The Politics of Territorial Dispute: Moral Suasion through Populist Nationalism

One of the wonderful example of the use of moral suasion to implement social policies is through populist nationalism.

Take the tough talk by the Philippine president on yesterday’s holiday celebration where he mentioned that the Philippines “will not back down from any challenge” on territorial dispute, or in the previous occasion, to defend against “bullies in our backyard” 

The nationalist meme essentially justifies the government’s defense military spending which according to an official, is “at levels never before seen”. [This administration seems enamored with “new order” sloganeering]

According to GMA Network, 

President Benigno Aquino III signed the new Armed Forces of the Philippines Modernization Act, which will have an allocation of around P75 billion in its first five years.

The Aquino administration has spent more than P28 billion for the AFP modernization program, compared to around P33 billion spent for the same purpose 15 years before his term.

And a few days back, the $15.5 million refurbished decommissioned US Coast Guard ship became part of the Philippine military’s inventory to supposedly defend the nation’s territorial boundaries.

Anyone with an iota of commonsense would realize that no matter how the Philippines government spends on defense, she can hardly match China’s military capabilities. 

In naval warship inventories alone China has 972 as against 110 for the Philippines from (globalfire.com). Yet numbers are not enough. One must  note that the Philippine government hardly has any new hardware, as against generically developed weaponry from China.

From the Wired.com

Two new models of stealthy jet fighter. A new(ish) aircraft carrier. Separate ballistic missiles for targeting orbital satellites and ships at sea. A host of cyberespionage tools. Everybody's already heard about China's main new weapon systems, developed and deployed in alternating fits of secrecy and pageantry over the past decade of the Middle Kingdom's explosive economic and military growth.

And as pointed out in the past China has drones and nuclear weapons. This means that such nationalist mantra represents nothing more than bravado.

Rather, populist politics has been an instrument used to expand control over society. For instance, despite the so-called booming economy, this administration appears to be in desperation to tax and squeeze the productive segments of society.

In addition, as I pointed out in the past the territorial disputes seems more and more like smokescreens to promote the military industrial complex as well as to expand US military presence here. 

Such conflict could also have been used as pretext to divert people’s attention from real economic problems as well as to justify inflating the system. 

The nationalism bluster justifying the defense buildup looks like Indiana Jones versus the sword master, in the Raiders of the Lost Ark

At the end of the day, promoting free trade would be the best way to attain regional or global cooperation.

Why Washington has been Brewing a Conflict with China

I’ve said a mouthful about the controversial territorial disputes which I think has been no more than a duplicitous squid tactic meant to promote some hidden political agenda.

Former Assistant Secretary of the US Treasury and former Wall Street editor Paul Craig Roberts thinks all these have been surreptitiously designed for the benefit of the US military industrial complex.

Writes Mr. Craig Roberts at the lewrockwell.com

Washington has pressured the Philippines, whose government it owns, into conducting joint military exercises in the South China Sea. Washington’s excuse is that China has territorial disputes with the Philippines, Indonesia, and other countries concerning island and sea rights in the South China Sea. Washington asserts that China’s territorial disputes with the like of Indonesia and the Philippines are a matter of United States’ national interests.

Washington has not made it clear what Washington’s stake is in the disputes. The reason Washington cannot identify why China’s disputes with the Philippines and Indonesia are threats to the United States is that there is no reason. Nevertheless, the undefined “threat” has become the reason Washington needs more naval bases in the Philippines and South Korea.

What this is all about is provoking a long-term cold war conflict with China that will keep profits and power flowing into Washington’s military-security complex. Large profits flow to armaments companies. A portion of the profits reflow into campaign contributions to “the people’s representatives” in DC and to presidential candidates who openly sell out their country to private interests.

Washington is going to construct new naval bases in the Philippines and on the environmentally protected Jeju Island belonging to South Korea. Washington will waste tax revenues, or print more money, in order to build the unnecessary fleets to occupy these bases. Washington is acquiring bases in Australia for US Marines to protect Australia from China, despite the lack of Chinese threats against Australia. Bush and Obama are the leading models of the “people’s president” who sell out the people, at home and abroad, to private interests.

Why is Washington ramping up a new cold war?

The answer begins with President Eisenhower’s warning to the American people in his last public address about the military/industrial complex in 1961. I won’t quote the warning as it is available online. Eisenhower pointed out to Americans that unlike previous wars after which the US demilitarized, after World War II the cold war with the Soviet Union kept the power and profits flowing into the military/industrial complex, now known as the military/security complex. President Eisenhower said that the flow of power and profit into the military/industrial complex was a threat to the economic wellbeing and liberty of the American people.

Read the rest here

Promoting free trade with everyone will bring this contentious and politically concocted issue to oblivion.

Scarborough Shoal Dispute: The Politics of Nationalism

The Inquirer.net reports

As the dispute between China and the Philippines over Scarborough Shoal entered its 18th day Friday, Senate President Juan Ponce Enrile called on the nation to rally behind President Aquino in asserting the country’s sovereignty in the West Philippine Sea (South China Sea)…

At the hearing, Enrile explained that the dispute over territorial waters in the West Philippine Sea was not political.

“This is a national issue that requires the support of the entire nation, and we support the President on this,” Enrile said. There should be no deviation. “There should be unanimity of all Filipinos in supporting Malacañang regardless of political persuasion and affiliation on this particular issue,” he said.

“We must show the People’s Republic of China that in this particular issue, the Filipino nation is one in supporting the leadership of the Republic of the Philippines in asserting the sovereign rights of this republic and the Filipino people over the Scarborough Shoal and the Reed Bank, and all the areas the Republic of the Philippines occupy in the South China Sea,” said Enrile.

Say what? Asking for popular approval is NOT about politics?

The definition of politics according to dictionary.com

exercising or seeking power in the governmental or public affairs of a state, municipality, etc.: a political machine; apolitical boss.

of, pertaining to, or involving the state or its government: apolitical offense.

So seeking power in public affairs and or the involvement of the state IS political. And we have a national politician stirring up dangerous nationalist fervor with sloganeering based on untruths.

As George Orwell once wrote,

Political language…is designed to make lies sound truthful and murder respectable, and to give an appearance of solidity to pure wind.

As I earlier pointed out, the Scarborough Shoal territorial dispute has NOT been about oil or resources and which has mostly likely been about political DIVERSION amidst internal political divisions in China and or the PROMOTION of arms sales for the military industrial complex. Further it is not in the interest of China to provoke military conflagrations when she has been promoting her currency as the region's foreign currency reserve.

And the seeming insouciance of financial markets over the brinkmanship politics, expressed through the price mechanism, has limned on the perceived risk environment where political sensationalism has departed from people voting with their money. The Phisix closed the week at record highs while the local currency the Philippine Peso closed the week up at 42.37 and seems to be approaching the February highs.

In other words, what politicians sees as urgency that requires “unanimity of all Filipinos” which is being touted by mainstream media, seems to depart from the actions of the marketplace, where the latter sees the risks of a shooting war to be negligible.

Of course, politicians know that in case of a real military skirmish, they or their families will not be at the battlefront (they will most likely be ensconced abroad), thus their audacity to call for implied aggressive populist nationalism that might justify an armed confrontation.

Furthermore, considering that both Spratlys and Scarborough Shoals have largely been uninhabited or has no population, the main benefits over the disputed “resource rich” islands will likely accrue to the cronies and the interests of political authorities than that of the nation. Yet the masses are being conjured to fight for their interests via calls for pretentious nationalism.

The history of war, said Michael Rivero, is the history of powerful individuals willing to sacrifice thousands upon thousands of other people’s lives for personal gains.

Finally, the real target of these war mongers are our civil liberties and economic freedom.

As French historian Alexis de Tocqueville wrote,

All those who seek to destroy the liberties of a democratic nation ought to know that war is the surest and shortest means to accomplish it.

Thus, the call for nationalism over territorial disputes is like putting the proverbial lipstick on the political pig.

China’s Political System Reeks of Legal Plunder

Internal political schism in China, highlighted by recent rumors of a coup attempt, may have been one of the main factors that has incited China’s political authorities to dabble with the latest gunboat diplomacy with her neighbors. The unfolding controversy over disputed territorial claims at Scarborough Shoal and the Senkaku Islands has most likely been meant to divert or distract the public’s attention from real political issues developing in China.

Yet the tensions being manifested in China’s political system has been exposing on the festering rottenness of the perversion of the legal system, which the great Frédéric Bastiat warned centuries ago, directed at repression and plunder of the resources of the population for personal benefit of politicians and their favored allies. He called this “legal plunder”.

Sovereign Man’s Tim Staersmose gives us a terse but splendid narrative of the political events brewing at China

I’m convinced that history will one day show that corrupt Communist party officials, in cahoots with shady developers and construction moguls, systematically plundered the Chinese economy, getting rich off the hard work and savings of the average person.

It’s been happening on an unimaginable scale… and the fuse for the whole rotten mess to explode may have just been lit with this Bo Xilai scandal. To review, briefly:

- Bo Xilai, the former mayor of China’s largest city of Chongqing, was once one of the rising stars of the Communist party and being groomed for a top spot in the Politburo.

- Wang Lijun was his police chief and right hand man.

- Together, Bo and Wang waged a high profile campaign to stamp out organized crime in the region, jailing and even executing supposed underworld bosses and corrupt businessmen.

(As it appears now, they may have simply been eliminating their competition.)

- The two had an apparent falling out, allegedly over evidence that Bo’s wife was involved in the death of British expat Neil Heywood.

- Heywood had been a longtime confidant of the Bo family. His death late last year was originally ruled as a heart attack, however there is now so much conflicting evidence that many are suggesting Heywood was going to come forward with extensive records of Bo’s shady business dealings.

- After being stripped of his rank by Bo, Wang went to both the US consulate and British High Commission seeking asylum in exchange for information about Bo’s impropriety. He was politely rejected.

- Bo has now been relieved of his powers amid a flurry of evidence and allegations that he and Wang siphoned off hundreds of millions of dollars from Chongqing’s economic boom and secreted the funds out of the country.

- Meanwhile Bo’s wife is under arrest for suspicion of murdering Mr. Heywood. Mr. Wang is also in the custody of Chinese authorities.

- Bo’s son, a lavish partier who attends $90,000/year graduate school and drives around campus in European supercars, is hiding out in the United States.

The top echelons of the communist party are now working overtime to snuff out the scandal lest their own financial dealings and personal dirty linen be aired in public.

But, they’re fighting an uphill battle. The rapid spread in China of micro-blogging services (like Twitter) mean that the party’s censors have a real battle on their hands.

Again the wonders of technological advances in today’s deepening information age has been facilitating the divulgence of the reeking corruption operating behind China’s “communist party system” which in reality is no more than state (crony-fascist) capitalism.

As Frédéric Bastiat wrote in must read classic The Law,

The delusion of the day is to enrich all classes at the expense of each other; it is to generalize plunder under pretense of organizing it. Now, legal plunder may be exercised in an infinite multitude of ways. Hence come an infinite multitude of plans for organization; tariffs, protection, perquisites, gratuities, encouragements, progressive taxation, free public education, right to work, right to profit, right to wages, right to assistance, right to instruments of labor, gratuity of credit, etc., etc. And it is all these plans, taken as a whole, with what they have in common, legal plunder, that takes the name of socialism.

Pretentions to solve social ills via socialist redistributionist policies are simply unsustainable, and the gunboat diplomacy will not excise the truth from unraveling.

From Scarborough Shoal to Senkaku Islands

What’s all the ado over territorial claims these days?

The tensions over Scarborough Shoal have yet to be concluded and now Japanese politicians have jumped into a parallel controversy over the disputed Senkaku Islands to pique China.

Reports the Japan Times,

The central government will consider buying the disputed Senkaku Islands, Prime Minister Yoshihiko Noda said Wednesday, adding fuel to a fire already lit by Tokyo Gov. Shintaro Ishihara.

Noda's statement came after Ishihara dropped his bombshell Monday in Washington by revealing that the Tokyo Metropolitan Government is trying to buy the islands from its owner "to protect Japanese territory."

The hawkish governor said he was prompted to make the move as he could no longer stand the central government's "cowardice" for not taking any action against claims to the islands by China and Taiwan.

During a Lower House Budget Committee session on Wednesday morning, Noda stressed Japan's control over the islands in the East China Sea. The prime minister also explained that the government has been in contact with an island owner.

"It is as clear as day that the Senkaku Islands are an integral part of Japan's sovereign territory in light of international law and history, and Japan effectively controls them," Noda said.

And the natural response by China has been to rebuke and to apply partial gunboat diplomacy as with the Scarborough Shoal incident.

From another news report from Japan Times,

China warned Wednesday that Tokyo Gov. Shintaro Ishihara's plan to buy the disputed Senkaku Islands will not only harm Japan's ties with China but also its international standing.

"I want to reiterate that the Diaoyu Islands have been China's inherent territory since ancient times and China holds indisputable sovereignty over them," Foreign Ministry spokesman Liu Weimin told a regular news briefing, using the Chinese term for the Senkaku Islands.

"We do not wish such statements in Japan to encroach on China's sovereignty and harm China-Japan ties," Liu said. "A few politicians have repeatedly made such statements. I believe they not only damage the overall state of China-Japan relations but also harm Japan's international image."

Ishihara said in Washington on Monday that the Tokyo Metropolitan Government is negotiating with the owner of three major islands in the uninhabited chain.

On Tuesday, Ishihara added that Beijing's dispatch of fishery patrol boats to their vicinity is "halfway to a declaration of war" against Japan.

As I earlier postulated, the verbal joust over territorial claims could be about promoting the arms industry or the military industrial complex.

Last year, world military spending has been flat.

Notes the Economist,

WORLDWIDE military spending was flat in 2011 compared with the year before, according to data released by the Stockholm International Peace Research Institute, a think-tank, but this masks some significant changes. America, Western Europe and Latin America, which between them make up 65% of the global total of $1.634 trillion (at 2010 prices), all spent less than they had in 2010. This is the first time America made a year-on-year reduction since 1998, trimming its budget by 1.2% to $690 billion. To keep the total flat, there were some big rises elsewhere. Russia's spending increased by 9.3% to $64.1 billion, which may have had something to do with the build-up to the presidential election earlier this year. It is now the third biggest spender worldwide, ahead of both France and Britain. The chart below gives a sense of how much defence spending has changed relative to economic performance in the past decade for 116 countries and territories for which data are available. China, for instance, which spent $129 billion last year, has increased spending broadly in line with its GDP growth

And considering that Bank of Japan (BoJ) has aggressively been ramping up on monetary stimulus measures, a threat of war which could most likely translate to call for a domestic build up of arms that would justify more inflationist policies.

Wars has always been financed by monetary inflation, as the great Ludwig von Mises wrote in Nation, State and the Economy (p. 195)

In all great wars monetary calculation was disrupted by inflation. Earlier it was the debasement of coin; today it is paper-money inflation. The economic behavior of the belligerents was thereby led astray; the true consequences of the war were removed from their view. One can say without exaggeration that inflation is an indispensable intellectual means of militarism. Without it, the repercussions of war on welfare would become obvious much more quickly and penetratingly; war-weariness would set in much earlier.

So the blaring drumbeats of war may not only be about promoting arms sales and military spending, but about further justifications for monetary inflation.

The Scarborough Shoal Standoff Has Not Been About Oil

Despite the blaring headlines, the domestic equity market seems to have discounted the supposed impasse between China and the Philippines over the disputed Scarborough Shoal.

I think the market response over risks of a military confrontation of war seems justified.

Media’s report of the territorial contest between the Philippines and China has been rife with insinuations that the motivations of the kerfuffle has been about “ rich in oil and gas reserves as well as fish stocks and other commercially attractive marine life”[1].

Yet current developments have not been supportive of such oversimplified implications.

China as Major Beneficiary of the Shale Oil Revolution

First of all, the growth of China’s crude oil imports has been falling.

That’s because China’s slackening demand for crude oil has been substituted for soaring demand of cheaper natural gas. China’s natural gas imports are expected to balloon by 45% in 2012[2].

Next, media entirely overlooks the ongoing Shale gas boom where advancements in technology principally through hydraulic fracking and horizontal drilling—complimented by computer programs which simulates well development before drilling (which controls costs), advance fiber optics and even use of microphones to measure seismic events[3]—has enabled access to immense commercial quantities of shale based natural gas.

The shale gas revolution has not just been transforming the energy sector, but changes have been diffusing into a vast area of the global economy.

Author Matt Ridley explains[4],

Chemical companies, which use gas as a feedstock, are rushing back from the Persian Gulf to the Gulf of Mexico. Cities are converting their bus fleets to gas. Coal projects are being shelved; nuclear ones abandoned.

The shale gas revolution has become a key factor in bringing back many energy intensive manufacturing companies to the US such as steel, chemical and fertilizer companies[5].

So contrary to the claims of mercantilists, who blindly and wrongly sees protectionism through inflation or devaluation as means to regain competitiveness, access to abundant and cheap energy can be one avenue towards attaining competitive and comparative advantages.

Yet a deepening of the Shale gas revolution would benefit China too, since China has the largest technically recoverable resources of shale gas[6] in the world.

As proof the intensifying trend towards Shale gas revolution, just recently, French Total SA[7] and British Royal Dutch Shell PLC[8] have just forged deals to explore, develop and produce shale oil in China. There will be massive investment flows to develop Shale not only in China but around the world.

Mostly because of Shale, Natural gas around the world is expected to boom and has the biggest potential to replace crude oil.

In China, production of natural gas via shale, coal bed methane and tight gas are expected to explode[9]. This would mirror on the skyrocketing demand for natural gas[10].

With China’s shale oil boom having yet to ignite, it would seem a paradox for China to politically squabble over relatively meager oil and gas field as compared to the immense domestic reserves that has yet to be tapped. Besides China can do more by investing in other countries than trigger a shooting war.

Political Smoke and Mirrors over Scarborough Shoals and Spratlys

In addition, China’s political economy has now been highly dependent on international trade.

Merchandise trade (sum of imports and exports) is now about half of China’s economy. This means that since China has deeply been embedded to globalization, any military conflict or a war would be self-destructive not only to the average Chinese but to the China’s incumbent political institutions and leaders, as well.

Moreover, given that most of ASEAN nations has been “closely linked[11]” to the US, any military clash may be a magnet for the involvement of the US militarily.

And conventional warfare will be dissimilar from the way wars has been fought in the 20^th century, given the proliferation of nuclear armaments. Future wars will likely be more about technology based engagements (computer, robotic, biotech and nanotech along with nuclear and special ops[12]) than conventional warfare or guerrilla or terror tactics. Yet China has yet to reach such state of sophistication

And as I have mentioned in the past[13], the gunboat diplomacy would work against China’s attempt to establish the use her currency the yuan as the region’s currency reserve[14].

And given the above, China’s antagonistic foreign policy approach over the disputed islands hardly seems about the securing more “oil and gas reserves”, and seems patently contradictory to her overall interests.

This brings us again to the following postulates.

China has been buying less of US treasuries[15] or financing less the US. China has also been taking flaks from US politicians whom have used “blame China” (as well as “blame the rich”) to advance their political platforms in the coming elections.

And perhaps one way to placate US politicians has been for China to act as a complicit bogeyman in order to promote US arms sales to Asia. More arms sales could translate to more donations by US defense industry to candidates of both parties in the coming elections.

Notes the opensecret.org[16]

Although the defense sector contributes far less money to politicians than many other sectors, it is one of the most powerful in politics. The sector includes defense aerospace, defense electronics and other miscellaneous defense companies.

I have been repeatedly pointing out such a possibility[17].

Also another possible angle would be to use current territorial disputes as diversion to current internal political struggles in China. Last Thursday most websites in China became inaccessible[18]. Was the widespread internet blackout a result of Indonesia’s quake? Or has this been related to recently rumored coup attempt[19]? Appeal to nationalism via military conflicts or nationalism based controversies are frequently used by politicians as decoy or diversion to real (social, economic or political) problems.

China could also be testing the strength of ASEAN ties to the US, to ascertain or measure as to what extent growing trade relations have brought Chinese influence into the region’s politics.

Bottom line: Unless China political leaders have lost their minds, I find the unfortunate Scarborough Shoal affair (as well as Spratly’s incidents) as suspiciously more about political ‘smoke and mirrors’ maneuvering and more vaudeville than an issue about territorial claims.

---

[1] Inquirer.net 9 Chinese boats leave Scarborough shoal, April 15, 2012

[2] China.org.cn Oil imports to grow slower, February 3, 2012

[3] See Shale Oil Revolution: (Laissez Faire) Capitalism Deals Peak Oil a Fatal Blow, March 24, 2012

[4] Ridley Matthew Gas Against Wind, March 13, 2012 Rationaloptimist.com

[5] Wall Street Journal, Steel Finds Sweet Spot in the Shale, March 26, 2012

[6] Nextbigfuture.com Global shale gas boosts total recoverable natural gas resources by 40%, April 6, 2011

[7] Wall Street Journal Total Extends Its China Ties, March 18, 2012

[8] Wall Street Journal Shell Reaches Chinese Shale-Gas Deal March 21, 2012

[9] US Energy Information Administration INTERNATIONAL ENERGY OUTLOOK 2011, September 19, 2011

[10] The Energy Markets and Money blog China Shale Gas... The New Frontier, March 19,2012

[11] Xinhuanet.com Interview: ASEAN members may be manipulated by U.S. on South China Sea issue: analyst, November 11, 2011

[12] Casey Doug Learn To Make Terror Your Friend January 7, 2012 lewrockwell.com

[13] See China Deepens Liberalization of Capital Markets April 4, 2012

[14] See Why China’s Currency Regime Shift Is Bullish For The Peso, June 28, 2010

[15] Merk, Axel Falling Treasuries: A Currency Perspective, March 20, 2012 gold-eagle.com

[16] opensecret.org Defense

[17] See Has the Tensions over Spratly’s Islands been about US Weapons Exports? June 28, 2011

[18] Wall Street Journal Blog, Mystery Blocks Put China Internet on Edge, April 12, 2012

[19] See China’s Coup Rumors: Signs of the Twilight of Centralized Government?, March 22, 2012

China Deepens Liberalization of Capital Markets

I have pointed out that the ongoing tensions in the political spectrum in China may have been ideologically based.

Entrepreneurs in China may have grown enough political clout enough to challenge to the degenerative command and control political structure of the old China order.

And it seems as if the forces of decentralization seem to be getting the upper hand, as China undertakes further liberalization of their capital markets.

From the Bloomberg,

China accelerated the opening of its capital markets by more than doubling the amount foreigners can invest in stocks, bonds and bank deposits as the government shifts its growth model to domestic consumption from exports.

The China Securities Regulatory Commission increased the quotas for qualified foreign institutional investors to $80 billion from $30 billion, according to a statement on its website yesterday. Offshore investors will also be allowed to pump an extra 50 billion yuan ($7.95 billion) of local currency into the country, up from 20 billion yuan

China, the world’s second-biggest economy, has pledged this year to free up control of the yuan and liberalize interest rates as the government deepens reforms to revive growth and offset slowing exports and a cooling housing market. China needs to rely more on markets and the private sector as its export- oriented model isn’t sustainable, World Bank President Robert Zoellick said in February.

Here’s more

The regulator had granted a total of $24.6 billion in quotas to 129 overseas companies since the program first started in 2003 through the end of March. About 75 percent of assets were invested in Chinese stocks, with the rest in bonds and deposits, according to the statement.

The CSRC accelerated the program last month, granting a record $2.1 billion of quotas to 15 companies. It was more than the $1.9 billion in 2011 as a whole.

“The QFII program enhances our experience of monitoring and regulating cross-board investment and capital flows,” the CSRC said in the statement. “It is a positive experiment to further open up the market and achieve the yuan convertibility under the capital account.”

Premier Wen Jiabao is seeking to attract international investment as economic growth cools, prompting the benchmark Shanghai Composite Index to slump 24 percent in the past year. The country posted its largest trade deficit since at least 1989 in February as Europe’s sovereign-debt turmoil damped exports.

China needs to break a banking “monopoly” of a few big lenders that makes easy profits, Wen told private company executives in Fujian province yesterday, as cited by China National Radio.

Breaking up a privileged banking monopoly essentially transfers resources to the productive sector which should serve China well, as well as, serves as welcome and enriching news for Asia and the rest of the world.

And by liberalization of their capital markets, China will become more integrated with the world, and thus diffusing risks of brinkmanship geopolitics, or the risks of military confrontations.

Again such development adds evidence to my theory that the Spratlys tensions may have just been about political leverage or about helping promote indirectly the US arms sales.

Nevertheless, China has yet to face the harmful unintended consequences of her past and present Keynesian bubble policies.

However the long term is key, or far more important. The kind of reforms matters most.

And reforms that deepen economic freedom or laissez faire capitalism (away from state capitalism) in China and the attendant development of capital markets could likely mean that the rest of Asia may follow suit. The implication is that regional and domestic capital will less likely be recycled to the West, and instead would find more productive use at home or a ‘home bias’ for Asian investors.

Moreover, the crumbling welfare states of the west would mean more capital flows into the Asia as savings seek refuge from sustained policies of inflationism.

All these should accentuate my wealth convergence theory.

Of course, China’s strategy to liberalize her capital markets may also represent a move to challenge the US dollar standard.

Recently BRICs officials slammed US and Euro’s monetary “tsunami” policies and in the process has been contemplating to put up their version of a World Bank—joint development bank.

While these gripes have been valid, the latter’s action has little substance. What the other ex-China BRICs should to do is to mimic China’s path to rapidly liberalize their economy and their capital markets.

That’s because societal integration functions as a natural force when commercial activities or economic freedom intensifies.

As the great Ludwig von Mises wrote about the social effects of the division of labor,

Social cooperation means the division of labor.

The various members, the various individuals, in a society do not live their own lives without any reference or connection with other individuals. Thanks to the division of labor, we are connected with others by working for them and by receiving and consuming what others have produced for us. As a result, we have an exchange economy which consists in the cooperation of many individuals. Everybody produces, not only for himself alone, but for other people in the expectation that these other people will produce for him. This system requires acts of exchange.

The peaceful cooperation, the peaceful achievements of men, are effected on the market. Cooperation necessarily means that people are exchanging services and goods, the products of services. These exchanges bring about the market. The market is precisely the freedom of people to produce, to consume, to determine what has to be produced, in whatever quantity, in whatever quality, and to whomever these products are to go. Such a free system without a market is impossible; such a free system is the market.

Global Weapons Exports and the Spratlys Dispute

I previously asked if the Spratlys dispute has partly been about promoting weapons exports for the benefit of the military industrial complex and domestic politicians.

The Economist gives us some clues (bold emphasis mine)

GLOBAL transfers of large conventional weapons such as tanks and planes were 24% higher in 2007-2011 than in 2002-2006, according to new data from the Stockholm International Peace Research Institute. Deliveries to South-East Asia rose particularly steeply, jumping by 185% as tensions mounted over territorial claims in the South China Sea. Three-quarters of all exports in the past five years were made by five countries, as can be seen in the chart below. A notable recent development is China's ability to manufacture its own weapons. Consequently it now ranks as the sixth-biggest exporter, and having been the second-largest importer in 2002-06, it was only the fourth-largest in 2007-11. India remains the biggest importer of arms, buying 10% of the world's total. Perhaps surprisingly there was little change in the volume of arms sent to Arab Spring countries in the past year, though exports to Syria in 2007-2011 (supplied overwhelmingly by Russia) increased by nearly 600% on figures for 2002-06.

We never really know if governments, through their respective foreign policies, have been working in complicity to promote undeclared political agenda.

The US as Human Rights Violator

US President Obama recently dissed on China’s human rights record.

However, former Assistant Secretary of the US Treasury and former associate editor of the Wall Street Journal, Paul Craig Roberts exposes on this charade,

Washington is now in the second decade of murdering Muslim men, women, and children in six countries. Washington is so concerned with human rights that it drops bombs on schools, hospitals, weddings and funerals, all in order to uphold the human rights of Muslim people. You see, bombing liberates Muslim women from having to wear the burka and from male domination.

One hundred thousand, or one million, dead Iraqis, four million displaced Iraqis, a country with destroyed infrastructure, and entire cities, such as Fallujah, bombed and burnt with white phosphorus into cinders is the proper way to show concern for human rights.

Ditto for Afghanistan. And Libya.

In Pakistan, Yemen, and Somalia Washington’s drones bring human rights to the people.

Abu Ghraib, Guantanamo, and secret CIA prison sites are other places to which Washington brings human rights. Obama, who has the power to murder American citizens without due process of law, is too powerless to close Guantanamo Prison.

He is powerless to prevent himself from supplying Israel with weapons with which to murder Palestinians and Lebanese citizens to whom Obama brings human rights by vetoing every UN resolution passed against Israel for its crimes against humanity.

Instead of following Washington’s human rights lead, the evil Chinese invest in other countries, buy things from them, and sell them goods.

For US politicians, moral standards seem to fall into “might makes right”—where there is one set of morality for political opponents and another set for the self-instituted policeman of the world.

The numerous atrocities committed by the US, as part of their imperial foreign policy, serves as further evidence that in Asia (particularly on the US military's proposed expansion due to the Spratly’s issue) the China threat has mostly been a contrived issue which exemplifies H.L. Mencken’s series of hobgoblins, most of them imaginary. Such is borne out of the continuing promotion of war policies meant to uphold the interests of the political class and their welfare-warfare clients/cronies.

Of course, infractions on human rights issues does not extend only to foreigners but to the Americans themselves, in their homeland.

Again Mr. Roberts,

Washington’s concern with human rights does not extend as far as airport security where little girls and grandmothers are sexually groped. Antiwar activists have their homes invaded, their personal possessions carried off, and a grand jury is summoned to frame them up on some terrorist charge. US soldier Bradley Manning is held for two years in violation of the US Constitution while the human rights government concocts fabricated charges to punish him for revealing a US war crime. WikiLeaks’ Julian Assange is harassed endlessly with the goal of bringing him into the human rights clutches of Washington. Critics of Washington’s inhumane policies are monitored and spied upon.

More signs that the US appears to be moving away from the embodiment of the “Land of the Free”.

False Choice from US Military Presence: US or China?

In the realm of politics, the public is being hoodwinked with a false choice.

From the Bloomberg,

Obama is realigning Asia-Pacific forces as his administration moves to blunt China’s expanding influence in an area that accounts for half the world’s economy. At the same time, the Pentagon is seeking to cut about $490 billion from projected spending over a decade.

“The U.S. is shifting its projection of power to the Pacific region amid China’s rise,” said Tomohiko Taniguchi, a former Foreign Ministry official and a visiting professor at Keio Universityin Tokyo. The revised agreement is a “logical consequence” from the Futenma deadlock, he said.

False dilemma or false choice, according to Wikipedia.org, is a type of logical fallacy that involves a situation in which only two alternatives are considered, when in fact there are additional options (sometimes shades of grey between the extremes).

Today we are presented with having to choose between two supposedly opposing sides—either with the US or with China. Obviously a false choice.

Instead, the world should be asked to trade than to instigate war.

Yet, the world and the Philippines can do without having to indulge with confrontational (brinkmanship) politics, or worst, go into actual combat.

And as previously pointed out, except for Spratly’s and Senkaku, China has largely maintained a foreign policy based on trade, investments and non-aggression whether in Africa or in Asia.

China has been aggressively expanding trade in the region and has even been selling the idea of the yuan as the region’s reserve currency. Such actions does not square with supposed aggressive policies. Perhaps unless provoked.

China also knows she can’t win a conventional military war with the US which makes any militant actions senseless.

And as previously argued, China has been using these controversial islands mainly to extract geopolitical leverage. Other reasons may include flexing her military muscles or response to encirclement strategy or testing the region’s reaction.

Thus, the China threat seem more like a strawman.

On the other hand, the US has been engaged in a series of illegitimate wars—which have not been approved by US Congress—such as in Libya, Afghanistan, Iraq and others, has been saber rattling on Iran, and now, on China.

As Judge Andrew P. Napolitano writes,

In the last 50 years, the United States has seen a parade of wars that don’t serve our interests. We fought the Korean war at the behest of the United Nations. We fought in Vietnam because the French wouldn’t. We entered the First Gulf War because of the United Nations and of course that led to the Iraq War. Even in Afghanistan, while we entered under the pretext of hunting down the masterminds of 9/11, that war soon became an imperial exercise akin to the Soviet or British occupations of Afghanistan. The Constitution gives the power of declaring war to the Congress. But today in America, that power is effectively the President’s. President Obama has waged war in Iraq, in Afghanistan, in Libya, in Pakistan, in Somalia, and in Uganda; all without a declaration of war. The last time Congress declared war was December 8th 1941.

So it isn’t a choice between China or the US but a choice being rammed on our throats for the benefit of those in Washington [who may partly be diverting public’s attention from the problems of the real economy, the mounting unwieldy fiscal deficits, the unsustainable welfare-warfare state and from the Federal Reserve’s inflationist policies], Washington’s military industrial clients and for local imperial lapdogs or sycophants who would use the war scare to exercise more political control over society.

Yet for a political economy considerably dependent on the war industry, there will always have to be an adversary to be invented as US advisor and diplomat George F. Keennan once warned

People who are egging for war should get enlisted and be brought to the front lines along with their families to prove their worth than to senselessly bluster. President Obama can do the honor.

Other than the above, invented wars are required to justify the preservation of the warfare state along with their huge budgets.

A US-Philippines Bases Treaty (2012 Edition) in the Making?

From the Washington Post,

Two decades after evicting U.S. forces from their biggest base in the Pacific, the Philippines is in talks with the Obama administration about expanding the American military presence in the island nation, the latest in a series of strategic moves aimed at China.

Although negotiations are in the early stages, officials from both governments said they are favorably inclined toward a deal. They are scheduled to intensify the discussions Thursday and Friday in Washington before higher-level meetings in March. If an arrangement is reached, it would follow other recent agreements to base thousands of U.S. Marines in northern Australia and to station Navy warships in Singapore.

Among the options under consideration are operating Navy ships from the Philippines, deploying troops on a rotational basis and staging more frequent joint exercises. Under each scenario, U.S. forces would effectively be guests at existing foreign bases.

The sudden rush by many in the Asia-Pacific region to embrace Washington is a direct reaction to China’s rise as a military power and its assertiveness in staking claims to disputed territories, such as the energy-rich South China Sea.

“We can point to other countries: Australia, Japan, Singapore,” said a senior Philippine official involved in the talks, speaking on the condition of anonymity because of the confidentiality of the deliberations. “We’re not the only one doing this, and for good reason. We all want to see a peaceful and stable region. Nobody wants to have to face China or confront China.”

The strategic talks with the Philippines are in addition to feelers that the Obama administration has put out to other Southeast Asian countries, including Vietnam and Thailand, about possibly bolstering military partnerships.

What seems to be the common denominator between now and two decades ago when the Bases Extension Treaty was rejected by the Philippine Senate?

Well both has the Aquino administration (mother and son) taking on the side of—or has fought for an extension of—US foreign policy in the country.

Not that this about the Aquino administration being an American stooge, although they may well be, but about the developing trend in US foreign policy and the possible implications here.

Obama’s foreign policy has increasingly been militant just as the Presidential election approaches.

Last night at the State of the Union address President Obama threatened Iran with ‘no options off the table’ rhetoric. In addition, President Obama seems to having an on-off or love-hate affair with China with the latter being painted as a potential adversary.

Military aggression as China’s foreign policy path is unlikely, despite some caustic international incidences at the Spratlys Island.

As pointed out before, such incidences could be indicative of China’s reaction to what seems to be an encirclement strategy being applied by the US and or the heated rhetoric by President Obama of charging China as a currency manipulator.

Also China could testing the responses of her neighbors to see where their loyalty lies and to what degree they have been, which could be part of 37 war strategies of “beating the grass to startle the snake strategy”, or that China could be flaunting her new weapons to signal her newfound geopolitical muscle.

But most importantly, I think China could be using the Spratlys to gain negotiation leverage.

In politics, what you see is hardly what you get.

Nevertheless, actions serve as best indicators of intent or what Austrian economists calls as the demonstrated preference.

China won’t likely kill the proverbial goose that lays the golden eggs for the simple reason that China’s trade with the region has been burgeoning substantially. (charts above from ADB)

To add, China has even taken further steps to increase the usage of her country’s currency as the region’s medium of exchange in the path towards regional integration.

China will surely not attain integration by invading her neighbors. Two major World Wars of the 20^th century should serve as painful lessons.

Integration can only be achieved through social cooperation via the division of labor or free trade.

And unless China’s leaders have lost their senses, perhaps out of desperation or becomes mentally deranged, a bellicose foreign policy would translate to their political suicide considering that today’s state of warfare. So this isn’t a rational or even a viable option.

In addition, the thought of foreign bases as functional deterrent to military aggression is essentially obsolete in a nuclear war.

In reality, military bases have mostly been used as a staging point for political interventions in local affairs and for justifying the maintenance and or growth of the defense budget for the US federal government.

And importantly, encirclement strategies to contain China’s so-called growing military capability are not helpful, they signify signs of (US) insecurity that only promotes antagonism that could lead to genuine confrontation.

The point is, any military base agreements will serve as a magnet for any prospective war or military hostility, incentivize more foreign interventions in local (Philippine) affairs and would create social friction between the average Filipinos and US military.

Military bases for whose benefit?

Again as stated earlier, wars benefit the military industrial complex who as rent seekers, needs politics induced wars to sell their products and services to generate profit. Peace is an anathema to them.

War and imperialist policies also benefit the (local and foreign) political class who use wars (or the threat of wars) to expand to control over society through various interventions and taxation, to curb civil liberties, and to justify the budgets extracted from society for their personal benefits.

As Murray N. Rothbard once wrote,

Imperialism will ensure for the United States the existence of perpetual "enemies," of waging what Charles A. Beard was later to call "perpetual war for perpetual peace." For, Flynn pointed out, "we have managed to acquire bases all over the world…. There is no part of the world where trouble can break out where… we cannot claim that our interests are menaced. Thus menaced there must remain when the war is over a continuing argument in the hands of the imperialists for a vast naval establishment and a huge army ready to attack anywhere or to resist an attack from all the enemies we shall be obliged to have