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Thread: Power Shift from USA to China...

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    Power Shift from USA to China...

    Europe and America in the shadows as a new era dawns

    By Malcolm Rifkind


    'The United States is not just a superpower. It is a super-dooper power," I was told shortly after the end of the Cold War and the collapse of the Soviet Union. There was considerable truth in this claim. Never since the Roman Empire, under the Emperor Augustus 2,000 years ago, had one state appeared so strong and invincible.

    America had not only seen off the Soviet Union. Its military capability, even without allies, was far greater than that of any conceivable combination of its enemies. Furthermore, it led Nato, the most powerful military alliance the world has ever known and which included among its members Britain and France, two nuclear powers with formidable, if far smaller, military forces.

    But America's dominance was not merely military. Its economic wealth was far greater than that of any other state. The US dollar had been the world's reserve currency since the decline of sterling. Its language, shared with the UK, was fast becoming the chosen alternative language for the rest of the world. Capitalism, which it championed, had vanquished both socialism and communism.


    Its democracy was then the chosen model for the new Russia, for Central and Eastern Europe and for much of Asia and Latin America.

    The triumph of the United States had not emerged out of a vacuum. It was the latest expression of the extraordinary success and expansion of Western power and European civilisation. Britain, Spain, France and, then, the United States had conquered India, humbled China, colonised Africa, exploited South America and converted Japan. That Western domination has been the defining characteristic of our planet for well over two centuries. It not only created great empires and brought much prosperity. It also led to two world wars and many smaller ones.

    That phase of world history may now be coming to an end. The changes we are seeing in the global economy are not only a threat and a challenge to the unique power of the United States. They may also be a watershed for the political, cultural and economic domination that Europe and America have enjoyed for centuries. This will be difficult for Europeans, as well as Americans, to understand and accept.

    To some extent, this has been anticipated for several years. The Americans have learnt, in Iraq and Afghanistan, that the vast power which has given them military victory against conventional armies neither ends the fighting nor ensures the creation of stable and democratic governments. China has been emerging as a superpower since it abandoned, after the death of Mao, its communist ideology and embraced capitalism.

    Oil- and gas-rich countries, not just Russia but Iran, Venezuela and the Gulf states, have been enjoying the vast wealth that high prices have given them and the increased political clout that they can now wield. India has not only joined the nuclear weapons states but is sending spaceships to the Moon. Brazil, Indonesia and South Korea may have severe economic difficulties but are serious economic powers in their own regions and will make a major impact in the wider world.

    And all that was before the virtual collapse of the Western financial system; before the icons of Wall Street either went bankrupt or went cap-in-hand to the White House and Congress. It was before top British banks had to be nationalised and before a wave of panic, not seen since 1929, swept Europe and North America.

    We may be over the worst but we should not underestimate the damage that recent events have done to the reputation of Western free-enterprise capitalism as an attractive model for the rest of the world to emulate. All have seen New York, London, Paris and Tokyo calling in the Old World to rescue the New; asking governments, the state sector and the taxpayers to save the entrepreneurs and capitalists. The Russians, the Chinese and other authoritarian states are only too happy to have this confirmation that strong governments that curb free enterprise are, it turns out, as necessary in the West as in their own countries.

    But it is not just at the psychological and political level that the financial crisis is changing our world. We are seeing curious new relationships being formed. A near-bankrupt Iceland, which is a Nato member, first turned to Russia for financial help before the IMF came to the rescue. Pakistan has asked for finance from China and will seek support from the Gulf states.

    A major new ingredient in the world economic order has been the sovereign wealth funds. Mainly created by the oil- and gas-rich states to ensure their long-term prosperity, they are also a powerful weapon for increasing political and economic influence, especially in the West. China now has vast foreign exchange reserves, mostly in US dollars. What it does with them could seriously damage the US economy, though in doing so Beijing would also harm the largest market for Chinese exports. [wishful thinking...]

    Other countries, friendly or hostile to the US, now have an unprecedented ability to buy bits of America. Who would have imagined that Abu Dhabi would become the owner of 90 per cent of New York's Chrysler building?

    So what conclusions should we draw from these developments? The first is that the future is not what it used to be. We cannot assume that the West will continue the domination of the world that it has enjoyed, almost unchallenged, since the 18th century. Political power will follow economic, and even if there is no reason to assume that Asian prosperity will outstrip that of the US and Western Europe, [see below] it will undoubtedly reach it in a generation or so. While that may hurt our self-esteem, it may be a price worth paying if it creates a fairer and, therefore, a more stable world.

    Second, Western strength has survived more than two centuries because Western governments have been pragmatic rather than ideological. Capitalism has not been static, and if the recent crisis has demonstrated the need for more regulation and involvement by governments, even conservatives should accept that without too much anxiety. As was remarked in the novel The Leopard: "If you want things to stay the same, things will have to change."

    But third, the United States and the Europeans are not about to be overtaken either politically or economically. America still has 25 per cent of the world's wealth. The stock markets of Russia and Asia have been falling harder than those of the West. The collapse of oil prices to $65 a barrel could bankrupt Iran and Venezuela and severely curb Moscow.

    The peoples of the United States and Western Europe must, however, recognise that forces are at work which, in due course, will change our place in the world. Such change will reduce our pre-eminence, but, if it creates less inequality and less bitterness around the globe, it might enhance rather than reduce our security....
    http://www.telegraph.co.uk/opinion/m.../26/do2603.xml


    Political power will follow economic, and even if there is no reason to assume that Asian prosperity will outstrip that of the US and Western Europe,
    Yet many experts speculate that there is good reason to assume that China will outstrip the US and Europe in terms of global power sooner rather than later... eg...

    PROFESSOR XIAOYE WANG, CHINA ACADEMY SOCIAL SCIENCES: Along we see economic reform China become stronger and stronger.

    JONATHAN WU, PREMIUM CHINA FUND MGT.: There is an economic changeover or economic baton turn over from the West to the East, and it’s been more apparent in the last couple of months.

    GREG HOY, REPORTER: The quarry for a hungry tiger, the rapid urbanisation of China's 1.3 billion people now consumes 85 per cent of global steel consumption.

    With 50,000 new skyscrapers planned in 200 new cities within two decades, plus highways, railroads and 97 airports before 2020.

    JONATHAN WU: In 10 years time we will be looking, if China maintains a growth pattern of 8-9 per cent, we'd be looking at China being the largest economy.

    And we're talking between the World Bank forecasts or UBS forecasts, China is actually looking to outstrip the United States GDP by 2015 on a currency adjusted basis, and we are looking at around $US20 trillion and GDP....

    JONATHAN WU: China's main source of its GDP is internal domestic demand. For the last calendar year in 2007 its 91 per cent of GDP was actually generated from within the country.
    ... from a show I watched just tonight - http://www.abc.net.au/7.30/content/2008/s2403873.htm

    Footage can be found here under "Anxiety Over China Syndrome" - http://www.abc.net.au/7.30/

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    Interesting article. What can be seen if we study the capitalist world economy since it's beginnings around the 1400's, it is that there have usually been one major political power (the so called hegemon). Venice has been a hegemon, Great Britain has, and now the US is. Over the long run it is expensive to be a hegemonic power, and hence the position has shifted, moving to the west.

    Japan or China therefore seems like the natural next hegemon. Every hegemon also imposes some cultural values on the rest of the system, so called geoculture. In the case of the US, this has been "democracy", "Human Rights", "the market", and so on. It will be interesting to see what geoculture China will impose on the world, for example we can see that Chinese scholars are very interested in the topic of race, and have no illusions regarding "democracy".

    However, the position of hegemony has historically shifted during periods of massive wars ("Thirty Years Wars"). This means that the aging giant of the US might have some brutal news in store for the not so distant future.

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    Yes, I think power is shifting from the West to the East. If we look at Europe it could mean that London is losing power to Berlin and Paris. Thats a quite interesting geopolitical change: power is transfered from the seapower Great Britain to the powers on the continent, Germany and France.

    The french thinktank GEAB has been warning about the crises that everybody can see now for more than two years. In GEAB nr 28, that came in October, they gave this alert: "Global systemic crisis Alert - Summer 2009: The US government defaults on its debt "


    Indeed our researchers anticipate that, before next summer 2009, the US government will default and be prevented to pay back its creditors (holders of US Treasury Bonds, of Fanny May and Freddy Mac shares, etc.). Of course such a bankruptcy will provoke some very negative outcome for all USD-denominated asset holders. According to our team, the period that will then begin should be conducive to the setting up of a « new Dollar » to remedy the problem of default and of induced massive capital drain from the US. The process will result from the following five factors studied in detail further in this GEAB:

    • The recent upward trend of the US Dollar is a direct and temporary consequence of the collapse of stock markets

    • Thanks to its recent « political baptism », the Euro becomes a credible « safe haven » value and therefore provides a « crisis » alternative to the US dollar

    • The US public debt is now swelling uncontrollably

    • The ongoing collapse of US real economy prevents from finding an alternative solution to the country's defaulting

    • « Strong inflation or hyper-inflation in the US in 2009? », that is the only question.

    http://www.leap2020.eu/GEAB-N-28-is-...8687e69904b57e


    In my opinion we shouldn´t be surprised that the West is losing influence. The modern West is only about egos enriching themselves and consumers who have lost all sense of moderation. As it is now the West is unfit to rule anything. It can´t even rule itself.

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    Quote Originally Posted by Fafne View Post
    Yes, I think power is shifting from the West to the East. If we look at Europe it could mean that London is losing power to Berlin and Paris. Thats a quite interesting geopolitical change: power is transfered from the seapower Great Britain to the powers on the continent, Germany and France.

    The french thinktank GEAB has been warning about the crises that everybody can see now for more than two years. In GEAB nr 28, that came in October, they gave this alert: "Global systemic crisis Alert - Summer 2009: The US government defaults on its debt "





    http://www.leap2020.eu/GEAB-N-28-is-...8687e69904b57e


    In my opinion we shouldn´t be surprised that the West is losing influence. The modern West is only about egos enriching themselves and consumers who have lost all sense of moderation. As it is now the West is unfit to rule anything. It can´t even rule itself.

    And the English need to wake up and smell the coffee. recently, I was talking to an Englishman here and told him that it was very interesting to see the German french cooperation and encouraging to see more German-French firendship than ever before in my life.
    To which the Englishman replied " Ah too bad the French would like nothing better than to be ruled by the Germans".
    So I said to him 'are you of Anglo-saxon heritage?" and he said yes. Well then, Why would that be a negative thing then, You are Germanic, and truth be told I think that getting along and "being ruled by" are two different things.
    he just stood there looking stupid.

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    Europe and America in the shadows as a new era dawns

    By Malcolm Rifkind

    To some extent, this has been anticipated for several years. The Americans have learnt, in Iraq and Afghanistan, that the vast power which has given them military victory against conventional armies neither ends the fighting nor ensures the creation of stable and democratic governments. China has been emerging as a superpower since it abandoned, after the death of Mao, its communist ideology and embraced capitalism.

    Oil- and gas-rich countries, not just Russia but Iran, Venezuela and the Gulf states, have been enjoying the vast wealth that high prices have given them and the increased political clout that they can now wield.

    Russia, Iran, and geared their economies to hundred dollar a barrel oil. Venezuela to 140 dollar barrel. NYMEX Crude prices are currently trading at approx. 57 dollars a barrel. The Russian equity markets were closed at least a dozen times since October, because of catastrophic sell-offs. The measures did not stop unparalelled wealth destruction. Who did this? Who made oil go to 140 dollars a barrel only for it to collapse in value to 57 dollars? Would it surprise anyone that Swiss traders controlled 10 percent of oil futures and options throughout the oil bubble?


    And all that was before the virtual collapse of the Western financial system; before the icons of Wall Street either went bankrupt or went cap-in-hand to the White House and Congress. It was before top British banks had to be nationalised and before a wave of panic, not seen since 1929, swept Europe and North America.

    You would not be able to read this message if there were a virtual collapse of the Western Financial System. There's no wave of panic on Wall Street, just a bear market with a high degree of volatility. It seems banking problems errupt every ten or so years, regardless of the cause. When the author of this peice can explain how the root of our current crisis is the inability to ascertain the value of non-performing/under performing credit default obligations and how this efects cds holders, he might have a bit of handle on the "credit squeeze" and the impossible LIBOR inflation/deflation over the last four weeks.

    We may be over the worst but we should not underestimate the damage that recent events have done to the reputation of Western free-enterprise capitalism as an attractive model for the rest of the world to emulate. All have seen New York, London, Paris and Tokyo calling in the Old World to rescue the New; asking governments, the state sector and the taxpayers to save the entrepreneurs and capitalists.

    I know most people on this board hate capitalism, but state bailouts of corporations have a long, broad, chequered history. In fact the failure of the Japanese Banking System ten years ago has not stopped Japan from enjoying incredible profits in other sectors of its economy. It's current problems stem from the fact that Japanese comsumers refuse to spend much money because of the fear engendered by that collapse. (Not to mention its boom-bust housing market, which has been no different, just greater than any other boom-bust real estate cycle.)

    The Russians, the Chinese and other authoritarian states are only too happy to have this confirmation that strong governments that curb free enterprise are, it turns out, as necessary in the West as in their own countries.

    This couldn't be more backwards, while contradicting statements about Chinese Skyscrapers. There are no curbs to free enterprise in China. That's why free enterprise and capitalism have made such a profound impact on formerly Communist China.

    ,......

    A major new ingredient in the world economic order has been the sovereign wealth funds. Mainly created by the oil- and gas-rich states to ensure their long-term prosperity, they are also a powerful weapon for increasing political and economic influence, especially in the West. China now has vast foreign exchange reserves, mostly in US dollars. What it does with them could seriously damage the US economy, though in doing so Beijing would also harm the largest market for Chinese exports. [wishful thinking...]

    A few points here: Soveriegn Wealth Funds have decreased significantly in value since this article was written. China has two trillion dollars of American currency reserve. In fact two thirds of all monetary reserves on this planet are in US dollars. (may your wishful thinking freeeze in the dark like our ancient ancestors). In fact, since Mao and Nixon decided how the future would be, one if the largest American imports to China has been in investment. http://www.businessweek.com/globalbi...ht_of_the.html

    Other countries, friendly or hostile to the US, now have an unprecedented ability to buy bits of America. Who would have imagined that Abu Dhabi would become the owner of 90 per cent of New York's Chrysler building?

    Since the King's tobacco fields, foreigners have owned real estate in the US. Trick question: Is Abu Dhabi friendly or hostile?

    So what conclusions should we draw from these developments? The first is that the future is not what it used to be.

    When was it ever? lolol

    ....................

    But third, the United States and the Europeans are not about to be overtaken either politically or economically. America still has 25 per cent of the world's wealth. The stock markets of Russia and Asia have been falling harder than those of the West. The collapse of oil prices to $65 a barrel could bankrupt Iran and Venezuela and severely curb Moscow.

    The peoples of the United States and Western Europe must, however, recognise that forces are at work which, in due course, will change our place in the world. Such change will reduce our pre-eminence, but, if it creates less inequality and less bitterness around the globe, it might enhance rather than reduce our security....

    It's a small world, afterall 8)

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    Senior Member stormlord's Avatar
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    Power certainly is shifting to the east, the far east that is. But from London to the continent? Sorry but that's wishful thinking, yes the British and American economies are getting hammered right now, but that's precisely because our economies are much more dynamic than continental ones, and reward is always balanced by risk, but things will swing back eventually. With regards to China, yes that it is a fundamental and "permanent" shift of power.

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    If I wanted to make a killing on the E. Indian markets, which company (ies) or sector should I invest in? Infosys?
    SVMDEVSSVMCAESARSVMCAELVMETINFERNVM

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    The so called power shift will not occur before at least 2060 in my opinion. And even in that scenario, China has a long way to go. Capitalism made it possible for the chinese to become a regional power. Capitalism compined with Western mentality(which is often the same thing) will also weaken their belief in traditions, family and discipline. How many children are born in China today? What are the birth rates? What will the change to relative capitalism from confucianism-based communism lead to? Will the Chinese continue to be "explotied" by Western companies? And how independent is the Chinese economy to global economic crisises? Will the US and EU/European countries allow China to buy up shares in huge Western Companies? How long will they be able to be energy sufficiant without foreign import? Etc...

    I think China has a long way to go before there can be a power change in the world. Why do we overestimate the Far East?

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    Yes, it will take time. I think of the shift in power from USA to China as a long process. And even if the USA will have big problems - "the Greater Depression" - it will continue being very powerful. But it has lost a lot of influence during the last 7 years and the financial crises makes it lose even more.

    The Greater Depression:
    http://www.financialsense.com/editor...2008/1102.html

    For Europes part it all depends on the Eurozone. If the zone can resist the worst part of the crises - and that lies ahed of us, I think - then the most influential powers of that zone (Germany and France) will gain even more influence.

    So for the West: we are possibly experiencing a shift in power from Tel-Aviv, London, New-York to Paris and Berlin (if GEABs analysis is correct).

    And I think we may also be experiencing the end of globalisation (that has been pushed by New-York, Tel Aviv and London), as we have known it the last 20 years. For example, Russia showed forcefully that they will not accept american meddling in their backyard when Russia invaded Georgia.

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    This is of course is not suprising. China is building up it's powerbase for a while now. And this combined with it economic growth would of course mean that in time China will challenge other powers in it's part of the world. America should be worried in the sense that in time China will most likely challenge America naval power in the Pacific Ocean.

    Quote Originally Posted by Imperator X View Post
    If I wanted to make a killing on the E. Indian markets, which company (ies) or sector should I invest in? Infosys?
    Read up on the principels of value investing and then you could make you're own informed decision.

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