China and Russia Rising?

by Kevin D. Freeman on July 21, 2013

We’ve already covered at length the strategic relationship developing between China and Russia directly as well as through the BRICS group of nations.

Now, we are hearing repeatedly about the rise of China and Russia as economic powers. As our readers know, this is a global economic war and just about everyone (other than the American people) knows it. So, the rapid rise of China and Russia is an indication, at least to them, that they are winning.

China is emerging as the next superpower:

China seen surpassing U.S. in superpower shift

By Charles Riley  @CRrileyCNN July 18, 2013: 6:30 AM ET  HONG KONG (CNNMoney)

A new Pew Research Center survey of 38,000 people in 39 countries found the widespread belief that China is well on its way.

Overall, a majority or plurality of respondents in only six of the countries surveyed believe the U.S. will remain on top.

“Publics around the world believe the global balance of power is shifting,” Pew wrote. “China’s economic power is on the rise, and many think it will eventually supplant the United States as the world’s dominant superpower.”

In both the United States and China, an increasing number of respondents agree with this thesis . . . [To CONTINUE READING at CNN…]

Now, it is also reported that Russia is overtaking Germany as the fifth largest economy:

Russia overtakes Germany to become 5th largest economy

Posted By Business News Europe On 2:22 PM 07/17/2013 In Business | No Comments

Russia passed an important milestone on July 15, overtaking Germany to become the biggest economy in Europe in terms of purchasing power parity and the fifth biggest in the world.

This achievement comes on top of the World Bank’s decision a week earlier to upgrade Russia from a “middle-income” to a “high income” country after per-capita income passed the $12,700 mark.

Russia is now the only one of the five BRICS – Brazil, Russia, India, China, South Africa – that is a high-income country and no longer an emerging market.

Full Story: Russia overtakes Germany to become 5th largest economy

This is viewed as winning in the ongoing economic war. Of course, both China and Russia understand that as long as the world uses U.S. dollars as the primary reserve currency, no true victory is possible. That is why removing reserve status from the dollar has been frequently cited as a major goal, especially for Putin.

We also know from war games conducted at the Pentagon, if Russia and China team up to attack the dollar, they can accomplish that feat. We also know that Putin’s favorite professor came to that conclusion 15 years ago and the Russians were ready to try five years ago.

Keep in mind that both Russia and China use their Intelligence agencies to spread PR and propaganda as they see fit. So, we have to be aware that some of these reports may be intentionally placed as an Influence Operation.

We also know that China is experiencing serious domestic problems as they attempt to transition from an export-driven economy to a consumer-led one. As an exporter, the Chinese benefitted tremendously from having a strong U.S. dollar. But, a consumer-based economy would greatly benefit from having the Chinese Yuan as a reserve currency. So, while the Chinese have in the past been unwilling to attack the dollar, that may be changing. Evidence can be seen in China’s rapid accumulation of gold. Officially, Chinese citizens and the government have added tremendously to their gold reserves. More importantly, according to Jim Rickards, the unofficial acquisition of gold has been even greater. What are they hiding?

Now, according to Russian Press Reports, China may be prepared to back the Yuan with gold and take on the dollar:


China reportedly planning to back the yuan with gold

July 17, 2013 Marina Maksimova, special to RBTH Asia Pacific
Recent media reports suggest that Beijing is considering backing the yuan with gold. This decision, if taken, will likely affect China’s economy and may trigger a new wave of the global economic crisis. For Russia, however, such a scenario may have its benefits.

According to media reports of early July, the People’s Bank of China is mulling the possibility of phasing out the dollar as the reference currency for the yuan exchange rate, and to start using gold as the reference point . . .

Beijing’s possible move to back the yuan with gold . . . would be a flaunt aimed at demonstrating to the world (and to the USA in particular) that China is capable of taking the risks associated with a departure from the dollar standard.

Remember, all of this takes place in the context where China’s economy is in serious trouble. Are they willing to accept the pain of transition now as their export economy is on the ropes?

As we have documented, this economic war is nothing new. In fact, a century ago the same thing happened as Britain lost its status as the most powerful economy to the upstart United States. A recent PBS documentary on John Maynard Keynes made this point quite strongly. Read the following and substitute The current U.S. position for Britain’s from Keynes’ perspective. Then substitute today’s China for America then. [Keep in mind that at the time it was America acquiring gold. The British were saying that gold was unnecessary and that the British Pound should reign supreme for global financial transactions.] From PBS:

Two broad themes emerged that would become constants in Keynes’ thinking.

The first was that progress in global monetary reform consisted in the progressive diminution of the role of gold. Those who insisted that a reserve currency need take the form of a physical commodity were misguidedly backing “a relic of a time when governments were less trustworthy in these matters than they are now, and when it was the fashion to imitate uncritically the system which had been established in England and had seemed to work so well during the second quarter of the nineteenth century.” 

If ‘gold is at last deposed from its despotic control over us and reduced to the position of a constitutional monarch,’ Keynes pronounced with his trademark acerbic wit, ‘a new chapter of history will have opened. Man will have made another step forward in the attainment of self-government.’
The second theme was that London was the natural hub upon which global monetary reform could and should be built. Half the world’s trade at the time was financed by British credit, owing to the global reach of the empire and the reliably gold-backed pound sterling. London had thereby long thrived as the epicenter of world banking.
Unfortunately for Britain, however, World War I changed everything. Though America’s entry into the war in April 1917 seemed to ensure an ultimate Allied victory, it would clearly be one in which the old financial and monetary order, with Britain at its head, would not survive. The United States, Keynes fumed, seemingly delighted “in reducing us to a position of complete financial helplessness and dependence . . . In another year’s time, we shall have forfeited the claim we had staked out in the New World and in exchange this country will be mortgaged to America.” . . .
The most important implication of his argument, Keynes explained, was that the authorities should intervene actively and continuously to vary the supply of currency notes and the ratio of bank cash reserves to bank deposits. This was in marked contrast to the gold standard, the central villain of the peace in Keynes’ telling, wherein the authorities behaved much more mechanically in response to movements in the monetary gold stock across borders: when gold flowed in, they loosened credit, and when it flowed out, they tightened credit.
Deflation was a natural periodic result of this mechanism and was more damaging to employment in an environment of growing union power and worker political participation. Central banking, Keynes believed, should now “be regarded as a kind of beneficent technique of scientific control such as electricity and other branches of science are.”
Keynes acknowledged that the gold standard had performed admirably in the late 19th century, but insisted that conditions were decidedly different now. In particular, one of the many awful effects of the war was to transfer much of the world’s monetary gold to the United States. There was more than a tinge of jealous nationalism in Keynes’ assertion, however justified, that attempts to restore the gold standard, a “barbarous relic,” would lead to a “surrender [of] the regulation of our price level and the handling of the credit cycle to the hands of the Federal Reserve Board,” which had set up “a dollar standard … on the pedestal of the Golden Calf.”
The shift in financial power from London to New York and Washington, a threat to British financial independence and global influence, was to be a constant concern of Keynes, reflected even in his theoretical work, for the remainder of his career.
Now, it’s the Americans rejecting the virtues of gold while the Chinese are accumulating it. A century ago, America’s economy was preparing to transition from a regional manufacturing and export power to a global power with a growth in consumption after World War I. The British feared America much as many in the U.S. fear China today. And, as we have noted previously, the Americans and British even had contingent war plans if needed and an economic war was underway, hidden beneath the awareness of the general public.
History appears to be rhyming. Only this time, we are targeted to be on the losing side.

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