NotSoSuperPower

I’m sorry, see Gordon Brown, it isn’t so hard to say those words. I am sorry not to have posted an article for a couple of days, thus breaking my own first article of electronic faith, to always be current and relevant. This is achieved by responding quickly to events.

This response is precisely what our political leaders were trying to achieve in the G20 summit rehearsal when the finance ministers got together in the UK over the last few days.

The problem for both the British and American Finance Ministers are that their voices, usually so loud and well received, are now being argued with or straight out ignored. The financial masters of the governmental universe are suddenly mere mortals. The ultimate Superpower, the USA, doesn’t know how to react to being just another country in trouble.

Larry Summers, the head of the White House’s National Economic Council informed the rest of the countries that America expected them all to agree to the stimulus package worth about 2% of their national income. He patronizingly informed them that he looked forward to their compliance during the G20 meetings in Sussex.

Summers is a man well known for his abrasiveness and he is unpopular in the other capitals which he has visits. The first to publicly voice his criticism of Summers position is the head of the Eurogroup, Jean-Claude Juncker. He said that the US idea is, “not to our liking, Europe is not prepared to pile deficit on deficit.”

Perhaps more shocking is the fact that Germany and France, not so friendly lately, put aside their own scraps to combine in their rejection of American ideas.

Even Britain, normally a knee jerk ally of American plans, has become more cautious in its approach as its levels of public debt are already almost beyond measure.

More worrying still for America is that China is getting angry and impatient with America. Almost openly adopting the tone of an angry creditor the Chinese Premier Wen Jiabao stated, “We have made a huge amount of loans to the UK. Of course we are concerned about the safety of our assets. To be honest, I’m a little bit worried.” And this is the bit that should really be of concern to the once all powerful American government who he told, “to honor its words, stay a creditable nation and ensure the safety of Chinese assets.”

Remember China already has about $1 trillion, or half, of its entire foreign currency reserves held in US government debt. Shortly China will also have almost no option but to swallow whole the vast majority of the next $1.7 trillion of American bonds that it will be selling to finance America’s spending plans.

Effectively China is now America’s paymaster every bit as much as the IMF props up some of the broken economies of the busted countries in Africa. New US Treasury Secretary Geithner didn’t understand this. During his confirmation hearings the Secretary accused the Chinese of currency manipulation as if America could do something about this. Clearly he was factually correct as the Chinese were bringing down the value of their currency to suit their own economic needs. But new realities dictate a healthy respect for America’s enlightened self-interest.
Suddenly Geithner has “got it” as he talks up the burgeoning friendship between China and America. But in real terms, China is the big butch guy and America is the coy girl about to be deflowered. All we can hope for is that both sides will enjoy their get together when it gets horizontal.

Similarly America and Europe are both renouncing their monopoly of appointment power at the IMF. All of this is a huge reality check for the new world order in which the weaknesses of American and European economies is resulting in a readjustment Eastwards of the levers of political power. Some of America’s leaders haven’t understood this message but other will, including President Obama.

No one can know the results of this tectonic shift of powers, which will become self-evident over the coming year. All we can know is that it will be a very different world.