Is China ready to replace the US?

S P SETH

By hanging their dirty laundry for open display during the recent the fiscal crisis, the US political establishment rightly invited some serious criticism of its dysfunctional system. And the most telling came from Xinhua, the official Chinese news agency. Its commentary called on  “the befuddled world  [by events in the US] to start considering building a de-Americanized world”, including a new international reserve currency. Hitting the US hard by blaming it for the global economic crisis in the first place, the Xinhua said, “The world is still crawling its way out of economic disaster thanks to the voracious Wall Street elites.” Not letting off the US easily and highlighting risks to China’s investments in the US currency, the Xinhua pointed out that, “The cyclical stagnation in Washington for a viable bipartisan solution over a federal budget and an approval for raising debt ceiling has again left many nations’ tremendous dollar assets in jeopardy and the international community highly agonized.”

One can’t entirely blame the Chinese for lecturing the Americans, having been subjected to criticism from the US over a whole range of issues, though not without substance. Apart from exulting at the US political embarrassment, the Chinese have a real stake in the proper management of the US economy because they have invested over $ 1 trillion in US treasury notes and bonds. And any US default would have seriously damaged their investment in what has been generally regarded as, good as gold, US currency instruments. They should, therefore, be pleased, for that reason alone, that the US has come back from the brink, at least for the time being.

However, one may ask if the Chinese are really serious about “a de-Americanized world”, with a new international reserve currency? They certainly would like that but they have never spelled out the alternative. As Professor Jin Canrong of International Studies at Remin University has reportedly said, “We have talked about it for many years…. But in fact, the majority of China’s foreign currency reserves are still in US dollars.” Amplifying it, he added, “Since the late 1980s China has raised the idea of establishing a new world order, both politically and economically, but no one has any idea what that could be. China has been a beneficiary [of the present system], so what is the reason to change it?”

And how has China been the beneficiary? Because China’s currency wasn’t freely convertible, it has been able to keep its exchange rate artificially low, giving it an enormous competitive advantage in pricing of its goods for export; as well as from low (depressed) wages at home. But it hasn’t been an entirely one-way street. China’s low valued exports helped to control inflation in developed countries, not only through direct export of cheap Chinese goods but also with the US and western outlets setting up their own production lines in China to take advantage of its low production costs. Of course, China’s massive exports enabled it to build up large trade surpluses. But, by investing these surpluses in US treasury notes and the likes, it made available the same as credit to the United States and other developed countries.

Even though the US and other western countries often complained about their trade deficits, and sought revaluation of the Chinese currency to make trade competitive and balanced, they were never serious about taking on China on this, principally because it kept inflation under control in their countries. It is important to realize that inflation had been the curse of economies in developed and developing countries but that largely ceased to be an issue in rich countries with low consumer prices of Chinese goods and availability of credit for almost anything and everything. Partly, of course, the credit availability was the China magic with their surpluses invested in US dollars and, partly, a number of western countries and the United States decided to venture into floating all kinds of credit instruments creating an illusion of ever-increasing economic prosperity. The former US Federal Reserve chairman, Alan Greenspan, called it irrational exuberance but he kept the credit flowing as if the economy was on autopilot, not needing any regulation or direction. And we now know what happened, and the resulting global financial crisis is still causing havoc, with periodic political and financial gridlock in the United States. China, though, has so far weathered relatively well through the global crisis.

Ever since the 9/11 terrorists attacks in the US and the subsequent invasions of Afghanistan and Iraq, things haven’t gone too well for the United States. In the midst of it all it experienced the worst recession since the economic depression of the thirties. Even as the US has been pre-occupied with these wars, China has been consolidating its position and expanding its political horizons, particularly in the Asia-Pacific region, laying claims to a number of islands and waters around them in the South China Sea and the East China Sea. But its sovereignty there is contested by a number of regional countries, some of them with security pacts with the United States. But for the US presence and involvement in the Pacific, China would hope to sort it out with its regional neighbors.

China seemed to be cruising along well in its region with the US stuck in its wars in Afghanistan and Iraq. However, Obama’s 2111 announcement of the US “pivot” to Asia with a renewed and and expanded commitment to the region, complicated China’s regional strategy. Beijing would hope that the US’ financial and political problems, over time, constrict it increasingly from over-extending its reach in Asia-Pacific. It is not so much a matter of the US presence and involvement as the perception regionally of its seriousness and capacity to stand by its allies against China. And this recently took a hit when President Obama couldn’t even attend the Asia-Pacific Economic Cooperation (APEC) summit in Bali in Indonesia, and the East Asia summit in Brunei because of the crisis at home over the budget and the debt limit. Even though Obama’s absence was understandable but the US image as a dysfunctional superpower didn’t go well in the region. It is this perception that might push regional countries into making peace with China on the latter’s terms.

But even if this were to happen over whatever period of time, China is not prepared yet to replace the US dollar as the world’s reserve currency or a basket of currencies. With European economies in doldrums, and Japan still seeking to emerge from its two decades’ long economic stagnation, it would be difficult to put together a credible basket of international currencies to replace US dollar. And, as for China, it is economically and politically not yet in a position to become the world’s currency repository. In other words, the world might have to live with the US dollar as the world’s reserve currency for an indeterminate period.    

Note: This article was first published in the Daily Times.

Global warming is real

S P SETH

The recent report by the UN Intergovernmental Panel on Climate Change has predicted a virtual Armageddon of global warming in the years to come, by the end of the century at the latest, if humanity fails to put their collective heads together to avert this disaster. The report was in the making for six years involving more than 800 scientists around the world. And their main finding is that it is “extremely likely” that humans are the dominant cause of global warming, with carbon dioxide emissions the main factor. The report, being the fifth major assessment of the UN Panel on climate change, expands on the last one issued in 2007 with new evidence that things are only getting worse.

Amplifying on this, Qin Dahe, co-chairman of the IPCC working group that compiled the report, said, “The atmosphere and ocean have warmed, the amount of snow and ice have diminished, the global mean sea level has risen and the concentrations of green house gases have increased.” And unless the rise in global temperatures is kept down to 2 degrees by the end of this century, which seems a herculean task as the rise might reach 4.8 degrees, the world might be crossing the threshold of managing the impending disaster. As it is, according to the report, each of the past three decades has been warmer than any preceding decade since 1850, and the past thirty years have been warmest since AD 600.

The annual report of the World Meteorological Organization has also warned against global warming. As reported in Britain’s Financial Times, it said “The first 10 years of this century were the hottest in 160 years and filled with more broken temperature records than any other decade as global warming continued to accelerate.” Which is reflected in rising sea levels, melting of Arctic ice, and the world’s glaciers, thawing of permafrost releasing methane which is even more toxic for the atmosphere than CO2, acidification of oceans damaging coral reefs and sea life and so on. All these changes, as we are already seeing, will increase the frequency of disastrous occurrences like tropical cyclones, bush fires, floods and the likes.

The obvious question is: what is causing global warming? As mentioned earlier, it is largely caused by increased carbon emissions into the atmosphere by reckless use of fossil fuels to fuel the ever-expanding global economies. The CO2 thus emitted is trapped into the atmosphere, increasing global temperatures. As sea levels rise further, some of the low level countries will be at high risk of becoming uninhabitable or sinking altogether. Which could lead to massive internal and external migrations. And such mass migrations, particularly to other countries, might lead to a highly dangerous global situation with some countries raising barriers to keep out the environmental refugees. Besides, increasing frequency of droughts might lead to nasty conflicts around water shortages and shrinking arable land. Therefore, global warming is not only going to upset the ecosystem, but it is likely to create military conflicts between neighbors and in the world at large.

Another factor causing global warming is the shrinking of the world’s forests due to land clearing for agriculture, urban development, timber exports and so on. The forests are the world’s natural carbon sinks as this is, in a way, their oxygen. With the forest cover shrinking all over the world, the carbon emissions have nowhere to go but into the atmosphere. To these two will be added the thawing of permafrost releasing methane gas that will make things even worse.

What can be done to mitigate the situation, if not actually reverse it? So far, despite all the international conferences on the subject, there is no real progress. There is some wrangling over specific targets to reduce carbon emissions, with developed countries urging developing economies to commit to them. Which would amount, more or less, to them accepting a permanently lower level of development for their people who are already among the most deprived in the world. The developing countries have, by and large, no viable options for economic development without using fossil fuels. Their argument is that the world is in such a mess environmentally because the United States and the developed countries of the west recklessly exploited global resources, including fossil fuels, over the last two centuries or more. And they still are not slowing down. Looking at the new sources of oil and gas being extracted, like from tar sands in Canada and shale rocks in the US and elsewhere, the discourse on climate change seems strong on rhetoric than action.

The only effective way to deal with global warming, and keep temperatures from rising over 2 degrees, is to reorient economies from fossil fuels to renewable energy sources, such as solar, wind etc. It seems so simple, yet there are many problems. The most important is the vested interests of the global oil industry with its enormous resources to impede, delay or sabotage any real movement away from fossil fuels. Second, for renewable energy sources to become competitive, there is need for greater investment in new technology, both by the industry and the governments. And this is not forthcoming, even in the midst of all the scientific evidence of the impending disaster.

Indeed, the skeptics and climate change deniers are not even convinced by the science of climate change. They deny that humans have anything to do with climate change, if it is happening at all. For them it is nature taking its own course, as it has done all through the ages. Some even suggest that it is a political conspiracy by the Green and Left forces to bring down the capitalist system. However, over many years now, most scientists have arrived at the conclusion, as reflected in the recent UN report of the Intergovernmental Panel on Climate Change, that global warming is real and the humans, by and large, are responsible for it.

While the world needs to address this impending disaster urgently with all the measures at its disposal, there is need to recognize that as long as the governing model of limitless economic growth remains the norm, with greed and conspicuous consumption its guiding principle, we seem to be headed towards inevitable disaster. It is simply not sustainable, because planet doesn’t have limitless resources to support bottomless human greed. Therefore, even with all the mitigating measures, we might still end up exhausting the nature’s bounty. There is a need, therefore, to work in harmony with nature than to confront and seek to overpower it, wherein lies the path to destruction.

We need to downsize our plunder and vandalism of the planet to conserve its resources and partake of them with a sense of humility, equity and shared enterprise. And that will require a new international economic order to avert the impending Armageddon from global warming. We don’t have much time and hence the need for urgent collective action.

  Note: This article was first published in the Daily Times.

Contact: sushilpseth@yahoo.com.au

US-Iran rapprochement?

S P SETH

Will the US and Iran be able to restart where they broke off in 1979 when the Iranian revolution deposed the Shah? The break in their relations of over 30 years has only made things worse. And their problems over the years have come to be crystallized in the strong US opposition to Iran’s nuclear program. Overlaying this, and indeed reinforcing this, is Israel’s pathological distrust of the Iranian regime. Israel’s position is that Iran’s nuclear ‘weapons’ program is an existential threat for them because of its perceived commitment to destroy Israel. And for this they quote some of the rhetorical statements of the former Iranian president Ahmadjinejad. One of the first things President Hassan Rouhani did, as a goodwill gesture, was to send greetings to the Jews on Rosh Hashanah, Jewish new year. He also condemned the killings of the Jews as a “crime that the Nazis committed towards the Jews”.  This is a big change in tone and, even, content, from his predecessor.

                                                                                                                                                                                                       On the question of Iran’s nuclear program, President Rouhani’s administration  has started a dialogue with the United States and other permanent members of the UN Security Council plus Germany to address the concerns and apprehensions that Iran is engaged in a clandestine nuclear program to make an atomic bomb.  During his recent UN address, Rouhani addressed the nuclear question at two levels. First, he declared, “…Nuclear weapon and other weapons of mass destruction have no place in Iran’s security and defense doctrine, and contradict our fundamental religious and ethical convictions…” Second, while denying categorically that Iran had any nuclear (weapons) ambition, Rouhani however strongly asserted Iran’s “right to enrichment [of uranium] inside Iran and enjoyment of other related nuclear rights.” And to ignore this or demand its surrender, according to Rouhani, “… is, therefore, an illusion, and extremely unrealistic…”

In an article he recently penned for the Washington Post, he outlined why it was important for Iran to master nuclear technology. He said, “…To us, mastering the atomic fuel cycle and generating nuclear power is as much about diversifying energy resources as it is about who Iranians are as a nation, our demand for dignity and our consequent place in the world.” He has also said that Iran “is prepared to engage immediately in time-bound and result-oriented talks to build mutual confidence and removal of mutual uncertainties with full transparency.”

In his UN address, he avoided referring directly to Israel’s hostile role on the nuclear issue but alluded to this indirectly by cautioning the US leadership from “following the short-sighted interest of warmongering pressure groups…” Not surprisingly, though, Prime Minister Netanyahu of Israel still holds the view that Rouhani is a “wolf in sheep’s clothing.” Israel is going to be even more upset as Rouhani has raised the issue that Israel, which has nuclear weapons but refuses to confirm or deny it, should join the non-proliferation treaty. This has so far been a non-issue in the nuclear proliferation debate because Israel somehow is believed to have a special dispensation, under US and western political protection, from transparency and accountability in this matter. 

Obama’s response to the new Iranian leadership’s diplomatic overtures has been cautiously optimistic. In his UN speech, for the first time an American president acknowledged, “… America’s role in overthrowing an Iranian government [in 1953] during the Cold War.” Such a symbolic gesture is helpful in creating the right atmospherics. While asserting that “… we are determined to prevent them [Iranians] from developing a nuclear weapon” President Obama also said that “…we respect the right of the Iranian people to access peaceful nuclear energy”, while meeting their “responsibilities under the Nuclear Non-Proliferation Treaty and the UN Security Council Resolutions.” At the same time, Obama noted that, “Meanwhile, [Iran’s] Supreme Leader has issued a fatwa against the development of nuclear weapons, and President Rouhani has just recently reiterated that the Islamic Republic will never develop a nuclear weapon.”

As part of the process of furthering their dialogue, the US secretary of State and the Iranian Foreign Minister have already met, and Iran and the UN Security Council permanent members (the US, Russia, China, UK and France) and Germany will soon be holding a dialogue on the nuclear question. Another encouraging development has been a telephonic conversation between Obama and Rouhani to break the ice, so to say, enveloping their relations since the 1979 Iranian revolution. For the first time, the dialogue on the nuclear question will be held against a backdrop of some positive exchanges. But that is no guarantee of real progress. According to Obama, “To succeed, conciliatory words will have to be matched [by Iran] by actions that are transparent and verifiable.”

Already, even symbolic diplomatic progress is creating some nervous reaction among countries committed to perpetual hostility to Iran. As New York Times colourfully reported (September 29), “ For Israel and Persian Gulf states like Saudi Arabia, President Obama’s telephone call with President Hassan Rouhani of Iran on Friday was the geopolitical equivalent of discovering your best friend flirting with your main rival.” And it is not just the nuclear issue. To again quote New York Times’ report, “ But beyond that [the nuclear issue], the prospect of even a nonnuclear Iran—strengthened economically by the lifting of sanctions, and emboldened politically by renewed relations with Washington—is seen as a dire threat that could upend the dynamics in this volatile region.” But that is going too far, when the real conversation between Iran and the US and its allies on the nuclear question is yet to begin in earnest.

There are two issues here. While the Iranian President has categorically ruled out Iran’s ambition to develop a nuclear bomb, he is also firm that his country is determined to master the nuclear energy cycle. Any country doing that would have the technical capability to make a bomb, if it were to reach the level of enriching uranium to a very high level of 90 per cent. Iran doesn’t have that capability and neither does it claim to be working to that level. But it probably has up to 20 per cent capacity that is commensurate with peaceful medical and other uses. This is where transparency and verification by International Atomic Energy Agency (IAEA) comes in.

If Iran is categorical about not making a bomb, as it is, it shouldn’t be a terribly difficult exercise to let in the IAEA inspectors for verification. But if the US and its allies were to insist on Iran altogether abandoning its uranium enrichment program for even peaceful uses, that is unlikely to happen.

The future direction of US-Iran dialogue will depend on if Israel would continue to have a veto on US decision-making in this matter. During his UN address and meeting with President Obama, Netanyahu made it clear that Israel would settle for nothing short of dismantling of Iran’s nuclear program. Otherwise, Israel might feel impelled to make a pre-emptive strike at some time on Iranian nuclear installations.

Note: This article was first published in the Daily Times.

Contact: sushilpseth@yahoo.com.au

American political theatre

S P SETH

But for its serious consequences, the political theatre in the United States about its budget and debt ceiling will make for a hilarious comedy. Indeed, the American political satirist, Jon Stewart, is already making good use of it in his Daily Show for the entertainment of his audience. But seriously, it is no comedy. And many people, within and outside the United States, do not really understand, why the US is in the state it is at this point of time? Simply put, it is a serious political tiff between the Democrats and Republicans, with the latter refusing to pass the budget in the House of Representatives, where they command majority; being opposed to funding the Affordable Health Care Act (Obamacare). This has caused a shutdown of parts of the government until there is some compromise or one side or the other capitulates. This budgetary crisis is mostly an internal affair of the United States, though it has consequences for the global economy when the world’s largest economy is paralyzed.

But the next stage of this political theatre is much more serious for the global economy, where growth, limited as it is, is rather tentative. This relates to the US debt ceiling that needs to be raised from $16.7 trillion by around mid-October. And if the Republicans are still holding the country to ransom, global markets might go into a spin with the US dollar depreciating, financial institutions holding US bonds and treasury notes seeking to off-load them, interest rates likely to rise and other unpredictable consequences. It is hoped, though, that even the Republicans won’t be that suicidal where the country’s future is at stake. And if not, what exactly is driving them to this fiscal cliff and beyond?

Instead of accepting gracefully their defeat twice in the presidential election in 2008 and 2012, this has made the Republican Party more obstinate, even to the point of punishing the country for electing Obama. And their majority in the House of Representatives enables them to indulge in this luxury. The rise of the extremist Tea Party within the Republican ranks--about 50 members (with about the same number under their influence) out of 233 of them-- has given them a veto of sorts. They are, by and large, impervious to the popular opinion because, with the gerrymandering (manipulating) of electoral districts in Republican states, their seats are quite safe with overwhelmingly white and conservative constituents. And the Tea Party Caucus is well funded by some of the richest business people in the United States, like the Koch brothers, for instance.

Indeed, the Tea Party is the mouthpiece of some of the most powerful lobbies in the United States, like the National Rifles Association which is against any control on the sale on guns, anti-immigration zealots and, in the case of Obamacare, the medical fraternity and their health insurance industry. And with such powerful patronage they are able to hold a gun to other Republicans, threatening them with contests in the primaries for nomination at the next election. Therefore, even though they are a minority caucus in their Party, they command real power. It is not for nothing that they have been dubbed the “suicide caucus”. No wonder the House Speaker Boehner is running scared of them.

The American political gridlock has increasingly come to be underpinned by a strong ideological divide. The Democrats and Republicans have been political rivals for a long time, the former espousing a liberal (American) version and the latter pushing the conservative agenda. But, generally, there was always some middle ground where they could hammer out a compromise. But that is increasingly becoming rare because of Republican revulsion to President Obama. And there are a number of reasons for this. First, many Republicans refused to accept him as a legitimate President. For most of his first term, some among them raised doubts if he was even American-born, thus questioning his legitimacy. Of course, these doubts were a convenient, though indirect way of expressing their racial prejudice. And this tends to inform and influence their politics.

The second reason is that Obama is, somehow, considered a socialist who seems determined to change the way Americans would like to live and do business. And his Affordable Health Care Act (Obamacare) is regarded as an example; what Mitt Romney, his Republican presidential contender, called that 47 per cent people living on state handouts. This kind of socialism, called European disease by some because of welfare provisions in those societies, is not welcome by Republicans for the United States. At another level, this kind of welfare society makes state   more powerful, telling people what to do and what not to do. For instance, the Obama’s administration’s advocacy of gun control laws to come to grips with the culture of violence and shootings in the US is regarded by many Republicans as an abridgment of the people’s right to defend themselves.

In other words, many Republicans seek to prevent ‘socialism’ from taking hold in the US and the consequent entrenchment and expansion of the Federal government power. And for this, a tighter control of the public purse and debt ceiling are their preferred method. They have already prevented Obama from going ahead with measures to mitigate environmental disaster, restrict use of guns, and to sort out the immigration mess of 11 million or more ‘illegal’, mostly Mexican, immigrants in the United States.

Obviously, at some point, sooner rather than later, the United States’ economic logjam would get sorted out because it is too big a risk for the United States and rest of the world. At the point of writing, it appears that the Republicans might agree to raise debt ceiling for six weeks in return for the government to negotiate to cut budget deficit. In the meantime, the government shutdown will continue until the budget is sorted out. Whatever the solution, it looks like it will be short term. It is becoming increasingly clear that the United States has structural problems, including its constitution, that need to be remedied. But will its political establishment across the spectrum rise to the occasion or simply recreate the same political theatre at regular intervals? Or has American “exceptionalism” run its course, with the US power slipping.