Weekly Column - 08.10.2007
A financial crash is more than an economic glitch. It leads into dangerous political territory. It can trigger revolutions. Financial distress in the 1780s led to the French Revolution. Financial distress brought the Nazis and Japanese militarists to power before World War II. A financial earthquake may cause a political earthquake. A political earthquake, in turn, can set off a revolution, civil war, or even a world war. This is what history teaches.
It is economic distress that drives the average man to despair. Financial calamity changes his political outlook from cool detachment to naked fear. This signals opportunity to the political opportunist, the fanatic and the demagogue. These will always play on fear. America is a country that has enjoyed prosperity, and this has contributed to political moderation. The center holds as long as the economy runs smoothly. We do not know, however, what the effect of a major crash would have on an ethnically divided welfare society with an aging population supplemented by a rapidly growing foreign work force.
Then there are international and geopolitical consequences: Europe is economically tied to America. Money flows from one country to another, and so does financial trouble. This week the European Central Bank reached for $130 billion in emergency funds. The markets are jittery. Europe is nervous. American real estate prices are falling. There are growing losses connected with U.S. mortgages. The solution of lower U.S. interest rates is not an option because of Chinese threats to sink the dollar.
Ambrose Evans-Prichard’s recent piece, China threatens ‘nuclear option’ of dollar sales, sounded a further alarm. The foolishness of trading with Communist China now comes into sharp focus. The same can be said for free trade with all those countries that are not truly free. According to Prichard, “The Chinese government has begun a concerted campaign of economic threats against the United States, hinting that it may liquidate its vast holding of U.S. treasuries if Washington imposes trade sanctions to force a yuan revaluation.” This would almost certainly crash the dollar, with devastating consequences for the global economy. The Chinese can effectively dictate U.S. economic policy. “We can destroy your currency,” they are saying. “We have this option.”
The Chinese threat reminds us of Russian President Vladimir Putin’s recent braggadocio. Speaking in Munich earlier this year, Putin seemed to dismiss the economic power of the United States and Europe, pointing to the rise of a new economic bloc associated with China. According to Putin, “The combined GDP measured in purchasing power parity of countries such as India and China is already greater than that of the United States. And a similar calculation with the GDP of the BRIC countries – Brazil, Russia, India and China – surpasses the cumulative GDP of the EU. And according to experts this gap will only increase in the future.”
Putin is undoubtedly feels the growing strength of his position, in league with China. The financial crisis in the United States has geopolitical implications. Military power is built on an economic foundation. Therefore, the balance of power may soon be knocked off balance. It is no accident that Russia has reduced its dollar holdings. The Russian aren’t stupid. They know the dollar could unravel at any moment. A large terrorist attack, a rotten hedge fund, a bad month on the New York Stock Exchange – name whatever trigger you can think of. The financial position of the United States is fragile. And this fragility must eventually lead to dislocations.
The West doesn’t seem to understand, as yet, that the emerging financial crisis isn’t merely a financial crisis. In Beijing and Moscow it is seen as something more. It is seen as part of a strategic sequence in which U.S. power is eclipsed. It is a sequence that leads to massive global changes. The Russians and Chinese want to replace America as the world’s dominant military and economic power. They want to transform the global economic system, but the transformation won’t be a friendly one. Their game is not to build an inclusive system in which “a rising tide lifts all boats.” Theirs is a zero sum game in which their triumph comes at other’s expense.
By comparing the sentiments of Putin and the Chinese leaders with those of former Soviet and Chinese leaders, we see that little has changed. Consider the text of Soviet Military...">Soviet Military..." />Soviet Military... , published in 1963, which put forward the view: “[that] American monopoly capital has seized the basic sources of raw material, the markets and spheres of capital investment: It has created a surreptitious colonial empire and has become the biggest international exploiter. American imperialism today plays the role of world gendarme, opposing democratic and revolutionary changes and launching aggression against peoples fighting for independence.” [Soviet Military Strategy, p. 279 of the Rand translation.] We hear this old Marxist-Leninist line from Putin’s Kremlin today.
Many who oppose the war in Iraq have fallen in with an updated version of Soviet rhetoric. They do not apprehend the essential falseness of this totalitarian perspective, or the danger in advancing it now that the Soviet Union has supposedly expired. It was the Communists who said that a global revolution would begin with a financial crisis in the capitalist world. This idea is imbedded in totalitarian thought (including fascist thinking). A financial crisis quickly becomes a political crisis, and a political crisis calls the existing order into question. This leaves the door open to a new order, based on fanaticism and hatred. This, in turn, leads to a shift in the global balance of power.
In an age of mass destruction weaponry we have to use our imaginations to understand what all this signifies. It is not a peaceful process, but a passionate process of compounded error and disruption. Violence naturally flows from such a process. If the U.S. dollar collapses it will seem as if the world has gone insane. Perhaps it is too late. Perhaps the insanity is on its way and there is nothing we can do to stop it.

© 2007 Jeffrey R. Nyquist
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