Trump Pressures Islamabad – TTG


Last Monday our President kicked off the public phase of his administration’s effort to modify the behavior of Pakistan with his “go to” tool of state power… the tweet.

“The United States has foolishly given Pakistan more than 33 billion dollars in aid over the last 15 years, and they have given us nothing but lies & deceit, thinking of our leaders as fools. They give safe haven to the terrorists we hunt in Afghanistan, with little help. No more!”

I'm of two minds. Either he's trying to bully Pakistan into doing more against the Taliban and Haqqani Network or he's trying to force them into closing off our access to Afghanistan so we have no choice but to leave. The first possibility is a forlorn hope. The second would be diabolically clever.

Let’s examine the first option. It is consistent with USG policy since 9/11. At that time the Bush administration issued Pakistan an ultimatum. You either assist us in Afghanistan or we will destroy you. Although our objectives in Afghanistan have shifted over the last sixteen years, our nagging complaint that Pakistan is not doing enough to help us has remained constant. I’m sure the Pentagon and Borgists the world over are hoping that Trump’s blustering and bullying style will intimidate Pakistan into submission and, thus, ensuring our ultimate victory in Afghanistan… whatever that entails. 

I don’t see any chance of this working. Yes the money is good, but the constant abuse emanating from Washington has been wearing on leadership in Islamabad and on the Pakistani street. They’re sick of it. Imran Khan, who will probably be the next prime minister in Islamabad, has called for Pakistan to walk away from the US and forge an alliance with China, Russia and Iran. China is certainly willing to take up the slack. They won’t be as generous as the US has been, but the aid will come without the condescending lectures. Russia may be interested. Iran may also be interested just to get us and our coalition out of their backyard. 

How serious is Washington about playing chicken with Islamabad? When Rand Paul suggested that the money would be better spent on US infrastructure, Trump tweeted, “Good idea Rand!” That will be a popular idea for all Americans outside of the Borg. If this idea, and bill, gains traction, it will be hard to walk back. Although Mattis has said he is not worried about Pakistani threats of closing the roads into Afghanistan, he is worried about the closing of Pakistani airspace. That would put our forces and the Afghan army we’re still trying to create in a serious bind. Although our footprint and logistical requirements are smaller than they were years ago, the Afghan army we are creating is highly dependent on a continuous flow of Western military materiel. We no longer have the Manas Air Base as we did when we temporarily lost access to our LOCs in Pakistan in 2010. And, ironically, Russia may not be as willing to bail us out this time. I get the feeling we are trying to play chicken with a bridge abutment.

The other possibility is that Trump truly is diabolically clever and is executing a grand con on the Borg. He may be deliberately steering our current Afghan policy into that bridge abutment so that we are forced to withdraw from the area. He may not be a very stable genius, but he is a first class bullshit artist and skilled con man. That’s what it would take to pull something like this off.

Frankly I don’t care if this is due to a diabolical cleverness or an act worthy of Jubilation T. Cornpone. If it results in the US leaving Afghanistan, I’m all for it.


Recommended Reading:

US suspends about $2 billion security assistance to Pakistan

US Military Weighs Options In Case Pakistan Blocks Afghan Supply Lines

Pakistan attacks US for cutting military aid

U.S. weighs Pakistani blowback as it piles pressure on Islamabad

Trump cannot afford breaking off ties with Pakistan: NYT

China may be looking to exploit a US move to cut aid to Pakistan

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71 Responses to Trump Pressures Islamabad – TTG

  1. Jean,
    I didn’t see that one coming. What’s that line? “A Fool lies here who tried to hustle the East.”

  2. FB Ali says:

    It seems Pakistan was waiting for an excuse to chuck the unfortunate Afghan refugees out. Trump seems to have provided them with that.
    Whether Pakistan closes the air and ground route for the US into Afghanistan will not matter if a lot of the Afghans pushed into Afghanistan join the Taliban, as is quite likely. The Taliban will force US troops out of Afghanistan.

  3. Cortes says:

    When we took our kids on holiday (1996) to the island where DJT’s mother grew up in the 1920s, I didn’t get the impression that there were too many dullards around. The second, slightly Dr Evil, interpretation of the POTUS’s foreign policy moves, rings true to me.
    Not what I say, what I do…

  4. blue peacock says:

    “…he’s trying to force them into closing off our access to Afghanistan so we have no choice but to leave….

    I interpret his actions as causing sufficient angst and mayhem that we are forced out of Afghanistan and that part of Asia. It seems to be the pattern as I see it. Similarly, with his Jerusalem decision he has sunk the two state fiction and shown the Arabs for their lip service to the Palestinian cause.
    Pakistan & China have been building their relationship and related infrastructure projects for decades. Not sure but the Gwadar project must have launched at least 20 years ago. The Karakoram highway has been built some time back. They’ve also been partners on missile and possibly nuclear technology. So this relationship is nothing new. What is new is Trump throwing a spanner!
    I hope Pakistan plays its part and winds down access to CENTCOM. After 16 years, maybe the longest war we have fought, it is time to end it. If the Taliban are the strongest force they will run the place as they did before. Let Pakistan & China have Afghanistan. They are neighbors after all.

  5. Fellow Traveler says:

    I don’t see Kelly standing for abandoning Afghanistan. When asked at his leaving Southern Command “What do Gold Star Families want?”:
    “They don’t ask for anything, as I say. I think the one thing they would ask is that the cause for which their son or daughter fell be — be carried through to — to a successful end, whatever that means, as opposed to “this is getting too costly,” or “too much of a pain in the ass,” and “let’s just walk away from it.” Because that’s when they start thinking it might have been not worth it.”

  6. confusedponderer says:

    blue peacock,
    I hope Pakistan plays its part and winds down access to CENTCOM. After 16 years, maybe the longest war we have fought, it is time to end it. If the Taliban are the strongest force they will run the place as they did before. Let Pakistan & China have Afghanistan. They are neighbors after all.
    They also even speak the same language as many of the folks in Afghanistan and, unlike the US, they know a lot more about local tribes, culture and habits and wouldn’t be as dependent on translators, or translator tools. To get the idea … (not quite oddly, that tool was written in Virginia).
    As for Pakistan being neighbor to Afghanistan, well, the question is to what extent they are a good neighbour. Pakistan has its own interests, and one of these would be to ‘keep India out of Pakistan’s backyard‘ and ‘not to be encircled‘.
    Thus, likely the Pakistanis, short of Trumps “direct directed rumble/tweets“, are likely unhappy about Trump’s closing with India about Islamist terror in the region.
    India at their part isn’t at all happy about that Islamist terrorism in the region since they routinely get attacked by them, and their Islamist terrorists in the region come from … well, often at least, Pakistan.
    That written, there is a chance that this would mean for Afghanistan another round of surrogate war, this time Pakistan’s surrogates against India’s. There likely weould be more ‘Mumbai’s’.
    In that case, Afghan’s interests, properties or lives would be once again be seen a parts of the ‘wager of foreigners. In any case, such a development would be ugliy for all the neighbours – the Afghans, India and Pakistan.
    If the US get out, good for them, but it wouldn’t mean at all that ‘the afghan problem is solved‘.

  7. EEngineer says:

    Remember that General Kelly is himself a Gold Star Father. His son was KIA in Afghanistan 2010. The sorrow of war is not theoretical for him.

  8. Peter AU says:

    Two minds is the place to be. Iran, I think will be the decider.

  9. JohnB says:

    TTG – It would be a welcome tonic if Trump was being “diabolically clever”. However, I suspect its just a continuation of the general incoherence of US FP in so many theatres.

  10. Lars says:

    The second option may arrive, but not because of any plan, rather due to the lack of one. Don’t ask anyone who has trouble with tic-tac-toe to play chess.

  11. Barbara Ann says:

    As you earlier said TTG, maybe Trump’s genius lies in pissing people off so much they do his work for him – assuming this work is disentanglement, as described by Patrick Armstrong. This tweet and its timing, in particular seem just too bad to be true. The article @Jean posted on the Pakistani response follows the usual media line that Trump’s action was at best rash and he will regret the ‘unforeseen’ consequences. Others in MSM will no doubt follow in the same vein. But, as others here have observed, it seems a pattern is emerging.
    What’s next – diplomatic recognition of Rojava to ‘inadvertantly’ piss off the Turks so much he brings about a crisis in another one of this targets; NATO?
    What is needed to backup this theory is examples of his using such tactics in his former business life. It is hard to imagine one only learns diabolically clever ‘crazy’ fox-like behaviour this late in life. I haven’t so far been able to bring myself to read ‘Art of the Deal’, but I may now do so – purely as a research project.
    Should this theory prove to be true, it strikes me that it is also diabolically brave – or foolhardy. If former MI professionals in this place are starting to notice this, surely the ones currently serving have too. If/when the Borg rumble the con, Trump will be go from frustrating buffoon to public enemy number 1.

  12. turcopolier says:

    Can’t play tic tac toe? Do you have a link to that evidence? pl

  13. turcopolier says:

    A lot of our troubles in FP stems from our collective delusion of central position and our desire to believe that people want to be dominated by our city on a hill. pl

  14. JohnB and Lars,
    I’m also inclined to believe this is more a continuation of an incoherent policy rather than a clever plan. Either way, the result will be the same. I’m adding another article to my suggested reading list. Andrew Korybko is the same author that wrote about Islamabad responding to Trump’s aggressive policy with a weapon of mass migration. He wrote the below article a month ago and suggests, to me, that our best course of action is to plan and execute an organized withdrawal ASAP. Any additional attempt at cleverness will only ensure disaster.

  15. Matthew says:

    TTG: Truly fascinating that we have Blanche DuBois’s foreign policy…we are ever reliant on the kindness of strangers.
    If Afghanistan collapses, how does that help Pakistan?

  16. Cameron says:

    Hope this isn’t off-topic, but I thought it was an interesting explanation for the change in the US position towards Pakistan. I think he’s barking up the wrong tree, but I did learn something about the Chinese challenge to the dollar.

  17. Lincolnite says:

    All in my Humble Opinion. DJT is serious about MAGA, he sees the resources being used as World Policeman as essentially wasted and his ambition is to redirect them to the American Homeland. It’s existential to sustaining America’s role as World Policeman that the dollar remains the worlds global currency. Given the serious effort being put into undermining the role of the dollar as ThE global currency the US has a choice to fight or adapt, if the choice is to fight then it is,doubtful the American Homeland would escape without suffering some of the ravages of war. Adaptation requires the reassessment of America’s role of Global Policeman with its open ended commitments to every dogfight anywhere. I see it as a realighnment of American Power not its abrogation. Speaker Tom Reed R Maine would recognise the argument.

  18. JT McPhee says:

    So is it just a matter of finding the right shade of lipstick to apply to the pig? Good money and troops after “bad?”

  19. JT McPhee says:

    And that personal sorrow is then the rationale for all the “policy” to follow? So more Gold Stars can be “awarded” to more families? More little cortèges making their way from Joint Base MacDill to those graveyards nearby, to keep the population on-side?

  20. Laura says:

    …and they would be correct.

  21. blue peacock says:

    It’s existential to sustaining America’s role as World Policeman that the dollar remains the worlds global currency.

    Please do yourself a favor and do some serious research on the pros & cons of a reserve currency. Not just reading some internet “expert” with all kinds of conspiracy theories about the petrodollar & reserve currency status.
    “Global Policeman” is a military function.

  22. blue peacock says:

    …the Chinese challenge to the dollar.

    We’ll know that the Chinese are serious about challenging the US dollar when they make their currency fully convertible. Until then it is just hype. MK Bhadrakumar should stick to political and military analysis and leave finance alone, or he will show his ignorance as he has with this analysis.

  23. jsn says:

    People underestimate the complexity of New York real estate deals at the scale at which the Donald has operated. My money is on brave & foolhardy! That pretty much describes a New York developer, or at least one who is still a New York developer after a couple of business cycles. Attrition is pretty high.
    Personally I don’t like our president much, and I’m pretty opposed to what he’s doing as a domestic oligarch, but I believe he is implementing the policies he ran on: beyond Fellow Travelers’ Kelly quote about what “Gold Star Families” want, it was the Obama voters in counties most affected by our disastrous wars who flipped to Trump that gave him the White House. Those people already know our wars aren’t worth the cost.

  24. Lincolnite says:

    Global Policeman” is a military function.
    Indeed it is and has to be paid for and is currently paid for in US$’s. Do you have a useful reference for me so I can read up and understand the pros and cons of a reserve currency status. The GBP Sterling had that role once up a time but went and lost it to the US$? I think it was the Spanish dollar before that.

  25. Anna says:

    “Similarly, with his Jerusalem decision he has sunk the two state fiction and shown the Arabs for their lip service to the Palestinian cause.”
    Thank you. Excellent.

  26. Agreed.
    There is no “master plan” – just a con artist playing at being President.
    And perhaps a guy who doesn’t like spending $33 billion for no return on investment – which is certainly the case in Pakistan. No doubt he’d rather spend that much – and much more – on attacking Iran.

  27. Do you have any idea what a war with Iran will cost the US?
    Take Iraq and Afghanistan and multiply by at least four. That’s something like twelve trillion dollars spread over a decade or more – because war with Iran will last at least that long.
    If that is being “serious about MAGA”, then Trump is delusional.

  28. blue peacock says:

    To get a good foundation I would start with books like these which I read when I was at school:
    The Economics of Money, Banking & Financial Markets by Frederic Mishkin
    Macroeconomics by Dornbusch & Fisher
    Exchange rates & inflation by Dornbusch
    International Trade Finance by Bhogal

  29. LondonBob says:

    Two key elements of a reserve currency is the size of the bond market denominated in it, as well as the legal system that underpins it. Historically even when the economy supporting it is surpassed the reserve status persists for a long time beyond then. That said the increasing use of the dollar as an extraterritorial legal weapon is certainly spurring efforts to circumvent its use when there is no real need.
    I’ve also read that another theory is that Pakistan said no to using their territory for operations against Iran.

  30. jpb says:

    The United States Empire enjoys exorbitant privilege from the USD role as world reserve and settlement currency. The reserve currency privilege forces world central banks to purchase US Treasuries, which funds are used to finance the bloated US defense budget. China maintains a large trillion USD Treasury Reserve. The US Treasuries enable the US to maintain an imperial containment and tribute policy in East Asia. The USD reserve system is a form of imperial tribute.
    I suggest you read Major-General Qiao Liang on China’s opinion of the imperial USD reserve system and their considered response. The USD’s days as world reserve currency are numbered and when the exorbitant privilege is removed the United States will cease to be a world dominating empire. The military operates on money and we will no longer conger money from unearned and exploited privilege.
    “Many people think that imperialism stopped after the U.K. became weak. Actually, the U.S. has conducted a hidden imperialism through the U.S. dollar and has made other countries its financial colony. Today, many countries, including China, have their own sovereignty, Constitution, and government, but they are dependent on the U.S. dollar. Their products are measured in dollars and they have to hand over their material wealth to the U.S. in exchange for the U.S. dollar.” Major General Qiao Liang

  31. jpb says:

    The problem of a sovereign nation’s internal currency being used as an international reserve currency is known as Triffin’s Dilemma.
    You can link from the Wikipedia article to a speech by Zhou Xiaochuan, governor of the People’s Bank of China which details the world reserve currency as the source of world monetary distress. I would not bother reading the apologist’s for empire economists listed by a commentator on this thread.
    The USD will be devalued to its role as an internal currency. I have calculated the USD is approximately 60% over valued, as a result of artificial dollar demand resulting from it’s reserve and settlement currency role. IMO…the enormous debt accumulated in USD worldwide will be liquidated by devaluation of a large fraction of USD buying power.

  32. Fool says:

    Is it also possible that this is simply a favor to the Saudis — given Pakistan’s reluctance to lend its support on Yemen?

  33. Jack says:

    “forces world central banks to purchase US Treasuries,”
    Who forces them? The dollar is freely convertible. They can exchange them for pounds or yen or euros or gold or bushels of wheat.
    Chinese businesses don’t have to accept dollars for sale of their goods. Why do they choose to do it?

  34. Jack says:

    “I have calculated the USD is approximately 60% over valued,”
    Such a devaluation will end the US trade deficit and reshore the US industrial base and make American made products enormously competitive on world markets. Sounds to me a huge benefit to the US economy. And foreign holders of US debt get paid back in cheaper dollars. What’s not to like about it?

  35. kooshy says:

    One big difference between wars of Iraq and Afghanistan, and any possible war with Iran, which often is not addressed or discussed by the so-called Iran analyst and commentators, is the fierce Iranian sense of pride and nationalism to their land(two think to avoid in Iran is insulting one’ Mother and Vatan= where your body belongs = Country) which was not present in previous US’ middle east wars. No other country in ME except Iran and Turkey have as huge sense of belonging to their “land” SarZamin.

  36. jsn says:

    There is an interesting confluence economically in Trumps tweet foreign policy too.
    It was Charles De Gaulle who called Reserve Currency status an “exorbitant privilege” when export to the US ceased to yield gold stocks at the end of the year (1971 I think). Privilege for some, but De Gualle missed or wasn’t concerned that the cost was in fact domestic US unemployment, hardly a privilege if you were part of the growing contingent that experienced it.
    Through the Marshall Plan and Marshall Plan type programs, the US granted large chunks of the world dollars with which they bought US machine tools and re-built their industry. Once operational their industry had newer and better fixed capital than the US and their exports became very competitive with US domestic production.
    But as they exported they received dollars in return for products produced in Marks or Francs or whatever. At year end when accounts were settled the Fed sent gold to cover the delta on US imports over exports until Nixon ended the Gold Standard. At that point, our foreign trading partners could have quit sending their stuff here, but they were unwilling to give up their end of the “exorbitant privilege”, demand for their manufactured goods.
    Rather than re-balancing their economies to support domestic consumption of domestic production, they instead bought Treasuries which re-patriated their dollar earnings into the dollar economy and ipso fact expanded the accumulated Federal “deficit”. The inadvertent fiat Marshall Like Plan the US trade deficit has been ever since has exported US demand through the fiat of expansion of the US Treasury balance sheet liabilities, the National Debt.
    The US could have stopped this at any time by limiting the supply of Treasuries for sale to foreign buyers. This would have forced our trading partners to purchase actual things from the US to get rid of their dollar export earnings rather than recycle demand through Treasury purchases, but US elites liked being able to command the worlds material resources with dollars almost as much as they liked the increasingly slack US demand for labor that resulted.
    For China to take over as “reserve currency” it will first have to have a broadly distributed currency, which its One Belt One Road begins to do, and then hold a higher trust level among investors than the US. So far it is far from either and doesn’t really appear to want “reserve” status because the Chinese Communist Party still has a healthy fear of its domestic labor boiling over into violent political protests: there are almost constant strikes and labor protests most having some violence in China. China needs demand for its labor more than it needs the worlds resources, but that may change if they succeed in “rebalancing” away from export dependent production. Then investor trust will become the primary barrier.
    When you hear the words “free trade”, ask free for whom? Money now moves around the world in nanoseconds while people remain tied by all kinds of barriers, and maybe those human barriers, things like emigration controls, family bonds, language, culture and religion matter. And maybe they matter more to healthy societies than the free movement of money, and that maybe money shouldn’t move so freely either. But there is an imperial logic to the “free trade” dogma that imperial elites tend to gravitate to: Great Britain was as all about free trade when it was hegmon as the US has become now that it is, but Hamilton set up systematically protectionist policies precisely to prevent Britain from being able to prevent US technological and industrial development, which free trade does to resources extraction economies, which the US then was.
    With the positions Trump is taking on trade, he is pushing toward a world of economic autarky, which will be a good one for well run governments looking to improve the material well being of their population and to preserve their culture and traditions. While I disagree with superficial aspects of Trumps policies, which are mostly an artifact of the world he came to power in, so far his MAGA campaign is coherently playing out in his foreign economic and political policies if you grant, as I do, that he is doing what he intends to do.
    If/when he turns out to be a real patriot, he’ll realize the US can’t really be great again until the living conditions of most Americans is materially improving: he has inherited from Bush 2 and Obama an America in which life expectancy is declining year on year for the first time since the 30s.

  37. jpb says:

    The PBOC is ‘forced’ to buy USD from Chinese business who sell goods for USD, to maintain the currency peg to the USD. If the PBOC did not accumulate USD Treasuries the USD would decline and the Yuan would appreciate making Chinese goods overvalued in the world markets.
    The perpetual US trade deficit underlies the value of the USD, which makes it attractive as a ‘temporary’ store of value. You are right…China chose to accept USD to build their industrial base and control internal inflation. In the future, China will stop accepting USD and let their currency free float….paying the piper until they call the tune. The US dollar exchange rate is key, if it were not supported by the foreign central banks (PBOC), it would lose its attractiveness as a store of value for the private sector world wide.
    China is ‘forced’ to accumulate USD to buy oil which is denominated in USD by agreement with Saudi Arabia. China begins to transition from this state of affairs by buying oil from Russia and Iran with Yuan. The Chinese government encourages its citizens to buy gold as a store of value replacing USD as a store of value.
    China, Russia, etc. are accumulating gold until they determine to ‘clean float’ their currencies. This will stop their ‘forced’ need to buy USD treasuries to maintain a fixed exchange rate. The flip side is the USD will devalue and we will have a lowered exchange rate for USD. This is DJT’s plan for improving the competitiveness of US goods. It will bring jobs home to the USA, as Chinese goods are inflated in price.
    The Chinese, Russians, Iranians, etc. will lose buying power from their USD reserve, but will compensate from the increased price of gold in USD. The Yuan revalued upward in the ‘cheap float’ will buy more oil than the artificially pegged low Yuan exchange rate. The USA will experience increased internal inflation, but increased attractiveness of its lower priced goods overseas.
    These monetary, economic, and political events are inexorable and perhaps they can be managed without chaotic disruption of world trade and politics. We will find out in the next decade. IMO..China, Russia, Iran etc.(SCO) will pay the price to stay sovereign and independent of USD hegemony.

  38. eakens says:

    A response from one senior commander of Taliban forces….

  39. jpb says:

    Excellent comment! The USA exceptionalist elites exchanged the well being of American workers in their bid for ‘full spectrum dominance’ of a world empire. DJT’s policies intend to reverse this policy and abandon the dreams of world empire for increased well being of American citizens.
    IMO…the reversal of empire to becoming a normal nation among nations will be welcomed and aided by the rest of the world. I am optimistic that DJT will MAGA, inspite of internal elites resistance to abandoning the globalist vision. DJT will be aided by foreign powers such as China, Russia, Iran, and Europe who will pay to make America a normal country….without WAR!

  40. Augustin L says:

    The front goy might think he’s a mad genius but he will inevitably accelerate the internal collapse if the empire retreats in the face of rising eurasian powers. Right of seignorage and Triffin dilemma’s are implacable. One need not be a quant to see where all this will materially lead for a pleb of deplorables, our virtual economy is overvalued by a factor of X… Can’t fix stupid, the orange dotard is playing checkers, his eurasian adversaries multi-dimensional chess and Go.

  41. jpb says:

    There are many who think the Yuan will replace the USD as world reserve currency. I do not! The Chinese do not want world hegemony and Triffin’s Dilemma problems.
    The BIS and IMF propose a neutral world reserve and settlement currency. This could be SDR, gold, or some combination of SDR and gold. A neutral monetary reserve will prevent any nation from ‘exorbitant privilege’ abuse such as practiced by the USD empire globalists.
    IMO….the battle between DJT and ‘deep state’ globalist elites of the CFR will determine the well being and survival of humanity over the next century. I only wish more Americans were aware of the stakes in the internal battle against the privilege of oligarchs, which is essentially rooted in the ‘exorbitant privilege’ of the USD reserve status.

  42. jpb says:

    Yes…I have been buying shares of American industrial companies. These companies are world class and will experience an American renaissance of manufacturing due to devalued USD increasing USA competiveness. American workers will be benefit with good jobs!
    The elites share of USA income and assets will decrease, especially the FIRE sector and holders of USD denominated bonds; hence the billionaire’s and pensioner’s resistance to DJT tax plan, trade policy, and geo-political maneuvers.

  43. Valissa says:

    blue peacock @ 25,
    It is not the Chinese way to directly challenge the US. Instead they quietly nibble at the corners, increasing their economic empire at a slow but steady turtle (rather than hare) pace. They take the long view, and their political culture is more patient.They are slowly making “bilateral financial agreements” with countries on a very selective basis. This seems like a very intelligent approach. I do not think they desire to replicate the role of the US & US dollar. Perhaps China takes the multi-polar non-interference concept seriously. Who knows? But I think a paradigm shift is a foot, not a simple change of hegemon.

  44. Jack says:

    One thing I learned when I worked in finance is that it is not at all easy to forecast price movements in forex. I recall well the Plaza Accord to bring down the value of the dollar relative to yen. It crashed the credit boom in Japan and promptly the dollar took off. The Chinese peg their currency because they don’t want to float it. It seems every time they try to relax the window there is a surge of capital out. Who knows, if the Chinese float, the yuan could tumble as investors may be very concerned about their credit edifice.
    I agree that it would be much more beneficial for the US not to have the dollar as a reserve currency. Single global currency is just not practical for a host of reasons while it does have appeal in theory. Gold-backed currencies achieved that but government don’t want to be tied on how expansive they want their fiscal policies. Bilateral trade in other currencies will continue to grow. I recall India buying Soviet arms in the 70s in roubles. Even the Saudis sell their crude in many currencies. These types of deals have been going on for a long time.
    Jimmy Goldsmith was dead right in his analysis of what would happen when the GATT became law. Maybe the first step is to end all these so called free trade agreements and move more towards bilateral arrangements. Unfortunately there are no panaceas.

  45. EEngineer says:

    Indeed. Keynes tried to get the world to shift to the “bancor” for international settlement at the Bretton Woods conference in 1944, but the British position was too weak to prevail. The US was able to force the use of the gold backed dollar as the reserve. It was fun while it lasted…
    The Chinese seem to be trying to avoid that mistake by promoting the SDR to serve that function. Also remember that today’s free flow of capital was something that economists of that time rightly feared as destabilizing to a domestic economy. Great for the bankers though…

  46. ked says:

    Before investing time in “Art…” I suggest reading more current articles by the ghostwriter, Tony Schwartz.

  47. integer says:

    Barbara Ann said… “What is needed to backup this theory is examples of his using such tactics in his former business life.”
    You might find this interesting:

  48. jsn says:

    Henry Dexter White, who was Keynes counter party in the negotiation of Bretton Woods, had managed the central bank coordination between the US and its’ Soviet ally during the war. McCarthy tried to brand him a traitor for this, which emotional hearings more or less killed White.
    It is however quite possible this old New Dealers sympathy with his Soviet allies, who were taking most of the bullets at the time of the negotiations, combined with his understanding of “flow of funds” financial models (modelers who used these tools all predicted the Global Financial Crisis but had already been barred from MSM because such tools reveal “equilibrium” theories as the religion they are) to make him oppose bancor in the hopes a reinstated Gold Standard would destroy capitalist finance as it had in 1929.
    The Chinese definitely understand “flow of funds” finance and won’t repeat our mistakes. They’ll make new ones.

  49. Jack – I know it’s not what you’re saying but I’m uneasy with this idea that the rest of the world is forced at gunpoint to use dollars. I don’t think that’s how it works. Nor is there anything odd about the fact that the dollar is so widely used. You say –
    “Chinese businesses don’t have to accept dollars for sale of their goods. Why do they choose to do it?”
    Goods can be sold for any currency, or the money obtained can be exchanged for most other currencies, but:-
    1. The clearing system for payments is still mainly in New York, with the BIS lurking in the background keeping things (we hope) on an even keel.
    2. Once the money is got it has to be stored somehow by the countries that get it, stored until they need to buy goods with it themselves. If it’s not stored as foreign assets, a store ultimately as unreliable as currency or financial instruments and less readily convertible, then where else but in dollars in one form or another? They can always try euros or pounds or whatever, if it’s longer odds they’re after.
    I think those are the two reasons why the dollar is still the predominant currency. That’s not liked by some countries for a number of reasons, amongst them:-
    1. Balances held in the States or in other Western countries can be frozen.
    2. Basing the clearing system in New York means other countries are effectively forced to operate under, or have regard for, US law.
    3. The threat of withdrawing the clearing facility can be used as a means of putting pressure on other countries.
    In other words the banker, the US, is no longer seen as operating a neutral and useful facility but as using that facility to pursue US interests. It’s as if my banker were to say to me “I’m not clearing your cheques or giving you access to your balance any more unless you behave as I want you to.” If in addition one were to suspect that the banker himself might slowly be going bust things would be starting to get edgy.
    For these reasons some countries are attempting to get alternatives ready but they are working against the inertia of a system that is already in place, that works, and that still has the confidence of most. That is what keeps the system as it is. I’m not forced at gunpoint to use my bank for clearing my cheques and keeping my balance handy until I need it. It’s just what I’m used to; and it would be remarkably inconvenient for me to set up a working alternative outside the present system. Inertia matters. See “London Bob” above –
    ” Historically even when the economy supporting it is surpassed the reserve status persists for a long time beyond then.”
    So as long as it’s not abused too much, and as long as the US is considered to be good for the money, there’s no immediate reason for changing things. And the notion that has so much support at the moment, that suddenly stopping using the dollar as the primary international currency would be a salutary brake on the neo-cons, is plain wrong. Any shock to the financial system and there go savings, pensions, and welfare. And not only in the States. The resultant instability could lead to further military adventurism, not less.
    There is therefore no quick fix, no brave new financial world we can leap into and leave behind us all the menace and corruption of the old. Maybe like you, I do happen to believe that the financial system we have is approaching overload and is itself inherently unsound, but even if there is a will to put that right that should if at all possible be a matter of slow transition and not of sudden change. There’s a reason mid-flight engine rebuilds aren’t in the manuals.

  50. jsn says:

    Senior moment! Harry, not Henry

  51. Adrestia says:

    I suggest you read Major-General Qiao Liang on China’s opinion of the imperial USD reserve system and their considered response.
    Qiao Liang also wrote Unrestricted Warfare which can be downloaded at the 3rd link (the Naval War College) to the original translation. Couldn’t get a proper link to it otherwise.
    This was written in response to the 1991 Gulf war and is worth reading:

    (…) its advocacy of a multitude of means, both military and particularly non-military, to strike at the United States during times of conflict.
    Hacking into websites, targeting financial institutions, terrorism, using the media, and conducting urban warfare are among the methods proposed. In the Zhongguo Qingnian Bao interview, Qiao was quoted as stating that “the first rule of unrestricted warfare is that there are no rules, with nothing forbidden.” Elaborating on this idea, he asserted that strong countries would not use the same approach against weak countries because “strong countries make the rules while rising ones break them and exploit loopholes . . .The United States breaks [UN rules] and makes new ones when these rules don’t suit [its purposes], but it has to observe its own rules or the whole world will not trust it. (…)

  52. Adrestia says:

    The link above is also an excerpt
    This Unrestricted Warfare by Qiao Liang should work for a few days from now.
    The same but as a epub for phone or tablet. Unrestricted Warfare by Qiao Liang epub

  53. Tom says:

    Totally agree. As non American as we are profiting from things as they are. In the US though things are different. The ones profiting are a small subset of the population. Wall Street gamesters get to play with money they didn´t earn and the empire fantastists can reward yet more countries with market share in the US. After WWII it started quite mondestly with the West Europeans especially Germany, then Japan, Taiwan and South Korea and finally China. Everybody understands that you only have to nod to Uncle Sams latest crazy notions and you get to steal some more industry from him. But from a “deplorable” or “fly over country” perspective things look very different.
    People who elected HIM weren´t stupid.

  54. Jack says:

    Well said!
    I see a lot of whining on the part of some (mostly the chronic America haters) on what they deem “undue” privilege of the dollar-based financial system. But they don’t want to recognize that there is also a cost to the US for having the global financial system primarily denominated in their currency.
    As you and LondonBob correctly note reserve currencies don’t happen overnight. It is because of deep liquidity and confidence borne through transactional experience that the system actually works that it derives it’s strength. It is laughable when people on the Internet with no real experience in the plumbing of the financial system argue that reduction in petrodollar or more bilateral trade with China in yuan will destroy the “American Empire”. Any time people start throwing around words like Empire you know that objectivity has left the station.
    As you point out the problem with the dollar-based financial system is exactly the kind of abuse we have seen over the past few decades, where the financial architecture gets weaponized. This will naturally lead to other competitive systems that will start small and gain strength or fail based on actual transactional experience. This will be good as it is competition that begets better, more efficient and less expensive architectures. The nascent blockchain based architectures are a good example of how new systems can get introduced and then evolve or die based on real experience. Technology is a huge competitive factor.
    IMO, one of the big problems with our current monetary system is fiat, because there is no anchor. We have seen that credit growth is unmoored to real productivity. Consequently systemic leverage keeps growing globally and there is no getting of this train easily, precisely due to the many leveraged structures. At some point, and there is no knowing how many further boom/bust cycles we go through, we will have another Bretton Woods.

  55. Tel says:

    I think Trump is genuinely looking to save money… I know that sounds weird but Trump is the anti-politician. The USA is not only broke, it’s deep in debt and facing a potential currency crisis.
    Yes, there’s some justification for a lower US dollar in terms of forcing a re-balance of international trade but the USA cannot handle a rapidly falling US dollar nor a lack of confidence in government bonds. Don’t imagine it could never happen. Part of this will be rising interest rates, but that means bigger payments for the US government and if they can’t make the payments then something must give because there’s not much space for higher taxes. The only other answer is for the US government to cut spending. It’s the only escape from the “roach motel” that the Fed is sitting in.
    Foreign aid gets very little in return and can be cut without significant consequence amongst the US voters in 2020. You can expect more cuts I’m sure.
    Simultaneously Trump is encouraging arms sales internationally because he sees that as great revenue to US industry, more tax to collect, and improvement on balance of trade. He really is running this like a business, because that’s what he knows how to do.

  56. Thank you. We are in agreement, though as a worker in Finance you will have far better knowledge of what should be done to put the system right. I don’t think, however, that it’s essentially a system problem. In theory the financial system could run on tally sticks if it were run straight. But the best system won’t work if it’s not. That gets right back to the quis custodiet question and the answer to that is always us. The people. There can be no other guardians.
    That’s one reason why it was such a relief to see Trump elected. Some of the guardians were saying it’s not being run straight and we’re not bloody having it. Could only have happened in America.
    But there’s no reason why democracy shouldn’t work as intended here, so if the rediscovery of democracy works in America there’s always the hope we might catch the infection too.
    On another point, I might be able to persuade you that “Empire” is a useful term. It’s a portmanteau term that serves to indicate how countries deal with one another. It’s when one country uses its superiority – military, industrial, technological – to impose on other countries a relationship that the other countries would not voluntarily accept.
    As “Tom” above points out, and as I think you do, the benefits of empire for the home countries are largely restricted to the cronies and the costs are usually born by the rest of us. There are better and more profitable ways for countries to benefit from trading with each other. It prevents or inhibits organic political growth both in the subject nations and in the home country. As a defence arrangement there’s something to be said for it but even there it’s not a good long term bet.
    Morally, of course, it’s a loser. Recently the Colonel allowed me to quote from a retired British colonial administrator who’d seen and done the tail end of another empire – ours – in Palestine. This is his verdict, and he was no hothead but a practical official who’d seen it all:-
    ‘… it’s not your business or my business, or British business, or for anybody else to interfere in other people’s countries and tell them how to run it, even to run it well. They must be left to their own salvation.'”
    That brings us back fair and square to the subject from which we have strayed so far. TTG wants out of Afghanistan. It’s only my interpretation, but in that I believe we see him looking at another facet of empire, weighing it all up, and deciding like that colonial administrator so long ago that empire is the wrong game to be in. Didn’t Trump say something like that too?

  57. Jack says:

    Britain had an Empire. It received something from the colonies. It was a profitable enterprise. And they were administered by the British, rather well if I may say so.
    Now compare it with the US post-war. We’ve spent trillions of dollars in Afghanistan and the Middle East, just in the past three decades. What did we take or receive on that “investment”? What was the ROI? Trump was ridiculed when he said we should have taken the oil. That at least would have some semblance of Empire. The actions you describe of pushing countries around and acting with impunity above international law are best described by the word, “bully”, or something similar.
    If you have read my posts here on SST you would know that I have always advocated that the US get out of all its military engagements around the world and focus it’s doctrine on the defense of US territories and it’s trading routes. We should have long gone from Afghanistan. The problem is that with the exception of Philippines and a few other places, we don’t know how to do Empire. We don’t have that kind of commitment. We are not willing to spend a century in Afghanistan running that place. And what would we get for that? In the 60s rather than financing the French colonial project in Indochina and then later intervening militarily we should have called it a day and returned from Europe and Asia.
    The British diplomat you quote is spot on. It is on that principle of Westphalia that Europe had years of peace. Non-interference in the internal affairs of sovereign states is the foundation of the UN charter. That is exactly what George Washington advocated in his final speech as he left office. There always was a strong sentiment of military “isolationism” among the American people including during the great wars in Europe in the early 20th century. Unfortunately too many Rambo movies later the majority of my fellow citizens are easily seduced by the propaganda of the “war party” as my favorite politician Ron Paul calls the duopoly.
    The world needs stability and the US needs it even more, especially to focus on its domestic needs and enable it’s inherent strengths in innovation and enterprise to flourish.

  58. charly says:

    A rapid falling dollar would create significant inflation so interest rates would probably rise but that doesn’t mean real interest rates would also rise and that is what is important. What is important is the debt-to-GDP ratio and under normal circumstances GDP growth is 5% (2.5% growth and 2.5% inflation) Besides a lot of the debt is not owned by the “public” but the US government.
    The tax-to-GDP ratio is in the US very low so taxes can definitely go up. This sounds more like my taxes should not go up. I understand that but that doesn’t mean it is true.
    US Foreign Aid has significant return on investment and is not a big expense. It is in fact tiny Problem with the US is also that most should not be included in the aid budget but in the defense budget.
    Problem with modern arms is that the expensive stuff looks more like a tribute paid by a vassal state than a real arms buy because there are serious doubts that systems like the F35 can be used without permission from the US.

  59. Jack says:

    The problem is no one wants a strengthening currency. Falling dollar means strengthening Euro and Yen. Look at the contortions the Swiss have gone through to prevent the franc from appreciating relative to the euro.

  60. Great. I’ll go with all that. Except that as a foreigner I wouldn’t call the US a “bully” of course. Let’s just say that the American crony class gets around a bit. As, to be fair, does the UK crony class in its own small way and the French crony class too.
    Here’s what I can’t go along with – “Britain had an Empire. It received something from the colonies. It was a profitable enterprise. And they were administered by the British, rather well if I may say so.”
    I agree that the British empire was profitable. The question is whether it would have been more profitable had there been what you and I would describe as normal trading relationships between the UK and its colonies. Would that have been better?
    Obviously yes. Not as far as the early slave trade went – it’s difficult to see how such a trade could ever have been part of a normal commercial relationship – but as far as the regular run of commerce went. Our model of sending out finished goods in return for raw materials and food was an unbalanced model and ultimately did us no good. Whether the later doctrine of Imperial Preference might have evolved into something more balanced isn’t something we ever had time to find out – that’s related to another problem with empires. They don’t last.
    The empire took an enormous toll on our administrative and political apparatus. All those colonial administrators we sent out – they were among the best and they weren’t put to work at home. Too many of the politicians devoted their attention to the Great Game. If they’d put more effort into affairs here maybe we wouldn’t have got the ossified and strife-ridden society of the later twentieth century.
    All that was sensed at the time. As late as Gladstone many English were reluctant to divert resources and energy to empire. I suspect – I’m no historian let alone an economic historian, so take it or leave it – that empire was so hellish profitable for the cronies, and the cronies so much on top in politics, that we got empire whether we wanted it or not.
    After we got it then all the factors kicked in that meant we kept it. Most of the intelligentsia, the academics and the press (stop me if you’ve heard this one before) swung into line automatically behind the Imperial status quo. Odd how they do that, I thought, last time I looked at the NYT. National pride – all that red on the map! It’s all OURS – easily diverted to the new channels and the most poverty stricken and scrofulous ragamuffin in the Gorbals walked taller because he owned a quarter of the globe. And of course the fatal power of inertia kicked in too. Cronies looting the planet was us and we couldn’t imagine any other way.
    There are lots of excuses. Defence. If we hadn’t done it the other bastards would have, and in general they did it worse – look at what the Belgians and the Germans got up to. The countries we dominated were either tribal backwaters or hopelessly corrupt and poorly administered. All that. But they’re excuses, not justifications.
    On the final point you’re right that some areas “were administered by the British rather well”. Some weren’t. Let’s leave it at that.
    Lets also leave it at something we can again agree on. Every country has its own way of doing things, its own way of developing. Its own way of going forward if you’d like a bit of Oprah talk. It’s wrong to attempt to impose that way on others, viciously wrong both for the one who does it and the one it’s done to.

  61. Jack says:

    I couldn’t agree with you more. To say there were no costs to Britain for Empire would be foolish. Nothing is black and white in the real world. Everything has both pros and cons.
    I just don’t believe America has an Empire in the classic sense. Do we throw our enormous weight around? Sure we do. Not an excuse but I think that history shows that all great powers throw their weight around. Why? That is an inquiry worthy of great scholars.

  62. jpb says:

    Ron Paul finds ’empire’ a useful word to describe America’s role in the world. He decries the use of military force and financial sanctions in pursuit of one world hegemony. The American Empire is extractive, even though this extraction is officially concealed as humanitarian intervention.
    “Still the question remains, how long will that be since we can be certain that the end of the empire will come. Our military might and economic strength is now totally dependent on the confidence that the worldwide financial markets give to the value of the US dollar. In spite of all the reasons that the dollar will eventually be challenged as the world reserve currency, the competition, at present, by other currencies to replace it, is nil. Confidence can be related to objective facts such as how a country runs its fiscal affairs and monetary policy. Economic wealth and military strength also contribute artificial confidence to a currency. Perceptions and subjective reasons are much more difficult to define and anticipate. The day will come when the confidence in the dollar will be greatly diminished worldwide. Under those conditions the tremendous benefits that we in the United States have enjoyed as the issuer of the reserve currency will be reversed. It will become difficult if not impossible for us to afford huge budget deficits as well as very large current account deficits. National debt and foreign debt will serve as a limitation on how long the empire can last. Loss of confidence can come suddenly and overwhelmingly. Under those conditions we will no longer be able to afford our presence overseas nor will we be able to continue to export our inflation and debt to other nations. Then it will require that we pay for our extravagance, and market forces will require that we rein in our support for foreign, corporate, and domestic welfare spending.”
    That accrued current account deficit mentioned above is the forty year tribute of real goods and services extracted from the rest of the world to support the bloated lifestyle of a late stage and decadent empire.
    The USA has 800 military bases on the territory of 70 or 80 foreign countries. It is hard to conceive of the USA as other than Empire, although few thought of such before Chalmers Johnson’s “Blowback: The Costs and Consequences of American Empire”.

  63. jpb says:

    Thank you for the link to Unrestricted Warfare by Qiao Liang. I am well into Qiao Liang’s ‘incisive and lucid thinking’ about military affairs.

  64. turcopolier says:

    “The American Empire is extractive, even though this extraction is officially concealed as humanitarian intervention.” Absolute bullshit! Give me an instance in which the US has seized anyone’s assets rather that competing for them in business. What? United Fruit Company? pl

  65. jpb says:

    “Under those conditions the tremendous benefits that we in the United States have enjoyed as the issuer of the reserve currency will be reversed. It will become difficult if not impossible for us to afford huge budget deficits as well as very large current account deficits.”
    Ron Paul
    As the Ron Paul quote suggests, the extractive mechanism is the use of the US Dollar as the world reserve currency, which transfers value from foreign economies to the US government. This unequal transfer of value is imperial tribute to do business or even exist in the empire.
    Libya and Iraq were destroyed soon after they announced they were ending the use of the USD in their oil business. The US Empire sanctions or destroys whole nations to enforce the ‘exorbitant privilege’ or ‘tremendous benefits’ we receive or is it demand from the rest of the world.
    “The Confessions Of An Economic Hit Man” by John Perkins might convince you the US Empire is extractive whether we call it humanitarian intervention, competing in business, or fighting terrorists; the result is the same. Pretty words do not cover the brutal reality of empire!

  66. Jack says:

    jpb, where are you from?

  67. Jack says:

    Oregon? Hmmm. The last time I was in Ashland and Medford and the Willamette Valley I didn’t notice anyone living the Caligula lifestyle. Are you?

  68. jpb says:

    Jack, I just noticed an article on Mises,org about the USD’s role as a world reserve and settlement currency, and the consequences of the rise of the Yuan for the future of the USD.

  69. Jack says:

    jpb, I’ve read this type of stuff for so long that it has kinda become boring. Would you please keep us posted when the Chinese make their capital account free and the Yuan is fully convertible?
    BTW, the Mises Institute has some very good material. If you haven’t, I suggest reading Human Action and contemplating it.

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