Utterances.net edited by Jalel Harchaoui.
 

06 December 2012

Given Washington's existing debt, Beijing-Tokyo's green-light is required
Who Would Finance the War on Iran?
by Jalel Harchaoui.
The U.S. spent $3tn on its wars in Iraq and Afghanistan; those targets were a cakewalk compared to Iran.
Who Would Finance the War on Iran?

Washington's Tim Geithner and Beijing's Wen Jiabao.

China’s foreign-exchange reserves amount to $3.2tn, vs. $0.2tn as of 2001. Over 55% of that wealth is invested in U.S. securities.

The United States, thanks mainly to its military expenses (half of the entire world’s) and its designed-to-fail healthcare system, runs an outstanding debt of $16tn (17% of the latter is held abroad).

Federal spending on Medicare-Medicaid: $0.84tn. (By law, the U.S. Government is not permitted to negotiate drug prices. Big Pharma get to name their price unilaterally, i.e., inflate it by 1.5x to 3x as compared to the rest of the Western world. The U.S. is the only industrialized country where the free-markets logic is outlawed so ferociously, so as to benefit pharmaceutical firms. The sole exception to the U.S. law is the Veterans’ Benefits Administration, which has turned out to be sustainable and functional.)

The military budget amounts to $0.67tn annually. (The wars in Iraq and Afghanistan have cost the U.S. taxpayers $3.0tn, which equals all of the foreign-denominated cash reserves China has been able to tuck aside during the same period: 11 years of extraordinary growth combined with inhumane working conditions.)

One aspect must be noted with respect to the Beijng surplus cited above. The whole Northeast Asia region forms a unified industrial compact. The center in terms of research, overall economic policy, academia and cutting-edge technology is Japan (not the West, as many might believe). The reason the U.S. fought WWII’s Pacific Theater was to prevent precisely the economic development that has materialized since 1999-2001.

Economically, Northeast Asia forms one cohesive, consistent, complementary region. That means that each country’s ‘investment’ behavior shadows Japan’s and China’s, very roughly speaking. South Korea, Taiwan, Singapore move (approximately) in unison with respect to Tokyo-Beijing when it comes to U.S. securities. (The Hong Kong Monetary Authority is obviously just another part of China.)

When one reads China holds $1.2tn’s worth of U.S. government-backed securities, one must read Asia’s powers hold $2.9tn’s worth of the same. From Timothy Geithner’s perspective, Asian governments represent a very large part of his creditors. Those Asian buyers of U.S.-backed securities matter to Geithner more than any other pool of investors.

Said differently, Asia’s rich economies effectively control the level of interest rates at which America borrows. By raising the latter (i.e., by selling big chunks of outstanding Treasuries) Beijing can—easily, if it decides to—strangle the American economy and ratchet up the U.S. government’s borrowing costs dramatically.

U.S. Treasury bond yields are exceptionally low but that could change. (In May 2007, Greek 10-year bonds yielded around 4.5%; today, they are at 14.96% vs. Germany’s 1.29%: international investors move stuff—despite all the massive central-bank interventions and attempts to deter the free-markets dynamic. The Bretton Woods system is long gone. Supply-and-demand exerts weight.

The above paragraph leads me to a never-discussed question: given America’s knack for disastrous, multi-trillion quagmires, why on earth would Northeast Asia authorize yet another American-led war of aggression at this stage?

Northeast Asia can prevent a new oil war by Washington against the Muslim world. It merely has to sell $200bn or $300bn of U.S. government-back securities and the debt-servicing paid by U.S. taxpayers would skyrocket. That mechanism provides Beijing-Tokyo with critical leverage over America.

Washington’s and NATO’s rhetoric is, obviously, becoming belligerent when it comes to undermining Damascus by force (and illegally: NATO hasn’t received UN approval). No economic powerhouse can possibly be interested in Syria per se: Syria’s oil wells have run out; it has no resources.

In all likelihood, Washington probably feels compelled to jump in and prevent Assad’s patchwork dictatorship from exploding at the seams, ethnically speaking (Israel possesses a mighty air force but a weak ground army). Syria’s borders were imposed in a profoundly artificial manner (Sunnis, Shi’ites, Alawites, Kurds, Druze and Christians). If Assad falls too fast that synthetic country, by floundering, can flood over Israel in an uncontrollable fashion. Via South Lebanon mostly, as Hezbullah is determined to fight any spills of violence back.

Additionally, intervening in the name of humanitarianism (like it is being announced with great fanfare) is possibly—although quite unlikely—a means for Washington of stacking forces into the region for Iran-invasion purposes (oil) without world opinion being aroused in too firm a fashion. The goal being control over oil, and having very little to do with alleged nuclear weapons (Iran’s intentions to have a nuclear deterrent do exist, but its nuclear capabilities aren’t a reality yet; Washington’s determination to affirm control over Iran predates them by many decades).

The considerations above are relatively easy to speculate about.

The big question mark, still, remains, Why would Beijing and Tokyo green-light a new $3tn war by Washington? Let alone the risk of sparking World War III. The realistic answer is, They won’t. The U.S. literally cannot afford to launch an overt attack on Iran. Plain and simple.

Not to be cynical but—Irish sports-betting platform InTrade.com sees the probability of a war of aggression being launched against Iran by 31-Dec-13 at 25% to 30%. Those odds sound about right. The figure can be interpreted as reflecting two concomitant facets. First, Washington does not intend to initiate a gigantic war, which will unify Muslim nations against itself and its affiliates, ruining decades of sabotage work and sectarian-division promotion in the Persian Gulf region. The other facet at play is: Israeli leadership has been in a worsening state of irrational excitement over the last several years. It has over 200 on-hair-trigger-alert nuclear weapons pointed on as many Muslim cities. If Washington abruptly dampens its unconditional support for Tel Aviv, the latter is capable of trying a crazy move just to see what happens.

~ Jalel Harchaoui.