It is Time for The U.S. Government to Grow Up

America faces a major dilemma. We support free enterprise principles that help America’s multinational corporations compete in the world’s rapidly transitioning competitive market. Yet when faced with the immense worldwide scale of free enterprise, we are adamant about protecting the American consumer and worker from the assault of big business.

During the baby boomer generation’s rise to positions of power in business and in government, the world transformed to a global stage. While the post-war generation struggled to an impasse regarding competition for taxes to fund both warfare and welfare, we hesitantly overlooked the world’s competition for the American consumer. The true definition of a trust supersized past its concept as captured in the Sherman Anti-trust Act, crossing international boundaries in the process.

To compete on a global scale, corporations necessarily have had to increase size and scope to capture world market share. As sizes of the world’s largest corporations increased exponentially, their scale efficiencies and cost shifting capabilities offered significant trust opportunities at home. As a result, in the U.S. domestic market, the Sherman Antitrust Act of 1890 became increasingly challenged as an albatross of regulation from proponents of free enterprise and as a weak, antiquated tool of defense among those charged with protecting the rights of consumers and domestic small businesses in America.

So now we have competing interests. On the one hand, Americans want to support our industries as they compete with those from other countries to secure a growing world market share. On the other hand, the free enterprise principles required to compete globally create scale that flies in the face of the very laws and regulations deemed necessary to protect our domestic competitive market. The resulting tension of this dilemma is easily witnessed in protected markets such as U.S. drug companies that charge U.S. customers ten times what they charge international customers for the same product. It is less easily seen in growing oligarchies like airlines and banks but the effects on the American public are just as onerous.

Once again, we have another growing immaturity on the part of our Federal government as it stares into the abyss, unable to ferret out sustainable solutions in a rapidly transitioning world. Of course, American businesses must be allowed to grow to compete on the global stage. However, if the ultimate size of a corporation needed to compete globally requires that it surpass the size limits that fit America’s definition of a competitive domestic market, then this dilemma must be resolved by the application of sensible historical principles.

What may be necessary to allow businesses to grow beyond a healthy limit for our domestic competitive market is that we allow businesses to cross boundaries of competitive size, but in exchange, we compensate with more regulation in the home market. This principle is alive and well in America in such industries as power and gas.

In banking, however, we did just the opposite. We cut banking regulations at the very time that we allowed big banks to consolidate the U.S. market. The result of such government immaturity regarding our understanding of the nature of trusts was that the world financial market is now imploding. It is time for our government to grow up.

Kyoto Protocols Would Have Accelerated China’s Plan to Reverse-Exploit EurAmerica

In 1978, the year China emerged onto the world stage with its four modernizations, China, a country with four times the population of the United States, had a paltry gross domestic product of $216 billion, less than eight percent of the United States. China exposed her strategy of four modernizations to the world as if to say,”Please invest in China and we will ensure that our workforce is educated, and that our business infrastructure is stable for your investment.” Yet, this openly expressed strategy, that may have seemed to the rest of the world as a difficult but noble goal for China to achieve, was only the tip of China’s Grand Plan, and only the part she wanted the world to see.

EurAmerica’s history with China was one of gunboat diplomacy, exploitation, and forced trading. When China opened her borders again in 1979, EurAmerica’s merchants were enthusiastic to exploit an opportunity once again. Yet, China had not forgotten EurAmerica’s role in the Opium War, the Sino-Japanese War, and the Boxer Rebellion. China would never open her border again to be exploited. When she finally opened her border in 1979, it was from a position of power, deep strategy, and long lived planning that suggested EurAmerica was finally ripe for reverse exploitation. China’s grand plan was to emerge as the 21st century world power.

What boldness of purpose China must have felt as she aligned her nation’s efforts to that decade’s long task. Looking back today on her impossible achievements, one must give pause to the monumental economic goal she set for herself in 1978, indeed greater than America’s technical goal of landing on the moon early in 1961. Yet, with such a miniscule $216 billion GDP and few material assets how could China possibly build her empire to surpass that of the United States?

Through a hybrid statist-capitalist political structure, China would create a conduit through which American businesses would willingly draw down the wealth of Europe and America and transfer it to China in order to share in the prosperity of that wealth transfer. Through the centralized imposition of forced savings on its people, China would provide low cost labor to sell goods at low enough prices to cause EurAmerica to look the other way as their neighbors’ jobs went to China. Through low interest loans, China would entice EurAmerican politicians to spend beyond their means to temporarily ease the pain of EurAmerica as China’s sucked away their life force. These were the basis of her strategy.

Similarly to how a business cycle contains early adopters and late stage laggards, China planned a capital extraction cycle for EurAmerica, in which China would extract capital in multiple phases, each phase having an optimal extraction strategy. First extraction would be through the early adopter “gold rush” investors rushing into China to stake a claim. China would also plan for early majority, late majority and laggard’s capital extraction.

In 1978, China assessed America’s assets:
• America’s most valuable assets were intellectual capital that resulted from 200 years of publicly funded primary and publicly subsidized secondary education
• America’s physical assets included business assets, commercial, and residential real estate worth $7 trillion in addition to public assets of land, buildings, and infrastructure
• America produced 26% of the world’s GDP at $2.8 trillion and consumed a quarter of the world’s goods
• America’s debt was as low as it had been since WWII as a percentage of GDP and its 110 million workers were capable of doubling their loans to provide China more capital
• America’s Baby boomers were entering a peak spending phase followed by peak saving
• America’s constitutional republic allowed a relative few capitalists to control the direction of her economy

By 1978, multinational corporations had steadily grown in number and size for two decades. China’s success depended on corralling MNCs through direct foreign investment to create massive inflows of capital quickly monetized as hard assets and infrastructure.

China would entice merchants to invest by offering access to the future potential purchasing power of its people. However, given China’s low household incomes, market penetration would be low to start. Therefore, to entice the early adopters, China would create special economic zones that provided the perfect investment opportunity of cheap educated labor, loose regulation, low taxation, strengthened business law, and enhanced infrastructure and transportation, in which businesses could produce goods at very low arbitrage costs to sell back to their home countries for high margins.

With low cost of goods from special economic zones, early adopter businesses were highly profitable and banks poured investment into China as a result. But, China could not complete her Grand Plan to multiply her GDP 50 times by enticing early adopter investors alone. She had to implement a plan timed to extract maximum dollars from EurAmerica at each phase of her exponential growth.

During the next stage, the early majority stage, China manipulated baby boomers’ peak spending phase:
• China’s low prices secured America’s baby boomers as loyal customers
• Prior to America noticing a substantial loss of jobs, China secured free trade agreements, and mined American businesses for their intellectual capital.
• She reinvested profits back into America’s debt to keep America’s interest rates artificially low in order to spur on higher levels of consumer spending and government borrowing.
• China supported lobbying of America’s mass investment vehicles to fund MNCs. 401Ks and IRAs, created in ‘80and ’81, funneled money through the stock market into MNCs for investment into China.

Then, America was drawn into the late majority stage as America’s baby boomers entered their peak saving years. 401Ks and IRAs artificially fed the stock market frenzy. Baby boomers sensed they knew how to invest in a bubble market that kept rising. With access to low interest rate loans kept low by China’s reinvestment, speculators borrowed money to bet on the rising stock market. America ultimately increased its debt to pump up stock values to build more Chinese factories.

Inevitably, the stock market bubble burst, leaving America’s baby boomers with lower retirement savings. The stock market that seemed destined to go up forever finally reversed rapidly decreasing valuations. However, the debt that had funded its escalation remained.

During the late majority phase:
• More businesses began to invest in China just to remain competitive with businesses that had moved offshore earlier.
• Tens of thousands of businesses transferred factories to China to obtain low cost labor
• Millions of Americans lost jobs
• With a generation of education completed, China now was able to take more advanced jobs as well as factory jobs. America’s bastion of protected, more technically competent jobs was not a bastion after all.
• American retail outlets for Chinese goods grew exponentially
• China continued to loan its excess profits back to the American government to keep interest rates low.
After having lived through the weakness of the stock market, real estate appeared to be the baby boomers’ best retirement savings alternative. In the early stages of the Great Ponsi, housing prices went steadily up. With low interest rates, Americans could now borrow on the value of their homes to continue funding China’s growth. China’s final stages of extraction saw the housing bubble increase beyond what had ever been experienced before.

Even though American jobs were increasingly being driven offshore, the frenzy of increased housing prices allowed additional borrowing from Americans, feeding the China gold rush further. This behavior was not unexpected, following a pattern of historical boom-bust cycles and was part of China’s planning. As a result of the stock bubble and the housing bubble, America’s total debt had risen to over $55 trillion. With such exuberance in the housing market, secondary debt markets participated in credit default swaps to the tune of an additional $42 trillion. China now had extracted close to the maximum of America’s value, leaving America with the corresponding debt.

So China extracted maximum value, first in trade secrets and early adoptive money, then by IRAs and 401Ks, then by stock market and home equity loans, then by 2nd mortgages and housing speculation. China monetized the massive cash flows as quickly as possible, building infrastructure and excess manufacturing capacity, while leaving America holding debt in exchange.

Without any other rising asset values to borrow from, America has tapped out its debt. Having maxed its debt, America can only print money to finance its trade deficits. Without further real debt derived money extraction to give China for infrastructure investment and without a real ability to pay for low cost Chinese goods, America is fast losing her worth to China as an infrastructure vehicle. Recognizing that maximized extraction and rapid monetization of America’s wealth is nearing its end, China is now finalizing the implementation of her strategy, that of pulling out of American debt before other countries that maintain reserve currencies create a run on the dollar.

In thirty short years, China was able to accelerate her GDP from $216 billion to $11 trillion. She amassed reserve capital of $3 trillion. She reversed America’s fortunes from the greatest creditor nation to the greatest debtor nation. She gutted America’s factories while creating the world’s largest manufacturing base in her own country. A measure of output that highly correlates to GDP is energy consumption. In June of this year, 2011, China surpassed the United States as the largest consumer of energy on the planet. While the U.S consumes 19 percent of the world’s energy, China consumes 20.3 percent.

In 1992, the world came together to discuss the impact of climate change resulting from energy consumption. The talks resulted in Kyoto protocols being initially adopted in 1997 that attempted to create a framework for reducing greenhouse emissions. The protocols called for 33 industrialized nations to reduce their greenhouse gases to 1990 levels and then to maintain emissions at those levels. Although it called for emerging countries like China to voluntarily lower levels, it did not require them to be mandated.

Of course, all of the countries who had no requirements to reduce their emissions signed the agreement. The United States, under scrutiny from environmentalists and others did not sign. China did sign. This was an additional strategy perhaps not envisioned in 1978 that nonetheless would have assisted in accelerating America’s slide had we signed.

GDP highly correlates to energy usage. In 1990, America’s real GDP was about $8 trillion as compared to $14 trillion in 2011. Kyoto would have caused America to either:
• Invest billions in the attempt to lower our energy usage per dollar of GDP
• Pay billions to other countries to have them produce less so that we could grow our GDP from $8 to $14 trillion
• Or, maintain our GDP at 8 trillion

In the meantime, China’s GDP in 1990 was $1.3 trillion and has since grown to over $10 trillion. China’s energy use has correspondingly grown as well until the point that this month, she overtook America as the greatest polluter. Kyoto was a grand idea that was doomed from the start because of the flaw that allowed the now greatest polluter to play by different rules. It attempted to cap the economic growth of America while allowing other countries to grow unfettered.

China had a Grand Plan that has been executed with the finesse expected of a centrally planned economy. Kyoto added nicely to that plan. America has been thwarted by China’s plan but now has the ability to reverse course. Given China’s size and growth rate, she will pass us soon if she has not already and her stride will be too great for us to catch her. However, by avoiding traps like Kyoto, and understanding that economic gamesmanship can accomplish a much greater destruction of a nation’s wealth than warfare ever could, perhaps America can once again right its course.

The Rise of the Industrial State – The Fall of the Nation State

Up until modern times, individual greed suited the village, the city-state, the feudal system, the nation. Each nation provided for the betterment of its people, through internal and international trade, war, and mercantilism. The greatest of history’s ancient capitalists were the nation builders who attempted domination of their known worlds through conquest. All failed prior to the industrial age because the energy required to capitalize the value of their worldwide sphere of influence was greater than could be compiled by the organization of vast armies. Worldwide domination could not be accomplished by 1,000,000 or so manpower.

The captains of industry that emerged from the industrial era did what no other capitalist had done since the dawn of time. They controlled not only the energies of man, both bodily and intellectually, but enslaved energy from the bowels of the earth to multiply man’s productivity a thousand fold. Through industry, they could grow industrial empires to eventually harness not only the energies of their nations but of the entire world.

Early in the industrial revolution, this power was contained within the geographies of the nation states. Prior to WWI, colonization fed raw materials from other nations through machinery contained within industrialized nations. Wealth was dispersed to machinery workers and taxed for the benefit of the nations to support their under classes. While the enslaved hydrocarbonic energy of industry had the power to grow exponentially to dominate the world, its time had not yet come. First, hydrocarbons had to be tested by the unbridled desires for nation building that had dominated the centuries before.

Captains of statism still controlled the lives of mankind. These leaders of nations did not yet understand the ultimate power of industry. They thought it could be transformed to once and for all dominate the path to world economic power that had been unsuccessfully attempted by all the previous conquerors in history. This newfound harnessed energy that multiplied man’s output could perhaps be used to capitalize the world’s value through worldwide domination using energy to multiply the power of assembled armies to more than 1,000,000,000 or so hydrocarbon energy enhanced manpower of warfare. Theirs was the grotesque hydrocarbon experiment that had to be played out in the early 20th century.

Great energy driven wars were wrought to subdue the world’s geography. In the end of two great wars, 80 million people had been killed and twice as many maimed in the attempt to control the world’s economies through hydrocarbonized warfare. The captains of statism had assembled great armies accompanied by war machines that directed hydrocarbonic killing contraptions of historic proportions. Modern warfare had ironically made massive armies obsolete, and had castrated the world conquest dreams of most of the statist capitalists.

Yet one nation state above all others, the United States, capitalized energy driven warfare for the benefits of its citizens, dominating the transitional era from that of the nation state to that of the industrial state. Through its obsessive militarized harnessing of the power of hydrocarbonic war, America subdued all other nations within its desired sphere of influence. The demolishment of human capital by the end of WWII and America’s monopoly of the military complex gave way to the transition of the rise of industrial states.

The error of the America’s strategy was that industrial capitalism could not be bound by the geographies of state. Although isolated pockets of multinational corporatism had existed prior to WWII, especially in the oil industry, from the 1960s to the present, multinational corporations expanded exponentially. As they did, corporate taxes that nation states had previously counted on to sustain the needs of their under classes, could not be as easily derived as MNCs, these growing industrial states, expanded across geographic borders.

Commerce is driven by profit motive. Profits had served capitalistic nation states well for centuries because growing wealth of industry could be harnessed through taxation to serve the needs of a nation’s people. However, as industrial states began to cross geographical borders, the ability of nation states to feed off their profits was diminished. And as world-wide military subjugation of “rogue” nation states continued, and threats to world commerce was subdued, ironically industrial states began to value the protection of nation states less.

By the 1960s, all that was to be done to mop up the world’s major commercial threats was to subdue the soviets across the world chess board while isolating other non-capitalist nations from participation in growing capitalist trade. While this decade’s long tactic was completed, great expanses of geography were tamed for commerce. Trade grew exponentially between participating industrial nation states, supported by their satellite commodity colonies and post colonial commodity hegemonies.

The 1960s and’70s saw exponential growth of both the size and number of multinational corporations. The largest multinational corporation in 1970 was GM with revenues of 24 billion. Yet it was the opening of China in 1978 that provided the fuel for worldwide domination of the industrial states. By 1990, GM still dominated, now with revenues of 126 billion. By 2000, six of the top 10 world corporations were banks. By 2007, Wal-Mart was the world’s dominant leader with $348 billion in sales.

Certainly, even in 2011, with its ability to obtain through taxation $2.6 trillion dollars in revenue, the United States is still a much greater economic power in terms of consumption than Walmart is in terms of productive value. Yet with deficits over a trillion dollars compared to Walmart’s profits of $13 billion, America’s ability to sustain itself grows ever more fragile.

The United States’ deficits are predicted to remain above a trillion dollars for the remainder of the century as multinational corporations grow in their ability to exploit the geographical limits of its taxing reach. The United States has exercised only limited power to corral any employment benefits from the expansive growth of multinational corporations, leaving its citizens enduring unemployment and underemployment approaching 20 percent. And the United States is not alone. With cross border monetary resources at their disposal, multinational corporations are able to thwart efforts to align their profit motives with taxation and employment motives of industrialized nations throughout the world.

The transition of power from nation states to industrial states is nearing a maturing phase in which the state authority will reach maximum impotence. America’s strategy of dominating hydrocarbonic warfare has already reached the peak of its impact and is waning. In this maturing environment, China may be the one country that has envisioned a strategy that can harness multinational corporate energy within its borders. As a result, it may ride the rising tide of multinational corporate waves to the domination of all other nation states. China’s power to sustain itself during the peak world domination phase of the multinational corporation, however, has yet to be tested.

A Triumphant Cake for the Return of China’s Empire

When making a cake for a great celebration, the baker uses the same ingredients as when baking a small 10” diameter cake, he just uses a lot more. When the world first saw China stirring up batter, they thought somehow this poor country surely was beginning to make a little 10 “ diameter cake. Now that they see the size of China’s great celebratory cake, some view it as so great that it could feed all of their cake eaters back home five times over. Surely this cake must be too big and therefore China’s baker must be on the verge of closing shop for having so foolishly made such a big cake. For those that still think China’s cake is too big, they just haven’t yet grasped the size of her guest invitation list.

When China began implementing her modernization plans in 1978, she hadn’t planned a 10” diameter cake. She planned a cake for the size of China. And it wasn’t one of those cheap, store bought cakes that we would have expected her to bake given her finances in 1978. It was one fit for a triumphant party celebrating the Empire’s return. In fact, the cake would be so big and would use so many ingredients that parties back home would have to shrink their party plans. The world’s storehouse would not have enough ingredients to throw elaborate parties for both China’s guests and the world’s.

No matter, if there was one thing China learned over 5,000 years, it was how to plan a celebration. China planned her strategy to ensure that on the day of the big celebration, she would have enough ingredients. This certainly meant she would have to manage party conflicts with those back here at home at some point. However, if parties back home didn’t have cake factories to make their cakes, they wouldn’t be able to compete at the appointed hour of China’s celebration, and if they didn’t have cake factories they surely wouldn’t be competing for ingredients at the appointed hour. China would implement her plan to ensure her guests would have their cake. But, she needed to implement first things first.

Reviewing her strengths, China noted she had plenty of baker’s assistants. They simply needed to be trained. She would definitely need more factory space to make the cake and more roads to get the supplies to the factory. And because she didn’t have all needed ingredients in-house, she would have to make arrangements with cake ingredient suppliers to ensure that she would get the ingredients even if others competed for them. Critical to her success, China needed baker’s secrets to make such a great cake. Most importantly, because China had many more bakers than she needed but not enough money or know-how, she would need to trade her strengths for the others.

With strategies set, China set out to implement her plans. She first told all comers that they could build a cake factory in her special cake factory zones, and that they could bake cakes for all of China’s people. With the announcement of this cake bonanza, Bakers came from all over the world for the chance to make cake for China. When asked how big to make the factories, China said to make them ten times larger than they first imagined. The bakers would need access to money and lots of it.

Oddly, While China had such big plans for cake factories, no one in China could afford to buy such magnificent cakes, and no one in China knew how to make them. So if the baker wanted to make cakes in China, the baker would have to teach Chinese baker assistants the secrets to baking a cake. The baker would also have to go back home for bank funding and for free markets to sell the cakes made in China back at home.

Of course, when presented with such a sweet deal, the banker could not pass it up. Together, the baker and the banker convinced everyone back home of the sweet deal from China. China would sell the cake for half the price of home prices so that everyone would be happy. The baker could get a great factory, at least one in China, and had the hope of selling cake to the Chinese some day. The people back home could get a cake that tasted just as good because the baker used his secrets in China to make the cake. Of course the financier back home was happy. Increasingly, cake factories back home seemed to be having trouble selling cakes at twice the price of Chinese cakes, and with cheaper prices and free markets, China cake factories promised great banking returns. The only people that seemed upset were the baker’s old assistants back home who no longer were employed to bake cakes, but no matter, everyone else was happy.

China was happy that her plan was progressing. She would get a grand cake factory that could be used for the great celebration. China could also begin to build relationships with all the worldwide cake ingredient suppliers. She now needed to spread the icing for the next layer of the plan. The baker assistants back home were the ones buying the cakes made by the cake factories in China. If they didn’t have a way to pay for the cakes, all would be lost.

China knew, when planning for her modernization party, that in order to make a cake big enough for the triumphant celebration, she would need so many factories, roads, ingredients, and educated cake bakers that it would take all the expendable money in Europe and America combined to build them. In fact, it would take much of the world’s stock market value and even the equity in people’s homes if she were to be able to throw a truly triumphant party. She needed the baker assistants back home to borrow from their savings, their homes, and their future earnings if the plan was to succeed.

No worries, China had studied capitalist boom-bust cycles of the past. She knew it was very possible for bankers to create the boom once again, in the exact same manner as Europe and America had fallen prey to many times before, and that during the short boom, she could fund her party. Given the opportunity to fund all the cakes in China, bankers back home repeated their very sins of the past. Their patterns had remained predictable for centuries, reacting in a frenzy every time a cake bonanza presented itself. This time they dropped interest rates, made crazy loans, created IRAs and 401 Ks, and escalated not one but three bubbles to draw out as much money as they could to fund as many cake factories as they could in as short a time as they could.

The feeding frenzy occurs because there is only so much time the batter can rise before it falls. When the bubbles finally popped, China had her cake factories, all the baker assistants back home had borrowed more than they could ever pay back, and all the bankers back home had made enough money to live happily ever after.

Now came the appointed hour of the triumphant party for the return of the Empire. By this time, China had been building ingredient relationships unabated, because the bakers back here at home no longer bought baking ingredients. China had built the world’s fastest, largest most efficient ships to bring all the needed ingredients to her shore. She had built massive highways to transport the ingredients to her impressive, massive, modern cake factories. She had educated all her people to fill the ranks of cake bakers. She had saved historic amounts of money from the cheap baked goods she sold to the baking assistants back home and now could buy all the ingredients she needed.

But wait, what about the party back home? Now that it was time for her great celebration, China bought up all the ingredients that were supposed to be for the party back home. The baker’s assistants back home no longer had money to buy cakes, so the Chinese cake factories now could turn their focus inward on their country to bake for the celebration. But really, Chinese cake factories hadn’t any competition for ingredients. The baker’s assistants back home had long lost their knowledge of cake baking. The cake factories had long fallen into disrepair and could no longer be used to make cake. The roads back home were in disrepair. The cake baking schools back home had fallen behind without local businesses to spur them to excellence. The ingredient suppliers had long ago built relationships with China’s bakers and knew where their bread was buttered.

As the triumphant party was being held in China and the great cake was being presented to her party guests, back home all that anyone could do was watch from afar. The bakers had lost their market for cakes back home. Without demand, they could not make the payments on the bank loans and they defaulted. Without sufficient buyers, they turned over their factories to the Chinese. Without customers back home and without money or credit to pay for new cake factories back home, the bakers now became unemployed themselves. The bankers, now without payments on their loans, well they closed up shop as well.

Will EurAmerica Enter a Cold Financial Winter? (Revised)

When China announced to the world that it would open its doors to foreign investment, multinational corporations from both Europe and America rushed to stake a claim to a unique gold rush opportunity of historic proportions. China offered EurAmerican MNCs that agreed to share trade secrets and intellectual capital, that had capital to expand China’s manufacturing infrastructure, and that could open their own countries to China’s goods, the opportunity to participate in China’s newly opened special economic zones, with the hope of marketing to their 1.3 billion people.

Requiring massive investment to capitalize on the opportunity, MNCs sought the support of international investment banks and lobbied home governments to provide looser, deregulated capital markets as well as to submit to opening home markets to “free trade”. MNCs then began a three decade long extraction of wealth, factories, and jobs from EurAmerica to build China’s manufacturing infrastructure and GDP.

At the beginning of China’s historic rise, American politicians freed capital for China investment by reducing taxes of the investment class of Americans; through a reduction of the top tax income rate from 70% to 50%, through reduction of capital gains tax from 28% to 20 %, and through tripling of estate tax exemptions. As more and more capital was needed, America’s baby boomer retirement investments were developed for ease of use in China. In America, 401Ks, started in 1980, and IRAs, made available to all citizens in 1981, siloed middle class investments into the stock market that directed a majority of retirement funds toward China.

Later in China’s growth cycle, EurAmerican banks devised ways to extract even more capital through debt instruments from their citizens. EurAmerican interest rates were set low, creating the credit to extract maximum capital to fund the growth of China’s manufacturing infrastructure through home equity and business development loans. Yet, to meet China’s capital needs in the exponentially growing latter stages of growth, extreme capital extraction through maximum borrowing of a majority of private citizens and public entities was required.

Investment banks created a method of extracting maximum capital from EurAmericans’ main investments, their homes. To accomplish this, Investment banks restructured the banking industry. They first created methods of incentivizing consumers to take as many and as large of loans as possible through risky, low interest, no income verification loans and other, more predatory loans. They also rid commercial banks of their traditional, credit restricting roles by incentivizing them to make as many loans as possible, with minimal risk because they could simply resell the mortgages to the investment banks for a profit. Finally, they developed complex, (and unfortunately faulty) derivatives to buy mortgages from commercial banks and repackage them for profits.

In the process, a majority of consumers that could afford it were lured through ease of access and Ponzified greed into their debt web. Greed played its part with commercial banks as well, as most became willing accomplices of the role that investment banks created in transforming them into maximum credit authorizing, debt creating factories to feed the raw commodities of capital that China needed for her later growth stages. As beneficiary of EurAmerica’s capital, China became a strategic partner to the process by supporting low EurAmerican inflation and interest rates through:

• Accepting free flow of manufacturing infrastructure into her economic development zones
• Funding infrastructure debt payments through sales of low costs goods back to EurAmerica
• Mitigating international demands to revalue the Yuan higher by maintaining historic trade imbalances with EurAmerica and reinvesting Yuan back into EurAmerica
• Keeping internal inflation low through internally enforced savings of wage controls and removing excess Yuan from circulation through funding trading countries deficits
• Managing external commodity inflation through aggressive development of international Greenfield commodity projects to supplement absorption of long term international commodity contracts and relationships that were left unattended by EurAmerica.
• Reinvesting surplus capital into EurAmerica, keeping world interest rates low to extract last vestiges of EurAmerican capital through historic levels of corporate and private debt

When this historic, debt driven, extraction of two great empires’ wealth reached its zenith, like all financial bubbles finally do, public, private and corporate debt had stretched beyond its ability to pay, exceeding $50 trillion dollars in America alone. The financial herd had stretched so thin that it simply required a few debt ridden gazelle to nervously default to start the whole herd stampeding frenzily toward the bank runs that inevitably follow peak excess. This time in history, it was the unraveling of the predatory American home loans that toppled EurAmerica’s financial house of cards. Nonetheless, if not for this gazelle, another would have jumped to take its place, for no exuberant and irrational credit binge ever stands in the longer term.

When this Rube-Goldberg loan scheme supporting the massive capital transfer from EurAmerica to China finally collapsed, investment banks were pushed to the precipice of default. Acting independently of government mandated goals, central banks, with the Federal Reserve out front, stepped in to protect the banking industry by providing liquidity to those investment banks most at risk. They did so claiming that not providing liquidity would have caused domestic businesses and private citizens to default through massive foreclosures, bankruptcies, layoffs, financial and operational restructuring.

Unlike previous historical investment bubbles, in which many investment banks failed, EurAmerican central banks temporarily saved the vast majority of investment banks through simultaneous, massive expansion of the money supply, staving off a rapid disintegration of public, private and corporate debt, recorded as assets on their balance sheets. Recognizing further monetary support was required, the Federal Reserve attempted to mount another widespread EurAmerican expansion of money supply but Europe, intent on preserving its courtship of unification and now dealing with the crisis of PIIGS deficits, did not concur. Without palatable alternatives, the Fed embarked on a Romanesque fait accompli of reserve currency monetary expansion, attempting to reverse the entire world’s contraction of money supply through what they termed Quantitative Easing.

It appears that temporarily at least the Fed’s Quantitative Easing policy have strengthened EurAmerican banks’ balance sheets, transferring some toxic assets to sovereignties, and have girded them to endure the coming double dip recession. However, it failed to accomplish their stated long term debt stabilizing goals. Unemployment is once again increasing, housing prices have reversed and are falling, and while some European countries have begun to institute austerity programs, America is projecting trillion dollar deficits for the remainder of the decade.

Unfortunately, the Fed does not have the magic bullet to repair the only ways to truly provide long term stabilization of massive EurAmerican debt supporting their balance sheets. To do that, EurAmerica must stabilize the underlying ability and desire of their debt holders to make debt payments. This can only be accomplished by:
• Maintaining and growing EurAmerican economies
• Reducing real EurAmerican unemployment
• Increasing the nominal values of EurAmerican Housing or restructuring housing debt
• Eliminating public deficits
• Reducing non-value generating debt
• Maintaining minimum interest on existing debt while incentivizing its reduction and saving

Without immediate and urgent prescriptive measures to meet the above objectives and to mitigate the impact of EurAmerica’s retreat from previous financial investment and consumption patterns, a cold, worldwide economic winter most likely ensue. American direct foreign investment has already begun its inevitable descent. Europe’s protectionism has kept available resources flowing to China but EU will soon follow with fewer investments in China as well. China will react with less support for EurAmerican deficits, severely restricting EurAmerica’s monetary managment options.

If we do not act soon, our political systems will be forced into severe austerity measures. The world will enter a deep and disruptive recessionary cycle from which countries and entire regions will eventually emerge in an entirely new trading pattern; one that is China centric, developed around its newfound industries that were funded by EurAmerica at the turn of the 21st century. China will emerge first, building on its excess modern manufacturing capacity and hegemonic commodities relationships. When at last EurAmerica exits from the long winter of debt riddled recession, it will follow the path to the Asian economies.

Prescriptions to follow…

Is the China Gold Rush Ending?

In 1849, a rancher named John Sutter sent men to the American River to build a saw mill. Instead, they found gold, starting a rush that brought over 300,000 ‘49ers from across the world to eventually prospect another $12 billion in gold from surrounding hills. The discovery created an enormous expansion in America’s money supply, some by the very gold found in nearby streams. However, much more money was created by debt instruments that funded the Gold Rush. Banks funded the passage of thousands prospectors to buy passage to California, to purchase goods to pan for gold, and later to fund companies that organized for that purpose. By 1850, banks from St. Louis, Boston, New York, London and Paris spurred the growth that created the State of California.

The growth of population in California and Oregon fueled railroad expansion to the West. The completion of the Transpacific Railroad in 1869 started a great railroad speculation, funded both by American banks and European investors. In four short years, investment of track doubled to 35,000 miles. America’s investment in rail and encouragement of immigration spurred a revolution of competitive wheat production and American export of low priced wheat to Europe. Europe now found that the capital it had supplied to build America’s railroads, gathered from its previous decade of speculative housing construction, was the very capital that fueled its demise into a depression which lasted from 1871 through 1893.

With the shortfall of hoped for European funding, American banks became overextended as speculation continued unabated. Jay Cooke and Company, the Goldman Sachs of the time that had funded the North during the Civil War and that had funded the successful Transpacific Railroad, tried and failed to corner the gold market to fund its investment in the Northern Pacific Railroad. Instead, it was forced to file bankruptcy in 1873, triggering America’s Long Depression, collapsing major banks, bankrupting 89 of 364 railroad companies, and an additional 18,000 businesses. The extreme speculation and overbuilding in the one industry of railroads triggered a great depression. This massive over speculation was not seen again until the even greater housing industry speculation in America that ended in 2008.

Similar to California, China has become the land of gold rush for EurAmericans. In 1978, China embraced its four modernizations and opened its doors to the West, creating a gold field of capitalist opportunity. Gradually at first and then in a frenzy, tens of thousands of businesses rushed into China, over ten thousand U.S. businesses in the last decade alone. Similarly to America’s gold rush, U.S. and international banking interests made a fortune supplying MNCs with the capital required for their prospecting.

To feed this frenzied opportunity, American banking interests tapped into the immense financial wherewithal of the American people. Through a Great Ponzi Trifecta, banks accumulated debt derived capital from the Savings and Loan Ponzi, the Dot.Com Ponzi, and finally the greatest Ponzi ever known, the EurAmerican housing bubble. Hordes of EurAmericans were convinced to leverage their future earning ability to create debt that could be flipped through derivatives to fund China’s gold rush.

A dollar multiplicative frenzy sped much of America’s future wealth creating potential into China prior to the Ponzi’s ultimate collapse. As housing prices, and subsequently commercial real estate prices, soared beyond the ability of the American economy to cover the underlying debt, the purveyors of this debt mountain continued to assure investors that a new economy had emerged that supported such imbalances. Yet American wages did not keep up with the rise in housing and counterbalancing forces such as a lost industrial base and historic government deficits finally stripped the Ponzi of its legs, and America’s Great Middle Class funding of China’s gold rush subsided.

Just as Europe lost its wherewithal to fund America’s railroads after America undercut European commodity prices in the 1860’s, America lost its ability to fund China’s growth as MNCs gave China the ability to undercut American industry. However, unlike 1873, America’s Federal Reserve softened the impact of international banking excesses, mitigating the collapse of Bear Stearns, protecting the securitization of AIG, and supporting world banks through massive expansion of its money supply. However, the implosion of the securitization market left China with a weakened EurAmerican engine of direct foreign investment.

June, 2011, marks the supposed end of debt driven EurAmerican speculation helping to fuel China’s growth with the pre-announced ending of Quantitative Easing. If Bernanke follows through on his promise, America’s money supply will begin to contract similarly to America’s contractionary policy following the Civil War leading up to our Long Depression of 1873. Our Congress is also debating contracting governmental spending simultaneous to the Feds potential contraction of money.

Recent reports may have quietly forebode America’s double dip recession with the downward reversal of home prices and downward reversal of job creation. Has China enough momentum to continue its meteoric expansion without historical capital infusion from the West and with a contracting EurAmerican market for its goods? Or, will China face the disruptive consequences of the world’s most recent speculative bubble?

Are Tariffs a Strategy for World Peace?

War with China may be inevitable. When EurAmerican multinational corporations (MNCs) were allowed by our governments to trade trade secrets in exchange for opening of Asian markets, they may have sealed the world’s fate. China’s output will soon surpass America’s and her rate of growth continues to far outpace ours. She is implementing strategies that promise to replace America as the World’s empire during the next 15 years.

Every transition in history from one empire to another has been accented by great wars. The transition of the last empire was no exception. Great Britain did not acquiesce to America’s century until after the throws of WWI and WWII. Now the rapid ascent of globalization, made possible by the transfer of capital from international bankers to MNCs, has driven the world to the edge of another conflict in our lifetimes.

During the last transition, Germany, racked with debt from WWI, experienced hyperinflation with an impotent republic led by political extremists. While the rest of the world recovered, Germany’s inability to deal with its financial obligations led to a vacuum that was filled by the Nazis. Without immediate government action, America’s debt will also become unsustainable, crowding out vital services and creating societal instability similar to Weimar Germany. Given that America has the most powerful military the world has known, will America be an exception to 6,000 years of recorded history, or will our society fall prey to the severities that initiated the last world war?

The answer rests with our MNCs. They have historically persuaded our government to use America’s military to meet business objectives. And now for the first time in history, MNCs have the power to determine the path of our “empire’s” transition. If our corporations are unable to mitigate country risks by growing beyond the regulation of most countries (many are not far from that now) they will continue to rely on the might of our military. If our MNCs position themselves to succeed even as America fails, they will decide war is not in their best interests.

If enough MNCs make the leap to disavow an American connection and choose to forego the protection of our military’s gunboat diplomacy, our MNCs will support the gradual dismembering of our military, reducing its capability to strike. Given America’s inability to continue funding our military as our businesses depart, some Americans may choose to rise up similarly to Japan or Germany during the 20th century. How do we mitigate such a potential? A tariff or subsidy program could achieve full employment at sustenance wages, and could deter or delay war.

When citizens of our nation are unemployed, they have several options. For 26 weeks, they have unemployment at a rate much lower than full wages. During this Great Recession, our government extended unemployment to 99 weeks. After 99 weeks, the unemployed join the ranks of the 99ers, who are given few comforts from the American system if they are not disabled or do not have children. Instead, those without family members to rely upon or without black market skills or goods to eke out an alternative living, must join the world of the unseen, those citizens who blend into our peripheral vision not to be looked upon for fear that we too will be drawn to their fate. Our country’s lack of a comprehensive strategy to transition to globalization has condemned millions of vital Americans to this murky existence.

Rather than relegate 99ers to the dark crevices of our society, America must offer a better path. We must choose to overcome partisan maneuvering and compete with the world as best we can. Rather than continue down this political path that will lead ultimately to class warfare and further disintegration of American culture, capabilities, and competitiveness, we must recreate a consortium of capitalists and workers that benefits all Americans.

A cornerstone of that consortium is that both businesses and workers must succeed. Tariffs on foreign goods that cost the American society more than the savings they provide to the American consumer are a method for producing mutual success. Tariffs provide American factories price controls to allow domestic jobs at rates that can replace extended unemployment. During periods of innovative growth and peak business cycles when higher wages are available, those businesses least able to compete will be lost to international competition but during periods of lower innovation or business troughs, Americans will keep jobs and foreign companies providing goods to America will be the first to lose employment.

Some say that tariffs gouge the American consumer, but that does not evaluate our citizens holistically. A consumer is also a tax payer, a worker, a provider, a parent, a partaker of the environment, and a member of a community. If the net holistic benefits to the American citizen are positive for a particular product or service, then that particular product or service should escape protectionism. However, we should determine how to redistribute the gross benefits and costs within our country to equitably share the benefits and social costs.

Others say that tariffs and subsidy protections would cause American businesses to become complacent and to lose their incentive to compete with the rest of the world. We continue to use this reasoning even as our structural unemployment continues to grow. However, for the 40,000 factories that have left our shores, American ingenuity has been unable to keep pace with even no complacency. American businesses will always have an incentive to improve productivity if they wish to compete in world markets regardless of subsidies or tariffs.

Still others say that tariffs perpetuate poor quality and operating practices. America did pass through a moment in time prior to globalization when we did not envision a world of emerging countries competing through quality and innovation. However, we will never return to that moment, except for the nostalgic pining of our elders remembering “better days”. Nonetheless, offsetting wage and regulation cost differentials with tariffs will not protect American businesses from foreign quality and innovative competition. We will forever more be compelled to compete.

Mitigating wage and regulation cost differentials will only slow the rapid drain of jobs, manufacturing, and national security protection of America. Those goods which are most able to provide win-win benefits to both America and her trading partners will be available in our markets at lower costs, others at similar costs. Net benefits to America will be much greater than this wholesale gutting of American value, jobs, and self worth. During times when accelerated American innovation thrusts Americans into higher wage jobs, more foreign products will be available at lower prices.

Tariffs are only one piece of a comprehensive strategy to protect America from a plunge into obscurity. However, given the realities of our politicians’ impotence in dealing with the onslaught of multinational corporations and international bankers, it is a critical first step that should be implemented immediately if we are to provide America time to catch up with China’s immense and effectively operationalized strategies. America’s current path is not healthy for America and ultimately will not be for our economic adversaries either. If war is an inevitable part of transition, then any actions taken to delay or deter war are critical. I deem strategic tariffs a support for jobs, a net benefit to America’s finances, and a mitigation to war.

A Politician, a Banker, and a Multinational Corporate CEO Walk into a Bar

We have a weird set of bedfellows running America. Without contemplating each other’s impact, our politicians, bankers, and multinational corporations (MNCs) nonetheless combine their efforts to make a mess of our country.

[ A politician, a banker, and a multinational corporate CEO walk into a bar. The politician closes down the bar for regulation violations and sends the crowd packing. On their way out the door, the patrons hand their wallets to the politician who gives them to the banker who lends them to the CEO who uses them to buy the bar and send it over to China. ]

Our politicians attempt to make our world brighter by passing regulations that add social costs of production to the cost of our local businesses’ products. Yet, they turn a blind eye to other nations’ lack of regulation that similarly pollutes the world while providing their industries a regulatory subsidy against American competition. MNCs then arbitrage lower foreign regulatory and labor costs to bring lower priced finished goods back to America for sale.

Rather than construct level playing fields, our politicians pander their votes to bankers and MNCs, providing one sided regulations and free trade legislation that subsequently reduces demand for American workers. Not deterred by America’s rising level of structural unemployment, they then pass extended unemployment benefits to pacify the electorate, refuse to raise taxes to cover the consequential damages, and instead ask the Fed to print money.

Our Federal Reserve has dutifully printed money for our politicians for decades knowing that one day it might have to print money for itself. That day came and the Fed helped itself to a whopping 2 trillion dollars of self help money creation. The Fed now stodgily claims that two trillion in quantitative easing will not affect the value of the dollar. Armed with economists to defend its actions, the Fed claims that the economy will grow as the result of QE 1 and 2, requiring more money for more transactions, that the Fed has means to reduce the growth in spending and tools to offset an expansionary increase if necessary, that because of heightened instability in the world market, QE 1 and 2 are being held abroad as reserve assets and thus will not impact price levels, and that it can easily remove any excess supply of money if its QE efforts have overshot.

[ In that same bar sat an Indian, a Chinese National and a West African sipping economic Coca Colas, as was their usual custom. To keep their economy colas cooled from unexpectedly overheating every time the Fed ran into the bar with a teapot of steaming hot water and forced them to take a shot of inflationary devaluation, they kept a few ice cubes of reserve currency on hand. This day, however, was different.

The Fed drove up to the bar in a dump truck filled with steaming hot quantitative easing, forced the three countrymen to place their colas at the rear of the truck, quickly lifted its bed with its sloshing steamy payload directly above the little glasses, opened up the back gate and drowned the colas with a two trillion ton tsunami of worldwide, commodity buying, inflationary steamy hot dollars. The Fed’s two remaining economists who, up to now, were willing to sit publicly in the bar looked sheepishly at each other before quietly removing themselves out the back exit.

An American businessman sat in the bar cheering on the Fed’s hubbub as he chatted with a local barber and a Tunisian barber. He shouted to the two barbers, “Now America will bring back our factories and compete with the world.” He hoped the Fed’s action would devalue the dollar enough that America’s businesses could afford to add value through American labor to globally priced commodities and resell the finished products competitively on the world market.

The Tunisian barber leaned over and quipped to the American barber, “Yes, now you too can come home from cutting hair all day, tend to your chickens and till your garden into the night to feed your family.” Overhearing the Tunisian’s comment, the American businessman wondered if the dollar value actually decreased enough to make American factories competitive, that it perhaps might not be such a good thing for American barber he had just befriended.

The American barber smiled to the businessman and the Tunisian, got up and left the bar in his automobile filled with metals, plastics, rare earth, and oil derivatives, drove to his home beaming with wood, copper, metal appliances, and internet streamed CRTs, cooled by combusted hydrocarbons, reached into his refrigerator and pulled out a relative feast of supermarket distributed, oil grown food commodities for his snack. All the while he was unaware of the coming “QE 1,2,3..n” commodities inflation that would level his playing field down to that of his Tunisian bar buddy. ]

Oil will Rise above $2,000 Dollars a Barrel?

Permit me to drift well beyond the trends of a recent article which stated that China would surpass America’s economy by 2016. America’s economy consumes a quarter of the world’s oil, Europe and Japan another quarter. By 2016, China will consume another leaving India, Latin America and the rest of the world scrambling for the remaining 25%. But China’s growth is doubling every 7 years so by 2023, her share of the world’s output will demand 50%, leaving the U.S., Europe, and Japan and India demanding the other 50%. What does that portend to the rest of the world?

Not much more than a decade away, without some miraculous energy alternative that thus far has not been revealed, there will be great conflict over oil. Much sooner, there has to be a sustained price spike. Surely, the world will attempt to suppress this price hike through alternatives by some yet unknown marvel. However, the world seems to have discounted a potential technological solution and is jockeying jitteringly amongst the oil producing states.

Is America prepared for oil at $500 dollars a barrel? How much would we pay for oil before consuming our domestic alternatives, and what realistic alternatives do we have? We could switch to natural gas for transportation, but that would use our entire reserve within a dozen years or so. We could plug our cars into coal fired electric, but at our rising demand rates, our nation’s reserves would run out within a few decades. These hydrocarbon alternatives would soon find their values rising as quickly as oil. Given the catastrophic conclusion, why aren’t we building wind power, wave power and solar power alternatives at breakneck speed while we still can? The Chinese, following their age old planning horizons, will complete 40 nuclear plants by 2020, and have current plans for 245 reactors. Why?

What if, within our lifetime, the real price of oil reaches $1,000 a barrel, or $2,000? What if gasoline reaches $100 dollars a gallon, Will we pay it? Who could? However, we will soon be forced to understand that the real value of oil is much, much greater than $100 a barrel, and we will willingly pay it.

With the marvel of oil, Americans left the farms and produced a complexity of products and services that extended the quality and length of our lives. In 1776, without oil, 90 percent of us farmed and our average life span was 33 years. Now only 1 in a hundred remain on U.S. farms, and our lives age twice as long, thanks to the benefits of societal specialization brought about by oil.

Oil is the engine of modern life. Oil is now doing the agrarian work of 150 million men in America, plowing and fertilizing the land. About a third of America’s oil consumption goes to food production. What is that worth a barrel? Well at the average American wage and 150 million men, that would put the value of oil at over $2,000 a barrel (gas at $80 a gallon).

Oil truly is Ponce De Leon’s fountain of life. Much of America’s GDP is diverted at an ever escalating rate to healthcare to maintain our 75 year lifespan in the face of epidemics of obesity, diabetes, heart ailments, cancer, and Alzheimer’s. How much more of our GDP would we divert to stave off a return to life spans of 40 years? In other parts of the world, 2 out of 3 people still plow their land and live only 60 percent of an American’s lifetime, even in 2011. Their ability to spend even $100 a barrel is limited.

America spends 5% of our GDP on oil. In Weimar Germany for much of a decade, Rapid inflation caused the Germans to dramatically change spending patterns. 70% of Germany’s wages went to food, 25% to energy and a mere 5% went to housing and all the rest. Given no alternatives to oil’s life giving benefits, America will dramatically increase our oil budget.

While America’s way of life depends on oil, the oil spikes less than a decade a way will most certainly dampen our way. At $4 for a gallon of gas, America complains, yet we still live like emperors of old because oil does the work of 500 men for each of us. At $80 per gallon of gas, most of us will lose our kingdoms. The very wealthy will afford the luxuries of oil, but most Americans will return to the Spartan life lived by much of the world. We will be thankful for the Amish that live among us for they have carried forward the way of the land in America. The Amish today benefit from modern science’s applications of oil but use it otherwise sparingly. As America drifts toward the Amish, we will have to learn how to retain the life giving attributes of oil, while remembering its wonderful king making qualities only as a distant memory.

The U.S. is the breadbasket to the world. However, our ability to keep exporting food will end in about 15 years if the trend in population growth and soil depletion continues. As America pulls back on our supply of food to the rest of the world, the rise in food prices attributable to oil and the world’s resulting unrest in 2011 will intensify. The average world citizen, who gets by on a few dollars a day with much of that going to food will rise up against the hoarders of oil. What will happen when oil prices rise beyond oil’s ability to feed the world? What will happen as the superpowers compete for this already declining resource? What will happen as oil prices above the ability of most Americans to consume it? What great conflicts are on the horizon?

Was America’s Empire but a Shooting Star?

During the early 1900s as America overtook England as the new century hegemonist, Europe was embroiled in colonization efforts to fend off the inevitable transition to America’s rise. Europe’s diminished capacity to deal with domestic consequences of the transition created the impetus for a chaotic shift of world leadership, just as every shift of empires in world history. In this case, it led to a world war.

The war left citizens in Weimar Germany impoverished and subjugated to the rest of Europe, setting the stage for Nazi atrocities. International banking policies including the Fed’s precipitated a great recession from which Japan turned militaristic. The hegemonist of the era, the United States refused to share our contracted oil and other commodities required for Japan’s military success in Manchuria, so Japan drew America into the war ending in the single greatest bombing devastation imposed on a civilization.

The end of WWII marked the end of what was clearly a severely chaotic transition to America’s hegemony. America emerged from WWII the dominant economic leader of the free world. However, just because every empire’s transition in history has been as chaotic as the transition to America’s time, does all of history prove that we will also experience a chaotic transition in the 21st century? Or will America’s fall from power be a unique exception?

We were unique in our treatment of Europe and Japan at the beginning of our reign. Throughout history there have been benevolent kings and despotic ones, and America’s king turned out to be benevolent. With a unique historical sharing of wealth through the Marshall plan, a plan that hastened America’s demise as this century’s hegemon, the United States seeded the economies of Europe and Japan so that all could prosper.

Perhaps it was America’s ecumenical roots that persuaded such global altruism. Perhaps it was our European heritage and our desire that Japan be a strong deterrent to the Soviets, or perhaps it was self interest in gaining market share of war torn countries. No matter the reason, America proved her unique qualities in that era. Could we expect a repeat of this uniquely historical benevolent treatment from China after emerging through a yet unknown chaotic transition?

A factor which may unfortunately lead the world once again through such a transition is the life curve of oil that will be decreasing during the transition period. When America rose to power, Europe and Japan could both share in the benevolence that oil bestowed on all industrialized economies. The life cycle of oil however has now peaked and is in its declining phase.

At the world’s current usage, only one barrel of oil is being found for every barrel consumed. With China’s exponential growth occurring during the quickly receding life of oil, that ratio will quickly worsen to a crisis stage as China’s usage doubles in the next five years. While America flirted with the idea of developing a comprehensive energy policy back when we had time to achieve one, nothing we can do, given our political circumstances, will prepare us for the coming world tsunami of oil demand.

With far reaching international oil and other commodity contracts, China has positioned herself to prosper as she escalates her prosperity into her interior. Unlike the United States and Europe, China has a ready market for her next phase of escalated growth, her own interior. How will EurAmerica react as our civilized defenses of international law act against us as China secures oil that has helped us sustain our current world standings?

The lack of any viable alternatives to wealth creating fuels will likely make for an equally volatile transition this empire turnover. Will the transition lead to the death of our nation? How quickly can we modify our energy footprint while keeping our lifestyle intact? How will our diminishing middle class respond? How aggressively will our military complex react to greatly diminished budgets? How comfortable will the world be in turning over hegemonic control to China?

No matter our comfort level, the law of exponential growth states that China will propel herself rapidly beyond the economies of the United States and Europe in the coming decade and will boost herself into the next higher orbit. The question for our economies is what we will do as her rockets suck up the remaining rocket fuel reserves on earth. Unlike the United States and Europe, China has an economic booster rocket that can be ignited by the mere flip of a switch. All China needs to do to proclaim readymade wealth is to dial in her currency valuation as required. While it may make her exports less competitive, she already has an impatient interior market waiting for her goods.

So now the stage has been set for the transition and we have five years to position ourselves. Five years is but a day for finessed diplomacy. With our level of political discourse, five years is but an hour for national strategic planning. Without time to create such precise tools for our western civilization, how will EurAmerica react? Will we revert to the thuggery of gunship diplomacy for which we are all too well known by the East?