Category Archives: Economy/Monetary Reform

Saker interview with Michael Hudson on Venezuela, February 7, 2019

[This interview was made for the Unz review]

Introduction: There is a great deal of controversy about the true shape of the Venezuelan economy and whether Hugo Chavez’ and Nicholas Maduro’s reform and policies were crucial for the people of Venezuela or whether they were completely misguided and precipitated the current crises.  Anybody and everybody seems to have very strong held views about this.  But I don’t simply because I lack the expertise to have any such opinions.  So I decided to ask one of the most respected independent economists out there, Michael Hudson, for whom I have immense respect and whose analyses (including those he co-authored with Paul Craig Roberts) seem to be the most credible and honest ones you can find.  In fact, Paul Craig Roberts considers Hudson the “best economist in the world“!
I am deeply grateful to Michael for his replies which, I hope, will contribute to a honest and objective understanding of what really is taking place in Venezuela.
The Saker

The Saker: Could you summarize the state of Venezuela’s economy when Chavez came to power?

Michael Hudson: Venezuela was an oil monoculture. Its export revenue was spent largely on importing food and other necessities that it could have produced at home. Its trade was largely with the United States. So despite its oil wealth, it ran up foreign debt.

From the outset, U.S. oil companies have feared that Venezuela might someday use its oil revenues to benefit its overall population instead of letting the U.S. oil industry and its local comprador aristocracy siphon off its wealth. So the oil industry – backed by U.S. diplomacy – held Venezuela hostage in two ways.

https://i1.wp.com/dxczjjuegupb.cloudfront.net/wp-content/uploads/2019/02/Venezuelan-oil-reserves.jpgFirst of all, oil refineries were not built in Venezuela, but in Trinidad and in the southern U.S. Gulf Coast states. This enabled U.S. oil companies – or the U.S. Government – to leave Venezuela without a means of “going it alone” and pursuing an independent policy with its oil, as it needed to have this oil refined. It doesn’t help to have oil reserves if you are unable to get this oil refined so as to be usable.

Second, Venezuela’s central bankers were persuaded to pledge their oil reserves and all assets of the state oil sector (including Citgo) as collateral for its foreign debt. This meant that if Venezuela defaulted (or was forced into default by U.S. banks refusing to make timely payment on its foreign debt), bondholders and U.S. oil majors would be in a legal position to take possession of Venezuelan oil assets.

These pro-U.S. policies made Venezuela a typically polarized Latin American oligarchy. Despite being nominally rich in oil revenue, its wealth was concentrated in the hands of a pro-U.S. oligarchy that let its domestic development be steered by the World Bank and IMF. The indigenous population, especially its rural racial minority as well as the urban underclass, was excluded from sharing in the country’s oil wealth. The oligarchy’s arrogant refusal to share the wealth, or even to make Venezuela self-sufficient in essentials, made the election of Hugo Chavez a natural outcome.

The Saker: Could you outline the various reforms and changes introduced by Hugo Chavez? What did he do right, and what did he do wrong?

Michael Hudson: Chavez sought to restore a mixed economy to Venezuela, using its government revenue – mainly from oil, of course – to develop infrastructure and domestic spending on health care, education, employment to raise living standards and productivity for his electoral constituency.

What he was unable to do was to clean up the embezzlement and built-in rake-off of income from the oil sector. And he was unable to stem the capital flight of the oligarchy, taking its wealth and moving it abroad – while running away themselves.

This was not “wrong”. It merely takes a long time to change an economy’s disruption – while the U.S. is using sanctions and “dirty tricks” to stop that process.

The Saker: What are, in your opinion, the causes of the current economic crisis in Venezuela – is it primarily due to mistakes by Chavez and Maduro or is the main cause US sabotage, subversion and sanctions?

Michael Hudson: There is no way that’s Chavez and Maduro could have pursued a pro-Venezuelan policy aimed at achieving economic independence without inciting fury, subversion and sanctions from the United States. American foreign policy remains as focused on oil as it was when it invaded Iraq under Dick Cheney’s regime. U.S. policy is to treat Venezuela as an extension of the U.S. economy, running a trade surplus in oil to spend in the United States or transfer its savings to U.S. banks.

By imposing sanctions that prevent Venezuela from gaining access to its U.S. bank deposits and the assets of its state-owned Citco, the United States is making it impossible for Venezuela to pay its foreign debt. This is forcing it into default, which U.S. diplomats hope to use as an excuse to foreclose on Venezuela’s oil resources and seize its foreign assets much as Paul Singer hedge fund sought to do with Argentina’s foreign assets.

Just as U.S. policy under Kissinger was to make Chile’s “economy scream,” so the U.S. is following the same path against Venezuela. It is using that country as a “demonstration effect” to warn other countries not to act in their self-interest in any way that prevents their economic surplus from being siphoned off by U.S. investors.

The Saker: What in your opinion should Maduro do next (assuming he stays in power and the USA does not overthrow him) to rescue the Venezuelan economy?

Michael Hudson: I cannot think of anything that President Maduro can do that he is not doing. At best, he can seek foreign support – and demonstrate to the world the need for an alternative international financial and economic system.

He already has begun to do this by trying to withdraw Venezuela’s gold from the Bank of England and Federal Reserve. This is turning into “asymmetrical warfare,” threatening what to de-sanctify the dollar standard in international finance. The refusal of England and the United States to grant an elected government control of its foreign assets demonstrates to the entire world that U.S. diplomats and courts alone can and will control foreign countries as an extension of U.S. nationalism.

The price of the U.S. economic attack on Venezuela is thus to fracture the global monetary system. Maduro’s defensive move is showing other countries the need to protect themselves from becoming “another Venezuela” by finding a new safe haven and paying agent for their gold, foreign exchange reserves and foreign debt financing, away from the dollar, sterling and euro areas.

The only way that Maduro can fight successfully is on the institutional level, upping the ante to move “outside the box.” His plan – and of course it is a longer-term plan – is to help catalyze a new international economic order independent of the U.S. dollar standard. It will work in the short run only if the United States believes that it can emerge from this fight as an honest financial broker, honest banking system and supporter of democratically elected regimes. The Trump administration is destroying illusion more thoroughly than any anti-imperialist critic or economic rival could do!

Over the longer run, Maduro also must develop Venezuelan agriculture, along much the same lines that the United States protected and developed its agriculture under the New Deal legislation of the 1930s – rural extension services, rural credit, seed advice, state marketing organizations for crop purchase and supply of mechanization, and the same kind of price supports that the United States has long used to subsidize domestic farm investment to increase productivity.

The Saker: What about the plan to introduce a oil-based crypto currency? Will that be an effective alternative to the dying Venezuelan Bolivar?

Michael Hudson: Only a national government can issue a currency. A “crypto” currency tied to the price of oil would become a hedging vehicle, prone to manipulation and price swings by forward sellers and buyers. A national currency must be based on the ability to tax, and Venezuela’s main tax source is oil revenue, which is being blocked from the United States. So Venezuela’s position is like that of the German mark coming out of its hyperinflation of the early 1920s. The only solution involves balance-of-payments support. It looks like the only such support will come from outside the dollar sphere.

The solution to any hyperinflation must be negotiated diplomatically and be supported by other governments. My history of international trade and financial theory, Trade, Develpoment and Foreign Debt, describes the German reparations problem and how its hyperinflation was solved by the Rentenmark.

Venezuela’s economic-rent tax would fall on oil, and luxury real estate sites, as well as monopoly prices, and on high incomes (mainly financial and monopoly income). This requires a logic to frame such tax and monetary policy. I have tried to explain how to achieve monetary and hence political independence for the past half-century. China is applying such policy most effectively. It is able to do so because it is a large and self-sufficient economy in essentials, running a large enough export surplus to pay for its food imports. Venezuela is in no such position. That is why it is looking to China for support at this time.

The Saker: How much assistance do China, Russia and Iran provide and how much can they do to help?  Do you think that these three countries together can help counter-act US sabotage, subversion and sanctions?

Michael Hudson: None of these countries have a current capacity to refine Venezuelan oil. This makes it difficult for them to take payment in Venezuelan oil. Only a long-term supply contract (paid for in advance) would be workable. And even in that case, what would China and Russia do if the United States simply grabbed their property in Venezuela, or refused to let Russia’s oil company take possession of Citco? In that case, the only response would be to seize U.S. investments in their own country as compensation.

At least China and Russia can provide an alternative bank clearing mechanism to SWIFT, so that Venezuela can by pass the U.S. financial system and keep its assets from being grabbed at will by U.S. authorities or bondholders. And of course, they can provide safe-keeping for however much of Venezuela’s gold it can get back from New York and London.

Looking ahead, therefore, China, Russia, Iran and other countries need to set up a new international court to adjudicate the coming diplomatic crisis and its financial and military consequences. Such a court – and its associated international bank as an alternative to the U.S.-controlled IMF and World Bank – needs a clear ideology to frame a set of principles of nationhood and international rights with power to implement and enforce its judgments.

This would confront U.S. financial strategists with a choice: if they continue to treat the IMF, World Bank, ITO and NATO as extensions of increasingly aggressive U.S. foreign policy, they will risk isolating the United States. Europe will have to choose whether to remain a U.S. economic and military satellite, or to throw in its lot with Eurasia.

However, Daniel Yergin reports in the Wall Street Journal (Feb. 7) that China is trying to hedge its bets by opening a back-door negotiation with Guaido’s group, apparently to get the same deal that it has negotiated with Maduro’s government. But any such deal seems unlikely to be honored in practice, given U.S. animosity toward China and Guaido’s total reliance on U.S. covert support.

The Saker: Venezuela kept a lot of its gold in the UK and money in the USA.  How could Chavez and Maduro trust these countries or did they not have another choice?  Are there viable alternatives to New York and London or are they still the “only game in town” for the world’s central banks?

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Michael Hudson: There was never real trust in the Bank of England or Federal Reserve, but it seemed unthinkable that they would refuse to permit an official depositor from withdrawing its own gold. The usual motto is “Trust but verify.” But the unwillingness (or inability) of the Bank of England to verify means that the formerly unthinkable has now arrived: Have these central banks sold this gold forward in the post-London Gold Pool and its successor commodity markets in their attempt to keep down the price so as to maintain the appearance of a solvent U.S. dollar standard.

Paul Craig Roberts has described how this system works. There are forward markets for currencies, stocks and bonds. The Federal Reserve can offer to buy a stock in three months at, say, 10% over the current price. Speculators will by the stock, bidding up the price, so as to take advantage of “the market’s” promise to buy the stock. So by the time three months have passed, the price will have risen. That is largely how the U.S. “Plunge Protection Team” has supported the U.S. stock market.

The system works in reverse to hold down gold prices. The central banks holding gold can get together and offer to sell gold at a low price in three months. “The market” will realize that with low-priced gold being sold, there’s no point in buying more gold and bidding its price up. So the forward-settlement market shapes today’s market.

The question is, have gold buyers (such as the Russian and Chinese government) bought so much gold that the U.S. Fed and the Bank of England have actually had to “make good” on their forward sales, and steadily depleted their gold? In this case, they would have been “living for the moment,” keeping down gold prices for as long as they could, knowing that once the world returns to the pre-1971 gold-exchange standard for intergovernmental balance-of-payments deficits, the U.S. will run out of gold and be unable to maintain its overseas military spending (not to mention its trade deficit and foreign disinvestment in the U.S. stock and bond markets). My book on Super-Imperialism explains why running out of gold forced the Vietnam War to an end. The same logic would apply today to America’s vast network of military bases throughout the world.

Refusal of England and the U.S. to pay Venezuela means that other countries means that foreign official gold reserves can be held hostage to U.S. foreign policy, and even to judgments by U.S. courts to award this gold to foreign creditors or to whoever might bring a lawsuit under U.S. law against these countries.

This hostage-taking now makes it urgent for other countries to develop a viable alternative, especially as the world de-dedollarizes and a gold-exchange standard remains the only way of constraining the military-induced balance of payments deficit of the United States or any other country mounting a military attack. A military empire is very expensive – and gold is a “peaceful” constraint on military-induced payments deficits. (I spell out the details in my Super Imperialism: The Economic Strategy of American Empire (1972), updated in German as Finanzimperium (2017).

The U.S. has overplayed its hand in destroying the foundation of the dollar-centered global financial order. That order has enabled the United States to be “the exceptional nation” able to run balance-of-payments deficits and foreign debt that it has no intention (or ability) to pay, claiming that the dollars thrown off by its foreign military spending “supply” other countries with their central bank reserves (held in the form of loans to the U.S. Treasury – Treasury bonds and bills – to finance the U.S. budget deficit and its military spending, as well as the largely military U.S. balance-of-payments deficit.

Given the fact that the EU is acting as a branch of NATO and the U.S. banking system, that alternative would have to be associated with the Shanghai Cooperation Organization, and the gold would have to be kept in Russia and/or China.

The Saker:  What can other Latin American countries such as Bolivia, Nicaragua, Cuba and, maybe, Uruguay and Mexico do to help Venezuela?

Michael Hudson: The best thing neighboring Latin American countries can do is to join in creating a vehicle to promote de-dollarization and, with it, an international institution to oversee the writedown of debts that are beyond the ability of countries to pay without imposing austerity and thereby destroying their economies.

An alternative also is needed to the World Bank that would make loans in domestic currency, above all to subsidize investment in domestic food production so as to protect the economy against foreign food-sanctions – the equivalent of a military siege to force surrender by imposing famine conditions. This World Bank for Economic Acceleration would put the development of self-reliance for its members first, instead of promoting export competition while loading borrowers down with foreign debt that would make them prone to the kind of financial blackmail that Venezuela is experiencing.

Being a Roman Catholic country, Venezuela might ask for papal support for a debt write-down and an international institution to oversee the ability to pay by debtor countries without imposing austerity, emigration, depopulation and forced privatization of the public domain.

Two international principles are needed. First, no country should be obliged to pay foreign debt in a currency (such as the dollar or its satellites) whose banking system acts to prevents payment.

Second, no country should be obliged to pay foreign debt at the price of losing its domestic autonomy as a state: the right to determine its own foreign policy, to tax and to create its own money, and to be free of having to privatize its public assets to pay foreign creditors. Any such debt is a “bad loan” reflecting the creditor’s own irresponsibility or, even worse, pernicious asset grab in a foreclosure that was the whole point of the loan.

The Saker:  Thank you very much for taking the time to reply to my questions!

http://thesaker.is/saker-interview-with-michael-hudson-on-venezuela-february-7-2019/

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Huawei, 5G and the Fourth Industrial Revolution

Shooting Two Feet With One Bullet

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Wireless carriers around the world are sprinting to adopt 5G networks to power self-driving cars, virtual reality and smart cities. We’re talking about billions of devices on the same network, not just millions. First-adopter countries embracing 5G could sustain more than a decade of competitive advantage. Countries that adopt 5G first are expected to experience disproportionate gains in macroeconomic impact compared to those that lag. China’s Five-Year Plan calls for investing a further $400 billion in 5G and consequently, China may be creating a 5G tsunami, making it near impossible to catch up. Deloitte.

5G is a national productivity tool whose benefits, like those we derive from our railways, are less noticeable to end users yet critical to industry and commerce. 5G is 20 times faster than 4G, serves as the fast backbone of the “Internet of Things”(IoT), handles a million connected devices/km2 simultaneously with millisecond latency and uses power and radio frequencies more effectively with downloads of 20 gb/second, enabling smart factories and smart cities.

Gear based on the 5G stand-alone specifications, the standard China is pushing, is designed to run independently of 4G networks so operators will need to rebuild their core networks and buy new 5G base stations to provide higher data speeds and greater capacity, as well as ultra-reliable, low-latency services to support machine-to-machine connection and autonomous driving. Today, many new technologies like IoT and AI are ready for broad application and 5G technology itself is remarkably well developed. Once implemented, a 5G system provides an almost unimaginable increase in the capabilities of all internet-connected devices. Instead of new devices being standalone, they will create an internet-connected web of things to integrate their activities into an almost-living machine-machine and machine-human environment.

Imagine thousands of apps, billions of printable RF identifiers, millions of machine controls, automobiles and many processes that 5G’s low latency alone makes possible. 5G’s one millisecond reaction time is ten times faster than the human experience,which gives the man-machine interface a reactive ‘living’ feel. After a surgeon in China conducted the world’s first remote operation via a 5G network, Dr Michael Kranzfelder told the German Surgical College, “5G networks constitute a trend-setting technology which will play an important role in surgery and open many new applications for which the previous mobile data transmission standard was simply not fast enough.”

The 5G infrastructure market, $528 million in 2018, will grow at a 118 percent CAGR, reaching $26 billion in 2022. Direct and indirect outputs will reach $6.3 trillion and $10.6 trillion by 2030, according to IDC.

In return for millisecond latency, 10cm locational accuracy, blinding speed and wide bandwidth, 5G requires five times more cell sites than 4G. This is how installations stood at the end of 2018:

A crucial element of 5G deployment is the installation of new wireless sites, many of which must be placed on lamp posts and utility poles in densely populated areas. China dominates on that front. During 2017, China Tower, the state-owned cell phone tower operator, added 500 cell sites daily and now has two million wireless sites, compared to approximately 200,000 in the United States. “This disparity between the speed at which China and the United States can add network infrastructure and capacity bodes well for China’s prospects in the race to 5G,” Deloitte said.

Remarkably, only one company owns significant 5G intellectual property, controls its own silicon from end to end, produces all the elements of 5G networks–including proprietary chips–assembles and installs them affordably on a national scale: Huawei.

Non-Huawei customers must integrate more costly, less functional, less compatible and less upgradeable elements, pay twice as much, take twice as long to implement 5G and experience inferior service because Huawei produces every element of 5G systems and assembles turnkey networks–from antennas to the power stations needed to operate them to chips, servers and handsets–at scale and cost. It is literally unrivalled in enhanced mobile broadband.

Huawei employs 700 mathematicians, 800 physicists, 120 chemists and 6,000 fundamental researchers. Among its 87,805 patents, 11,152 core patents were granted in the US and the company has cross-licensing agreements for patents with many Western companies. Your Huawei phone is assembled with just 28.5 seconds of human labor in a high-end automated plant spread over 1.4 square km. Automation and technology upgrades have reduced the staff to 17 yet its more than 30 production lines produce 2 million smartphones every month:

In 2018 Huawei unveiled the world’s first 5G Base Station Chipset, Tiangang, which enables simplified 5G networks and large-scale network deployment. It makes breakthroughs in integration, computing capability and spectral bandwidth and supports the 200 MHz high spectral bandwidth required for future networks while running 2.5 times faster than existing products. Tiangang improves active antenna units (AAU) in a revolutionary way and cuts the weight of 5G base stations by half. Huawei has shipped over 25,000 5G base stations worldwide, deployed 5G networks in more than 10 countries and will deploy 5G in 20 countries in 2019.

Tiangang is not the company’s only trick. Andrei Frumusanu says Huawei’s semiconductor division, HiSilicon, is the only company to provide high-end competition with Qualcomm and, in some areas, is comfortably ahead. Its 7 nm Ascend 910 chipset for data centers is twice as powerful as Nvidia’s v100 and the first AI IP chip series to natively provide optimal TeraOPS per watt in all scenarios. Its 7nm ARM-based CPU, the Kunpeng 920 boosts the development of computing in big data, distributed storage, and ARM-native application scenarios by 20%. Its Kirin 980 CPU is the world’s first commercial 7nm system-on-chip (SoC) and the first to use Cortex-A76 cores, dual neural processing units, Mali G76 GPU, a 1.4 Gbps LTE modem and supports faster RAM. With 20 percent faster performance and 40 percent less power consumption compared to 10nm systems, it has twice the performance of Qualcomm’s Snapdragon 845 and Apple’s A11 while consuming 40% less power. The Kirin 980 fits 6.9 billion transistors on a chip no larger than a thumbnail. Huawei’s patented modem has the world’s fastest Wifi and its GPS receiver taps L5 frequency to deliver 10cm positioning and supports speeds up to 1.4Gbps and 2,133MHz LPDDR4X RAM.

Huawei’s 5G phone will launch in June this year. Apple will release its first 5G handset in September, 2020.

Beijing’s four telcos are spending 30 billion yuan (US$5.4 billion) on a 5G network in the city by 2022 and applying the technology to infrastructure like the new airport, the new satellite city and the 2022 Winter Olympics. The city, home to many of the country’s top tech companies, plans to achieve 200 billion yuan of 5G related revenue by 2022. Beijing has set up product innovation centers, special projects and manufacturing bases for developing the key components, including radio frequency parts and chips. The city aims to have its tech companies reach a 10 percent share in the global 5G component market. “Obtaining breakthroughs on developing core components for the 5G network and putting them into industrial use is the primary task for developing the 5G industry in the city,” says the mayor’s plan.

Xiongan New Area, a brand new city of six million located sixty miles from Beijing, which will welcome its first residents in 2020, is being wired for 5G. Residents will find no traffic lights, many autonomous vehicles, face recognition providing seamless access and be able to reach the capital via a driverless maglev train costing the same to build and operate as regular subways but traveling silently at 120 mph, with no moving parts. A literal city of the future, courtesy of 5G, Xiongan is designed to deliver the same relative productivity gains for its residents that the Industrial Revolution gave England’s in the 19th century.

The US labels Huawei a ‘security risk’ because Huawei gear protects the confidentiality of users’ communications: “Most of the personal data you store on your Huawei device (such as your photos, call logs, mailing list, messages, frequently visited websites, and so on) will be strictly protected. In addition, you will be clearly notified of any personal information being collected, and have complete control over the collection, processing, and sharing of your personal data. Without your authorization, your personal data will not be disclosed with any third parties.”

Snowden’s revelations suggest Huawei is more sinned against than sinning. The NSA’s ‘Tailored Access Operations’ unit broke into Huawei’s corporate servers and by 2010 was reading corporate emails and examining the source code in Huawei’s products.“We currently have good access and so much data that we don’t know what to do with it,” boasted one NSA briefing. Slides also disclosed that the NSA intended to plant its own backdoors in Huawei firmware. In 2014 the New York Times, Time and Reuters revealed that the NSA had infiltrated Huawei headquarters, monitored all of its executives and gone through the company’s entire data infrastructure.

One goal was to find links between Huawei and the PLA and the other was to find vulnerabilities so that the NSA could spy on nations through computer and telephone networks Huawei sold, as it did through Cisco’s, which had installed ‘back doors’ for the CIA. The Times said its story of operation Shotgiant was based on NSA documents provided by Edward Snowden. The NSA planned to unleash offensive cyber attacks through Huawei if ordered by the President, “Many of our targets communicate over Huawei-produced products. We want to make sure that we know how to exploit these products,” the Times quoted an NSA document as saying, to “gain access to networks of interest” around the world.

Bien Perez and Li Tao say, “The Chinese government wants every industry to use the most advanced infrastructure to upgrade productivity. This is a strategic agenda, and they think that 5G will help. China has very ambitious plans to promote the industrial internet of things, cloud computing and artificial intelligence (AI), the capabilities of which require the support of brand-new 5G networks. For example, self-driving cars require sensors, AI and roadside base stations for fast and reliable connectivity to allow vehicles to talk to each other to avoid collisions and avoid pedestrians. Today’s 4G networks cannot meet those quick response times.

China’s plan for an aggressive 5G roll-out is in line with the Made In China2025 road map. Initially, this focused on the domestic telecoms sector’s ability to increase broadband penetration nationwide to 82 per cent by 2025 as part of a push for industrial modernisation. Another objective was to see local suppliers making 40 percent of all mobile phone chips used in the domestic market. Under an updated version published in January, Beijing now wants China to become the world’s leading maker of telecoms equipment.

Smart factories will integrate the entire factory production process, arranging the smooth transfer from minimal energy, raw materials and water inputs and the just-in-time delivery of subcomponents to the optimised assembly line production of custom-designed-and-ordered by customers to the effective delivery of these products to the user and the continual (and maybe continuous) product reporting of its use, effectiveness and location. Smart cities will have driverless cars, buses and delivery trucks and ports and airports. The smart economy will have very fast HST intercity services, along with transparent data on the operation of mines, energy generation, transport, communications and government. Medical monitoring and the rise of the extended healthspan technology will free China from the dependency trap because people are likely to remain healthy all their lives using continuous medical assessment through an internet bangle.

President Trump has attacked the Made In China 2025 policy because the US, stuck in neoclassical macroeconomics, is committed to a system which not only does not produce the goods but also can’t afford the essential infrastructure required for the next major advance in the ongoing industrial revolution. The decision will put the Five Eyes countries ten years behind China in 5G and its associated technologies. The Germans correctly describe their version of China2025, Industrie04 as “the fourth industrial revolution.” The 5G stakes are so big that, if Germany rejects Huawei it risks committing economic suicide.

 

http://www.unz.com/article/huawei-5g-and-the-fourth-industrial-revolution/

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Escobar: MAGA Misses The Eurasia Train

Published: February 5, 2019

While China and Russia solidify their economic and political alliance, the U.S. is missing an historic chance to join a multilateral world, instead clinging to military empire…

We should know by now that the heart of the 21stCentury Great Game is the myriad layers of the battle between the United States and the partnership of Russia and China.

Even the U.S. National Defense Strategy says so: “The central challenge to U.S. prosperity and security is the reemergence of long-term, strategic competition by … revisionist powers.” The recently published assessment on U.S. defense implications of China’s global expansionsays so too.

The clash will frame the emergence of a possibly new, post-ideological, strategic world order amidst an extremely volatile unpredictability in which peace is war and an accident may spark a nuclear confrontation.

The U.S. vs. Russia and China will keep challenging the West’s obsession in deriding “illiberalism,” a fearful, rhetorical exercise that equates Russian democracy with China’s one party rule, Iran’s demo-theocracy and Turkey’s neo-Ottoman revival.

It’s immaterial that Russia’s economy is one-tenth of China’s. From boosting trade that bypasses the U.S. dollar, to increasing joint military exercises, the Russia-China symbiosis is poised to advance beyond political and ideological affinities.

China badly needs Russian know-how in its military industry. Beijing will turn this knowledge into plenty of dual use, civilian-military innovations.

The long game indicates Russia and China will break down language and cultural barriers to lead Eurasian integration against American economic hegemony backed by military might.

One could say the Eurasian century is already upon us. The era of the West shaping the world at will (a mere blip of history) is already over. This is despite Western elite denials and fulminations against the so-called “morally reprehensible,” “forces of instability” and “existential threats.”

Standard Chartered, the British financial services company, using a mix of purchasing power exchange rates and GDP growth, has projected that the top five economies in 2030 will be China, the U.S., India, Japan and Russia. These will be followed by Germany, Indonesia, Brazil, Turkey and the UK. Asia will extend its middle class as they are slowly killed off across the West.

Hop on the Trans-Eurasia Express

A case can be made that Beijing’s elites are fascinated at how Russia, in less than two decades, has returned to semi-superpower status after the devastation of the Yeltsin years.

That happened to a large extent due to science and technology. The most graphic example is the unmatched, state-of-the-art weaponry unveiled by President Vladimir Putin in his March 1, 2018speech.

In practice, Russia and China will be advancing the alignment of China’s New Silk Roads, or Belt and Road Initiative (BRI), with Russia’s Eurasia Economic Union (EAEU).

There’s ample potential for a Trans-Eurasia Express network of land and maritime transport corridors to be up and running by the middle of next decade, including, for instance, road and railway bridges connecting China with Russia across the Heilongjiang River.

Heilongjiang or Amur River separating China and Russia. (Wikimedia)

Following serious trilateral talks involving Russia, India and Iran last November, closer attention is being paid to the International North-South Transportation Corridor (INSTC), a 7,200-km long lane mixing sea and rail routes essentially linking the Indian Ocean with the Persian Gulf through Iran and Russia and further on down the road, to Europe.

Imagine cargo transiting from all over India to the Iranian port of Bandar Abbas, then overland to Bandar Anzali, an Iranian port on the Caspian Sea, and then on to the Russian southern port of Astrakhan, and after that to Europe by rail. From New Delhi’s point of view, that means shipping costs reduced by up to 40 percent, and Mumbai-to-Moscow in only 20 days.

Down the line, INSTC will merge with BRI – as in Chinese-led corridors linked with the India-Iran-Russia route into a global transport network. 

This is happening just as Japan is looking at the Trans-Siberian Railway – which will be upgraded throughout the next decade – to improve its connections with Russia, China and the Koreas. Japan is now a top investor in Russia and at the same time very much interested in a Korea peace deal. That would free Tokyo from massive defense spending conditioned by Washington’s rules. The EAEU free trade agreements with ASEAN can be added to that.

Especially over these past four years, Russia has also learned how to attract Chinese investment and wealth, aware that Beijing’s system mass-produces virtually everything and knows how to market it globally, while Moscow needs to fight every block in the book dreamed up by Washington.

The Huawei-Venezuela “Axis of Evil

Metal Truss Railroad Bridge (Kama River, near Perm city). Early color photograph from Russia, created by Sergei Mikhailovich Prokudin-Gorskii as part of his work to document the Russian Empire from 1909 to 1915. (Wikimedia)

While Washington remains a bipartisan prisoner to the Russophobic Platonic cave – where Cold War shadows on the wall are taken as reality – MAGA is missing the train to Eurasia.

A many-headed hydra, MAGA, stripped to the bone, could be read as a non-ideological antidote to the Empire’s global adventurism. Trump, in his non-strategic, shambolic way, proposed at least in theory the return to a social contract in the U.S. MAGA in theory would translate into jobs, opportunities for small businesses, low taxes and no more foreign wars.

It’s nostalgia for the 1950s and 60s before the Vietnam quagmire and before “Made in the USA” was slowly and deliberately dismantled. What’s left are tens of trillions of national debt; a quadrillion in derivatives; the Deep State running amok; and a lot of pumped up fear of evil Russians, devious Chinese, Persian mullahs, the troika of tyranny, the Belt and Road, Huawei, and illegal aliens.

More than a Hobbesian “war of all against all” or carping about the “Western rules-based system” being under attack, the fear is actually of the strategic challenge posed by Russia and China, which seeks a return to rule by international law.

MAGA would thrive if hitched to a ride on the Eurasia integration train: more jobs and more business opportunities instead of more foreign wars. Yet MAGA won’t happen – to a large extent because what really makes Trump tick is his policy of energy dominance to decisively interfere with Russia and China’s development.

The Pentagon and the “intel community” pushed the Trump administration to go after Huawei, branded as a nest of spies, while pressuring key allies Germany, Japan and Italy to follow. Germany and Japan permit the U.S. to control the key nodes in the extremities of Eurasia. Italy is essentially a large NATO base.

The U.S. Department of Justice requested the extradition of Huawei CFO Meng Wanzhou from Canada last Tuesday, adding a notch to the Trump administration’s geopolitical tactic of “blunt force trauma.”

Add to it that Huawei – based in Shenzhen and owned by its workers as shareholders – is killing Apple across Asia and in most latitudes across the Global South. The real the battle is over 5G, in which China aims to upstage the U.S., while upgrading capacity and production quality.

The digital economy in China is already larger than the GDP of France or the UK. It’s based on the BATX companies (Baidu, Alibaba, Tencent, Xiaomi), Didi (the Chinese Uber), e-commerce giant JD.com and Huawei. These Big Seven are a state within a civilization – an ecosystem they’ve constructed themselves, investing fortunes in big data, artificial intelligence (AI) and the internet. American giants – Facebook, Instagram, Twitter and Google – are absent from this enormous market.

Moreover, Huawei’s sophisticated encryption system in telecom equipment prevents interception by the NSA. That helps account for its extreme popularity all across the Global South, in contrast to the Five Eyes (U.S., UK, Canada, Australia, New Zealand) electronic espionage network.

The economic war on Huawei is also directly connected to the expansion of BRI across 70 Asian, European and African nations, constituting a Eurasia-wide network of commerce, investment and infrastructure able to turn geopolitical and geo-economic relations, as we know them, upside down.

Greater Eurasia Beckons

Whatever China does won’t alter the Deep State’s obsession about “an aggression against our vital interests,” as stated by the National Defense Strategy. The dominant Pentagon narrative in years to come will be about China “intending to impose, in the short term, its hegemony in the Indo-Pacific region, and catch the United States off-guard in order to achieve future global pre-eminence.” This is mixed with a belief that Russia wants to “crush NATO” and “sabotage the democratic process in Crimea and Eastern Ukraine.”

The Karakoram Highway connecting China and Pakistan, sometimes referred to as the Eighth Wonder of the World.(Wikimedia)

During my recent travels along the northern part of the China-Pakistan Economic Corridor (CPEC), I saw once again how China is upgrading highways, building dams, railways and bridges that are useful not only for its own economic expansion but also for its neighbors’ development. Compare it to U.S. wars – as in Iraq and Libya – where dams, railways and bridges are destroyed.

Russian diplomacy is all but winning the New Cold War — as diagnosed by Prof. Stephen Cohen in his latest book, War with Russia: From Putin and Ukraine to Trump and Russiagate.

Moscow mixes serious warnings with diverse strategies, such as resurrecting the South Stream gas pipeline to supply Europe as an extension of Turk Stream after the Trump administration also furiously opposed the Nord Stream 2 pipeline with sanctions on Russia. Meanwhile, Moscow ramps up energy exports to China.

The advance of the Belt and Road Initiative is linked to Russian security and energy exports, including the Northern Sea Route, as an alternative future transportation corridor to Central Asia. Russia emerges then as the top security guarantee for Eurasian trade and economic integration.

Last month in Moscow, I discussed Greater Eurasia– by now established as the overarching concept of Russian foreign policy – with top Russian analysts. They told me Putin is on board. He referred to Eurasia recently as “not a chessboard or a geopolitical playground, but our peaceful and prosperous home.”

Needless to say, U.S. think tanks dismiss the idea as “abortive”. They ignore Prof. Sergey Karaganov, who as early as mid-2017 was arguing that Greater Eurasia could serve as a platform for “a trilateral dialogue on global problems and international strategic stability between Russia, the United States and China.”

As much as the Beltway may refuse it, “The center of gravity of global trade is now shifting from the high seas toward the vast continental interior of Eurasia.”

Beijing Skirts the Dollar

Beijing is realizing it can’t meet its geo-economic goals on energy, security, and trade without bypassing the U.S. dollar.

According to the IMF, 62 percent of global central bank reserves were still held in U.S. dollars by the second quarter of 2018. Around 43 per cent of international transactions on SWIFT are still in U.S. dollars. Even as China, in 2018, was the single largest contributor to global GDP growth, at 27.2 percent, the yuan still only accounts for 1 percent of international payments, and 1.8 per cent of all reserve assets held by central banks.

It takes time, but change is on the way. China’s cross-border payment network for yuan transactions was launched less than four years ago. Integration between the Russian Mir payment system and Chinese Union Pay appears inevitable.

Bye Bye Drs. K and Zbig

Russia and China are developing the ultimate nightmare for those former shamans of U.S. foreign policy, Henry Kissinger and the late Zbigniew “Grand Chessboard” Brzezinski.

Back in 1972 Kissinger was the mastermind – with logistical help from Pakistan – of the Nixon moment in China. That was classic Divide and Rule, separating China from the USSR. Two years ago, before Trump’s inauguration, Dr. K’s advice dispensed at Trump Tower meetings consisted of a modified Divide and Rule: the seduction of Russia to contain China.

The Kissinger doctrine rules that, geopolitically, the U.S. is just “an island off the shores of the large landmass of Eurasia.” Domination “by a single power of either of Eurasia’s two principal spheres – Europe or Asia – remains a good definition of strategic danger for America, Cold War or no Cold War,” as Kissinger said. “For such a grouping would have the capacity to outstrip America economically and, in the end, militarily.”

The Zbig doctrine ran along similar lines. The objectives were to prevent collusion and maintain security among the EU-NATO vassals; keep tributaries pliant; keep the barbarians (a.k.a. Russians and allies) from coming together; most of all prevent the emergence of a hostile coalition (as in today’s Russia-China alliance) capable of challenging U.S. hegemony; and submit Germany, Russia, Japan, Iran, and China to permanent Divide and Rule.

Thus the despair of the current National Security Strategy, forecasting China displacing the United States “to achieve global preeminence in the future,” through BRI’s supra-continental reach.

The “policy” to counteract such “threats” is sanctions, sanctions, and more unilateral sanctions, coupled with an inflation of absurd notions peddled across the Beltway – such as that Russia is aiding and abetting the re-conquest of the Arab world by Persia. Also that Beijing will ditch the “paper tiger” “Made in China 2025” plan for its major upgrade in global, high-tech manufacturing just because Trump hates it.

Once in a blue moon a U.S. report actually gets it right, such as in Beijing speeding up an array of BRI projects; as a modified Sun Tzu tactic deployed by President Xi Jinping.

At the June 2016 Shangri-La Dialogue in Singapore, Professor Xiang Lanxin, director of the Centre of One Belt and One Road Studies at the China National Institute for SCO International Exchange and Judicial Cooperation, defined BRI as an avenue to a “post-Westphalian world.” The journey is just beginning; a new geopolitical and economic era is at hand. And the U.S. is being left behind at the station.

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