China, Global Recession, Oil And War

By G. Asgar Mitha

28 September, 2015
Countercurrents.org

Following email discussions with some recipients, I'd circulated a brief internal email regarding the subject expressing my opinion based on my experiences as a student of economics and having worked four decades in the North American and international oil and gas industry. My opinion expressed below is in response to those email queries to further elaborate on my take on the subject, particularly China and the global recession that seems to be in the making and the wars following economic recessions and recoveries.

Probably the best reference regarding China and the recession that I'd come across was a rather interesting article titled China is leading us into a global recession, warns Citi chief economist Willem Buiter.He should be taken seriously. At least I do. http://www.smh.com.au/business/markets/china-is-leading-us-into-a-global-recession-says-citi-chief-economist-willem-buiter-20150915-gjms00.html

Remember the 1980s Latin America's debt crisis known as "the lost decade" following the mid-70s US recession due to rocketing oil prices and inflation? Several Latin American countries had reached a point where their foreign debt exceeded their earning power and they were unable to repay those debts.The economic contraction in 1982 then caused the prices of oil (Latin America's largest export) to fall from US$40 to $10.Many countries also found themselves in a desperate liquidity crunch. I’d been a witness to the economic crunch in Alberta, Canada.

Or 17 years later remember the Asian economic flu of 1997? Japan and several Asian countries have not yet recovered. The Asian financial crisis was a period of financial crisis that gripped much of East Asia and raised fears of a worldwide economic meltdown due to the financial contagion. (Democratic President Bill Clinton cannot be credited for the large chest ($500 billion) of war funds which financed the series of Gulf wars; credit went to Greenspan).

Both were fuelled by a rally in the US dollar and the subsequent crash of the currencies in the aftermath of the rally.

As the Asian crisis spread, many of the Asian countries and Japan saw slumping currencies, devalued stock markets and other asset prices, and a rise in private debt (175% on a debt to GDP ratio).

It started with Thailand which had acquired huge foreign debt that made the country effectively bankrupt even before the collapse of its currency. Thailand was the weak link due to its debts.

Many other Asian countries even now are in similar positions as weak links because of foreign debt.

Both financial crises were not made in Asia or Latin America but in the US.

As the U.S. economy recovered from a recession in the early 1990s, the U.S. Federal Reserve Bank under Alan Greenspan began to raise U.S. interest rates to head off inflation.

18 years on is it now China's turn? It has started the devaluation of its yuan. Mr. Buiter is just the mouthpiece of the Feds firing the first warning shots.

The pattern of US interest rates increasing due to economic recovery, recent Chinese currency devaluation to protect its reserves and stock market meltdown seems to be repeating towards another economic "made in China" recession as Mr. Buiter rightfully warns. That'd benefit western economies as large hot capitals in US dollars will flow from Asia to North America and Europe. Several QEs (quantitative easing - dollar printing) from 2008 generated by US flowed as hot capitals from these countries towards East Asia and some other countries like China, India and Turkey but now the same hot capital will flow back into US and EU as interest rates start to increase in the US. This is how the US plans to once again shake down China's financial foundations. Japan in the 90s was not the weak link but Thailand was. Similarly China may not be the weak link but other Asian countries are.

There are cyclical patterns from the 1960s, 80s, late 90s and now from 2008. All follow US recessions, oil, debts, liquidities, recoveries, interest rate hikes, hot capital flows, currency devaluations and war.

Trillions of US dollars generated by QEs from the 2008 recession funded development of Asian countries. Its homecoming time for the US dollars and the Republican & Democratic cheerleaders are lined up with the guns. Will it be Trump? Not a chance as he is just the clown brought in for entertainment. Or will it be Jeb Bush? Excellent choice as many of the GOP contenders will drop out before the 2016 Cleveland convention. The 2016 Democratic convention will be held in Philadelphia. Will it be Hillary Clinton? She is another excellent choice. Both have Israel's blessings which could mean even bigger trouble for Shias and Sunnis getting engaged in a civil war accruing to the benefit of US, UK, France, Russia and China lined up to sell their military hard wares and realising economic gains.

Author Bio: I was born in pre-partition India in Mumbai. Three years after the partition, my family immigrated from Mumbai to Karachi, Pakistan. Following my secondary education, I proceeded to the United States in 1969 where I obtained my undergraduate degree in Chemical Engineering and post-graduate degree in Economics. I returned to Karachi in 1976, worked in an oil refinery and them immigrated to Canada in 1980. I worked in the oil and gas sector in Calgary, Alberta till 1993. Besides Canada and Pakistan, I've also worked in this important sector as a Process, Project and Technical Safety Engineering disciplines in several other countries such as Qatar, Libya, US, Yemen, France and UAE.