“The chinese leadership probably have thought this ahead for a while,
and as soon as they think that exports to the USA and transfers of productive capital
and technology from the USA need to be subsidized anymore, they are going to pull the
plug, and buy lots of nice natural resource assets.”

Twofish said,

“No. That’s not the signal to pull the plug. China is only going to pull the plug
on the United States if the United States does something that threatens Chinese
territorial integrity. If the United States officially recognizes an independent Taiwan,
then the plug will get pulled. Otherwise it won’t, since China needs to support of the
US Navy to make sure that resources from the Middle East, South America, and Australia
make it to China. If the US Navy blockades those shipments than owning resources is useless.”

As I understand it or misunderstand it, China has to pull the plug fairly soon, say
within the next few years, since the cost to China to peg the yuan to the dollar
rises on an exponential curve every year. (And, yes, I know the yuan is supposedly
floating.) Therefore, want it or not, the plug will be pulled.

From China’s perspective there may be advantages to a precipituous pulling, possibly
triggering economic collapse in the United States and perhaps even, like dominos,
other nations. If that’s the goal, actually right now might be a good time to
do it.

But I wonder if that strategy is really in China’s best interests. Now, it may
be too late, and a precipituous drop in the value of the dollar relative to the yuan
may be inevitable regardless, but if China wants a more controlled transition, right
now would be a good time to let the dollar fall significantly.

I can imagine the scene on TV: The President, flanked by Mrs Palin and Mr. Paulson and Mr. Bernanke:

“Fellow Americans, the Chinese Communist Party have been hiding in caves and mobile trailers a number of Weapons of Mass Deflation; we also know that they have links with Osama bin Laden and al-Quaeda-in-Bejing, the financial terrorists who have shorted the twin pillars of New York investment, BS and LB.

They are ready to deploy these WMDs at short notice, stopping the loans that stand at the root of our American Way, threatening our lack of civilization.

Under the wise doctrine of my predecessor, we are committed to a pre-emptive strike to secure our future against this threat and the attacks of the financial terrorists: I have ordered the US Navvy to blockade all chinese overseas traffic and ports.
I have also ordered scores of our nuclear missile launched at the Chinese missile bases, to awe and shock them into continuing to lend their reserves to our treasury.

Our brave troops are ready to come ashore and march to Bejing while the population welcomes us with showers of flowers as we liberate them from their oppressive regime.

This legimate pre-emptive defense action will be concluded in 6 months, and a new democratic regime will be established in the heart of east asia.”

«China needs to support of the US Navy to make sure that resources from the Middle East, South America, and Australia make it to China. If the US Navy blockades those shipments than owning resources is useless.»

Here and elsewhere you suggest that the USA would go to war with China if China stopped lending to the USA; basically that receiving several hundred billion dollars a year from China in soft loan is a vital USA interest.

Interesting position, but one that may be realistic, considering the extreme attitudes of the current administration, never mind McCain.

but if the Russians are blaming any one for cutting off borrowing, shouldn’t the European banks get some blame. I would have thought that a good chunk of the rollover financing was from EU banks, especially in the UK. as was the loss of capital raising from UK listings

As for “President Putin” — d’oh. I knew he was now the PM. Tho it seems he still runs the show …

Thanks.

Actually, I took the spelling from my countryman George Hewitt — Professor of Caucasian Languages at the School of Oriental and African Studies at London University.

Stalin did come from Georgia, so this would have been his original name — although malignant rumour suggested (and I think still suggests) that his father was an Ossete.

An interesting account of the background to recent developments in the Caucasus by Professor Hewitt is at http://www.circassianworld.com/News/Abkhazia_Kosovo.html

Of course he may be biased — I think his wife comes from Abkhazia.

My own origins are nothing so romantic — to take the name of an Old Testament prophet was not uncommon among devout nonconformists in South Wales.

The serious point is that one cannot study geoeconomics without studying geopolitics. And here, the devil really is in the detail.

It really is necessary to look at the complexities of ethnicity and religion in the Caucasus, as in Iraq — rather than assuming one is dealing with ‘nations’, in the sense that France for example is a ‘nation’.

Otherwise one ends up producing policies which create a shambles — as the U.S.and U.K. have done in Iraq.

Such a delight to see sane comments on Georgia plus an interesting way to spell Josef Wissarionovitch’s name. Hats off! You must be Caucasian.

If China stops lending then the dollar reserves become worthless. Also having mines and agricultural land throughout the world is useless because in order to get those resources to China, China either has to go overland through Russia or through sea lanes that can be blockaded by the United States. If China tries to sink the United States, then it risks having its overseas supply lines cut, making most of its resources useless. Also it means that China is now at the mercy of Russia, and that is not a good thing for China.

It’s in China’s national interest to maintain good relations with everyone so that if the US starts moving against Chinese interests, China can shift toward Russia, and if Russia starts moving against Chinese interests, China can shift toward the United States.

Blisex: It has surely not escaped the notice of the chinese leadership that it is only their loans that are keeping the USA financial system alive, USA consumption stable, and natural resource prices high.

Yes, and they are propping up the United States because it is in the Chinese national interest to do so.

Blisex: The chinese leadership probably have thought this ahead for a while, and as soon as they think that exports to the USA and transfers of productive capital and technology from the USA need to be subsidized anymore, they are going to pull the plug, and buy lots of nice natural resource assets.

No. That’s not the signal to pull the plug. China is only going to pull the plug on the United States if the United States does something that threatens Chinese territorial integrity. If the United States officially recognizes an independent Taiwan, then the plug will get pulled. Otherwise it won’t, since China needs to support of the US Navy to make sure that resources from the Middle East, South America, and Australia make it to China. If the US Navy blockades those shipments than owning resources is useless.