Wednesday, September 10, 2008

The New World (Dis) Order

Everything Old Is New Again?

Let's see we are back in COLD war with Russia. Georgia shows how these cold things can hot up. And the USSR oops! I mean Russia, has Europe under its thumb less for its military threat than for Europe's dependence on Russian natural gas.

The US and Russia were seemingly on a path to friendship as Putin and Bush had a once-friendly relationship, but, after a series of Russian instigated events, that is over and the friendship gap has turned to a a split marked with rivalry, competition and aggression. Russia once again has ambitions fueled, this time, by its natural resource riches more than by its nuclear arsenal.

OPEC is still a balancing force for oil as it was in the early 1970s. Oil scarcity relative to demand has made OPEC matter again. And OPEC is not more cooperative than it was nor is it more unified.

The US again is being challenged in its role as the most powerful economy as China is growing and developing fast. And Russia is tying to rebuild its economy based on its natural resource endowment.

We have another debt crisis as we did in the 1980s. And while we extracted ourselves from that one current debt levels are higher than they were then.

We are embroiled in another unpopular war as we were in Vietnam in the 1970s.

Democrats and Republicans are at one-another's throats as they have not been since the 1970s.


And despite all these re-treaded trends we have some new wrinkles- literally. The population is aging rapidly. Politicians still have not come to grips with the financial obligations of aging and government promises.

Europe is a more unified area with a common currency.

N Korea remains at odds with the US despite many overtures.

China has huge foreign exchange reserves that can be used for economically aggressive purposes as countries talk about switching balances to things called sovereign wealth funds that hold a broader class of assets than can foreign exchange reserves. One concern is that China will use its resources to try and buy up natural-resource producing companies around the world to boost its economic stature.

While the oil market has slack for the moment we can be sure that in the first half of 2008 we came eyeball to eyeball with the trade offs and dilemmas of the future. We have seen our destiny and its challenges.

That there is global competition is not new. The sense that we are fighting for resources that have become scarce rather than for those that might become scarce gives a new meaning to it, however.

The US is in a disadvantaged position to meet these challenges. The Iraq war and how it was entered into has lost the US a great deal of the respect it used to have.

The US has lost its place as a role model for development as its capitalistic system has produced and economic nightmare not just on Elm street but on Wall Street and on Main street. It has spilled over to the streets abroad.

The US ability to pressure others to accept its system has been hobbled for sometime especially with China and its countervailing strength and methods. Countries that once accepted the IMF's way have found that path has not always worked. Not even the US has followed US-like advice, making it less of a role model and diminishing its influence.

The US has lost some of its influence in its own hemisphere as Venezuela has become not just cool tot eh US, but an enemy to the US. It has invited China to help run and develop its oil fields (after nationalizing them, of course) and Russia to engage in naval maneuvers in the Caribbean.

The US has found it hard to get a coalition to help in Iraq and even in Afghanistan.

Under such conditions the US will find that recovering from its current financial malaise will be more difficult than before, in the mid 198os. But the dollar is lower, helping US firms with competitiveness. Commodity prices are receding. World growth is hampered. China is struggling with its own economic problems. If oil prices drop Russia will be deprived of the source of its new-found strength - until scarcity kicks in again. So while the economic downturn poses challenges it brings some relief. The challenge of globalization remains. And it poses some great challenges for the US.

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