A friend of mine who works for the State Department as an FSO just posted this to Facebook, in response to this article. I thought it was insightful and interesting, so I thought I would share here.
Friends, let's talk about power. Let's remove morality and values from the discussion for the moment as an intellectual exercise and consider the pure, "my schwartz is bigger than yours" measuring tape aspects of policy and US power. The below article represents what I've been worried about from the very start. Not from a partisan perspective, but a technical, professional, power analysis perspective - which is what y'all pay me to do, thank you very much. However, these are obviously my own itty bitty personal opinions as a citizen and taxpayer, which my status as such entitles me to have. But I digress.
It's not the stock market we need to watch, it's our Treasury bonds. Those are the true source of our power - or weakness. If China wants to contain us, they don't need to use force, they just stop financing our debt, and if they can get enough other countries to join them, we can't pay for aircraft carriers and planes. Think of Britain in the 1950s. Eisenhower ended Britain as a power in 1956 (it had been in decline, admittedly) by threatening to make a run on the Pound if they didn't withdraw from Suez. And that, pretty much, was that for the UK as a dominant unitary global power. Truly. Nothing is forever, and nobody's dominance is inevitable or a birthright. Power is fickle. It's like having a cat.
This is the fundamental lever of geo-power that we seem to be missing. China's Renminbi is now a hard currency, like the Dollar, Pound or Euro. Unlike 20 or 30 years ago, the world has political, economic, financial and military options other than us, so if we create vacuums (economic, political or otherwise), they will be be filled. Gone are the days when we could lay down an ultimatum and wait for the other side to come crawling back to us because there was really nobody else to go to. If we create a trade vacuum with another country as a negotiating tactic, Beijing and friends will be more than happy to fill it. Mexico has already declared that it now needs to diversify its export market out of fear of US protectionism, and guess who has immediately stepped up to say, "hi." Yup, our good friends in Beijing. Same with the UN. Regardless of what one feels about it as an institution, if we cut our dues, I promise you China will cover the shortfall the next day, and guess who then will have influence? And power. Again, not partisan. A technical observation. These are the causes and effects in a purely antiseptic sense. Same applies on the playground, boardroom or global stage.
America doesn't get to be first simply because we're America. If having America be first is truly important to us, then we have to be willing to invest in, and play, the very complex game that we both designed and mastered post WW2 (remember, we're leaving morality about the justness of that complex web out of this for now, we're just talking systems, power and US supremacy, because that's the fundamental driver of all our churn right now). Besides the Bretton Woods system and other stuff, the unspoken compact of the post WW2 world (and especially post-Soviet world) was that the bulk of the world invested in US debt (Treasury Bonds) because we would always pursue economic policies that were generally stable. These policies would safeguard the world's investments not really through Wall Street (that was just the flashy Vegas of the economy) but in boring old T Bills. In return, the world would buy the hell out of our Treasury bonds, thereby financing our government, military and political engagement on the world stage (on the seas, in the air, at the UN, etc). The world (even countries that hate/hated us) truly was paying us to "go be us" and be a solid, known, generally predictable (even if often reviled or resented) global center of gravity all over the place. It was as much about the intangibles as it was the tangibles. The reputation for rational process and analytical decision making. It also meant that we all had each other by the throat. This became even more, more, more true after the fall of the Soviet Union.
In the past 20 years, as it was growing, if China did anything to truly destabilize us, they'd lose their massive investment in T bills and the US export market and destroy themselves. If we did anything to really threaten China, they'd just sell their T Bonds, destroying us and themselves. That's why we were never really going to war with China...except...things be changing a bit. So, if we really threaten China over, say One China Policy or sumpin, I can imagine they might threaten an economic adjustment that might suddenly and surprisingly bring us back into line and perhaps have us back away from positions that were inimical to their foundational principles. I'm not saying this is right or wrong. This is just how power works. The same applies the other way. Yes, this is also a gross oversimplification.
However, dear friends, if they reduce their exposure by selling off more and more of their T Bills (which they have been doing over the last few years and are now accelerating), then there's less of a "mutually assured destruction" aspect to our financial relationship and they are more free to "go to war" with us, metaphorically and/or literally, without financial consequence. And we are less able to pay to fight that war because, ain't nobody funding our government by buying our debt. If a bunch of countries get spooked and dump or buy less of our debt... whoo doggy. Just as an aside, China and Russia recently signed an agreement to bypass the US dollar. Remember that thing about the convertible Renminbi? Also, the TPP we cancelled? Guess who has seized the opportunity and is negotiating a new one on terms beneficial to them? Yes, our friends over there. Vacuums, baby, vacuums. Ungoverned space will be filled. Doesn't mean we should take any crappy deal that comes our way, heck no, but we need to be aware of the consequences of not engaging. If we don't want the carcass, someone else does.
This is not to say that systems don't grow stagnant or don't need change or freshening. Oh no, far from it. And lord knows we need it. It's just that we have to be strategic in our move towards creative destruction IF our goal is to maintain, restore, make again, American power. Fear and consternation is a useful tool if there's a blocking force behind your opponent to keep them fixed while we wear them down psychologically and bend them to new realities. It is less effective if we just scare the last meal out of our opponents and send them over the hill into the arms of neighboring wolves who are looking to expand their packs and are offering blandishments which we can't.
Like all empires before us, we will fall if we lose the economic war, not win the military spending battle (Soviet Union anyone?). We did not rise to heights after WW2 because of our military might, that was just the symbol of our power, but is and has been too often mistaken as the source. It was our Treasury bonds and having economic and financial skin in the game.
Let's even take a stripped down and completely utilitarian view of foreign aid. Remove the morality and discussions of altruism and whether we should be paying to help "them" or "us." Let's go back to the measuring tape and power and size of our schwartz. If we want America to be first and to be powerful, foreign aid (blah blah obligatory note that it's less than 1% of the national budget, but it's true) buys us influence, entree, leverage. Power. In a Machiavellian or even Manichaean world view (again, we're really only focused on naked US power for the purposes of discussion, not morality), debates about whether aid works or not and whether it achieves its development purposes are irrelevant. It's our "loss leader" to use a business term. It buys us entree and influence. We were never more powerful than when we disbursed huge sums of aid around the world (starting with the Marshall Plan). You gots to pay to play in the global order. That's what aid is. It's taking your clients out to dinner at an expensive restaurant. So, even if we don't agree with the "do gooder" aspect of aid, it's an essential element of continued power. And its absence contributes to our weakening.
Imagine, if you will, a poker player who has been winning big for years, has a huge pile of chips, and often fronts the less fortunate or lucky, chips from his pile. This sometimes obnoxious dude gets to set many rules because, well, big pile of chips. However, over the years, others start building piles. Not as big as his, but still. They start nipping at some of his rules, there are some arguments, it gets annoying. At some point, he's done. "I'm tired of fronting you guys cash, and tired of hearing your griping." He takes his winnings and goes to stand against the wall. From his position against the wall, he heckles and still calls some shots, making fun of folk and egging people on. And, because the guys at the table have been used to listening to him for the past 70 years, they still kind of keep dancing to his tune. However, at some point, a couple of them look up and say, "this guy's a jerk and he doesn't even have any money on the table, why are we still listening to him?" And some of the other guys say, "well, he still has a lot of money, and he used to be a big deal." And then other guys say, "yeah, but he's not making any more money because he's left the table, and he's kind of pissing me off with his comments." And then they call the bouncers, and kick him out of the room, and go back to their game. Maybe they take his chips.
It's 2:00 am and I'm delirious, and am not sure if the above is even coherent, or even why I felt compelled to write it. I'm going to sleep. I picked the wrong day to quit sniffing glue.