October 25, 2011
Crossing a Watershed, Unawares
By PAUL KENNEDY
A watershed is, by Webster’s definition, an aspect of physical geography: an area bounded by water parting and draining down a particular course. The water to the north of this divide runs in one direction, the water to the south of the divide runs the opposite way. But for centuries the term has also been used to describe a historical and political phenomenon: that is, when an array of existing human activities and circumstances pass, irrevocably, from one age to the next, across a great divide.
At the time, very few contemporaries sense that they have entered a new era, unless of course the world is coming out of a cataclysmic war, like the Napoleonic wars or World War II. But such abrupt historical transformations are not the focus of this article. My interest is in the slow buildup of forces for change, mainly invisible, almost always unpredictable, that sooner or later will turn one age into another.
This topic of “watersheds” crops up frequently in a weekly discussion class I am holding with eight Yale students this semester. The class was not originally meant to focus on that problem, but it has emerged that way. The first book we read was Jan Huizinga’s classic “The Waning of the Middle Ages,” an elegiac look at the end of a centuries-long period in Western history. Then we grappled with books on Europe’s early outward push (Carlo Cipolla’s “Guns, Sails and Empires: Technological Innovation and the Early Phases of European Expansion, 1400-1700”) and the brutal Reformation in England (Eamon Duffy’s “The Stripping of the Altars”). When we put these books together, we realized that we had been looking at a watershed era of massive proportions. No one alive in 1480 would recognize the world of 1530 — a world of new nation-states, Christendom splintered, European expansion into Asia and the Americas, the Gutenberg communications revolution. Perhaps this was the greatest historical watershed of all time, at least in the West.
There are other examples, of course. Someone living in England in 1750, before the widespread use of the steam engine, would have been staggered at its application 50 years later: The Industrial Revolution had arrived!
Some transformations from one era to another have an even shorter life cycle, such as in that epic period between 1919 and 1939. Democracy was fraying by the early 1930s, the world economy was rotting, but who sensed it would lead to war and holocausts? As the great Cambridge diplomatic historian Dr. Zara Steiner asks: “When did people know they were no longer in a post-World War One era, but in the approach to the Second World War?” The answer is that only a very few suspected it, and many came later to the new reality. They were in a new age.
So what about today? Many newspaper correspondents and technology pundits point excitedly to our ongoing communications revolution (cell phone, iPad and other gadgetry), and to its impact upon states and peoples, upon traditional authorities and new liberation movements. The evidence for this view is clear across the entire Middle East, and even in the very tame “Occupy Wall Street” movement, although one wonders if any of the high-tech prophets proclaiming that a new era in world affairs has arrived have ever bothered to study the impact of the Gutenberg printing press, or of F.D.R.’s radio chats to tens of millions of Americans in the 1930s and early 1940s.
Each age, then, becomes mesmerized by its own technological revolutions, so I am going to focus upon something rather different: indicators of change that suggest that we are approaching — or may even have crossed — certain historical watersheds in the hard worlds of economics and politics.
The first of these is the steady erosion of the dollar as the planet’s sole or dominating reserve currency. Gone already are the days when 85 percent or more of international currency reserves were held in “greenbacks”; the statistics fluctuate wildly at present, but the figure is now closer to 60 percent. Despite the economic woes of Europe and even China, it is no longer fantastic to imagine a world of three large reserve currencies — the dollar, euro and yuan — with a few smaller outliers like sterling, the Swiss franc and the yen.
A blinkered American economist or investment adviser who does not recognize that the times are changing is probably going to do himself and his clients a considerable disservice. The simplistic notion that people will fly to the dollar as a “safe haven” is put into question by the country’s increasingly surreal indebtedness to foreign lenders. And will a world of various reserve currencies make for more, or less, financial stability?
The second transformation is the erosion and paralysis of the European project, by which I mean Jean Monnet and Robert Schuman’s dream that the heterogeneous European nation-states would steadily come together, first through commercial and fiscal integration, and then by serious and irreversible commitments to a politically united continent. The institutions for realizing that dream — the European Parliament, the European Commission, the Court of Justice — are already in place, but the political will to breathe real life into them is gone, sadly undermined by the simple fact that wildly divergent national fiscal policies are incompatible with a common European currency.
Bluntly put, Germany and Greece, with their separate budgetary records, cannot march together toward a United States of Europe; but no one appears to have an answer to this dichotomy, except to paper over the cracks with further tranches of Euro-bonds and I.M.F. loans.
The Europeans, in other words, have neither the time nor the energy nor the resources to focus on things other than their own problems. This means that there are very few observers across that continent who have studied what might be the third great transformation of our times: namely, the enormous arms race that is occurring in most parts of East Asia and South Asia.
While European militaries become more like local gendarmeries, Asian governments are purposefully developing deep-water navies, building new military bases, acquiring ever more sophisticated aircraft, and testing missiles with ever longer ranges. What discussion has occurred focuses on China’s military buildup, and rather little on the fact that Japan, South Korea, Indonesia, India and even Australia are following suit.
What do Asian nations apprehend about the future of the world that European governments are now oblivious to? If slower economic growth, environmental damage and a fraying social fabric in China lead its future leaders toward muscle-flexing abroad — right now, it is fair to say, China’s leaders are quite cautious — its neighbors are planning a firm response. Does anyone in Brussels know, or care, that after 500 years of history, the world of 1500 is at an end? Asia advances to center stage, while Europe becomes a distant chorus. Won’t future historians regard this phenomenon also as an amazing watershed in international affairs?
The fourth change is, alas, the slow, steady and growing decrepitude of the United Nations, and especially of its most critical organ, the Security Council. The U.N. Charter was carefully crafted to help the family of nations enjoy peace and prosperity after the horrendous evils of 1937-1945. But the charter itself was a calculated risk: recognizing that the Great Powers of 1945 would have to be given a disproportionate role (like a permanent Security Council seat and the veto), the drafters nonetheless hoped that those five governments might work together to realize the world body’s high ideals.
The Cold War killed such hopes, the collapse of the Soviet Union revived them, but now they are fading again due to the cynical abuse of the veto power. When China and Russia veto any measure to stop the Syrian regime of Hafez al-Assad from killing its own citizens, and when the United States vetoes any resolution to stop Israel from advancing into Palestinian lands, the world organization is made redundant. And Moscow, Beijing and Washington seem to like it that way.
The waning of the dollar’s heft, the unwinding of European dreams, the arms race in Asia, and the paralysis of the U.N. Security Council whenever a veto is threatened — do not these, taken together, suggest that we are moving into new, uncharted waters, into a troubled world compared with which the obvious joy of customers emerging from an Apple store with an updated device look, well, of limp and secondary significance?
It is as if one were back in 1500, emerging from the Middle Ages to the early-modern world. The crowds at that time were marveling at a new and more powerful longbow. Surely we can take our world a bit more seriously than that?
Paul Kennedy, Dilworth Professor of History and director of International Security Studies at Yale University, is the author of many books, including “The Rise and Fall of the Great Powers.”
TRIBUNE MEDIA SERVICES
China signals irritation as Europe stares into the financial abyss
Europe's grotesque debt crisis rumbles on. France and Germany are at daggers drawn, the eurozone's two largest economies still a million miles away from agreeing on how they intend to patch-up what is, and always has been, an utterly incoherent economic construct.
In a rare public outburst this week, China's Wen Jiabao said Europe's leaders should 'turn their political will into action'. By Liam Halligan
9:30PM BST 22 Oct 2011
The burden of bailing-out moribund banks, and peripheral eurozone nations, means France is on the verge of losing its "Triple-A" credit rating. Given the crucial role of the world's fifth biggest economy in holding the single currency together, a Gallic downgrade could be the final straw.
The spread over its German equivalent, having more than tripled since mid-summer, is now twice as wide as in the immediate aftermath of the Lehman collapse. The alarm bells are ringing extremely loudly.
"The outside impression is disastrous," observed Jean-Claude Juncker, the Prime Minister of Luxembourg. "It doesn't appear a bright example of superior statesmanship and in the future we will have to talk about how to transform the view that others have of us."
Too true, Jean-Claude. Except that "the future" is now.
The euro was never going to work. Yet the eurocrat elite – which includes Mr Juncker down to the tip of his Mont Blanc pen – arrogantly ignored all the signals. Those of us who objected to monetary union on technical grounds, who warned of bitter conflict, who recalled the lessons of history, were dismissed as "xenophobes" and "cranks".
And now, having used Western Europe as an economic laboratory, the single currency's architects need to admit that their hubristic experiment has gone very badly wrong.
Decisive action is needed to stabilise financial markets. It should also be made clear, though, that the single currency will be scaled-back in the medium-term, possibly with a view to total break-up. If that sounds drastic, we're now in a drastic situation. Those of us calling for such an outcome will doubtless be dubbed "crazy", not least by the same self-serving officials and financial institutions who derided our objections to the euro's initial formation.
If the likes of Juncker had been as honest and straight-talking 20 years ago as they profess to be now, we wouldn't be in this mess. The mess, of course, goes way beyond Europe. International concern about the fall-out from a possible "euroquake" means the time for diplomatic niceties has gone and the rebukes are now coming from all angles.
On Friday, in a rare public outburst, China's Wen Jiabao said Europe's leaders should "turn their political will into action". Beijing wants to see decisive measures to prevent Europe's debt crisis from spreading, with all the global market turbulence that would bring.
Global investors have been keeping a wary eye on China, amid concerns the second-largest economy on earth could be heading for a "hard landing". Having replaced the US and Europe as the world's economic locomotive, China's condition now helps shape global economic sentiment. Last week, we learnt that while Chinese growth moderated during the third quarter, GDP still expanded 9.1pc. Inflation, meanwhile, having recently hit a three-year high, fell to 6.1pc in September, down from 6.5pc in July.
Faced with signs of over-heating, Beijing has raised interest rates five times and hiked bank reserve requirements nine times in the last year. China now looks on track for a "soft landing", combining cooling prices with on-going rapid growth.
While this is good news for the rest of the world, the world seems determined not to see it that way. The US Senate is now considering a bill that seeks to "punish" China for "manipulating" its currency. With unemployment above 9pc, despite median wages now lower in real terms than in 1999, American politicians are once again looking for scapegoats.
In the US, and other "advanced countries", we could do a lot to improve our economic plight. We could try raising productivity, for instance, while reining-in the destructive behaviour of our banks. Complaining about a weak yuan isn't going to help us one bit, for all the claims that China is "stealing Western jobs" by keeping its currency low.
Since the renminbi was unpegged in June 2005, it has risen 25pc against the dollar, more in real terms given higher Chinese inflation. Lots of items supposedly "made in China" are, anyway, merely assembled in China – the component parts often coming from high-wage Asian economies such as Japan and South Korea.
So the "slave labour" argument we often hear in Congress is nonsense, not least as the "slaves" themselves, hundreds of millions of rural Chinese who've trekked to the city in recent decades, have done so freely, in search of work and a better life.
It's not as if dearer Chinese exports would create jobs in high-wage Western economies. A less competitive China would simply mean that even lower-wage nations such as Indonesia and Vietnam gain market share. That's happening anyway, seeing as the gap between Chinese manufacturing wages, up ten-fold over 20 years, and those in the West, is rapidly getting smaller.
No matter what the evidence, US lawmakers are desperate to attack the "cheating" Chinese. Under the draft law, the Treasury Department produces a twice-yearly report naming "significantly under-valued" currencies, the nations so identified then facing sanctions on their exports to the States.
This Bill is reckless, economically illiterate and risks sparking a fully-blown trade war between the world's two-biggest economies – just what we need at a time like this. America needs to recognise that the yuan has risen faster in the last 6 years than any other large emerging market currency. The louder Congress calls for China to revalue faster, the longer Beijing will take. Chinese politicians are as unlikely to buckle in the face of Western pressure as their Western counterparts would be, given a tongue-lashing from Beijing.
Away from the Sino-US trade spats, and the euro rollercoaster, the development which really caught my eye last week was a deal signed by China and Russia. The two emerging giants agreed to launch a joint development fund, with China investing more in its vast Slavic neighbour in a single swoop than it has since the Soviet Union collapsed in 1991.
The People's Republic, sitting on $3,200bn of reserves, is awash with cash it wants to invest. But the Chinese are nervous, not only about their energy security but also about further exposing themselves to Western currencies that are being deliberately debased. Russia, meanwhile, wants to diversify away from European markets that are showing increasing signs of long-term economic stagnation. So commercial co-operation between Russia and China makes sense. Trade between the two nations, having risen more than ten-fold over the last decade, is now accelerating even faster.
There seems to be a hope in some European capitals, meanwhile, that China's angst over Europe's "euroquake" means Beijing is about to ride to the rescue. I don't think so. The Chinese government's earlier disastrous investments in various Wall Street banks have been the subject of bitter internal criticism. Is a country without a welfare state really going to bail-out nations whose welfare states are bloated and out of control? It's a pretty tough sell.
"We need to see systematic and fundamental fiscal and financial reform in Europe," said Wen on Friday. "This will demand extraordinary political courage and judgment".
So what are the Chinese really saying? I think they're saying that if the Eurocrats want Chinese money, they'll either need to construct a fiscal union (which is impossible) or move to break the eurozone up.
The writing, you might say, is on the Great Wall.
Liam Halligan is chief economist at Prosperity Capital Management.
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Pensamos que solo comprendiendo cabalmente el presente, es que podemos proyectarnos acertadamente hacia el futuro.
Gonzalo Raffo de Lavalle
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Quien conoce su ignorancia revela la mas profunda sabiduría. Quien ignora su ignorancia vive en la mas profunda ilusión.
“There are decades when nothing happens and there are weeks when decades happen.”
Vladimir Ilyich Lenin
You only find out who is swimming naked when the tide goes out.
No soy alguien que sabe, sino alguien que busca.
Only Gold is money. Everything else is debt.
Las grandes almas tienen voluntades; las débiles tan solo deseos.
Quien no lo ha dado todo no ha dado nada.
History repeats itself, first as tragedy, second as farce.
We are travelers on a cosmic journey, stardust, swirling and dancing in the eddies and whirlpools of infinity. Life is eternal. We have stopped for a moment to encounter each other, to meet, to love, to share.This is a precious moment. It is a little parenthesis in eternity.
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