But finance is only the tip of the iceberg, oil and gun are the name of the game !

 

The USA are already the biggest oil producer, in due time they will become a powerful exporter, the legal side of this predicament is already fulfilled. In a few year people will see it clearly, Oil production will bring a new wealth to the USA but Wall Street will be very diminished it’s political usefulness being exhausted. It will change the political balance for this great country and many others.

 

The end of the presidential campaign, as usual, will be the best moment to move. The market are going to explode , oil juniors will bankrupt themselves in numbers, along with financial institutions. That’s for 2016, cool.  But the real fun will come in 2017. It will be time to see the oil price going up and up and up in order to launch a new wave of investments around the world. Do you really believe that Exxon is going to pay for all that ? No price will do that surely.

 

At this moment, the USA will appear to be broke, completely. Defaulting will come to mind, quicker even that with the QE which are a soft way to do so. Those parameters point directly to the good people of Saudi Arabia. Pushing them over the edge is a nice solution to kill two birds with one stone. Enormous problems are on their way for the Kingdom, and angry Iranians won’t be the worst. Alas, when Ryad will be burning, the  USA will suddenly find it very hard to « locate » the wealth accumulated by the Kingdom in bonds shares and other assets. In short, China will receive Saudi’s money is that not nice ?

In the end, President Donald will travel to Moscow in his brand new golden Air Force One, embrace Vladimir. Together, they’ll set the new oil price for the world as well as many other petty things. Russia and the USA will be the new OPEP and believe me, they will manage their position in the best interest of every body, for sure…

29 all over again !

29 all over again !

Chinese markets plunged Monday in a free fall manner, despite all the care they received. Some could see that move as a logical conclusion of the mammoth growth which took place there for 35 years. Yes it is that and something much more important.

In 2008 when world trade was in free-fall, China took it on herself to launch a massive stimulus program, giving breath to a dying construction boom. Such a move was already unneeded for internal purposes,  it only help a struggling world economy to lurch six years on an impracticable path of QE and stimulus. China helped the world avoid the depression we are facing now, stronger than ever. But it was not for free as the country was asking politely for two important items : a restructuration of the internationals institutions like the FMI and the World Bank as well as a change in the us policies concerning debt and ultimately the status of the dollar. Peking even agree to let the Yuan go higher and higher in an effort to set things straits for the day it would flow freely. Indeed king dollar bought less and less yuan until the devaluation move which came last week, in 2006 it bought 8.2 yuan, in 2014 it bought only 6, almost a 25% reevaluation ! The recent Chinese move which is highlighted now is only a come back to 2011 at 6,5 yuan per dollar.

Alas, despite all Chinese goodwill and sacrifice, the USA were unwilling or unable to proceed in what was could only be described as a downsizing of their global political and economical reach. Even worse QE came after QE, china would not gain interest on her hard earned cash.No surprise, China is now playing her cards in a non collaborative way, tit for tat is the name of the game shall we say. But the West should be aware of a very nasty precedent.

During the roaring twenties the USA launched a manufactured boom using the new tools provided by the brand new Federal reserve, it was supposed to help Europe in dire need of economical relief, the reds were at the door, unrest everywhere. easy money started flowing even as European currency were always going down, time after time. That policy gave birth to a twin boom in real estate and stocks prices. When it became clear that such a policy created more problems than it could solves, the FED unplugged the market giving birth to what we know as the great depression.

US entered a full blown depression which had paradoxical consequences while it was seen as an economic catastrophe in the country and elsewhere   when the dust settled, the USA where the only one still standing firm in the economic scene. England and France had lost their economic status, Germany had gone crazy.

We think that what has began Monday is a move which is comparable in scope and range, the world will shake. Chinese state has new allies and can rely on the Russian hinterland which is offering guaranties in the case things go very sour. In others words they are ready to deal with what is unleashed on a reluctant world, are we ?

Image

Since 2008 USA is going green !

elec illustration

Much have been said on the oil&gas revolution which is taking place in the USA. Surprisingly much less is heard about another promising trend which is taking place currently. Electricity consumption, the biggest in the world after the chinese one is stable at last after half a century of stunning growth. While coal consumption is decreasing, renewable grow, shale gas explodes. In short, america is going green quickly since 2008.

In effect production peaked in 2007 at 4156745 millions kwh, last year it stood proudly at 4092935 millions kwh. The last issue of Electric Power Monthly (issued by the EIA) show a further slowing of the output march production year to date 2015 being lower than the three first month of 2014 by a small 1,3%.

Such a trend could be understood as a threat for the utilities companies as a slowing market could produce lower sales. Shareholder will be happy to know that turnoever beat the trend with a record level of sales, 389 billions dollars. Producing less is not always a recipe for disaster, probably a question of good planning.

Further more an interesting note come from the Bureau Of Labor Statistics, the last monthly bulletin see a small deflation on a yearly base : -0,2 % (CPI for all urban consummers), but electricity utilies shines a s a beacon of hope showing a healthy 3,8% inflation.

To get hints about what is going on it is necessary to go into some details provided by the EIA, in ten years (2003-2013), industrial consummers base is slowly eroding since 2008 (-7% at 743869) while indivudual consummers base grow by 10 millions unit in line with the 20 millions peoples USA gained during that time laps. It’s worth noting that the total direct or indirect consumption by head aggregated is slowly going down since 2007, is that not a good news ?

An old plan !

JPMorgan

A beautiful building which should make the US taxpayer very proud.

Nothing is better that a good conversation between trusted friends to get quickly to the point.
1974 was an important year, it was then crucial to deal with the effects of the first oil chock.
So I strongly suggest readers to go to the whole conversation the head of the secretary of state is discussing those important matters with high level German counter-parts, the central question is about potential systemic failure of the financial system.
Ingenuity would lead to understand that the birth of the so called petro-dollar was just nothing more than an unforeseen consequence of a geopolitical quagmire. It should be noted that not only that was a possibility clearly present to the mind of those involved at high level but, even more interesting that the endgame was also very clear from the very beginning.

Von Staden: What about the Shah?
Secretary: I don’t understand his position at all. He is the only world statesman in the area. These prices will in the end ruin the producers
as well. Constant devaluations are no solution. If Yamani gets his way and production is cut further, there will be an even more serious crisis.
Rush: If the Arabs industrialize subversion will grow.
Secretary: That’s what they are doing in Saudi Arabia, building for a revolution.
Von Hoffman: They have all these billions of dollars and yet there is no commercial teletype in Saudi Arabia.
Bahr: Why can’t they invest their money in the US?
Secretary: I don’t think they will to any great extent, but if they would we could let them invest here and then expropriate their assets.That’s really our secret plan. I hope you will go back and convince your colleagues of the absolute necessity of achieving results at this conference.

Source:

FOREIGN RELATIONS OF THE UNITED STATES; 1969–1976 VOLUME XXXVI,ENERGY CRISIS,1969–1974

file:///D:/Downloads/frus1969-76v36.pdf

At the light of such a document one should ponder the alleged active involvement of Saudi Arabia in the recent price move. As they surely figured out for themselves the “secret plan” we can presume that they know that their giant partner should not be mismanaged. It let us to contemplate three fascinating alternatives.

  1. Market is at work, such a proposition seems preposterous in our world but who knows, I would prefer that adventurous conclusion.
  2. If US is not happy with what is happening perhaps enormous events are on their ways on the financial front.
  3. If US is OK with what is going on, then the pressure on Russia is surely not the only reason, the oil majors will be happy to grab the busted juniors companies who prospered in the inter-land for almost nothing. Such a possibility will let the US taxpayer with another boom-bust price to pay but it will give the USA a powerful industrial base home based in that still strategic area.

We are living interesting times indeed.

Small things are the start of big things ..

President elect Carter took immediate contact with representative of the PRC. The conversations where friendly and convolute. Carter was clearly pressed by his new ally to commit more energy to fight their common enemy, the USSR, forever on the march. But, a few days later this nice memorandum appeared, in this world nothing is free, especially between great powers. History have her own sense of irony, Brzezinski, our kind of guy, signed this faithful document.

15. Memorandum From the President’s Assistant for National
Security Affairs (Brzezinski) to Secretary of the Treasury
Blumenthal and Secretary of Commerce Kreps
1
Washington, March 7, 1977
SUBJECT
U.S.–PRC Trade Relations
The President has noted the sharp downturn in U.S. exports to
China which began early last year. As you know, this downturn has led
to the first U.S. trade deficit with China since U.S. import controls were
lifted in 1971.
The President would like to know what we can/should do about
this. Please let me know by Thursday, March 10.
Zbigniew Brzezinski