Toshio Matsuda, Commentator & Intl Economist

Straight from the Shoulder No.481

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The Cold War, long fought between East and West since the end of the Second World War in 1945, finally ended with the collapse of the Soviet Union in 1991. As a result, over 20 former republics of the Soviet Union gained independence, but while many of these independent states lacked the ironclad unity of the Soviet Era, they still found themselves under the influence of Russia, albeit only slightly (due to the current conflict, Georgia has decided to leave the Commonwealth of Independent States, or CIS). However recent years have seen an increase in the number of states, the Ukraine (a member state of the CIS) and Georgia among them who, with the backing of the U.S., have undergone democratic revolutions and installed pro-U.S. administrations. What’s more, Ukraine and Georgia have sought membership in NATO (North Atlantic Treaty Organization), with NATO itself welcoming the move. To Russia, the idea of neighboring countries emerging as pro-U.S. states and their subsequent admission as NATO member states will not only create a dollar bloc in neighboring countries and lead to nations engaging in military confrontations with the support of U.S.-made weapons, but also lead to the loss of the buffer zone separating the military posturing of Russia and the West. It stands to reason that Russia has displayed vociferous opposition to the entry of Ukraine and Georgia into NATO, as it is also no wonder that on the contrary, the West supports the entry of the two nations. Since last year, decisions have been made for the U.S. to develop missile and missile radar bases in the Czech Republic and Poland under agreements with the two nations. Though the U.S. cites the need to confront the threat posed by Iran, its true motive is to effect a military provocation of Russia. Though the independence movement of the South Ossetia autonomous region dates back to 1992, a year after the collapse of the Soviet Union, Russia has since provided ongoing military and economic aid to South Ossetia, and many of its inhabitants, of which 70% belong to an ethnic group known as Iranian peoples, have been granted Russian citizenship. As with the latest invasion of Georgia, this is attributed to Russia’s using “the protection of Russian citizens” as the reason for its timely military intervention. Here we have the U.S. attempting to expand its military stance against Russia because of Iran, and Russia taking military action to protect Iranians. Iran is a necessary factor for a cold war to break out between the U.S. and Russia. Incidentally, I wonder if people are aware that the latest invasion of Georgia by Russia was conducted with the same aims as that of the then Soviet Union’s invasion of Afghanistan in 1979. The Soviet Union’s invasion of Afghanistan was carried out to thwart the ambitions of the U.S., who was attempting to establish a direct crude oil pipeline from the Caspian Sea to the Pakistani port of Karachi via Afghanistan. The U.S., with the cooperation of Al Qaeda head Bin Laden, succeeded in defeating Soviet Union forces friendly to the Northern Alliance. With the toppling of the Taliban regime in 2002, the U.S. made its one-time friend Bin Laden into an enemy, and its one-time enemy the Northern Alliance into a friend. The U.S. is now trying to make its 1979 aspirations a reality thanks to the current pro-U.S. puppet regime of Afghan president Karzai. Russia’s latest invasion of Georgia is to keep in check U.S. ambitions to funnel crude oil from the Caspian Sea to the West via Georgia, thereby avoiding the Russian Bloc. While the Russian military says it is protecting the security of Russian citizens in South Ossetia, it is in fact halting the transport of crude oil from the Caspian Sea to Turkey through the BTC pipeline and blocking the east-west arterial highway that underpins Georgia’s economy. Since even after reaching a ceasefire agreement, the Russian military will be able to occupy up to a ten-kilometer swath of Georgian territory, it is likely that the Georgian economy will become destabilized and its citizenry, experiencing widespread discontent, will be divided along the lines of pro-U.S. or pro-Russian support. With the pro-U.S. administration of Ukraine has also expressing a sense of crisis, there is no doubt that its relations with Russia will go from bad to worse. These are the factors behind my assertion that “the hostilities in South Ossetia are the beginning of the Second Cold War between the U.S. and Russia.”

It goes without saying that America’s unilateral dominance of the post-WWII world was built upon the consistent instrument of political rule ? money (the dollar) ? and its military might. The dawn of the 21st Century saw major changes occurring around the world. Those changes were 1) China’s rapid economic growth and expanded military capabilities, including nuclear weapons, 2) A Russian economy profiting from the rise in crude oil prices and the resurgence the former military might of the Soviet Union, and 3) the decline of America. The world faces a rising tide of economic and military growth in the East and a weakening America. The U.S. war on terror triggered by the September 11, 2001 terrorist attacks on its soil led to tighter regulations on the passage of people and money across international borders, but while the principle purpose of this was to collect personal information on foreign nationals in the name of “security” and impose restrictions on insider information and the outflow of money, it was at the same time an attempt to put the brakes on a worsening economic downturn caused by the employment boom and subsequent bursting of the dot-com bubble at the end of the Clinton presidency. This is apparent when looking at the legions of security personnel deployed at each of its ports of entry for the futile purpose of conducting security checks. The real reason for America’s policy to bolster its national security was a dollar-defense plan. This illustrates that America has weakened to the extent that it has to use security as the absolute overriding factor, going so far as to impose limitations on freedom, in order to protect the dollar.

Until President Nixon abruptly imposed a ban on the free convertibility of the U.S. dollar to gold on August 15, 1971, the United States served as the source of funds and technology to the world, and moreover, had propped up the global economy through its role as a global buyer. The dollar was the currency of the world, and the global economy was dependent upon the performance of the U.S. economy. However that all ended with what was dubbed the Nixon Shock. August 15, 1971, the anniversary of Japan’s defeat in WWII, became the anniversary marking the demise of America’s unilateral dominance. Japan and what was then West Germany transitioned from being nations with trade deficits to those with surpluses, from being debtor nations to creditor nations, whereas the United States tumbled to become a debtor nation with the world’s largest deficit. Soon after the signing of the Plaza Accord in 1985, the Japanese Yen, which had traded at 240 yen against the dollar, gained in value by 100%, appreciating to 120 yen against the dollar. Indeed this put the Japanese yen caught in a upward draft and the declining U.S. dollar on show for all the world to see. With its three constant deficits and home to a nation of debt-laden households, the U.S. dollar was no longer strong enough to earn the world’s confidence. A movement to avoid the risk of dollar holdings, or the risk of losing everything by holding on to the dollar, so to speak, began in Europe. This was the birth of the euro ? the common currency of the European Union (EU). It was then that “with the exception of Japan,” countries around the world that had trade surpluses, China and Russia in particular, began to rapidly decrease the proportion of their foreign currency reserves accounting for by the U.S. dollar. As a nation running three deficits, the U.S. economy, were it a privately held company, would have already had to declare bankruptcy. This is because there is no chance that improvements will be made to its three deficits and talk of the U.S. returning to profitability or once again becoming a global creditor are pure fantasy. Why, then, is a U.S. economy that should by all rights be in ruins still around? The answer to that is New York and the Pentagon! There is no denying that New York is the financial center of the world, and that the might of the U.S. military is the greatest in the world. Being the world’s financial center means that New York is the place where corporations from around the world amass their needed funds, and also serves as the investment center for the world’s surplus funds. In other words, it acts as both the key player and control center for money as it traverses the globe. There are two factors New York’s being internationally recognized as the world’s financial center. Firstly, it is that the prices of financial products such as stocks and bonds, and produce-based products such as commodities and grains are listed in U.S. dollars. Secondly, is the inflationary potential of the New York market, which handles a vast quantity of funds from domestic sources and abroad. Still, having entered the 21st Century, the New York market is no longer assured of retaining this role. Oil-producing nations including Russia have started preparations for oil markets based on local currencies to avoid the risks posed by the dollar. Moreover, in the face of today’s information technology, the inflationary function of the U.S. market will in time not qualify as a privilege.
We must get used to the fact that the “American economy is not self sufficient.”

America is a nation whose economy is dependent on foreign capital, with economic booms brought about by influxes of foreign capital, and its recessions caused by its outflow. America’s political aims therefore revolve around making use of soft and hard measures to control the flow of foreign capital. Soft measures include the creation of the dot-com boom, which at one time led to an overconcentration of the world’s money during the previous Clinton administration, and more recently the introduction of foreign capital as the driving force behind high-dividend mortgage financial products incorporating subprime loans. Hard measures refer to wars. From 2002, when the “War on Terror” began in earnest, the world’s funds became concentrated in America, driving a housing boom while at the same time producing a strong dollar and higher stock prices.

With the “War on Terror” entering a stalemate in 2007, at the same time the stock market and housing bubbles burst, resulting in an outflow of funds from U.S. markets. Unsurprisingly, the U.S. economy entered a recession. What should be done to end the recession and restore the U.S. economy to prosperity? The government should return to the basics of politics and resort to “money” and “military force” to reintroduce foreign capital to the U.S. marketplace. However, since the U.S. financial system has been dealt a fatal blow by the credit contraction ushered in by the subprime loan problem, for the meantime it cannot use the “money” (soft) measure as a means to achieving this. It therefore has no choice but to resort to the “military force” (hard) measure to cause the world’s money to converge in America. The actions Russia recently displayed in Georgia will have a significant impact on neighboring countries, not only giving strength to the forces of democracy within pro-Russian nations, but also requiring surrounding countries to choose between support the U.S. or Russia. At any moment, the world will have embarked on a course leading to an East-West cold war. As the political image of a U.S.-Russian confrontation and cold war spreads ever farther throughout the world, in the Middle East, the Israel-Hezbollah War that raged for 30 days last year may give way to the development of an Israel-Iran war one of the fronts in a cold war between the U.S. and Russia. In that event, global funds would once again reach an extreme concentration in America, turning a recession into a boom. U.S. Presidential Candidate John McCain’s stressing that “I am for a strong dollar” is consistent with the mainstream direction that America needs to take. When it becomes make-or-break for America, neither America nor the world has anything to do with boys blabbing about Iraq troop withdrawals and the like!

Was Japan the aggressor? If Japan’s invasion of Asia had never taken place, Japan too may have been added as one of Western Europe’s Asian colonies and the freeing of Asian colonies from colonial rule may not have taken place or at least occurred much later. In hindsight, without Japan’s incursion into Asia, the Asia we know today would not exist. Moreover, though Japan waged a war on the soil of many other Asian countries, it has not fought a war with any countries within Japan itself (with the exception of Okinawa, which was not considered part of the mainland). Japan lost the war after suffering air raids and the dropping of A-bombs but there was no decisive engagement between Japanese and American forces on the mainland. It is no wonder then, that the view of the war and of history differs between the countries that were subject to a Japanese landing and war and Japan itself, which has never engaged in a war on its mainland. Understanding can only be achieved by seeing things from the others’ point of view. In the case of China and Japan, then, which side is it that should place themselves in the others’ position? Surely it goes without saying.