A bomb for itself?
Dr. Gal Luft (Co-Director Institute for Global Security Analysis, Penasihat Senior Dewan Keamanan Energi AS.) https://www.guancha.cn/GalLuft1/2022_04_14_634788_s.shtml Guancha: The US reached an agreement with major European allies to remove several Russian banks from the SWIFT system, in what has been called "financial nuclear bomb-level" sanctions. The SWIFT system was created by the United States, but the widening sanctions upon Russia shows that Europe and the United States are weakening the international system established by themselves. What impact will this have on the global economic and financial order? Dr. Gal Luft: In summer of 2019 I published a book called “De-dollarization: The Revolt Against the Dollar and the Rise of a New Financial World Order.” Many of the events that are happening today were predicted in the book, but I must say that even I am quite amazed by the speed of the change. We are literally witnessing a transformation of the global financial system heralded by the western powers after the Second World War at the Bretton Woods conference. Over the past several weeks, the US and its allies have broken several taboos: They disconnected a major economy from SWIFT; they seized private assets of Russian nationals they call oligarchs without any legal proceedings, and, worst of all, they froze central bank reserves. This was actually the second time in eight months Washington laid its hands on central bank reserves. The first time was last summer when the US froze billions of dollars of the Afghan Central Bank. Freezing central bank assets in economic warfare is an act of state-sponsored piracy and the equivalent of using nuclear bomb in a military conflict. But it is also a self-defeating act which is only going to undermine the trust central bankers around the world have in the US dollar system and America’s rules-based international order. Since America wants to write the rules and enforce them, every country that does not accept Washington’s dictates could find itself in the same situation as Russia. This is a wake-up call to many countries. As it is, one in ten countries on the globe is under US sanctions. I have no doubt the events of the past month mark a watershed moment in the history of global finance, one that will go down in history as the worst self-inflicted wound in the history of economics. The dollar’s status as reserve currency is what gives America its power on the world stage, and it is what allows the US to run trillion-dollar deficits and pile $30 trillion in debt. Throughout history there have been a number of reserve currencies. The average lifespan of them has been 80-100 years. The dollar has been a reserve currency for roughly the same period of time. If it has run its course this is only because of the actions of the US government which has been trigger happy in applying sanctions and other economic punitive measures without seeing their cumulative impact. Guancha: The total US federal government debt has exceeded 30 trillion, which has greatly exceeded the US GDP of about 23 trillion US dollars last year. We will see the interest payments on the national debt gradually rise. Is it possible for the federal government to reverse the continuing rise in debt? If not, will this trigger even stronger debt default crisis even global financial risks? Dr. Gal Luft: In order to shrink the such a huge debt one of two things must happen: either the government increases its revenues through robust economic growth and increased taxation or the it reduces its expenditures, for example by cutting the defense budget. Ideally it would be some combination of the two. However, it does not look like the Biden administration has the power or will to do either of those. Ahead of the midterm elections and with rising inflation, raising taxes is a political suicide. Biden is talking about taxing the rich, but it would be an uphill battle with risk of capital flight from the US to various tax havens. After pouring trillions of dollars into the economy in various Covid recovery programs and after keeping interest rates at near zero for nearly a decade and a half, the Fed is running out of tools to stimulate the economy. As for reducing government expenditures this is equally unlikely. In fact, with 10,000 baby boomers retiring daily the expenditures only seem to grow. Biden’s defense budget for 2023 reflects an increase of $79 billion which is bigger than the entire military spending of Russia. With the political class unwilling to take any painful step in the direction of cutting the deficit, the debt will continue to balloon, and with rising interest rates the cost of servicing the debt could become by the end of the decade the number one expenditure of the US government – bigger than the defense budget. Countries buying US bonds watch this spectacle with horror and asking themselves “where does it all lead to?” Can the US ever pay back such debt or is it the mother of all debt-traps? I think this will shape central banks’ decisions on how much US debt to continue to hold. Guancha: Saudi Arabia is considering using yuan instead of U.S. dollars in oil sales to China, according to recent reports from U.S. media. According to Indian media reports, the Modi government recently approved a Russian proposal to allow Russian entities to invest in Indian company bonds. In the context of financial sanctions against Russia by Western countries, this mechanism can enable India-Russia trade to continue. Could all these be regarded as a revolt against the dollar and US financial hegemony? Is it too early to say that this is the rise of a new world financial order? Dr. Gal Luft: There is no doubt that a full-blown revolt is already taking place against the dollar hegemony. Many people are asking: if the dollar is no longer reserve currency what will replace it? The Euro? The yuan? This is the wrong framework to look at the issue. It is not the case of one king succeeding another. There is no single currency that can replace the dollar. Instead, we are moving from an era of currency unipolarity to an era of currency multi-polarity in which several currencies, including gold and cryptocurrencies, will compete against each other for greater share in central banks’ reserves. In the new financial order countries will increasingly transact with each other in non-dollar currencies. The dollar will gradually lose its grip over the multi-trillion-dollar commodity market and the demand for the US currency will fall. Once there is less demand for dollars, the US will not be able to sell its dollar denominated debt instruments with the same ease it has done for nearly a century. Countries like China will reconsider the wisdom of buying US debt in the same pace as before. With demand for its debt declining the US will have to raise interest rates on its bonds and this means that the cost of servicing its debt will spike, leaving less money for defense, health, education, infrastructure etc. This will affect US ability to provide foreign aid, support international organizations, protect its allies and invest in infrastructure projects abroad. As a result, more and more countries will become disappointed by the US and will seek alternative security and economic partners. Domestically, as less and less money directed to social services, the public will become increasingly unhappy and this could lead to an even more unstable political system. Empire of Lies Guancha: On March 24, Biden attended three Summits in a row, the NATO summit, G7 summit and EU summit. In the face of the humanitarian crisis caused by the current Russian-Ukrainian conflict and the recent soaring energy prices across the globe, the US and Europe still expressed that they would continue to exert pressure on Russia and provide military support to Ukraine. It seems that the get-together is not for "putting out the fire" or for peace, but wishing that the war cycle could be prolonged. As a senior advisor to the U.S. Energy Security Council, what do you think the U.S. considerations are from the perspective of energy security and the global energy landscape? Dr. Gal Luft: When Donald Trump was president, he coined the term “American Energy Dominance” which essentially called for increased production of north American oil and gas and using these energy resources as tools of foreign policy to supplant the influence of OPEC and Russia on the America and its allies. Biden, who is much more beholden to the environmental movement, has refrained from using this term, but his intentions are similar in the sense that like Trump he wants to marginalize the Middle East, which is no longer a top priority for US global interests, as well as Russia. The war in Ukraine is a convenient way for the US to make Europe beholden to North American energy. Europe is an economically weakened bureaucratic mess ruled by a political elite increasingly divorced with the needs of its people. The US has realized Europe is ripe for economic takeover. All it has to do is to disconnect Europe from Russian energy. This explains the obsession of US politicians with Nord Stream 2 pipeline. At some point all of Biden’s nominations were put on hold in the Senate until Biden sanctions the pipeline. Why was America so obsessed about a single pipeline? The answer is that the pipeline stood in America’s way of becoming the main energy supplier to Europe. Once the US takes over European energy supply Europe will become a vassal of America in its pursuit of its next objective to take on China. Europe’s dependency on America’s gas will come at a very steep price. LNG will always be more expensive than Russian piped gas and this means that European energy prices will now become much higher with negative implications for European manufacturing and cost of living. Sadly, Europeans are not able to see any of this, and when they do, it will have been too late. Guancha: The outbreak of the Russian-Ukrainian crisis has caused energy prices to skyrocket to some extent, and the European natural gas futures price once approached $3,900/thousand cubic meters. Eight years ago, China and Russia signed a 30-year natural gas supply agreement, which cost only $350 per 1,000 cubic meters of natural gas. At present, in the face of soaring oil and gas prices in Europe and the pressure of global inflation, the US and Europe announced at the just-concluded NATO summit that they would continue to exert pressure on Russia and provide military support to Ukraine. As the war prolongs, people in Ukraine will not be the only one in Europe to suffer. To Europe, is American really a reliable and trustworthy ally? Dr. Gal Luft: Henry Kissinger once said that “America has no permanent friends or enemies, only interests.” I think this is a good way to judge US-European relations. Many politicians say that the relations are grounded in “shared values,” which is generally true, but what really keeps the transatlantic alliance intact are shared interests. For America, a weak Europe is huge strategic opportunity, allowing Washington to reap many economic benefits for its corporations and forge an economically and militarily powerful western alliance which it can later expand to include Indo-Pacific allies. As a leader of such a broad alliance and with a weakened Russia, the US will be able to shift it sights to its number one strategic competitor – China – and establish permanent domination over the Pacific region. But in the longer run this alliance could become a liability for America. Europe’s economy is declining rapidly, facing heavy debt, slow growth, rising unemployment, and waves of millions of refugees. The danger for the US is that if Europe collapses under its own weight the US will have to invest growing resources in keeping it afloat and Europe could turn from an asset into a liability. Guancha: I still can recall what you said when addressing to a Chinese panel before the US's Summit of Democracy, “promotion of democracy has been a fixture of US foreign policy for more than a century”. Recently you mentioned on your Twitter account: A new term born in the blob to describe the west+ honorary members: Advanced Industrial Democracy. You put it vividly as: India, you are not democratic enough. Turkey, you are not industrial enough. You must also be “advanced” to get in the elite club. Setting-rules is a self-claimed privilege of the US for many years. Will there be more followers in the game given the widening “Us and Them” game? Why or why not? Dr. Gal Luft: The world is divided to three groups of countries. The first group is the west plus some honorary members like Japan, Singapore and South Korea. The second are the so-called revisionists led by China and Russia, who are unapologetically pushing for a more equitable international system in which the “rest” are no longer living under the dictates of the “west.” The third group are where most of the countries are – non-aligned. Non-aligned countries stand to benefit most from the globalized system and want it to survive without being subjected to great power pressures, without being told with whom they can trade, what currency they should use or what technology they should adopt. The Ukraine war has sharpened the lines between the three groups. Out of almost 200 countries about 100 are in the non-aligned camp while the other 100 are split in half between the west and the revisionists. This is more or less the new architecture of global power. The coming years will be an epic struggle between the two camps with the non-aligned countries becoming increasingly squeezed in the middle, like a piece of cheese caught between two slices of bread. To me, India is the most interesting country to watch, not only because it is on its way to become the most populated country but because it is also the world’s largest democracy yet it does not seem to be willing to align itself with the west. India’s approach to the war in Ukraine has shocked Washington, which had assumed that the Indians are in their pocket. The events of recent weeks, with India not only unwilling to condemn Russia and join the sanctions but actually taking active steps to undermine the sanctions, will determine whether or not the US can rely on India for its Indo-Pacific ambitions, whether India becomes the linchpin of a new non-aligned movement or whether it joins China, Russia and possibly Brazil in the creation of an even bigger revisionist bloc led by BRICS. -- Anda menerima pesan ini karena Anda berlangganan grup "GELORA45" dari Google Grup. Untuk berhenti berlangganan dan berhenti menerima email dari grup ini, kirim email ke [email protected]. Untuk melihat diskusi ini di web, kunjungi https://groups.google.com/d/msgid/gelora1945/727CAB1503FC47C8B6E345504470BA2D%40A10Live.
