Who is Kidding Whom? by D Gilmore

If the US is anything in its history it is naïve. Sometimes being naïve helps and sometimes it hurts. It helps when problems that it confronts would never even be attempted to be solved by a more cynical society – Britain comes to mind. On the other hand it hurts when one views growth in say China as not a threat to the US in as much as this line of thinking leads to complacency. In other words as China grows there are only winners, here and there. If the US is anything in its history it is naïve. Sometimes being naïve helps and sometimes it hurts. It helps when problems that it confronts would never even be attempted to be solved by a more cynical society – Britain comes to mind. On the other hand it hurts when one views growth in say China as not a threat to the US in as much as this line of thinking leads to complacency. In other words as China grows there are only winners, here and there.

Well one look at what China has done in the Olympics this year should leave most observers nervous about the potential for this society to apply the same determination to science and technology. Is it any wonder that China wants to have people on the moon by 2020? How long before the next Bill Gates is from China and lives there too?

I am not making an argument against globalization nor am I making a case for isolationist policies. What I am saying is that China’s economic expansion (will double the size of the US economy in 20 years using conservative growth modeling) is indeed a threat to the US. With economic growth will come political (economic, social and military) clout, even if not one-for-one with economic might. In 20 years it is safe to assume, I think, that China’s political influence globally will be a third more than it is today…and this means a loss of political influence elsewhere like in the US…it is a zero sum game. in as much as our political leadership thinks and states (see US Treasury Secretary Paulson today) that China’s growth is not a threat to the US and this is one of the highest forms of naïveté and breeds complacency.

This is not a call to arms against China, but a call to arms against US complacency. We are too comfortable, too naïve and too much of everything for our own good. We are giving away the future. Instead of telling the world and US public we have nothing to fear from China’s rise to an economic and political heavyweight, Paulson and just about everyone else in Washington would be doing us a greater service by addressing the very issues that will take the US down the road of all former world powers and empires.

China is going to do what China is going to do. That is a reality. What then is the US going to do about its future with a decrepit infrastructure (try driving around New York City and see if your car survives the potholes…this is the nation’s premier city too). Or see what is going on in public schools…it is a baby sitting service for all but the gifted and talented, and special needs kids…we have an educational system catering to the tails of the distribution. China and India eat our lunch when it comes to public schools (surely many in rural China and India never get to a public school…we’ve got that going for us).

If the Olympics are not opening your eyes to how much at risk the US is of falling into insignificance, then have a look at the last two weeks in the Caucasus where Russia put down an effort by Georgia, a US ally, to squash independence movement in the breakaway Georgian republic of South Ossetia. Saakashvili, the President of Georgia, thought his back was covered by his buddy in the White House. What a gross miscalculation. What Putin and Medvedev correctly banked on was the US is in no position to prevent Russia from storming right into Tbilisi if it so desired and leaving Secretary Rice threatening the expulsion of Russia from G8. It is laughable.

And if still not convinced look at US influence in Iran…who is kidding whom? What influence?

North Korea’s demolishing of its two-decade old decommissioned reactor was worthy of a scene from South Park. And North Korea gets removed from the Axis of Evil list which Kim is surely happy with as his pipeline for Hollywood movies and designer sunglasses is reopened.

If you think this is a polemic against Republicans in power well it is not. Pelosi and Reid bear responsibility as well. Leadership is leadership. Congress is empowered.

The good news is that the US economy is heading down the toilet and we will be in a new New Deal world in 2009. A decade of government spending on infrastructure to make jobs and strengthen the economy’s backbone, and avoiding bridges to nowhere, could in time reduce the future gap between the US and China and allow for more if somewhat reduced global political influence in another 20 years.

China is right to invest in its future while the US is wrong to spend on its past. If nothing changes in US policies to address the infrastructure gap, China’s success at the 2008 Olympics is the tip of the iceberg. Sorry Hank but I find your complacency very troublesome.

David Gilmore

Foreign Exchange Analytics has it's roots in both the emerging information technologies and the global economy that characterized the last two decades.  As currency transaction volumes soared in the wake of the 1985 Plaza accord, the need for timely concise information on what forces were driving and would drive exchange rates became critical.   David Gilmore was one of a new breed of analyst that saw a void of relevant, market moving... More