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07 January 2018


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Senior moment! Harry, not Henry


I suggest you read Major-General Qiao Liang on China's opinion of the imperial USD reserve system and their considered response.

Qiao Liang also wrote Unrestricted Warfare which can be downloaded at the 3rd link (the Naval War College) to the original translation. Couldn't get a proper link to it otherwise.

This was written in response to the 1991 Gulf war and is worth reading:

(...) its advocacy of a multitude of means, both military and particularly non-military, to strike at the United States during times of conflict.
Hacking into websites, targeting financial institutions, terrorism, using the media, and conducting urban warfare are among the methods proposed. In the Zhongguo Qingnian Bao interview, Qiao was quoted as stating that "the first rule of unrestricted warfare is that there are no rules, with nothing forbidden." Elaborating on this idea, he asserted that strong countries would not use the same approach against weak countries because "strong countries make the rules while rising ones break them and exploit loopholes . . .The United States breaks [UN rules] and makes new ones when these rules don't suit [its purposes], but it has to observe its own rules or the whole world will not trust it. (...)


The link above is also an excerpt

This Unrestricted Warfare by Qiao Liang should work for a few days from now.

The same but as a epub for phone or tablet. Unrestricted Warfare by Qiao Liang epub


Totally agree. As non American as we are profiting from things as they are. In the US though things are different. The ones profiting are a small subset of the population. Wall Street gamesters get to play with money they didn´t earn and the empire fantastists can reward yet more countries with market share in the US. After WWII it started quite mondestly with the West Europeans especially Germany, then Japan, Taiwan and South Korea and finally China. Everybody understands that you only have to nod to Uncle Sams latest crazy notions and you get to steal some more industry from him. But from a "deplorable" or "fly over country" perspective things look very different.
People who elected HIM weren´t stupid.



Well said!

I see a lot of whining on the part of some (mostly the chronic America haters) on what they deem "undue" privilege of the dollar-based financial system. But they don't want to recognize that there is also a cost to the US for having the global financial system primarily denominated in their currency.

As you and LondonBob correctly note reserve currencies don't happen overnight. It is because of deep liquidity and confidence borne through transactional experience that the system actually works that it derives it's strength. It is laughable when people on the Internet with no real experience in the plumbing of the financial system argue that reduction in petrodollar or more bilateral trade with China in yuan will destroy the "American Empire". Any time people start throwing around words like Empire you know that objectivity has left the station.

As you point out the problem with the dollar-based financial system is exactly the kind of abuse we have seen over the past few decades, where the financial architecture gets weaponized. This will naturally lead to other competitive systems that will start small and gain strength or fail based on actual transactional experience. This will be good as it is competition that begets better, more efficient and less expensive architectures. The nascent blockchain based architectures are a good example of how new systems can get introduced and then evolve or die based on real experience. Technology is a huge competitive factor.

IMO, one of the big problems with our current monetary system is fiat, because there is no anchor. We have seen that credit growth is unmoored to real productivity. Consequently systemic leverage keeps growing globally and there is no getting of this train easily, precisely due to the many leveraged structures. At some point, and there is no knowing how many further boom/bust cycles we go through, we will have another Bretton Woods.


I think Trump is genuinely looking to save money... I know that sounds weird but Trump is the anti-politician. The USA is not only broke, it's deep in debt and facing a potential currency crisis.

Yes, there's some justification for a lower US dollar in terms of forcing a re-balance of international trade but the USA cannot handle a rapidly falling US dollar nor a lack of confidence in government bonds. Don't imagine it could never happen. Part of this will be rising interest rates, but that means bigger payments for the US government and if they can't make the payments then something must give because there's not much space for higher taxes. The only other answer is for the US government to cut spending. It's the only escape from the "roach motel" that the Fed is sitting in.

Foreign aid gets very little in return and can be cut without significant consequence amongst the US voters in 2020. You can expect more cuts I'm sure.

Simultaneously Trump is encouraging arms sales internationally because he sees that as great revenue to US industry, more tax to collect, and improvement on balance of trade. He really is running this like a business, because that's what he knows how to do.

English Outsider

Thank you. We are in agreement, though as a worker in Finance you will have far better knowledge of what should be done to put the system right. I don't think, however, that it's essentially a system problem. In theory the financial system could run on tally sticks if it were run straight. But the best system won't work if it's not. That gets right back to the quis custodiet question and the answer to that is always us. The people. There can be no other guardians.

That's one reason why it was such a relief to see Trump elected. Some of the guardians were saying it's not being run straight and we're not bloody having it. Could only have happened in America.

But there's no reason why democracy shouldn't work as intended here, so if the rediscovery of democracy works in America there's always the hope we might catch the infection too.

On another point, I might be able to persuade you that "Empire" is a useful term. It's a portmanteau term that serves to indicate how countries deal with one another. It's when one country uses its superiority - military, industrial, technological - to impose on other countries a relationship that the other countries would not voluntarily accept.

As "Tom" above points out, and as I think you do, the benefits of empire for the home countries are largely restricted to the cronies and the costs are usually born by the rest of us. There are better and more profitable ways for countries to benefit from trading with each other. It prevents or inhibits organic political growth both in the subject nations and in the home country. As a defence arrangement there's something to be said for it but even there it's not a good long term bet.

Morally, of course, it's a loser. Recently the Colonel allowed me to quote from a retired British colonial administrator who'd seen and done the tail end of another empire - ours - in Palestine. This is his verdict, and he was no hothead but a practical official who'd seen it all:-

'... it's not your business or my business, or British business, or for anybody else to interfere in other people's countries and tell them how to run it, even to run it well. They must be left to their own salvation.'"

That brings us back fair and square to the subject from which we have strayed so far. TTG wants out of Afghanistan. It's only my interpretation, but in that I believe we see him looking at another facet of empire, weighing it all up, and deciding like that colonial administrator so long ago that empire is the wrong game to be in. Didn't Trump say something like that too?



Britain had an Empire. It received something from the colonies. It was a profitable enterprise. And they were administered by the British, rather well if I may say so.

Now compare it with the US post-war. We've spent trillions of dollars in Afghanistan and the Middle East, just in the past three decades. What did we take or receive on that "investment"? What was the ROI? Trump was ridiculed when he said we should have taken the oil. That at least would have some semblance of Empire. The actions you describe of pushing countries around and acting with impunity above international law are best described by the word, "bully", or something similar.

If you have read my posts here on SST you would know that I have always advocated that the US get out of all its military engagements around the world and focus it's doctrine on the defense of US territories and it's trading routes. We should have long gone from Afghanistan. The problem is that with the exception of Philippines and a few other places, we don't know how to do Empire. We don't have that kind of commitment. We are not willing to spend a century in Afghanistan running that place. And what would we get for that? In the 60s rather than financing the French colonial project in Indochina and then later intervening militarily we should have called it a day and returned from Europe and Asia.

The British diplomat you quote is spot on. It is on that principle of Westphalia that Europe had years of peace. Non-interference in the internal affairs of sovereign states is the foundation of the UN charter. That is exactly what George Washington advocated in his final speech as he left office. There always was a strong sentiment of military "isolationism" among the American people including during the great wars in Europe in the early 20th century. Unfortunately too many Rambo movies later the majority of my fellow citizens are easily seduced by the propaganda of the "war party" as my favorite politician Ron Paul calls the duopoly.

The world needs stability and the US needs it even more, especially to focus on its domestic needs and enable it's inherent strengths in innovation and enterprise to flourish.


A rapid falling dollar would create significant inflation so interest rates would probably rise but that doesn't mean real interest rates would also rise and that is what is important. What is important is the debt-to-GDP ratio and under normal circumstances GDP growth is 5% (2.5% growth and 2.5% inflation) Besides a lot of the debt is not owned by the "public" but the US government.

The tax-to-GDP ratio is in the US very low so taxes can definitely go up. This sounds more like my taxes should not go up. I understand that but that doesn't mean it is true.

US Foreign Aid has significant return on investment and is not a big expense. It is in fact tiny Problem with the US is also that most should not be included in the aid budget but in the defense budget.

Problem with modern arms is that the expensive stuff looks more like a tribute paid by a vassal state than a real arms buy because there are serious doubts that systems like the F35 can be used without permission from the US.


The problem is no one wants a strengthening currency. Falling dollar means strengthening Euro and Yen. Look at the contortions the Swiss have gone through to prevent the franc from appreciating relative to the euro.

English Outsider

Great. I'll go with all that. Except that as a foreigner I wouldn't call the US a "bully" of course. Let's just say that the American crony class gets around a bit. As, to be fair, does the UK crony class in its own small way and the French crony class too.

Here's what I can't go along with - "Britain had an Empire. It received something from the colonies. It was a profitable enterprise. And they were administered by the British, rather well if I may say so."

I agree that the British empire was profitable. The question is whether it would have been more profitable had there been what you and I would describe as normal trading relationships between the UK and its colonies. Would that have been better?

Obviously yes. Not as far as the early slave trade went - it's difficult to see how such a trade could ever have been part of a normal commercial relationship - but as far as the regular run of commerce went. Our model of sending out finished goods in return for raw materials and food was an unbalanced model and ultimately did us no good. Whether the later doctrine of Imperial Preference might have evolved into something more balanced isn't something we ever had time to find out - that's related to another problem with empires. They don't last.

The empire took an enormous toll on our administrative and political apparatus. All those colonial administrators we sent out - they were among the best and they weren't put to work at home. Too many of the politicians devoted their attention to the Great Game. If they'd put more effort into affairs here maybe we wouldn't have got the ossified and strife-ridden society of the later twentieth century.

All that was sensed at the time. As late as Gladstone many English were reluctant to divert resources and energy to empire. I suspect - I'm no historian let alone an economic historian, so take it or leave it - that empire was so hellish profitable for the cronies, and the cronies so much on top in politics, that we got empire whether we wanted it or not.

After we got it then all the factors kicked in that meant we kept it. Most of the intelligentsia, the academics and the press (stop me if you've heard this one before) swung into line automatically behind the Imperial status quo. Odd how they do that, I thought, last time I looked at the NYT. National pride - all that red on the map! It's all OURS - easily diverted to the new channels and the most poverty stricken and scrofulous ragamuffin in the Gorbals walked taller because he owned a quarter of the globe. And of course the fatal power of inertia kicked in too. Cronies looting the planet was us and we couldn't imagine any other way.

There are lots of excuses. Defence. If we hadn't done it the other bastards would have, and in general they did it worse - look at what the Belgians and the Germans got up to. The countries we dominated were either tribal backwaters or hopelessly corrupt and poorly administered. All that. But they're excuses, not justifications.

On the final point you're right that some areas "were administered by the British rather well". Some weren't. Let's leave it at that.

Lets also leave it at something we can again agree on. Every country has its own way of doing things, its own way of developing. Its own way of going forward if you'd like a bit of Oprah talk. It's wrong to attempt to impose that way on others, viciously wrong both for the one who does it and the one it's done to.



I couldn't agree with you more. To say there were no costs to Britain for Empire would be foolish. Nothing is black and white in the real world. Everything has both pros and cons.

I just don't believe America has an Empire in the classic sense. Do we throw our enormous weight around? Sure we do. Not an excuse but I think that history shows that all great powers throw their weight around. Why? That is an inquiry worthy of great scholars.


Ron Paul finds 'empire' a useful word to describe America's role in the world. He decries the use of military force and financial sanctions in pursuit of one world hegemony. The American Empire is extractive, even though this extraction is officially concealed as humanitarian intervention.

"Still the question remains, how long will that be since we can be certain that the end of the empire will come. Our military might and economic strength is now totally dependent on the confidence that the worldwide financial markets give to the value of the US dollar. In spite of all the reasons that the dollar will eventually be challenged as the world reserve currency, the competition, at present, by other currencies to replace it, is nil. Confidence can be related to objective facts such as how a country runs its fiscal affairs and monetary policy. Economic wealth and military strength also contribute artificial confidence to a currency. Perceptions and subjective reasons are much more difficult to define and anticipate. The day will come when the confidence in the dollar will be greatly diminished worldwide. Under those conditions the tremendous benefits that we in the United States have enjoyed as the issuer of the reserve currency will be reversed. It will become difficult if not impossible for us to afford huge budget deficits as well as very large current account deficits. National debt and foreign debt will serve as a limitation on how long the empire can last. Loss of confidence can come suddenly and overwhelmingly. Under those conditions we will no longer be able to afford our presence overseas nor will we be able to continue to export our inflation and debt to other nations. Then it will require that we pay for our extravagance, and market forces will require that we rein in our support for foreign, corporate, and domestic welfare spending."


That accrued current account deficit mentioned above is the forty year tribute of real goods and services extracted from the rest of the world to support the bloated lifestyle of a late stage and decadent empire.

The USA has 800 military bases on the territory of 70 or 80 foreign countries. It is hard to conceive of the USA as other than Empire, although few thought of such before Chalmers Johnson's "Blowback: The Costs and Consequences of American Empire".


Thank you for the link to Unrestricted Warfare by Qiao Liang. I am well into Qiao Liang's 'incisive and lucid thinking' about military affairs.



"The American Empire is extractive, even though this extraction is officially concealed as humanitarian intervention." Absolute bullshit! Give me an instance in which the US has seized anyone's assets rather that competing for them in business. What? United Fruit Company? pl


"Under those conditions the tremendous benefits that we in the United States have enjoyed as the issuer of the reserve currency will be reversed. It will become difficult if not impossible for us to afford huge budget deficits as well as very large current account deficits."
Ron Paul

As the Ron Paul quote suggests, the extractive mechanism is the use of the US Dollar as the world reserve currency, which transfers value from foreign economies to the US government. This unequal transfer of value is imperial tribute to do business or even exist in the empire.

Libya and Iraq were destroyed soon after they announced they were ending the use of the USD in their oil business. The US Empire sanctions or destroys whole nations to enforce the 'exorbitant privilege' or 'tremendous benefits' we receive or is it demand from the rest of the world.

"The Confessions Of An Economic Hit Man" by John Perkins might convince you the US Empire is extractive whether we call it humanitarian intervention, competing in business, or fighting terrorists; the result is the same. Pretty words do not cover the brutal reality of empire!



jpb, where are you from?




Oregon? Hmmm. The last time I was in Ashland and Medford and the Willamette Valley I didn't notice anyone living the Caligula lifestyle. Are you?


Jack, I just noticed an article on Mises,org about the USD's role as a world reserve and settlement currency, and the consequences of the rise of the Yuan for the future of the USD.



jpb, I've read this type of stuff for so long that it has kinda become boring. Would you please keep us posted when the Chinese make their capital account free and the Yuan is fully convertible?

BTW, the Mises Institute has some very good material. If you haven't, I suggest reading Human Action and contemplating it.

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