The Biden Administration Turns to China

Now, as we await the Rome meeting of National Security Advisor Jake Sullivan and his Chinese counterpart, we turn to David Goldman for an analysis of the situation.

We recall that China is the root of all evil-- or, at least, was until Vladimir Putin decided to level Ukraine-- and we had been so thoroughly outraged by the way China was treating its Uyghur minority that we branded it a genocidal regime. 

And then, it came about, by the vagaries of international chess games, that the Russian army was poised a few weeks ago to invade Ukraine. So the Biden administration put in a call to their genocidal Chinese counterparts, asking them perhaps to intervene, to ask their friend Vladimir to put on the brakes.

The response-- not merely did the Chinese ignore our most earnest entreaties; they passed on whatever intelligence we shared, to Russia.

If you think that the propaganda war against China has no real impact on international relations, you should think again.

So, we are currently engaged in a financial war against Russia. You know all about the punishing sanctions that the Biden administration and Western Europe has visited on Russia, on Russian oligarchs and on everything labeled Russian, the world over. Dare I say that the idea of punishing people feels like an error, as in, treating nations like obstreperous children. Dare we mention, as we often have, that Russia and Ukraine feed much of the world. What effect will the spike in fertilizer prices and the stopping of grain shipments have on the world? Again, Paul Krugman says not to worry, so we will worry.

So, the question arises: Ought we to be worried about the impact of these sanctions on the American dollar and on the international financial system? Paul Krugman says we need not be, so that means that we need be.

Goldman offers the views of some senior authorities in the world of monetary policy:

Another concern for Washington is the knock-on effect of “nuclear” financial sanctions against Russia, which froze most of the country’s $630 billion in foreign exchange reserves.

Prominent economists including Harvard’s Kenneth Rogoff, the International Monetary Fund’s former chief economist, have warned that an unprecedented seizure of official reserves on this scale might destroy confidence in the US dollar system.

So, we are risking confidence in the dollar. That is, we are risking the dollar's reserve status.

Again, Krugman does not think that this is a problem. But then again, what is the time frame? It might not be a problem today-- until Russia either defaults on debt payments or decides that it going to pay its debts in roubles-- but, what about tomorrow?

Goldman continues:

William Pesek (“Russia sanctions threaten to backfire on the buck”) and this writer (“Gold will soar as China seeks US dollar alternatives”) reported on this earlier for Asia Times.

And then, since everyone seems to care mightily about what one Zoltan Poszar thinks-- have you noticed that no one cares any more about what Paul Krugman thinks, given that he has sacrificed his credibility in order to emerge as a propagandist-- we follow Goldman in reporting his thoughts:

Credit Suisse analyst Zoltan Poszar, one of the most followed money-market observes on Wall Street, warned in a note last week to clients that the backlash against the reserves seizure might destroy the existing monetary framework, “creating a “Bretton Woods III backed by outside money,” (gold and other commodities).

Poszar wrote: “We are witnessing the birth of Bretton Woods III – a new world (monetary) order centered around commodity-based currencies in the East that will likely weaken the Eurodollar system and also contribute to inflationary forces in the West.”

Happily enough, the people who do not know anything are happy that we are being so tough on Russia. For the Biden administration, notable for its pathetic weakness, it's a good look.

And yet, Goldman argues that the Jake Sullivan trip to Rome, where he will beg Chinese officials to intervene suggests that he or someone in the administration is aware of the risks involved:

The US has assumed enormous strategic and economic risks to contain Russia. That explains the extraordinary decision of the US National Security Adviser to fly to Rome at the high point of a global crisis, and talk to China at a nadir in Sino-American relations.

How will China react, given the massive international financial war against its friend in Russia? It will probably play both ends against the middle, as the old saying goes.

A Southeast Asian senior statesman with long experience negotiating with Beijing predicts that China will decline any offer to “mediate” between Ukraine and Russia, but instead offer to “facilitate discussions.” The distinction is important; it allows China to claim the benefit of any success without taking ownership of a negotiating process that might fail.

This feels like the current Chinese position. Allow the West to destroy itself and await the chance to pick up the pieces.

We need to note, Goldman says, that this represents the emergence of China as a major player in the game of diplomatic chess. No longer the genocidal nation, but now the respected participant. Which is what China wanted all along, anyway.

Whatever emerges from the Rome meeting, a diplomatic revolution will have taken place. After enduring years of diplomatic opprobrium over territorial demands in the South China Sea, the handling of Hong Kong, the treatment of the Uighur minority, and so forth, China will step into the global spotlight as an indispensable participant in the search for a solution to the world’s most dangerous international crisis in a generation.