Op-Ed: China, Russia and The Middle East - Still Plaguing the US Economy

What are the other problems that America is facing outside her shores? And how will these problems affect her current financial crisis?

While America remains infatuated with her multitude of economic problems, the US government leaders and planners appear to have taken their eyes off the global economic arena. The policies now being introduced by President Obama's team are unrealistic, protectionist and are very likely to be ineffective(they seem to be a mirror of Bush's policies, with even more spend, spend, spend), since 'market confidence' should not be assumed to be some stupid, rampant and unreasonable ethereal entity - there are very good reasons for its ongoing disconnect from the markets. Market confidence is essentially driven by expert global players as well as governments, rich and powerful groups of people who know and live for the markets. These shadow-people are all critically watching America to see what she will do, and so far it appears that the US government hasn't managed to coax 'market confidence' out of its dark, sultry cave of distrust and despondency. And there are some very good reasons for this. Market confidence inherently knows what is going on within this political and economic market swamp and isn't so easily fooled. While the US government huffs and puffs in its cries of 'Unfair Advantage !!' regarding the undervaluation of the Chinese Yuan with Obama's and Geithner's big-stick verbal plays, as the Mid-East groans under both the current economic influences and the rude, uneven shadow-plays of the US government to deliberately depress oil prices and as Russia still haplessly tries to recover from the 70% drop in its own stock markets(with a likelihood of defaulting soon on its own debts), there are many reasons for these countries not to be cheerful. In light of these circumstances, these countries can hardly be called friends of the US can they? They are also watching how America is dealing with her own financial mess. And so, perhaps, it is very understandable that these countries will soon turn to their own individual protectionist pacts and economic policies to save their economies, in order to preserve and prepare for their own national economic survival. And it doesn't matter whether the government is Communist, Democratic or a Banana Republic dictatorship, any form of government must always function, first and foremost, to look after its own economy and its own people - since, as I've said before, bad economics is not political and clearly takes no prisoners - it certainly does not discriminate here in its effects. So what are China, Russia and the Mid-East likely to do both politically or economically? I have some facts and ideas and most of them are not such a good omen for the West. It is very likely that these three countries and areas will, in the future, disconnect and decouple their currencies from the weak and feeble world dollar. Evidence for this is already out there. In 2006 Kuwait, a major oil player, decoupled its currency very successfully from the dollar despite US protest, and other Mid-East states are likely to follow. Iran has started an oil bourse last year at Kish(ref Wikipedia). Here they trade oil in any currency but the US dollar. And recently China(in league with Russia) has started a currency experiment with the yuan - whereby the Yuan will eventually replace the US dollar as the trade reserve currency of Asia(ref: Digital Journal). China has recently told the US government that she will not be buying anymore US Treasuries and that her present level of purchase of these securities will move to pre-Bailout levels(Bloomberg). The reasons for this are that China has finally realized that the more US Treasuries she buys - then the less these Treasuries will be worth at maturation due to The Feds massive 'quantitative easing' policy, inflating the dollar to dangerous levels(and thereby trying to "inflate away" America's massive debts). This is perhaps best understood with a simple story - wherein the US Treasury rep, on maturation of China's $1 trillion in Treasuries, finally hands over the cash and says to China :"Here you go, there's all your dollars....go buy yourself a beer." And with this Fed play now out in the open and fully understood, it is very likely that the purchase of US Treasures will now tail off. Other countries will follow suit - which, of course, will work eventually towards the total collapse of the current US Treasury bubble. And then how will America pay its debts? China has also been buying large quantities of gold(China is also now the largest producer of gold in the world)(from Seeking Apha). This ties in well with my first point - regarding China's introduction of the yuan as Asia's reserve currency. This is also a clever way of China extricating itself from dollar dependency. Once China opens up her currency - which will be a strong and stable currency - the gold purchase by the Chinese government will increase the value of the Yuan. So I guess President Obama and Geithner will have nothing further to moan about. And as a result, the Yuan will also be a direct competitor to the dollar on the currency exchange markets - on almost an equal footing - such that many countries will probably dump the volatile and ill-performing dollar for the stronger and more stable yuan. This will also encourage foreign countries to trade more with China instead of America. And since America will only be able to shop in Asia with yuan, then America will actually have to start producing goods(competitively) for export to Asia - to earn yuan. I certainly hope that America can remember how to do this, it's been such a long while hasn't it? I also very much doubt that America's credit will be worth a single bean anyway soon. So President Obama and Geithner should therefore be very careful what they wish for here. Russia has already managed to obtain a high degree of influence in Europe, since the EU countries are now all completely dependent on Russia for oil and gas(see Hypocrisy.com). And Russia is very willing to use this as an economic and political weapon - look at what has happened in the Ukraine and with other stroppy Russian ex-satellites. Putin just turned off the gas and oil tap. There is nothing that the EU can do about this turn of events. So I guess you could say that Russia has got Europe all sewn up. With this development, support in Europe for American policies is likely to wane somewhat. For decades, and for whatever reason, the American government, as well as Europe, has worked feverishly to control and depress the true value of Middle Eastern Oil(from Foreign Policy in Focus). America has done this by using the dollar - generally, every time the price of oil went up, the dollar value would go down. This monetary valve was useful in the past to keep the price of oil cheap and consistent. The Middle-East oil producing countries have therefore suffered this forced discount and control without options for decades - but with Peak Oil apparently on the horizon, a different oil price will emerge - one that will clearly and fairly be governed by the natural economic forces of supply and demand. OPEC has eagerly anticipated this - she has greatly reduced her number of refineries and cut down her oil reserves - she is therefore ready for the inevitable rise in oil demand in the future. In time, this is very likely to both increase the price of oil as well as hinder any quick western recovery from this financial mess. This move is also likely to trash the dollar which is so tied to oil(look what happened last time oil went up so alarmingly). Putin has also very recently made it known that he wants Russia to join OPEC(There are even rumours that Putin wants to start his own OPEC-style oil cartel)(from UK Telegraph). Russia is now one of the largest producers of gas and oil in the world. With Russia on OPEC's council(and why should they be excluded?), depressing the oil price will no longer likely be such a pushover for America and Europe. Looking at all the above current foreign problems - and some of these problems are huge for America and The Dollar - President Obama will have to do some fancy economic tap-dancing to manouevre his country out of this global economic minefield. Evidently, there is more to these problems than just the financial crisis for America. The world - together with 'market confidence' - are watching the US Government, and both seem to be acting with complete predictability. -