I looks like now, one year after the article was written, that “debt as weapon” has its shortcomings and could backfire.

Hope MAD still works with all the new players. Then at least we will be limited to regional conflicts and cold war style manipulations of “hostile” and “friendly” governments. Except that now it will be de-spooked with SWFs and CBs doing it.

I think we get lots of hand wringing from the Washington power elite, who may even admit among themselves now that “debt as a weapon” may not be the winning arsenal.

“A message to those who think of finance as a mere footnote to foreign policy: Wake up. Today, these two worlds are intertwined as never before.”

http://www.nationalinterest.org/Article.aspx?id=15816

I agree with your points that even commercial organizations act non-commercially. Murdoch wanted the journal for reasons that likely went beyond the expected return (an aside– cnn is down the middle, certainly not a liberal counterweight to fox). but the argument around sovereign funds has always included a large group who have argued that SWFs are commercial investors and shouldn’t be subject to additional scrutiny.

I also would fully accept the proposition that when the US government lends money to other governments it does so to promote its political and economic interests — the US government tho has traditionally been very explicit about it. think of the conditions attached to the us loan to mexico in 95.

A Federal Reserve meeting is on this weekend to discuss an US taxpayer bailout of Lehman. Bernanke must consider Lehman also as “too big to fail” thus deserving an US taxpayer bailout. I have no doubt that the Federal Reserve and US Treasury will arrange an “under-the-table” bailout of Lehman at US taxpayer expense. That is the way it is always done. Privatize the profits to the Banksters and socialize the cost to the US taxpayer. After the Paulson bailout of the GSE’s, the political pressure will demand an US taxpayer bailout of Lehman. The terrible news surrounding Hurricane Ike provides an excellent cover for a Lehman taxpayer bailout.

given all the misgivings you have about foreign SWFs and the political power they have(potential or otherwise)- did SWF ever say that commercial investments were the only investments they would ever make? if they did, fair enough, they weren’t broad enough in definition or clearly didn’t think of the pr ahead of time. if however they said the main focus wasn’t political/non-commercial, that gives room for “some”non-commrecial investment. Since we’re in the midst of a race for the presidency, would it be fair to label an organisation, that did its business mainly in non political arenas, as political if it made legal permittable donations to a particular political party? In the same spirit, would we ever think Fox was pro-Democrat or CNN pro-Republican?

Money , particularly when it comes in huge amounts, is rarely apolitical. Whether the $ comes in the form of aid or “investment” (where the $ ultimately is traceable to official sources), there are always strings attached, if nothing else, Greenspan has got the “no free lunch” part right!The question is how much the profit motive weighs against other considerations.

How many organisations have no considerations other than commercial, should political considerations reinforce commercial profit all the better! Are there guarantees that we won’t find deals of similar nature in certain investment banks? Where your political deals increase the possibility of reaping the “mother of all” profits, is your commercial organisation on more solid “ethical/moral” ground?

I don’t believe for a second that SWFs don’t have considerations other than commercial, just like I don’t believe commercial organisations don’t have non-commercial motives. Perhaps, x-philes have it right, trust no one. Paranoia or just good sense?

China greatly limits direct foreign ownership of production in China. They have some free zones where foreign companies may have 100% ownership, but the main way biz is done is foreign corporations just outsource to Chinese companies. You are also allowed to be a minority partner in a joint venture, with the Party maintaining 51% control, but that one is not very popular.

But I think it would actually be good if US corporations got priced back into Mexico by a strong yuan. Competing with China is causing Mexico lots of trouble with its NAFTA manufacturing base. That’s part of the reason for massive illegal immigration to the US.

But none of this stuff comes back to the US as long as we have $35/hr plus all bennies for union labor. That isn’t real world even in the US.

As far as the US financial sector, I guess the Chinese stock market, and US ETFs would go down if growth slowed. But that is still small. There is real estate and loan making, and a strengthening yuan should help returns in dollars.

Sometime I think 2fish is a Presidential Speech Writer in his day job.

Lets just say that it takes two to tango.

If the counterparty is willing to pay political price for Chinese money, it probably is just fine. If some parties, like EU and US do not like the political prices China asked when they are doing business, I guess that there is nothing China can do.

However, I think that China not only have received some political payments from western countris through spending some money, but also had paid political price to win some money.

And, the commercial arguments are clearly for voters’ consumption. I mean, we all know the government would paint some back room deals with some sound reasons.

Many desperately poor African country go hat in hand to the IMF for loans to balance their budget and trade deficits. The US Treasury sponsored IMF structural adjustment programs for these nations further impoverish billions of poor people. I suggest that you read a book by John Perkins entitled “Confessions of an Economic Hit mam”. John Perkins, a former IMF economist says he was an “economic hit man” for 10 years, helping US intelligence agencies and multinationals cajole and blackmail foreign leaders into serving US foreign policy and awarding lucrative contracts to American business. “Economic hit men (EHMs) are highly paid professionals who cheat developing countries around the globe out of trillions of dollars,”
http://www.amazon.com/Confessions-Economic-Hit-John-Perkins/dp/1576753018/ref=tag_tdp_sv_edpp_i

The Chinese are relentlessly assailed by the US foreign policy elite for their geo-political economic independence. The real fear in the Washington Consensus over the Chinese is the inability of the IMF to force the Chinese to do anything.

Also read,

U.S. Geopolitical Strategy in Eurasia wars and conflicts
http://www.counterpunch.com/whitney09112008.html

This worries me far more than losing the Georgia War.:)