2011 May 31 Tuesday
Henry Kissinger On US-China Relations

Henry Kissinger, who negotiated America's opening to China for Richard Nixon (back when competent people ran US foreign policy, sigh), has spent the intervening decades periodically carrying messages back and forth between the top leaders of America and China. He is back on the public stage at age 88 with a book On China. In an interview with Bret Stephens of the Wall Street Journal Kissinger admits to a lack of optimism on the ability of the two countries to avoid war.

The second is more prophetic. "Is it possible," he asks, "to achieve enough of a cooperative pattern [with China] to avoid sliding through a series of mutual misconceptions, of stepping on each other's toes, into a situation where an ultimate confrontation becomes inevitable? And looking at the fact that we have not known how to end our little wars, I have no great hope that either side would know how to end such a conflict. . . . Am I optimistic that it's going to be done? No."

Back during the Cold War American political leaders had to come to terms with the need for restraint. Since the fall of the Soviet Union a succession of madnesses have swept thru policy making circles that led to foolish forays into the Balkans, Iraq, and other places. While the US doesn't have big domestic ethnic lobbies pushing for war with China even that is subject to change depending on policies China might pursue in the Middle East. So we aren't safe from factional insanity even when the stakes are much higher.

Americans need to become less triumphalist and more pragmatic in dealing with the rest of the world.

Share |      By Randall Parker at 2011 May 31 01:12 PM  China Control Abroad

Black Death said at June 1, 2011 7:18 AM:

Sadly, Kissinger may be right. During the Cold War, a global American military presence was essential. The USSR threatened Western Europe and engaged in all sorts of military and non-military adventures in Latin America, Africa and Asia. The clearly stated goal of a succession of Soviet leaders was world domination. But that all ended twenty years ago.

China has pursued a relatively conservative foreign policy. China was severely damaged by WW II, the "great leap forward" and the cultural revolution. Lately she has seemed to get her act together.

In the last seventy years, China has fought wars of varying intensity with most of her neighbors - Russia, Korea, Japan, Taiwan, Vietnam and India. Any attempts by China to project power beyond her borders (say, into the South China Sea) will arouse intense local opposition. The US does not need to be involved in this. Two of China's neighbors, India and Russia, have nuclear weapons, and the others are technologically advanced and could acquire them relatively quickly (except maybe Vietnam).

China's military, although improving, is still vastly inferior to that of the US. For example, China will not launch her first aircraft carrier until 2015. It will be decades before China will be able to project military power into places such as the Middle Ease, and, by then, the oil will be mostly gone, so why bother? India will not readily concede control of the Indian Ocean to China.

The Chinese government is corrupt, tyrannical and repressive. A severe economic downturn could cause a revolution or civil war - perhaps not the most likely scenario, but not impossible, either.

So the US has lots of reasons not to get involved in a conflict with China. But Kissinger's pessimism is well placed. Given the dreadful conduct of US foreign policy lately (under both Democrats and Republicans), it's easy to imagine how such a conflict might start.

Henry said at June 1, 2011 11:30 AM:

The USA is the greatest terrorist regime in the world right now. It's a greater threat to national sovereignty worldwide than Al Qaeda or any other group of extremists. It attacks countries without justification and kills innocent people by the thousands. Through the "Bush Doctrine" it tells us that it reserves the right to invade any state in order to engage in "regime change". The USA is a rabid dog that needs to be put down.

REN said at June 1, 2011 2:48 PM:

In the early 70's (73?) Kissinger was sent to Saudi Arabia to sign a deal. The Saudis get these things: 1) U.S. Navy protection of sea lanes for oil transhipment 2)Saudi leaders get defacto blessing on their ruling monarchy 3)Saudi's get front line U.S. military gear, and the training needed to operate said gear. 4) Saudi's get high level access to Washington corridors of power 5) The west looks the other way while OPEC cartel is formed.

What did the U.S. get out of the deal? 1) Oil is to be priced in dollars 2)Saudi petrodollars are to be put in certain western (usually american banks).

Number 1 was to stabilize the dollar after going off of the gold standard. Number 2 is the important one. Those petrodollars are seen as excess reserves to the western bankers, and are used as the base money for more loans. Shortly after the 1974 price shocks, the banks had large infusions of cash. That cash was used to destabilize countries, starting with Mexico. The banks would get countries hooked on dollar loans, and then later do a bear raid. The Saudi oil deal is part of full spectrum warfare that has busted out Mexico, caused the Ruble collapse, and the Asian currency crises.

China stabilized Asia during the Asian currency crises. So, the Chinese have first hand knowledge of western full spectrum warfare. They are countering with a rope a dope strategy. China pegs the currency, so there is no way to undermine the Yuan. China also carries very high levels of dollars in reserve, which means there is plenty of dollars on hand to defend a raid, even if the western bankers could get through.

Also, China is using the low peg to suck real wealth out of the west. That means relocating of factories and the transfer of real know-how, which is real wealth. This is the ultimate strategic objective, not just the collection of dollars. China is using their State Banks, and State money, to rope-a-dope western bankers. Western Bankers get their power via the ability to create credit money. The big credit making banks of the West, then use that money power tail to wag their government dogs.

China has some private banks within their State system, but thier private banks are under heavy control.

Kissinger knows they are loosing against the great wall of China. The bankers cannot break through, and that is why they are so depressed. Unfortunately, the battle is hollowing out main street America.

Robin said at June 1, 2011 4:10 PM:

"What did the U.S. get out of the deal? 1) Oil is to be priced in dollars 2)Saudi petrodollars are to be put in certain western (usually american banks)."

Oil is not just by far the most important commodity traded internationally, it is the lifeblood of all modern industrialised economies. If you don’t have oil, you have to buy it. And if you want to buy oil on the international markets, you usually have to have dollars. Until recently all OPEC countries agreed to sell their oil for dollars only. So long as this remained the case, the euro or any other major currency was unlikely to become the major reserve currency: there is not a lot of point in stockpiling euros if every time you need to buy oil you have to change them into dollars. This arrangement also meant that the US effectively part-controlled the entire world oil market: you could only buy oil if you had dollars, and only one country had the right to print dollars - the US.

If on the other hand OPEC were to decide to accept euros only for its oil (assuming for a moment it were allowed to make this decision), then American economic dominance would be over. Not only would Europe not need as many dollars anymore, but Japan which imports over 80% of its oil from the Middle East would think it wise to convert a large portion of its dollar assets to euro assets (Japan is the major subsidiser of the US because it holds so many dollar investments). The US on the other hand, being the world's largest oil importer would have, to run a trade surplus to acquire euros. The conversion from trade deficit to trade surplus would have to be achieved at a time when its property and stock market prices were collapsing and its domestic supplies of oil and gas were contracting. It would be a very painful conversion.

Robin said at June 1, 2011 4:14 PM:

The more dollars there are circulating outside the US, or invested by foreign owners in American assets, the more the rest of the world has had to provide the US with goods and services in exchange for these dollars. The dollars cost the US next to nothing to produce, so the fact that the world uses the currency in this way means that the US is importing vast quantities of goods and services virtually for free.

Since so many foreign-owned dollars are not spent on American goods and services, the US is able to run a huge trade deficit year after year without apparently any major economic consequences. The most recently published figures, for example, show that in November of last year US imports were worth 48% more than US exports. No other country can run such a large trade deficit with impunity. The financial media tell us the US is acting as the ‘consumer of last resort’ and the implication is that we should be thankful, but a more enlightening description of this state of affairs would be to say that it is getting a massive interest-free loan from the rest of the world.

It would be a disaster for the US to have its dollar lose its reserve currency status. Not only would they lose a large part of their annual subsidy of effectively free goods and services, but countries switching to euro reserves from dollar reserves would bring down the value of the US currency. Imports would start to cost Americans a lot more and as increasing numbers of those holding dollars began to spend them, the US would have to start paying its debts by supplying in goods and services to foreign countries, thus reducing American living standards. As countries and businesses converted their dollar assets into euro assets, the US property and stock market bubbles would, without doubt, burst. The Federal Reserve would no longer be able to print more money to reflate the bubble, as it is currently openly considering doing, because, without lots of eager foreigners prepared to mop them up, a serious inflation would result which, in turn, would make foreigners even more reluctant to hold the US currency and thus heighten the crisis.

REN said at June 2, 2011 10:42 PM:

Robin, dollar hegemony has a dark underside. I've heard the argument that we get imports for cheap, but upon very close examination of the money system, the argument breaks down.

First of all, humans produce plenty of wealth. We built airplanes and tanks in WW2, yet didn't incur great debt. Why? Because we direct spent into factories and labor, bypassing banks. The interest rate was only 3/8 of 1 percent, so in effect the money was almost debt free. During Lincon's greenback period, the North actually got richer, and this despite the destruction of war. How the money system is organized, and how money vectors, and what type of money it is makes for a complicated picture. It is easy to get caught up in the "debt as money" reality and not see the forest for the trees. Ultimately you put your wares on the grocery shelf of life, and hope that somebody trades their wares with you. You cannot consume more than your output, or you would be borrowing from another economy.

Since we are the reserve currency of the world, we have to hold tariffs low. This in turn means that we are importer of last resort. We have to do this to supply reserve dollars to the world. Since foreigners compete in a race to the bottom to acquire dollars, this in effect props up the value of the dollar (supply and demand). Since our medium of exchange is held higher than it should be, and our imports are cheaper than they should be, our mainstreet industries are at a disadvantage. Since real wealth is not money, then real wealth production is supressed. In effect, our money system is perturbed, and like a virus in the body politic, it does not serve its feedback function. Nor does it serve as a good store of wealth, especially as it is manipulated with hedging and other maneuvers.

The notion that money has to be backed up by something else is a false doctrine. Massachusets Bills, Greenbacks, Salons reforms in Greece, Plato's money, State
Banking in Canada and Australia, The Guernsey Islands, etc. have shown us that the money is not credit. It is something higher and allows humans to exchange their output. Because we are caught in this credit as money world, which came into being in 1694 with the Bank of England, we think that is reality. But credit money has tremendous debt loads attached. Debt associated with credit money is around 40%. Consider when you buy a house for 100K it might cost you 300K over the life of the loan. That extra 200K is the cost of that credit, and it is buried in every transaction. This is a tax on the producers, and the usury ultimately vectors to a plutocracy.

Our credit money is 95% of the supply, and those same notes underly much of the worlds money base. The debt component of credit money is why the Bank of England coined the term debt peons. Those dollars that underly other countries money allows financial bear raids. Argentina, Mexico, Russia ruble collapse, Asian currency crises, etc. are all financial attacks from our banking sector, and they get that power by having the ability to pop new credit dollars into being.

So, our financial sector is allowed to screw foreigners. Foreign countries have to race to the bottom to acquire dollars. We American's have to fund an expensive Navy to insure transhipment of oil. We American's have our industry made expensive. We American's then have our industry outsourced to "more cheap" foreign lands, because the false dollar value says it is the right thing to do.

Personally, I think we can't afford to stay on the dollar as reserve any more. China's banking chief has said as much. Triffins dilema is problem for the world and the U.S. The transition need to be feared. Read Dr. Yamaguchi's paper at www.monetary.org By year 4 after transition, the economy will have surpassed our debt based system.

The Train said at June 3, 2011 11:44 AM:

Henry Kissinger? Is he still alive?

REN said at June 3, 2011 1:22 PM:

Correction. The transition need not be feared.

Humans just need stable money to trade their output. Verbal agreements are the lowest power money, then scaling up to contracts, and then credit money. At the top is the most power, which is money used as payment for taxes. Meet the men with guns if you don't pay your taxes.

Since our system mixes money types, then lower power money demands to be bailed out by higher power money. Government wants to consume from the private sector, and the private sector wants its bank (credit) money backed up by the government.

This is why credit default swaps and bank leverage is a problem, because they will demand to be bailed out by government money, i.e. the taxpayer.

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