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Wednesday, Oct 11, 2023 - 22:12 SGT
Posted By: Gilbert

Dollar For Your Oughts

Major global developments will have to be deferred until its proper insertion in the ongoing Twilight Struggle: New Moon chronology, but it is possible to note that Biden is, indeed, Building The Wall so wisely proposed by his predecessor, in the face of brutal reality. I suppose there's really no need to sling hurtful slurs such as "racist" and "xenophobic" at the cities formerly known as sanctuaries for turning their backs on new migrants, since they appear to be now concurring with Schwarzenegger's opinion that the primary objective should be to have a border (wall) that no one can get through (without permission), and that the current U.S. immigration system is, simply, stupid (as explained in the previous post). The New York Times for one appears insistent on branding it as "unauthorized" instead, in keeping with prior false advertising. Glad to see the Build Back Better Plan finally coming along!

We should probably not be going on tangents (note Blinken bringing "variable geometry" into Cold War II - like arcs, circles and spirals, I suppose) given how we're behind, though, and without further ado, Team Red to make their play:


Turn 14, Action Round 1 (Team Red)

Team Red plays Latin American Debt Crisis for 2 Ops.


Mr. Washington, I don't feel so good...
(Original sources: twilightstrategy.com, wikipedia.org)


It's back to about May or June in the game's timeline, and China's been busy most everywhere, but in Argentina in particular. Argentina and hyperinflation is of course a bit of a trope by now, for which some have blamed the IMF for enabling their repeated bingeing on foreign debt - a problem that had affected much of Latin America back in the 1970s. It could be noted as to how Argentina once had the highest GDP per capita in the world back in the nineteenth century, so their woes (together with Japan's riches) remain a bit of a mystery.

1 Ops: +1 Influence in Argentina (1/4). The IMF's not the only game in town any longer, however, and Argentina's interest in BRICS+ (reported last October) has seen them earn acceptance to the grouping's New Development Bank, with a little help from Brazil (whose former President happens to be its head). This has naturally encouraged the Argies to increase their use of Chinese yuan in trade, alongside a minor Falklands triumph in getting Europe on their side in the naming thereof.

1 Ops: +1 Influence in Turkey (3/3). One wouldn't normally find much in common between Turkey and Argentina, with the former straddling Eurasia and the latter tucked away in South America, but if we're looking at inflation and currency woes, they're practically bosom buddies. Longtime Turkish President Erdogan has famously held... unorthodox ideas on interest rates and their relation to inflation, which would have inflation near 50% in June. Nonetheless, he would be re-elected for a new five-year term despite massive efforts by Team Blue media elements (i.e. propagandists) to put him down, which has them now resigned to pursuing a "partnership of convenience" with Erdogan towards prosecuting Cold War II. Repairing relations won't be easy, however, from how the Blues wanted him out.

Another common theme here with both countries (at least at this point in time for Argentina) would then be de-dollarization, as hinted back in Feburary (and then April); as discussed in the introduction to The Greatest Game, the U.S. dollar can be seen as the most valuable "medal" to buy Influence with, in the just-concluded post-Cold War I era. Its sheer market liquidity alongside its previously-exclusive use for the crude oil trade (i.e. the petrodollar), ensured that everybody had to get their hands on some, even if they were still smarting from Nixon taking the dollar off the gold standard in 1971.

For America's part, they have been quite happy to provide liquidity (i.e. print [new] money) since then, which French Minister of Finance Giscard accurately termed an "exhorbitant privilege" (and just another French grievance over the years). It should not be hard to understand the attraction of owning the world's reserve currency, which is the ability to conjure money out of thin air, to pay for real goods - whilst exporting a portion of the resulting inflation (and thus existing debt) to foreigners. History however informs us that this privilege tends to switch hands about every century or so, however, which Uncle Sam is definitely not looking forward to, from the inflow of returning dollars - and resulting domestic (hyper)inflation - that would likely result from the boomerang coming back.


Nothing to see here, move on.
(Sources: illinois.edu, statista.com)


All this ties into the perennial debate on national debt, interest rates (now at 5.5%, as the Fed indeed enters extreme bondage via market collapse, as suggested in March) and taxation in America - does the debt (now over US$31 trillion, after unprecedented financial steroids) need to be reduced or at least controlled, or should it just be inflated away (as is ongoing to an extent now, with inflation supposedly at 3.7%, but with actual Producer Price Index significantly higher)? The policy over successive U.S. administrations has been to stack on the debt (while noticeably juicing the economy with effectively 0% interest rates through the Obama years) while maintaining a stable inflation rate of about 2%, which if you think carefully about it, is basically largely borrowing from the future (aided by the Cantillon effect, as explained in May 2021)

The periodic squawking about the ballooning national debt (mostly by Team Red GOP, although in all honesty neither party has made much headway towards cutting it) has generally been answered by handwaving about it not mattering because the U.S. can always just print more dollars to pay it off (with some occasional hat-tips towards Modern Monetary Theory [MMT]), but again, a little thinking raises the natural question that if national debt truly doesn't matter, then why not just tack on another hundred trillion or something, to solve all of the world's ills, and then just tax inflation back down per MMT theory? As analyzed here back in 2019, such an economic regime would essentially be a command economy, precisely the ideology that had been decisively crushed by capitalism in Cold War I. Yes, perhaps capitalism sucks, but the trouble is that in practice, socialism/communism really, really sucks balls.

Thus, with interest repayments on the national debt starting to pass even military spending in the U.S. budget, to the tune of US$1 trillion annually, nervous voices are again asking whether this state of affairs is sustainable for much longer. To this, the answer is maybe, maybe not. Specifically, quite possibly if the U.S. keeps its monopoly on being the global reserve currency (and the accompanying exhorbitant privilege of spending on others' tab to an extent), and probably not otherwise - which ties back into whether they actually lead in real production, as discussed in The Fear Of All Sums. This is because if some other power does indeed replace the U.S. as top producer - and dispenser of essential commodities such as oil/energy - they would have to be pretty well-placed to wrest control of the reserve currency (and its benefits) away from the ex-hegemon.


The last best hope for defusing anti-Asian tensions!
(Source: youtube.com)


Deferring the actual implementation of dedollarization by Team Red for the moment, the flood of recent articles on China's economic stagnation and possible "Japanification", might be briefly commented upon. This Team Blue narrative seeks to draw parallels between the China of today, and the Japan of the 1970s to 1980s. For those too young to remember, there would be simmering anti-Japanese sentiment in the U.S. about that period, spurred largely by quite-similar fears that Japan were about to overtake the U.S. economically. The American reaction ranged from the public destruction of Japanese-made cars and electronics (again mirrored by the rise of Chinese EVs such as BYD and Huawei etc.), to thinly-veiled portrayals of the Japanese as antagonists in popular media by authors such as Michael Crichton and Tom Clancy, and even in niche comics such as The Sandman, which had the Japanese pantheon being some sort of expansionist zaibatsu out to buy up the (nether)world.

It was all coming to a boil with books such as The Coming War with Japan getting published in 1991 (which got the obligatory Chinese sequel in 2016, now with a rash of spin-offs), but all the panic over Japan would abruptly terminate about 1990, when their stock and real estate bubbles burst - and never quite recovered to the present day. This eliminated Japan as a credible threat to American hegemony, and it would soon be back to Japan Good, China Bad in the Team Blue propaganda. The U.S. imposition of the Plaza Accord on Japan, and the latter's quiet acquiescence, has popularly been said to have precipitated Japanese economic decline by making their exports uncompetitive, by devaluing the dollar vis-a-vis the yen.

This then represents yet again another advantage of Controlling the global reserve currency (and others' relation to it), although there lies a very important distinction between the case of Japan then, and China now. Firstly, Japan remained a nominal Team Blue core (security) ally, who had essentially no prospects of projecting (hard) power on their own. Moreover, they had truthfully gotten a great bargain from the Allies after their World War II misadventures*, and the request to self-handicap could be seen in this respect as a reasonable one. Putting some numbers to the Japanese situation, they had a per capita GDP (PPP) of about US$19k in 1990, with a population of some 124 million. This compared to the U.S. figures of about US$23k with 250 million citizens back then, which had Japan topping out at barely half of America's production... before their big crash.


Arbuden
(Source: straitstimes.com)


The trouble for the U.S. is that none of the factors behind their successful (partly-voluntary) containment of Japan, apply to China. To begin with, there is certainly no sense of obligation towards America to support self-limitation within China, and no willingness to exist as American subordinates/junior partners, in a Team Blue liberal international order framework. The numbers have already been explored, and reflect a GDP (PPP) for China that is currently some 20% larger than America. Interestingly, for all the commentaries arguing either for or against China retreading Japan's path, the projections are not all that different; most of them have China's GDP annual growth in the range of 4% to 6% moving on, and while we have (justly) rolled our eyeballs at China's past GDP reports never deviating more than a whisker from announced targets, let's see what these growth rates imply, assuming the U.S. remains at 2%, with X as the multiplier discussed with the productivity hypothesis:

  • 4%: China 65% larger by 2049 (X=1.65)
  • 5%: China 159% larger by 2049 (X=2.59)
  • 6%: China 279% larger by 2049 (X=3.79)

If "Japanification" is instead interpreted as China's per capita GDP plateauing and stagnating against the U.S., this would represent them levelling out at about 60% of the U.S. figure, taken from Japan's current ratio against America (about $46k versus $76k). However, this would still imply X=2.1 by 2049, due to China's population likely being about 350% then; in other words, no matter how one slices it, the future appears to continue pointing in approximately the same direction. Not that it'll stop Uncle Sam from trying, seeing as to how their self-image and the entire edifice of "liberal democracy" is at stake.

Team Blue appears to be getting quite impatient at this point, though, and perhaps they should be allowed to play their response for this Action Round, before the story continues...

[*Bringing to mind the... interesting turn of phrase by our PM, in bringing up "co-prosperity" with China, in the Asia Future Summit co-organized by the domestic establishment media. More about them soon too!]



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