Thursday, March 5, 2009

Trans-Pacific Geopolitical Relations

Brief Background:
The war in Iraq, that is still being unwound, led to the loss of life for an estimated more than 100,000 Iraqis, and more than 4,000 US soldiers. The war was provoked by what turned out to be wrong information indicating a massive build up of WMD in Iraq, and suspicions that the Iraq regime was complicit in the 09/11 attack. This war contributed a great deal to the failure of the incumbent and the Republican candidate in the recent US Presidential elections. The process by which this war came about has been highlighted in various forums, as being a simple result of wrong judgements and evaluations by military intelligence experts.
Another, separate, unconfirmed, reason postulated is that the war was provoked deliberately to deal with the Iraq regime's actions to change the composition of their reserve currency from USD to EUR; and to propose exports of their crude output denominated in a currency other than USD; thereby threatening the US geopolitcal influence over the Middle East and the petroleum trade.
Similar ideas about moving away from the USD status as a reserve currency, and the denomination of international trade settlements in USD have been expressed by the leaders of Iran,Germany,Russia, France and Venezuela, according to various press reports. Also, there are reports that China plans to get the RMB accepted in its region as a reserve/trade settlement currency in a very limited way. At the same time, with the exception of Iran, the intention of the other central banks seems to be to gradually re adjust away from holding mainly USD to holding a combination of USD and other currencies.
In this context, it is likely that the USD exchange rate will gradually decline, leading not only to a more multipolar geoeconomic order, but most importantly, an opportunity for the United States to gradually rebalance its trade with several large economies. If things go according to plan, the United States will most probably emerge from the 2008 crisis with a much stronger economy, increased exports, a more feasible and sustainable USD exchange rate; and still retain its military strength and all other aspects of soft power and geopolitical influence.
Note 1) While most people write very dreamily about a "New World Order" I tend to think that the only notable changes are likely to be economic, rather then geopolitical; a weaker dollar, and increased US exports to other countries, in my view, increase US influence rather than decrease it.
2) Though we're already in the third month of 2009, I'm yet to accept the popular notion that the rest of this year will continue to be a 'crisis'. In my view, even the emergence of a clear direction towards economic recovery should lead to declassification of the global economy as being in a 'crisis' of some sort. Recessions are in the mind, as Dr. Amartya Sen pointed out recently. (Amartya Sen is well known for proving, for instance, that many aspects of social development, such as literacy, are independent of economic development, such as per capita GDP' through comparison of these variables across different Indian states.Also, his research in economic history on the Bengal Famine showed that in fact, there was no physical shortage of foodgrains during that famine. Traders hoarded foodgrains due to the widespread belief and expectation of a famine, leading to massive starvation and loss of life for humans and cattle, in the his analysis of the history. If cows can die in the Bengal Famine history, as Amartya Sen showed, due an imaginary shortage of food grains in traders' minds; US banks can refuse to lend money to anyone, due to an entirely imaginary 2009 Global Depression)
To be continued ...

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