You Run Your House Differently?

If there wasn't enough already on Obama's inbox...

The Wall Street Journal has a must read article online on the U.S./Chinese relationship. Apparently the Chinese government had no idea how exposed it was to Fannie, Freddie and the U.S. financial system until last summer. Needless to say they are not too happy they took a serious financial hit as a result of the collapse of the U.S. financial sector. To make this point to the new administration -- especially after Treasury Secretary Geithner appealed to U.S. politist demand by blaming China for manipulating their currency (perhaps this was necessary for U.S. domestic constituencies, yet I disagree on Geithner's analysis and this clearly angered the Chinese) -- Chinese Premier Wen Jiabao became the first Chinese premier to visit the World Economic Forum. From the WSJ:

Leaders in China, the world’s third-largest economy, have been surprised and upset over how much the problems of the U.S. financial sector have hurt China’s holdings. In response, Beijing is re-examining its U.S. investments, say people familiar with the government’s thinking. …

Chinese leaders have felt burned by a series of bad experiences with U.S. investments they had believed were safe, say people familiar with their thinking, including holdings in Morgan Stanley, the collapsed Reserve Primary Fund and mortgage giants Fannie Mae and Freddie Mac.

….. The Reserve issue “is causing a lot of concern with a lot of financial institutions in China,” said the Chinese official. Some officials expected that the U.S. and its financial institutions would better protect China from loss. “If the U.S. is treating us this way, eventually that will be enough cause for concern in the stability of the [U.S.] system,” the official said.

and:

Around October, a lengthy Chinese-language essay began circulating on the Internet excoriating Mr. Lou and other top CIC officials, along with Zhou Xiaochuan, China’s central bank governor, for being too close to the U.S. and then Treasury Secretary Henry Paulson. The diatribe quickly gained wide circulation in Chinese financial circles. One passage charged that Mr. Zhou “colluded with Henry Paulson to buy U.S. bonds, forced [Chinese yuan] appreciation, attached China’s economy to the U.S. and broke China’s economic independence.

Brad Setser, a fellow for Geoeconomics at the Council on Foreign Relations, discusses the article and his role in bringing to light the extent China invested in U.S. agencies and financial institutions in a must read blog post. In his own words:

China’s leaders have a major problem. They have accumulated an enormous quantity of US assets as a result of their efforts to manage China’s exchange rate But they don’t have a mandate to lose money investing the public’s money abroad. China’s losses have generated a public outcry. However, avoiding credit losses means piling into Treasuries and — well — that has risks of its own.

I don't think people realize how delicate political institutions around the world are right now -- especially China. With exports expected to drop off 19 percent and with a GDP growth rate of only 5-6 percent in 2009 (8 percent considered necessary to avoid social unrest), the Chinese people will not be in a forgiving mode as the country loses millions of jobs. As such, the situation in China could deteriote to the point:

1. The current Chinese government resorts to nationalism to stabilize their political power... threatening ties to the United States and Japan;
2. Civil unrest throughout China provokes a massive backlash by the government that has the whole world in an uproar over human rights abuses (think Tieneman, whose 20 year anniversary is this summer, ... yet potentially 25 times bigger; or even
3. A coup within China replaces the current leadership with a nationalistic military regime.

Alright, now this is all very pessimistic. The point is that we must work with the current Chinese leadership to try and stabilize the situation in China as much as possible. Stop the economic populist attacks in China -- your only going to get a response back from China that makes the situation worse!

While I firmly believe China must eventually open up its political system and become a democracy, now is not the time for us to be pushing this agenda. The alternative to the current Chinese leadership is not a constitutional democracy, it is something far nastier that would not only harm the people of China -- it would damage our national security interests and the future growth of the global economy.

Obama Reaches Out to Muslim World

Who would of guessed that the first television news network to score a personal interview with President Obama would be Al-Arabiya? The Saudi Arabian cable news network with an audience of 23 million in the Gulf region landed a huge get today with a wide-ranging interview discussing the Israeli-Palestinian conflict, Al-Qaeda and America's relationship with the Muslim world.

Although Obama is not going to magically repair lingering distrust, hatred and suspicions Muslims have toward the West, today's interview was certainly a positive first step. It is nice to actually watch an interview our President provides to a foreign news outlet and not cringe knowing he is the face of America to the world.

Brief Take on Latest Middle East Conflict

I totally disagree with the EU that the invasion is not justified. If a neighboring political entity is firing rockets to kill your people and cause financial harm you are totally justified to retaliate.

The bigger and more relevant question is whether is was the most effective response in the larger scheme of things. That is still to be determined, and it looks increasingly likely that this retaliation was not the wisest of policy actions.

The Future of the "Bolivarian Revolution"

I highly recommend watching the Frontline program "The Hugo Chavez Show" showing this week on PBS. In addition to demonstrating why government efforts to control the commanding heights of the economy are utterly doomed to inefficiency and failure -- it showcases how an elected official can effectively use modern communication methods to build his brand and craft his public image to one's core coalition.

The history of this beautiful country is incredibly tragic. Unfortunately, I believe in the next two years a new monumental chapter of sorrow is about to unfold. The precipitious drop in the price of oil has left Chavez with serious financial difficulties and the inability to continue buying off support from the poor. As his popularity decreases with the public, and former allies turn against him, I fear the methods Chavez will resort to in order to preserve power and enact the "Bolivarian Revolution."

The Iranian Nuclear Threat

Although I have been an extreme skeptic of charges that Bush and/or Israel would attack Iranian nuclear facilities since rumors started flying in 2001, I am beginning to think this actually may happen.

In addition to the serious consequences such an action would have on the global economy and state of security (nicely laid out by Nouriel Roubini recently), I remember watching a panel discussion on PBS in 2002 or so where Lawrence Eagleburger (of all people) stated that if the Bush administration used military force against Iran he would be the first person to speak out against the POTUS. Furthermore, I always believed that the bellicose rhetoric from W was a diplomatic ploy to force greater concessions from the Iranian leadership (he really could not be crazy enough to add even more gasoline on the Middle East inferno... right?).

Roubini quotes Joschka Fischer, foreign foreign minister of Germany, who believes that Israel will attack Iran before the end of the Bush administration. Fischer is definitely a credible source (the Green Party in Germany should not be confused with their disorganized U.S. counterpart).

Furthermore, the Asia Times had a recent article stating a similar opinion. Now I have no idea if they used the same sources, yet apparently this possibility is moving into the realm of feasibility. If Fischer and the Asia Times are correct...

Clearly we need to do everything possible to stop Iran from having The Bomb. Considering how close Pakistan and India have been to blowing each other up... just imagine what the hell could happen if Saudi Arabia, Iran, Turkey, Egypt also have The Bomb... outright frightening, I know, I know.

Furthermore, I do not envy the incredibly difficult position Israel lies in. In addition to a domestic political nightmare right now, you have a freakshow lunatic in Ahmadinejad threatening to blow Israel off the map. It is imperative for America to support the only real voice of democracy in the Middle East and ensure Israel continues to thrive for generations to come.
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What is really missing from this debate is a conversation on what actually is happening in Iran right now. I listened to a fantastic podcast from Stratfor (do yourself a favor... subscribe to their podcast -- seriously!) this morning. Basically, there is an intense political fight currently between different factions of the conservative political hierarchy. Although I strongly disagree with almost everything the Iranian conservative movement stands for, I do believe figures like Akbar Rafsanjani and others will be reasonable on the nuclear issue if they win out in the current political struggle.

I have heard rumors in the past few years that Khamenei is nearing the end of his life, which makes the implications of the current conservative political battle even more important. However, it makes negotiations on the nuclear issue even more difficult if there is an apparent void of leadership at the top.

Bottom line is we should be waiting to see who the new Ayatollah is after the death of Khamenei before "cowboying up" and bombing Iran. If Iran gets The Bomb before then... well that is really unfortunate... yet I am not convinced we can even eradicate the Iranian intentions militarily anyways. Now, if an Ahmadinejad ally should take over as Ayatollah that is a different ballgame. Quite frankly Ahmadinejad's talk of the "hidden iman" scares the hell of me and reminds me of one General Ripper.

Mohamad Mahathir Has a Blog

Wow, this is awesome. The former prime minister of Malaysia now has a blog. For those of you who don't know, this guy was (and continues to be) one of the more colorful former leaders of the world. Some of his outlandish and utterly ridiculous statements have been:

• “Currency trading is unnecessary, unproductive and totally immoral. It should be stopped.”
• “As if these are the good old days when people can shoot Aborigines without caring for human rights.”
• "The Jews rule the world by proxy. They get others to fight and die for them.”
• "The Muslims have never ill-treated the Jews."

Mahathir claims he has friends that are Jewish... in the same manner as a cracker from Alabama in the 19th century would say he had black or gay friends.

His blog may be real interesting, once you hit post it is captured in a RSS feed -- even if you delete it right away. This could get real interesting. Citizens of a country deserve the public officials they elect.

On the Unipolar Moment...

I just listened to a fantastic podcast reading of a Richard Haass article in the May/June issue of Foreign Affairs entitled "The Age of Nonpolarity: What Will Follow U.S. Dominance."

Highlights, or rather comments/observations I particularly found of interest:

• Realist theory would predict an era of unipolarity would be followed by a multi-polar world. Haass makes a persuasive case we are headed towards an era of nonpolarity, or "a world dominated not by one or two or even several states but rather by dozens of actors possessing and exercising various kinds of power."
• Potential competing global powers are too entrenched in the movement of technology, energy, goods, etc. to consider removing themselves from this structure -- their own political stability depends on access to this system.
• Nonpolarity will increase the potential military/terrorist threats to the U.S. A global system with multiple powers (state and nonstate) is more difficult to defend against than a single enemy (Cold War).
• Nonpolarity makes diplomacy significantly harder. Getting a broad base of stakeholders to agree on anything will be increasingly difficult.
  

Haass is totally on point to state free trade of goods and investment amongst countries must be expanded. My final thoughts:

• The fact that we are leaving a unipolar world to an era where the U.S. has less power to shape the world in the image we see fit only gives greater impetimus on the importance of increasing the free trade of goods and investment.
• As much as some regimes, such as China, are not exempliary actors for the world or their own people, it is essential that we enhance global free trade of goods and investment to ensure the current system continues to be stable. I would hate to find out what would happen if Communist Party of China (CPC) where to disintegrate, much less the governments of Saudi Arabia, Pakistan and others.
  
• I agree with Haass that our military budget probably should be increased, yet I would go further than Haass on the military expansion concept. The wars of the future are going to be different than the wars of the past. Iraq and Afghanistan clearly have shown that. Honestly -- and granted I have no military experience or expertise -- we should explore radically increasing the number of marines and eliminating the army completely. Are we really going to ever fight a broad based land war again? Probably not. Instead of the army we need to develop a core of nationbuilders (funny how Bush was disgusted with the thought of nationbuilding as a candidate in 2000 and it has since defined his Presidency). Details and role of engagement would have to be hamered out, yet the concept should be explored.