“Every time there has been a severe crisis in the last six months, people have said this is the catastrophic event that signals the bottom. They said it after Bear Sterns, after Fannie and Freddie, after AIG. Each time they have called the bottom, and the bottom has not been reached.” – Nouriel Roubini, a.k.a. “Dr. Doom”
Where is the bottom? How far do we have to fall? According to Roubini, “The policy makers have lost control.” But the policy-makers never had control. The economy is a creature of its own, with laws of its own, where prosperity corresponds to freedom. It does not correspond to government edict. There is no politician who understands the economy. There is no government bureau that can bring prosperity. On every side, from economists and politicians, this truth has been forgotten. We hear politicians talk about “fixing” the economic problem. There is no “fix” that can be engineered by government. As Ludwig von Mises explained, “True, governments can reduce the rate of interest in the short run. They can issue additional paper money. They can open the way to credit expansion by the banks. They can thus create an artificial boom and the appearance of prosperity. But such a boom is bound to collapse soon or late and to bring about a depression.” [Omnipotent Government, p. 251]
Despite his nickname of “Dr. Doom,” Roubini says there isn’t going to be another Great Depression. The danger, he says, is long-term economic stagnation, or “stagflation.” However brilliant he may be, his analysis cannot trump the interest rate cuts and massive credit expansion of the last two decades. The bubbles in real estate and the stock market must burst. The financial consequences cannot be avoided. As one banker put it, “We have drunk the poison, now we must die.” The capitalist world is headed for an unprecedented crisis. It is a financial crisis, and it is also a strategic crisis. When the Great Depression took hold nearly eighty years ago, there were no nuclear powers. The militant nationalism of the German National Socialists, Japanese imperialists and Italian Fascists was not armed with ICBMs. Today, even a minor totalitarian power like North Korea has nuclear missiles. The political madness that springs up from a Great Depression follows its own laws, its own path of insanity. You think governments are rational entities? Governments are made of men, and men are irrational creatures – victims of delusion.
But sometimes, even the insanity of war carries a cold logic of its own. This column has previously discussed the statements of Chinese Gen. Chi Haotian, known to Chinese dissidents. In recent years China’s leaders have been quietly talking to party cadres about a future war with America. It is true that Chinese dissidents see this as a political tactic for derailing the democracy movement. It is more than a tactic, however, to tell the political elite of a country that war is coming. The Chinese leadership has not been blind to the financial problem inherent in the U.S. economy and, therefore, the related problem of the Chinese economy. It is time to revisit Gen. Chi’s speech titled “War is not far from us and is the midwife of the Chinese century.”
After affirming Deng Xiaoping’s dictum that “development is the hard truth” for China, Gen. Chi warned that economic development isn’t going to continue forever. “Our economic development is all about preparing for the need of war!” Chi declared. “Publicly we still emphasize economic development as our center, but in reality, economic development has war as its center!” Therefore, China’s economic development has a strategic purpose. It looks ahead to an inevitable crisis of national survival. “We have made a tremendous effort to build up,” he told his party comrades, “along our coastal and land frontiers as well as around large and medium-sized cities, a solid underground ‘Great Wall’ that can withstand a nuclear war. We are also storing all necessary war materials. Therefore, we will not hesitate to fight a Third World War, so as to lead the people to go out and to ensure the Party’s leadership position.”
The Chinese Communist leaders are not aiming at the creation of a successful market society. China will never enjoy the per capita consumption of the United States. “China’s great economic expansion,” noted Chi, “will inevitably lead to the shrinkage of per-capita living space for the Chinese people, and this will encourage China to turn outward in search for new living space.” Without specifically stating the obvious to a Communist gathering, Gen. Chi points to the inevitable crisis of capitalism, which is integral to the teachings of Marx, Lenin and Mao Zedong. Referring to the founder of Communist China, Gen. Chi stated, “Mao Zedong taught us that we must have a resolute and correct political orientation. What is our key to correct orientation? It is to solve the issue of America.” Such a statement may be “shocking,” yet there is logic in it. The situation of the Chinese ruling party suggests the necessity of outward expansion, and the United States stands in the way. “In the long run,” said Chi, “the relationship of China and the United States is one of a life-and-death struggle.”
The economic hardships faced by Germany in the 1920s and 30s led to the rise of the Nazis and their doctrine of lebensraum (i.e., living space). The Great Depression fueled the Nazi cause. Today China’s economic problems are far greater than Germany’s in 1932. China’s need for living space is urgent. The need for energy resources cannot be denied. In terms of solving these problems, America is the main obstacle. “Of course,” noted Chi, “right now it is not the time to openly break up with them yet. Our reform and opening to the outside world still rely on their capital and technology, we still need America.” But the day will dawn, inevitably and finally, when the flow of capital and technology from America reduces to a trickle. Then a war of unprecedented violence will begin, because the Communist Party of China doesn’t have a choice.
If China’s economy crumbles the Communists will be blamed. Therefore, the Communists must direct the animus of the Chinese people outward, against America. The Chinese Communists, noted Chi, must remember the dictum of Comrade Deng Xiaoping: “Refrain from revealing our ambitions and put others off the track.” According to Chi, the Chinese “must put up with America; we must conceal our ultimate goals, hide our capabilities and await the opportunity. In this way, our mind is clear. Why have we not updated our national anthem to something peaceful? Why did we not change the anthem’s theme of war?” The answer is obvious, explained the general. America must be defeated in a future conflict, and America will not see it coming. “Thus we will understand why we constantly talk loudly about the ‘Taiwan issue’ but not the ‘American issue.’ We all know the principle of ‘doing one thing under the cover of another.’ If ordinary people can only see the small island of Taiwan in their eyes, then you as the elite of our country should be able to see the whole picture of our cause.”
Three years ago a leading Chinese dissident, Wei Jingsheng, warned of a serious threat from China. According to Wei, Russia has agreed to China’s future military plans which include a possible nuclear strike against the United States. Regarding this testimony the CIA has corroborating intelligence, though few in Washington give it any credence. In 1998 a Russian military intelligence defector, Col. Stanislav Lunev, told journalists that Russia and China could defeat the United States in a future war. I was in the room when Col. Lunev, a military specialist trained in the Chinese language, stated that Russia has the missile power and China has the manpower to defeat America. This is an idea that would never occur to an American, and is difficult to for Americans to digest.
Before the Chinese government switches its policy from “working with America” to “fighting America,” Beijing’s economic applecart must be overturned. Already there are signs. Thousands of factories are closing in China. In Guangdong province 9,000 factories are shutting down because of the financial crisis in the United States, according to an Oct. 26 Epoch Times report. Signs of a shift in policy are in evidence. One only has to read the Chinese press, “US has plundered world wealth with dollar.” This article was published by the People’s Daily, the voice of the ruling Communist Party. It calls for “banishing the dollar” from global trade. Why would the Chinese government advance this message if their primary objective is to maintain future trade relations with the United States? Quite obviously, trade has been a temporary expedient for Beijing. The Chinese can shift their trade relations to Europe. Trade can be conducted without recourse to dollars. What Beijing wants is identical to Moscow’s goal in Europe. Divide Europe from America through economic and financial agreements. Isolate the United States and assure European neutrality in a future conflict.
It is no accident that the People’s Daily demands a new financial architecture for Europe and Asia. The Kremlin is making a push for the same thing. Next month President Dmitry Medvedev plans to unveil Russia’s plan for reorganizing the global financial system. Predictably, Medvedev’s plan will be supported by Beijing. The financial crisis opens a window of opportunity for America’s enemies. Soon enough it becomes a strategic crisis. As the markets continue to tumble, as the global economy contracts, the blame falls on America. Instead of the pre-war anti-Semitism of Hitler we have the pre-war anti-Americanism of Beijing and Moscow.
What is the catastrophic event that signals the bottom? I suspect it will be World War III. A military outbreak may be months or years away. Before this outbreak begins, Europe must be detached from America. Already the process is underway, initiated by Moscow; and this process craves wary watching. America’s leaders are presently distracted. All eyes are on the economy. But today’s crisis is not merely economic. It is a strategic crisis as well.