Tuesday, October 18, 2016

American Foreign Policy and The Rest of the World

It's been a while since my last post (largely due to my activity in the political campaigns which's been eating up most of my time), but that post was primarily about the structure of international geopolitics, the rise of market-state empires, and how international deal-making takes place. I've also written about the liquidity flows across borders along with the financial implications of these shifts. This post will be about American foreign policy in this kind of a world.

We're currently in the middle of what's a Second Great Depression (with the United States being relatively insulated from the rest of the world). In Europe, half of it is in depression (Portugal, Italy, Ireland, Greece, Spain, much of Eastern Europe) with the other half in the middle of a massive bubble (Scandinavia, Germany, and others). A couple of years ago, I wrote about how there're serious underlying problems in the European banking system which've just now begun to surface (Deustche Bank is just the beginning). This post is about how the current unfolding events impact foreign policy, both domestically and internationally.

Middle East:
In the Middle East, we've got what's effectively a real-life shitshow. You've got several key players: Saudi Arabia, Iran, Turkey, and Israel who're the real powers of the region. Everywhere outside of their domain is basically a conflict amongst themselves. In Yemen, there's a complex proxy war between different power players that crosses across many factions. We see a similar phenomenon in Iraq with different kinds of rebels, Turks, Kurds, ISIS, and Assad loyalists grappling for power.

The one exception to this rule is in Syria, which is run by Assad and basically a puppet of the Kremlin. However, Syria's also involved in this chaos. We've seen a total breakdown of civil order across most of the region. When we see a collapse of civil order, we end up with warlords, which is what we've got. As I've written previously, ISIS is a warlord state. After the collapse of the Syrian nation-state which's mostly run by random warlords, Assad has now become another warlord.

In such a climate, it seems like the US has taken a balance of power approach that I suggested several years ago wherein the Americans fund all sides. As a side starts to become more and more powerful, the strategy is to divert support to others to maintain the balance of power. The balance-of-power strategy came out of the Iraq invasion which was simply deemed too costly to the American people.

Going forward, the most sensible strategy is a balance-of-power as it allows for flexibility to adapt in any scenario. I suspect this's what we continue to see for the next few decades. Any sort of invasion is simply too costly for American taxpayers to withstand while a total and complete pullout of the region risks giving foreign powers like Russia far more say in what happens over there.

Currently, most of Africa's in total and utter chaos. As I've discussed, most of the countries in Africa get their revenue from the exports of raw materials and commodities. I've also written about how such systems can (and have) created political and economic instability whilst making capital formation effectively impossible. Such systems've distorted African governments to the point where there's basically little hope. Also note that Africa's having a population surge while it's landscape is basically getting raped.

Due to the nature of what's going on in Africa, there's a real chance we see very large population corrections there. What does this mean? It means people who'll be forced to move (and die). There'll also be a landgrab for its resources from foreign powers--as I've also discussed before--where various empires effectively bring the area into their control.

Other than what I listed above, there's really not a whole lot of ways Africa's a factor in terms of foreign policy.

China and Southeast Asia:
I first wrote about China's economic and geopolitical problems a couple of years ago. China's currently in the midst of an economic transition where growth rates've fallen (which was one of the scenarios I listed); however, they haven't fallen as quickly as I thought they would've. With all that being said, Chinese growth rates continue to fall slowly although they're still rather high. The more China grows now, the less it'll grow later on. If you wonder why this must necessarily be the case, I reference you to my post about the structure of the Chinese financial system in relation to its economic growth model. The growth is simply not sustainable, it's founded on an unprecedented credit boom, and it looks more and more like Japan in the late 1980's as every day passes by.

Due to the structure of the Chinese financial system and its economic growth model, China's been forced to build an empire in order to satisfy its ridiculous demand for natural resources. This demand has been falling (as I said it would) for the past few years which's left commodity prices in the dumps (as I also said was likely). As growth rates fall and China's insatiable demand for natural resources becomes more satiable, the need for China to be externally focused will decline. Eventually, China's demand for commodities will fall, but it'll still exist. So what does that imply? It implies that China will still need to secure its trade routes, but it also implies China'll be more internally focused during its economic rebalancing.

The key issue of Chinese empire isn't so much the areas being effectively colonized (like Africa), but about the other linkages the Chinese economy has developed--mainly in Southeast Asia. China has currently been expanding its influence in Southeast Asia by building its islands, arming its fishing boats, using economic power to control countries in Southeast Asia, and via other means. In order to counterbalance this impact, the US will be increasing its presence in Southeast Asia whether or not the TPP gets through.

In other words, we'll be witnessing a strengthening of ties between the US and most Southeast Asian countries including Malaysia, Indonesia, Singapore, Vietnam, and others. We're already seeing the beginnings of this. As China's economic transition continues, they'll be relatively contained for the most part.

Russia and Second Cold War:
As of right now, the US is basically in a Second Cold War with Russia. The Russians've hacked into various political parties or certain candidate's (Hillary Clinton) campaign's personal files (like emails) and have published them on Wikileaks after slightly doctoring them in an effort to wage a disinformation campaign. These are the same kinds of tactics that were used by the Russians in the early Cold War era. There's also been several people from within our intelligence community who've leaked files and then took asylum in Russia (like Edward Snowden) who're likely traitors. Again, these are Cold War tactics.

In regions like Eastern Europe or in the Middle East (mainly Syria), we're seeing the Russian government build ties into insurgencies or with puppet regimes/dictators like in Ukraine. Of course, I wrote about this a couple of years ago as well. The US is taking up a containment policy (as I've discussed before) involving a series of Eastern European countries and Turkey, although Turkey's case is a bit different as they've gotten slightly more friendly to Russia as of late.

The Cold War went on for 45 years after World War II until it culminated in the fall of the Berlin Wall. This time around, Russia's much weaker and already in dire and desperate financial straits. Russia's current economy is almost entirely dependent on natural resources and commodity exports. Due to the current situation regarding commodity prices and the price of natural resources, Russia can't continue to sustain its empire.

So instead of a 40-45 year Cold War, we'll be looking at one that doesn't last longer than 20-25 years (probably much less than that). There's many scenarios and it's difficult to say exactly what happens, but the fragmentation of Russia is a real political risk. Either way, one thing is clear. Russia's reliance on natural resources and commodity exports is its primary weakness. This reliance limits the power Russia can wield and the scale of its empire.

Russia looks like it's in terminal decline and nearing its end. The Second Cold War could be Russia's last stand in its current form. A possible scenario for Russia is that it'll recede to the Muscovy territory, which was the domain of the Russian Empire in ~1600.

Liberal Democracies in Asia:
When I say the liberal democracies in Asia, I'm speaking about India, Indonesia, Malaysia, Japan, and other countries in Asia that're not located out of Central Asia. These countries have a history of friendly relations with the United States and I don't see that changing. Many of these countries (ex. India, Indonesia, Malaysia, etc) are developing countries with vibrant industries that're looking for foreign investment to build infrastructure or to invest in companies or communities or whatever else. The interesting part is that the US's the most capital-rich country in the world while currently running current account deficits; hence importing capital even though capital scarcity is no problem at all--which I've written as being one of the biggest problems the US and the world face due to the implied distortions in global financial markets.

So what we're likely to see are increased financial ties from countries like the US (and probably Japan) into the liberal democratic countries of South and Southeast Asia. As I've stated, China's getting more aggressive in South and East China Seas which's forcing a larger US imperial footprint in the region too. That larger imperial footprint is likely to coincide with a furthering of investments and financial/economic ties between these countries (after all, this's the purpose of TPP).

I've also written about how basically every "civil war" in Asia east of the Middle East is a proxy war between India and China. In this proxy war, the US will take the side of India and probably try to create an alliance of South and Southeast Asian countries (not allied with China like Pakistan or Sri Lanka) alongside of Japan and perhaps even South Korea.

I suspect we're likely to see a further expansion of missile defense systems and weapons deals with all of the liberal democratic countries in Asia, largely to ward off Chinese aggression. To gauge the impacts of this long-term are difficult cuz it'll depend on how the Chinese economic rebalancing takes place. Thus far, I'm assuming it'll be relatively neat. However, there's a chance such a rebalancing'll be rather messy which means China could be on the verge of fragmentation.

Overall, American foreign policy will likely be more restrained over the next decade than it's been in almost a full century. There's a population that seems weary of war, but there's also an empire that needs to be managed. The primary tools of engagement'll likely be financial measures used in most of the world. There'll still be weapons deals or alliances in strange ways, but there won't be much more than that.

I also expect the large US trade deficit to fall over the next decade or so, especially considering that 70% of the American trade deficit is from China alone and both Presidential candidates're now running on a platform of going after China's disregard for international trade agreements along with its repeated violations. I suspect the same could happen to Japan. Considering that 90% of the American current account deficit is with China and Japan, the current account deficit'll basically be eliminated. That'll mean we'll be seeing more net capital exports from the United States.

It's also important to note that ~70% American energy is sourced from North America and almost all of it's sourced from the Americas (the US produces half with rest coming primarily from Canada, Mexico, Colombia, and a handful of other places). The US no longer needs Middle Eastern oil nor does it need to import much energy, so there's less of a need to engage in a foreign policy to secure those resources.

With all that being said, the US will remain as the global leader, but it'll also be taking an international role that's effectively quasi-isolationist with a focus on financial ties with ideological allies or countries with liberal capitalist democratic systems of political economy.

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