post if you wish - long piece

    ~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~

               ANDRE    GUNDER      FRANK

Senior Fellow                                      Residence
World History Center                    One Longfellow Place
Northeastern University                            Apt. 3411
270 Holmes Hall                         Boston, MA 02114 USA
Boston, MA 02115 USA                    Tel:    617-948 2315
Tel: 617 - 373 4060                     Fax:    617-948 2316
Web-page:csf.colorado.edu/agfrank/     e-mail:franka@fiu.edu

~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~


---------- Forwarded message ----------
Date: Sun, 9 Feb 2003 16:29:53 -0500 (EST)
From: Andre Gunder Frank <franka@fiu.edu>
To: Mark Jones <markjones011@tiscali.co.uk>,
     annewilliamson <annewilliamson@email.msn.com>
Cc: franka@fiu.edu
Subject: should I or you post this on a-list?

this has 2 main sections, 1. rise of Asia, 2, decline of US
i think parts were posted some time ago, and i would like to strengthen
the oil and military parts.
The second section on US in world seems to be on Anne's wavelength, thugh
i have not read the oil & money essay.
gunder




    ~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~

               ANDRE    GUNDER      FRANK

Senior Fellow                                      Residence
World History Center                    One Longfellow Place
Northeastern University                            Apt. 3411
270 Holmes Hall                         Boston, MA 02114 USA
Boston, MA 02115 USA                    Tel:    617-948 2315
Tel: 617 - 373 4060                     Fax:    617-948 2316
Web-page:csf.colorado.edu/agfrank/     e-mail:franka@fiu.edu

~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~

This essay is the draft of the closing chapter for a book  in preparation
on REORIENT THE NINETEENTH CENTURY
                   by   Andre Gunder Frank 

Chapter 8
SOME PRSENT AND FUTURE PROSPECTS

Can this review of global developments in the nineteenth century - even
without also yet examining the twentieth century - afford us any guides to
what prospects the future may hold ? I believe YES! For the following
reasons:  1. A main thesis has been that there has been more continuity in
global history than the discontinuities that most observers attribute to
new events most of the time. John McNeill [2001] has argued persuasively
that the SOMETHING NEW UNDER THE SUN of the twentieth century was really
its duplication of world population and its and its economic /
technological vastly increased ravages of the environment. Never mind the
hot and cold wars, depressions, and socio-political experiments.  It seems
plausible that the underlying historical continuity will continue still.  
2. The analysis was purposefully constructed through the use of
fundamental analytic categories that have survived the twentieth or are
being resurrected at the beginning of the twenty-first century. The
conclusions we drew from them and their renewed application to examine the
present and to peer into the future should therefore throw some light also
on that. There are some parallels to the hegemonic position of Great
Britain before and the United States now, which can throw some light on
the prospects of the latter. The most important of these is that
''hegemony'' was never as hegemonic then or now as it has been made out to
be - perhaps primarily by the ''hegemons'' who sought to create a
self-fulfilling prophesy. Moreover, even to the limited extent that
anybody was hegemonic, it did not last long and was soon replaced in the
case of Britain by NO hegemony at all, and in the case of the United
States probably also.

With the end of the cold war in 1989 and the subsequent decline of Russia
as a serious immediate contender, as well as the decline during the 1990s
of the hype of JAPAN AS # 1 [Vogt 19xx] , two other regions, states and
powers came into contention, rising Asia and particularly China, and the
United States whose fortunes and prospects seemed to have declined after
1970 but recovered in the 1990s.  In global terms, we could regard this as
a process of continued shift of the world center of gravity west-ward
around the globe, from East Asia/China to Western Europe, then across the
Atlantic to the United States, and there then from the eastern to the
western seaboard, and now onwards across the Pacific back to East Asia, as
observed in my "Around the World in Eighty Years" [Frank 2000].  Let us
inquire further into the so far last part of this historical process.

CHINA IN EAST ASIA

In that process, a financial and economic crisis erupted in East Asia in
1997 and brought evident relief to many observers in the West.  As a
result and mis-led by day-to-day press media reports and short term
business and government analysis and policy, even "informed" public
opinion in the West changed again. Now the former "East Asian Miracle"  
is said to have been no more than a mirage, a dream for some and a
nightmare for others.  The previously supposed kxplanations and sure-fire
strategies of success are being abandoned again as quickly as they had
come into fashion.  We hear less about Asian values or guarantees from the
magic of the market and no more security from state capitalism . So much
the better I would say, since these supposed explanations and correct
policies were never more than ideological shams anyway.

 
The historical evidence presented in this book shows that no one
particular institutional form or political economic policy offers or
accounts for success [nor failure!] in the competitive and ever changing
world market. The contemporary evidence shows the same. In that respect,
Deng Xiaoping's famous aphorism is correct. The question is not whether
cats are institutionally, let alone ideologically, black or white; the
real world issue is whether or not they catch economic mice in competition
with others in the world market. And that depends much less on the
institutional color of the cat than it does on its opportune position in
the world economy at each particular place and time. And since the
obstacles and opportunities in the competitive world market change over
time and in place, to succeed the economic cat, no matter what its color,
must adapt to these changes or fail to catch any mice at all.  Among these
different institutional forms including relations among state-finance-
productive and sales organizations, perhaps the most attention and
positive evaluation has been devoted abroad to those of Korea and then of
Japan but also of Greater China including its vast network of overseas
Chinese.  But the very fact that they differ, and in Taiwan, Singapore,
Malaysia, Indonesia and elsewhere as well, should already forewarn us
against privileging one institutional form over all others.

At best and that is already very much, the evidence is that none of these
institutional forms is necessarily an impediment or insurmountable
obstacle to success on the domestic, regional and world market.  Most
noteworthy perhaps in view of the widespread Western propaganda about its
own alleged virtues is the demonstrated fact that no Western model need or
should be followed by Asians in Asia or even elsewhere.

 
The significance of position and flexible response in the world economy is
particularly important during periods of economic crisis B phase that is
in Chinese of [negative] danger and [positive] opportunity.  In the
present economic crisis so far, the focus has been far too predominantly
on its undoubtedly serious negative consequences. But the opportunities it
poses have received insufficient attention, except perhaps in the United
States and China, both of which are seeking to reap competitive advantages
from the political economic problems and alleged meltdown of Japan, Korea,
and Southeast Asia.
 
But the dismissal of East Asian and particularly Chinese economic
strengths and prospects may be premature and certainly is based on a
shortsighted neglect of the historical evidence as presented in ReORIENT
and further pursued inthis book and on a serious misreading of the
contemporary evidence. I believe that this latest quick dismissal of Asia
is mistaken for the following reasons among others:

1] Since Asia and especially China was economically powerful in the world
until relatively recently, and new scholarship now dates the decline as
really beginning only in the second half of the nineteenth century, it is
quite possible that it may soon be so again.  Contrary to the Western
mythology of the past century, Asian dominance in the world has so far
been interrupted by an only relatively short  period of only a century or
at most a century and a half.  The oft-alleged half century or more
decline of China is purely mythological.

2] Chinese and other Asian  economic success in the past was not based on
Western ways; and much recent Asian economic success was not based on the
Western model.  Therefore, there is also no good reason why Japanese or
other Asians need or should copy any Western or other model.  Asians  can
manage their  own ways and have no good reason to now  replace them by
Western ones  as the alleged only way to get out of the present economic
crisis. On the contrary,  Asian reliance on other ways is a strength and
not a weakness.  

3]  The fact that the present crisis visibly spread from the financial
sector to the productive one does not mean that the latter is
fundamentally weak. On the contrary, the present crisis of overproduction
and excess capacity is evidence of the underlying strength of the
productive sector, which can recover.  Indeed, it was excess capacity and
productivity leading to over-production for the world market that
initiated the financial crisis to begin with when Asian foreign exchange
earnings on commercial account were no longer able to finance its service
of the speculative short run debt.  

4] Not that economic recessions  will or can be  prevented in the
future. They never have been prevented in the past even under state
planning in China or the Soviet Union.  More significant is that this is
the first time in over a century that a world recession  started not in
the West and then moved eastward,  but that instead it started in  the
East and then moved around the world from there.  And that was precisely
because as per # 3 East Asian and particularly Japanese, Korean and then
Chinese productive and export capacity had grown so MUCH.   This recession
can therefore be read as evidence  not so much of the temporary weakness
as of the growing basic economic strength of  East Asia to which the
center of gravity of the world economy is  now shifting back to where it
had been before the Rise of the West.  

 
5] The recession in the productive sector was short, especially in Korea.,
and so far absent in China.  But it was also severe, especially in
Indonesia.  And the shock-waves from the financial sector to the
productive, consumer and political ones were visibly - and to all but the
totally blind, intentionally - exacerbated by the economic shock policies
imposed on Asian governments by the IMF as usual following the dictates of
the U.S. Treasury, which systematically represents American financial
interests at the expense of popular ones elsewhere around the world.  The
former World Bank Vice-President,
member of the US President's Council of Economic advisers and now Nobel
Prize laureate in economics,  Joseph Stiglitz [2002], has given us an
insider's view of these intentional events in his  GLOBALIZATION AND ITS
DISCONTENTS.

That also permitted Western interests to take advantage of declines in
productive and financial strength in Korea and elsewhere to buy up assets
at bargain-basement  fire-sale prices.  Even so the underlying strength of
the Korean economy was such that the foreigners were even then unable to
alter the financial, productive, ownership and state structure
significantly  to their favor.  The Korean productive and financial
machine soon  recovered again to forge ahead,  but now with a costly
lesson well learned.  The lesson must have been learned elsewhere as well
by comparing how relatively unscathed China and Malaysia [and as already
mentioned for different reasons Korea] emerged from the financial
crisis.  They maintained controls over capital exports, compared to those
countries that succumbed to the IMF and its lethal medicine by permitting
a speculative capital outflow, which  destroyed their productive apparatus
and multiplied unemployment into an unbearable economic, social, and
political problem, especially in Indonesia.

6] That underlying political economic strength also puts East Asia, and
especially China, Japan and Korea  in a much more favorable position  than
the rest of the Third World and even Russia and Eastern Europe  to resist
Western blackmail as it is now  exercised  by the U.S. Treasury Department
through the International Monetary Fund, the World Bank, the  World Trade
Organization, Wall Street and other instruments.  

7] The very act and cost of East Asian concessions to this Western
pressure  during the past  recession makes it politically more likely,
since it is economically possible, that East Asia will take measures,
including especially a new financial  bloc and  banking institutions, that
can prevent a recurrence of the present situation in the future by
escaping from the strangle-hold of Western  controlled capital
markets.  Stiglitz  observes such efforts already in his recent private
discussions with Asian officials as reported in his book. 
 
 
8]. Indeed, one of the present battles,  first by the Japanese and now
also by the Chinese, is to remodel the world financial and trade
institutions that were designed by the United States to work in its
favor. Thus, Japan  wanted to establish an Asian  monetary fund  to
prevent the East Asian recession from deepening as it has thanks to the
International Monetary Fund  based in and subservient to Washington. And
China wishes to join the World Trade Organization but also seeks to have
this Western dominated institution  reformed to its advantage. 

9] A related political economic struggle is  the competition between the
United States and China to displace  Japan, Korea and Southeast Asia  in
the market by taking advantage of their bankruptcies.  American capital
is buying up some East Asian productive facilities at bargain basement
prices, while China is waiting for them either to be squeezed out of the
competitive market altogether, and  if not to engage in joint
operations.  Indeed it had been the devaluation of the Chinese currency
before 1997 that reduced the world market share of other Asian economies
and helped generate the financial crisis itself. Only time will tell which
strategy will be more successful, but the Chinese  and  perhaps also some
Southeast Asians  seem like the better bet over the long term.  Moreover,
no matter how deep the recession in Japan;  it is not for that eliminated
as an economic power, especially in Asia. However, there is evidence that
China is trying to reconstruct the East Asian trade and tribute system at
whose center it was in the eighteenth and that the ern colonial powers
dismantled in the nineteenth century.

10] Equally significant is that India and to recently to a lesser extent
China  have remained substantially immune from the present recession,
thanks in part to the inconvertibility of their  remin ribao and rupee
currencies and the valve in their capital markets that permits the inflow
but controls the outflow of capital. The currency devaluations of China''s
competitors elsewhere in East Asia and the reduced inflow into China of
Overseas Chinese  and Japanese capital that is negatively affected by the
recession in East Asia may oblige China  to devalue again as well to
remain competitive.  Nonetheless and despite  their serious economic
problems,  the Chinese and Japanese economies appear  already to have and
to continue to be able to become  sufficiently productively and
competitively strong  to resist and overcome these problems.  In Southeast
Asia, Malaysia has successfully followed the Chinese model of opening its
capital market to inflows but restricting especially speculative capital
outflows from the same.  Korea did not need such emergency measures, since
it had received relatively little foreign capital to begin with.

 
11] It is noteworthy that the economically most dynamic regions of East
Asia today are also still or again exactly the same ones as before 1800
and which  survived into the nineteenth century.
1. In the South, Lingnan  centered on the Hong Kong - Guangzhou corridor,
2.  Fujian, still centered on Amoy/Xiamen and focusing on the Taiwan
straits and all of Southeast Asia  in  the South China Sea; and  between
them, 3. the Yangtze Valley, centered on Shanghai  and trade with Japan
that is already taking the lead away again from the southern and northern
regions.  

4.  But already then there was also a fourth economic region around the
North China Sea, the quadrangular trade relations  among Manchuria and
elsewhere in Northeast China, Siberia/Russian Far East, [northern?] Japan,
and Korea, but also including Mongolia..  Although the first three
above-named regions are already again undergoing tremendous economic
growth [and political power?] in the absolute sense, the fourth one around
Korea seems to enjoy the greatest relative boom, and within it that of
Korean capital as well.  It is helping to develop resources in the Russian
Far East and  as far west  as Central Asian Khazhakstan.  The Chinese
population  on the Russian side of the Amur River has been estimated
already to exceed 5 million people as a pool of cheap labor.  Probable
political change in the DRNK may well add a new source of cheap labor for
this growing pool of labor in the Northeast Asian Region and for its Far
East Russian also cheap  base of ample metallurgical, forestry,
agricultural and even petroleum resources. Korean and Japanese capital
could make that  a very attractive regional growth pole in itself and a
highly competitive region on the world market. 

All of these in turn were and still  or again increasingly are important
segments of  world trade and of the global economy. In that sense also and
although its story ends in 1800, the examination of the world economy and
of the predominant place in it of the East Asian including Korean
economies points to the most fundamental bases of  contemporary economic
developments  in the region and also presages  important world economic
ones for the foreseeable future.


THE UNITED STATES IN THE WORLD

Where does that leave the United States?  It still has the world's largest
economy, which  saw boom times during much of the 1990s,;
and its has unrivalled military power exceeding the total of  the next
half dozen military powers combined.  Moreover, the present Bush
administration  makes use of both of them in unilateral policies to impose
its will on the rest of the world, friend and foe alike, to all of which
Bush threw down the gauntlet of ''you are either with us or against
us." With means you do as we say, and against  means you are under threat
to be destroyed economically and poiitically, as well as militarily if we
wish.  In  case there be any doubt about our intentions and capabilities,
Russia and Argentina are prime examples on the economic front as are  Iraq
through the boycott, Serbia and  I  Afghanistan are so on the military
front as well. The latter - but really both - are what President Bush
father called THE NEW WORLD ORDER when he bombed Iraq in 1991. I termed it
THIRD WORLD WAR  in two senses,  one that it takes place in THE THIRD
WORLD and secondly that this war against the Third  World constitutes a
THIRD World War [Frank 1991].

The prosperity and welfare of the American people rests primarily on its
position in the world  today as  Britain's did in the nineteenth
century. That observation is fundamentally different from the political
and media hype about the sources of American  exceptionalism that are
supposedly in its genious, morality, productivity, and other
characteristics that allegedly differentiate America from the rest of the
world. On the contrary,  America rests on two - maybe three-  pillars:
1.The DOLLAR as the world currency whose monopoly privilege the US has to
print  at will, and 2. The PENTAGON with its unrivalled military
capacities. 3. A third pillar perhaps is the government, educational and
media fed IDEOLOGY that obscures these simple facts from public
view.  Moreover each supports the other: It costs dollars to maintain the
Pentagon, its bases in 80 countries around the world, and the deployment
of its military forces around the globe.  Military expenditures are the
prime causes of the twin American deficits, in the federal budget and in
the balance of trade.  Conversely,  Pentagon strength  helps sustain
global confidence in the  dollar.

But this same mutual reliance for strength therefore also constitute two
mutually related American Achilles heels.  The dollar is literally a Paper
Tiger in that it is printed on paper whose value is based only on
confidence in the same.  That confidence can decline or be withdrawn
altogether almost from one day to the next and cause the dollar to lose
half or more of its value.  Aoart from cutting American consumption and
investment as well as dollar-denominated wealth, any decline in the value
of the dollar would also compromise US ability to maintain and deploy its
military apparatus.  Conversely, any military disaster would weaken
confidence in and thereby the value of the dollar. Indeed, at the 2003
World Economic Forum in Davos, the assembled world political and business
elites expressed very serious fears that the mere deployment of the US
military, e.g. against Iraq, would bring on a world depression.  TIME
Magazine this week reports on a comprehensive study of the US airline
industry, which concludes that a war against Iraq would drive half of it
into immediate bankruptcy. If so, what of still weaker non-American
airlines? And no amount of ideology is sufficient completely to obscure
that economic situation.

In fact, the world already is in depression, from which so far only the
United States is substantially and Canada and Western Europe partially
exempt.  And the latter is so, because of the privileged position of
especially the American economy within the global one, from whose
mis-fortune Americans have been deriving the benefits of that position,
which to repeat is essentially derived from the privilege of printing the
world currency with which Americans can first buy up the production of the
rest of the world at depressed deflationary prices  and then have the same
dollars be returned from abroad to be invested in Wall Street and US
Treasury certificates  for safe-keeping
and/or higher earnings than are  available elsewhere.

I n the mid 1980s James Tobin [the inventor of the Tobin tax on financial
transactions] and I were to my knowledge the only ones already to
published predictions of DE-flation as the coming world economic danger.  
Economic policy makers however ignored these warnings and this risk [not
really risk, but necessary consequence] while continuing their policies
designed to fight IN-flation. Nonetheless, since then commodity prices
have fallen sharply and consistently and more recently industrial prices
have fallen as well. Moreover in WORLD economic terms, high inflation in
terms of their national currencies [pesos, rubles, etc.] and their sharp
DEVALUATION against the DOLLAR world currency has been an effective de
facto major DE-flation in the rest of the world.  That has reduced their
prices and made their exports cheaper to those who buy their currencies
with dollars, primarily of course consumers, producers and investors in -
and from ! - the United States. These additionally, which is hardly ever
mentioned!, can and do buy up the rest of the world with dollars that
''cost'' only their printing and distribution, which for Americans have
virtually no cost. [The $ 100 dollar bill is the world's most used cash
currency on which runs the entire Russian economy, and there are two to
[now?] three times as many of them circulating outside as inside the US].
The American boom and welfare and then ''balanced'' federal budget
1992-2000 Clinton administration, contrary to its populist claims, only
happened to coincide with this boom and the also same 8 year long
prosperity of the United States was entirely built on the backs of the
terrible depression, deflation and thus generated marked increase in
poverty in the rest of the world [during this one decade, production
declined by over half in Russia and Eastern Europe and life expectancy in
Russia declined by 10 - ten - years, infant mortality, drunkenness, crime
and suicide increased as never before in peacetime. Since 1997, income in
Indonesia declined by half and generated its ongoing political crisis.  
If that is not dissipation of entropy and its export abroad to those who
are obliged to absorb it in ever greater DISorder, it would be difficult
to find better examples - except the destruction of the entire society in
Argentina, Rwanda, Congo, Sierra Leone, previously prosperous and stable
Ivory Coast - not to mention the countries that have been visited by
destruction through American military power

All this has among others the following consequences: in the US. it can
export inflation that would otherwise be generated by this high supply of
currency at home, whose low rate of inflation in the 1990s was therefore
no miracle result of domestic ''appropriate'' Fed monetary policy. The US
has been able to cover twin its balance of trade and budget deficits with
cheap money and goods from abroad.  The US trade deficit is now
approximately 400 billion dollars a year and still growing. Of that, 100
billion are covered by Japanese investment of their own savings in the US,
which they may have to repatriate to manage their own banking crisis.  
Another $ 100 billion Comes from Europe in the form of various kinds of
investment, including direct real investment, which could dry up as the
European recession continues. A third 100 billion is supplied by China,
which first sells the US its cheap manufactures for dollars and then
accumulates those dollars as foreign exchange reserves - thus in effect
giving away its poor producers' goods to rich Americans. China does this
to keep its exports flowing and its industries going, but if it decided to
devote these goods to expanding its own internal market more, its people
would gain in income and wealth, and the United States would be out of
luck. The remaining $ 100 billion of deficit are covered by other capital
flows, including debt service from the poor Latin Americans and Africans
who have paid off the principal of their debts already several times over
and yet keep increasing the total amount owed by rolling it over at higher
rates of interest.  Declaration of chapter 11 or 9 type insolvency is
however finally catching on.
  
Thus,  deflation / devaluation elsewhere in the world has like a magnet
attracted speculative financial capital from the
rest of the world - both American owned and foreign owned - into  US
Treasury certificates [ stopping up the US budget deficit] and into Wall
Street. That is what  fed  and supported  its 1990s bull market, which in
turn has increased, supported and spread wider a speculative and illusory
in increase in wealth for American and other stock holders and  through
this also illusory ''wealth effect'' has supported higher consumption and
investment. The subsequent and present bear market decline in stock prices
nonetheless is a still a profit boon for enterprises who issued and sold
their stocks at bull market high and rising stock prices and are now
buying back their OWN stocks at what for them are bargain basement low
prices, which represent an enormous profit for them at the expense of
small stock holders who are now selling these stocks at low and declining
prices. The US ''prosperity'' now rests on the knife edge not only of an
unstable enormous domestic corporate and consumer [credit card, mortgage
and other] debt. 

Moreover, the US is also vastly over-indebted to foreign owners of US
Treasury certificates, Wall Street stock and other assets, which can be
called in by foreign central banks who have been keeping reserves in US
dollars and other foreign owners of US debt. Indeed, it is the very US
policy  that has contributed so much to destabilization elsewhere in the
world [e.g. through the destabilization of Southeast Asia that undermined
the Japanese economy and financial system even more than it would
otherwise have been] that now threatens and now soon makes much more
likely that especially Japanese and European holders of US debt must cash
it in to shore up their own ever more unstable instable economic and
financial systems. 

Another major consequence is that the US - and world! - economy is now in
a bind from which it most probably can NOT extricate itself by resorting
to Keynesian pump priming and much less to full scale macro-economic
policy and support of the Us and Western/Japanese economy, as the Carter
and Reagan administrations did.  Military Keynesianism,  disguised as
Friedman/Volker Monetarism and Laffer Curve Supply-Sideism, was begun by
Carter in 1977 and put into high gear in 1979, when Carter the Fed was run
by Carter appointee Paul Volker, who in October 1979 switched Fed monetary
policy from high money creation / low interest price thereof to attempted
low money creation / high interest [ to 20 percent monetary! ] to rescue
the dollar from its 1970s tumble and attract foreign capital to the poor
US. At the same time, Carter began Military Keynesianism  in June 1979.,
which was then escalated further by President Reagan In that they then
succeeded..

It is highly unlikely however that analogous policies could succeed again
now. The US would need to invoke  the same re-flationary policy again for
itself and its allies, now. but it can not do so!  
The Fed has already lowered the interest rate so far that it cannot go
much lower and is not likely to stimulate investment by doing so. On the
other hand, raising  the interest rate to continue to attract funds from
abroad would risk choking off all domestic investment and working
capital.  Brazil tried that, admittedly with extravagant monetary interest
rates at 60 percent to attract foreign capital, and ruined its domestic
economy.

The US may [should? must ??] now attempt a repeat performance of the 1980s
to spend itself and its allies [now minus Japan but plus Russia?] out of
the present and much deeper world recession and threatening globe
encompassing depression. The US would then again have to resort  to
massive Keyenesian deficit [ using September 11 as a pretext for probably
military] RE-flationary spending as the locomotive to pull the rest  of
the world out of its economic doledrums.  However,  the US is already the
world consumer of last resort, but it  can be so with the savings,
investments and cheap imports from abroad, which themselves form part of
the global economic problem.

Moreover, to settle its now enormous and ever growing foreign debt, the US
may chose also to resort to IN-flationary reduction of the burden to
itself of that debt and its also ever growing foreign debt service. But
even the latter could - in contrast to the above summarized previous
period- NOT avoid generating a further SUPER trade balance particularly if
market demand falls further and pressure increases abroad to export to the
US demand/er of last resort.  But this time, there will be NO capital
inflows from abroad to rescue the US economy. On the contrary, the now
downward pressure to devalue the US dollar against other currencies would
spark a capital flight from the US, both from US Government bonds and from
Wall Street where significant stock price declines generate further price
declines and deflation in world terms even if the US attempts domestic
inflation.

The price of oil is yet another fly in the political economic ointment,
whose dimension and importance is inversely proportional to the health or
illness of the ointment itself. And today that is quite sick and
deteriorating already. The world price of oil has always been a two edged
sword whose double cutting edges can be de-sharpened with the help of
successful alternative economic and price policies. On the one hand, oil
producing economies and states and their interests need a minimum price
floor to produce and sell their oil instead of leaving it underground and
also postponing further oil productive investment while waiting for better
times. Thus, a high oil price is economically and politically essential
for important states like Russia, Iran and especially Saudi Arabia, as
well as US oil interests. On the other hand, a low price of oil is good
for oil importing countries, their consumers including oil consuming
producers of other products, and supports state macro economic policy, eg
in the US, where low oil prices are both good politics and good for the
economy. These days, the high/low price line between the two seems to be
around US$ 20 a barrel - at the present value price of the dollar!  But
nobody seems to be able to rig the price of oil at that level. The present
conflict, long since no longer within OPEC, is primarily between OPEC that
now sells only about 40 percent of the world supply and other producers
that supply 60 percent, today especially Russia but also including the US
itself as both a significant producer and a major market, although that is
increasingly shifting to East Asia. Recession in both and the resultant
decline in demand for oil drags its price downward.  US strategy and wars
against Afghanistan and Iraq. is to gain as much CONTROL of oil as it can
and for now to share as little of it as it must with Russia in Central
Asia, Caspian Sea and Persian Gulf regions.  And that control, even if it
cannot control the price of oil, is to be used as an important
geo-political economic lever to manipulate against US oil import dependent
allies in Europe and Japan and ultimately its strategic enemy in China.

For US Keynesian spending re-flation as well as in-flation can no longer
put the floor under the price of oil needed today and tomorrow. No policy,
but only recovery generated world market demand I- and/or limitations in
the supply of oil  -can  now provide a floor to   and  prevent a further
fall in the price of oil - and  its deflationary pull on other
prices.  And further deflation in turn will increase the burden of the
already vastly over-indebted US, Russian and  East Asian, not to mention
some European and Third World, economies.

Thus the political economy of oil is likely to add to further deflationary
pressure. That would - indeed already does - again significantly weaken
oil export dependent Russia.  But this time it would also weaken US oil
interests and their partners abroad, especially in Saudi Arabia and the
Persian Gulf. Indeed, the low price of oil during the 1990s has already
transformed the Saudi economy from erstwhile boom to a bust. That has
already generated middle class unemployment and a significant decline in
income that has also already generated widespread dissatisfaction and now
threatens to do so even more at precisely the time when the Saudi monarchy
is already facing destabilizing generational transition problems of its
own. Moreover a low oil price would also make new investment unattractive
and postpone both new oil production and eliminate potential profits from
laying new pipelines in Central Asia.

All of these present problems and developments now threaten to [will?]
pull the rug out from under US domestic and international political
economy and finance. The only protection still available to the United
States still derives from its long since and still  only two pillars of
the ''NEW WORLD ORDER'' established by President Bush father after
''Bush's Gulf War" against Iraq and the dissolution of the Soviet Union in
1991. President Bush son is now trying to consolidate his father's new
world order [no doubt with the latter still as a power behind the throne]
beginning with the WAR AGAINST AFGHANISTAN and threatening once again
against Iraq, and the Bush-Putin effort now also to construct a US-Russian
Entente - or is it Axis.

The dollar pillar is now threatening to crumble, as it already
did after the Vietnam War but has so far remained standing through three
decades of remedial patch work. But as we have seen, the US is now running
out of further economic remedies to maintain the dollar pillar
upright. It's only protection would be to generate serious inflation in
the short run by printing still more US dollars to service its debt, which
would then undermine its strength and crack the dollar pillar and weaken
the support it affords still more.

That would leave only the US military pillar to support US political
economy and society. But it and reliance on it also entails dangers of its
own. Visibly, that is the case for such as Iraq, Yugoslavia, and
Afghanistan and of course all others who are thereby deliberately put on
notice to play ball by US rules in its new world order on pain of
eliciting the same fate for themselves. But the political blackmail to
participate in the new world order on US terms also extends to US -
especially NATO - allies and Japan. It was so exercised in the Gulf War
[other states paid US expenses so that the US made a net profit from that
war], the US war against Yugoslavia in which NATO and its member states
were cajoled to participate, and then by the War against Afghanistan as
part of President Bush's  new policy pronouncement. He  used the early
Cold WAR terminology of John Foster Dulles] that ''You Are Either With Us
Or Against Us"] But US reliance on this, the then only remaining, strategy
of military political blackmail can also lead the US to bankruptcy as the
failing dollar pillar fails to support it as well; and it can come also
to entail US ''OVERSTREETCH'' in Paul Kennedy terms and ''BLOWBACK''
in CIA and Chalmers Johnson terms.


In summary and plain English, the US has only two assets left to rely on,
both admittedly of world importance, but perhaps even so
insufficient. They are the dollar and its military political assets. For
the first, the economic chickens in the US Ponzi scheme pyramid of cards
are now coming home to Roost even in the united states itself.

The second pillar is now in use to prop up the new order the world
over. Most importantly perhaps is the now proposed US/Russia entente
against China instead of [or to achieve?] a US defense against a
Russia/China[and India?] entente. The NATO War against Yugoslavia
generated moves toward the latter, and the US War against Afghanistan
promotes the former]. God/Allah forbid that any of these nor their Holy
War against Islam blow us all up or provoke others to do so.

However that may be,  US  imperial political military blackmail may still
blowback on the united states also, thus not out of strength but out of
weakness.