The financial crisis has seen the
global economy turned on its head. And it is China rather than America that
is set to dominate through both soft and hard power
by Martin Jacques
The 2008 financial crisis marked a fundamental shift in the relationship
between China and the United States. Nothing could or would be quite the
same again. The management of the US economy was revealed to have been
fatally flawed, a lightly regulated financial sector almost allowed to
shipwreck the entire economy. In a few short months, the crisis served to
undermine a near-universal assumption of American, and western, economic
competence; in contrast, China's economic credentials have been considerably
burnished. The crisis at the same time exposed the huge levels of
indebtedness that have sustained the American economy, accentuated since by
the financial rescue package, while underlining the financial strength of
the Chinese economy, now the world's largest net creditor with its massive
foreign exchange reserves. Although hardly new, the crisis finally woke
Americans up to the fact that China had become their banker, with all this
meant in terms of the shifting balance of power.
But this was only the beginning. Immediately after the financial meltdown,
the American economy contracted, and when it began to grow again, it was at
a very slow rate. The Chinese economy, on the other hand, confounded
expectations and continued to expand at a barely reduced rate, thereby
emphasising the success of the government's stimulus package and the ability
of the Chinese economy to withstand the worst western financial crisis for
seven decades. To compound matters, it is now abundantly clear that the
financial crisis raised the curtain on a new and protracted period of
painfully low growth and greatly reduced expectations in the west, with the
American economy -- like its European counterparts – facing the prospect of
years of austerity, with swingeing reductions in both government and
personal expenditure, combined, for Americans at least, with the urgency of
greatly reducing its trade deficit. Burdened by sovereign debt crises in
Greece, Ireland, Portugal, Spain and Italy, the European integration project
threatens to unravel, condemning the euro to oblivion in the process.
Meanwhile, the western economies continue to teeter on the brink of another
recession, with a further banking crisis and a full-scale slump not to be
excluded. In contrast, the Chinese, buoyed by huge foreign-exchange
reserves, large trade surpluses and a high level of savings, can look
forward to many more years of fast economic growth. All this adds up to an
extraordinary and irreversible shift in power from the west in general, and
the US in particular, to China.
. . . history seems likely to judge America's political system extremely
harshly. The political class (as also in the case of Britain) allowed itself
to become the captive of the financial sector and its interests. The
American government has since found itself in a state of near paralysis,
beleaguered by a polarised society, its authority constantly questioned and
impugned, decision-making too often bought by powerful lobbies, of which
Wall Street remains by far the most influential. It is difficult to think of
a time when the American government has seemed less capable of responding to
and dealing with the profound challenges that the country faces. Of course,
it boasts a democratic system that has been the envy of much of the world,
but that is little compensation if it is unable to deliver what is the sine
qua non of a state, namely the ability to govern, cohere and lead society. .
. .
Martin Jacques is a journalist and academic. He is currently a visiting
fellow at the London School of Economics Asia Research Centre and at the
National University of Singapore. Jacques previously edited Marxism Today
and co-founded the think-tank Demos in 1993. He writes the World Citizen
column for the New Statesman. The second edition of Martin Jacques's When
China Rules the World: the End of the Western World and the Birth of a New
Global Order has just been published by Penguin as a paperback.
[Russia and China are leading the charge. More than a year ago, the two
nations made good on talks to move away from the dollar and have been using
rubles and renminbi to trade with each other since. A few months ago the
second-largest economy on earth - China - and the third-largest economy on
the planet - Japan - followed suit, striking a deal to promote the use of
their own currencies when trading with each other. The deal will allow firms
to convert Chinese and Japanese currencies into each other directly, instead
of using US dollars as the intermediary as has been the requirement for
years. China is now discussing a similar plan with South Korea.
Similarly, a new agreement among the BRICS nations (Brazil, Russia, India,
China, and South Africa) promotes the use of their national currencies when
trading, instead of using the US dollar. China is also pursuing bilateral
trades with Malaysia using the renminbi and ringgit. And Russia and Iran
have agreed to use rubles as a means of currency in their trades.
Then there's the entire continent of Africa. In 2009 China became Africa's
largest trading partner, eclipsing the United States, and now China is
working to expand the use of Chinese currency in Africa instead of US
dollars.--Marin Katusa, "So Long,
US Dollar," caseyresearch.com, April 25, 2012]
[Quantitative
Easing has been underway since December 2008. During these 54 months, the Federal
Reserve has created several trillion new dollars with which the Fed has monetized the same
amount of debt.
One result of this policy is that most real US interest rates are negative. Another
result is that the supply of dollars has outstripped the world's demand for dollars.
These two results are the reason that the Federal Reserve's policy of printing money
with which to purchase Treasury bonds and mortgage backed derivatives threatens the
dollar's exchange value and, thus, the dollar's role as world reserve currency.--Paul
Craig Roberts, "Washington Signals Dollar Deep Concerns,"
paulcraigroberts.org, May 18, 2013]
Kishore Mahbubani, "What Happens When China Becomes Number One?", April 9, 2015
[In 1949, China gained its liberation from Western and Japanese imperial subjugation and
became history's most successful socialist and communist country.--Jeff Brown, "The
Myth of Chinese Capitalism," greanvillepost.com, August 20, 2015]
["Thirst for water: Russia to send freshwater to drought-stricken Chinese region". Not
many mainstream media outlets bothered to cover the story, but I assure you its
significance is far greater than any gas pipeline news you ever read.--Phil Butler, "The Eternal Power of Water, Time, and Mother Russia,"
journal-neo.org, May 27, 2016]