WHOSE HEGEMONY?

"We indeed may see epochal changes. We are at the end of the era of monetarism, where Federal Reserve monetary targeting was implemented by free market ideologues frustrated with the stagnation of New Deal and post-World War II central government planning strategies."
~ Richard C. Cook.

For those who doubt my suggestions that Kurds should keep an eye on China to see what kinds of deals can be made in the Far East, here's a little news update for you from the last few days.

From the UK's Telegraph:

The Chinese government has begun a concerted campaign of economic threats against the United States, hinting that it may liquidate its vast holding of US treasuries if Washington imposes trade sanctions to force a yuan revaluation.

Two officials at leading Communist Party bodies have given interviews in recent days warning - for the first time - that Beijing may use its $1.33 trillion (£658bn) of foreign reserves as a political weapon to counter pressure from the US Congress.

[ . . . ]

Described as China's "nuclear option" in the state media, such action could trigger a dollar crash at a time when the US currency is already breaking down through historic support levels.

It would also cause a spike in US bond yields, hammering the US housing market and perhaps tipping the economy into recession. It is estimated that China holds over $900bn in a mix of US bonds.

That would totally screw the system, wouldn't it?

Commentary on that from one of Reagan's former assistant Secretary of Treasury--I particularly like the title on this one:

Early this morning China let the idiots in Washington, and on Wall Street, know that it has them by the short hairs. Two senior spokesmen for the Chinese government observed that China’s considerable holdings of US dollars and Treasury bonds “contributes a great deal to maintaining the position of the dollar as a reserve currency.”

Should the US proceed with sanctions intended to cause the Chinese currency to appreciate, “the Chinese central bank will be forced to sell dollars, which might lead to a mass depreciation of the dollar.”

If Western financial markets are sufficiently intelligent to comprehend the message, US interest rates will rise regardless of any further action by China. At this point, China does not need to sell a single bond. In an instant, China has made it clear that US interest rates depend on China, not on the Federal Reserve.

The precarious position of the US dollar as reserve currency has been thoroughly ignored and denied. The delusion that the US is “the world’s sole superpower,” whose currency is desirable regardless of its excess supply, reflects American hubris, not reality. This hubris is so extreme that only 6 weeks ago McKinsey Global Institute published a study that concluded that even a doubling of the US current account deficit to $1.6 trillion would pose no problem.

Strategic thinkers, if any remain who have not been purged by neocons, will quickly conclude that China’s power over the value of the dollar and US interest rates also gives China power over US foreign policy. The US was able to attack Afghanistan and Iraq only because China provided the largest part of the financing for Bush’s wars.

And, just to rub a little salt in the wound, here's something on "NATO's rival" holding its first joint military exercise:

Russian and Chinese troops are joining forces this week in the first military exercises by an international organisation that is regarded in some quarters as a potential rival to Nato.

Thousands of soldiers and 500 combat vehicles will take part in “Peace Mission 2007”, organised by the Shanghai Cooperation Organisation (SCO) in the Chelyabinsk region of Russia. Russian officials have also proposed an alliance between the SCO and a body representing most of the former Soviet republics.

Scores of Russian and Chinese aircraft begin joint exercises tomorrow before a week of military manoeuvres from Thursday that will include Tajikistan, Kyrgyzstan and Kazakhstan. At least 6,500 troops are involved in what is described as an antiterror exercise.

Colonel-General Vladimir Moltenskoi, the deputy commander of Russian ground forces, said: “The exercise will involve practically all SCO members for the first time in its history.”

Staff officers from Uzbekistan, the sixth SCO member, will also attend in what is being regarded as a major extension of the organisation’s capabilities.

Let's not forget that Iran has observer status in the SCO, so not only does China not want appreciation of the yuan, it doesn't want a US attack against Iran and will not finance such an attack.

For more background on dollar hegemony, see a little something by Henry C.K. Liu at Asia Times.

Who's hegemony is it now and who says there's no new Cold War?