Thursday, March 25, 2010
Globalization 3.0, The Return Of The Hyperpower
The HIRE act opens an interesting and somewhat onerous new chapter for international relations. The most important trend to observe will be liquidity requirements from foreign (non-state owned, as Central Banks and their subsidiaries are exempt from the HIRE act) banks and the resulting volatility in flows of funds. If volatility for short-term financing spikes, continued global integration could suffer.
This is a bold move by the U.S. In effect it has drawn the line in the sand by wagering the dollar will continue to be the currency of choice for international capital markets transactions and the preferred reserve currency of the world's central banks. This is UNILATERAL fabrication of a new global financial system, one in which the U.S. dollar is the apex for all bank transactions. Transgressors will be denied capital denominated in the reserve currency with major implications for international funding.
As long as the rest of the world obeys the rule-sets the U.S. promulgates in this new System, it will remain the world's hyper-power.
But there are risks. The U.S. is leveraging its military and physical weapons advantage relative to the rest of the world ("ROW") into a new era of virtual financial weaponization. However, these two capabilities are intimately connected. The success of this new financial arrangement lies with the ability of the U.S. to project military force anywhere on the planet and achieve nominal victory within days. If the rest of the world senses weakness in this crucial capability, a "run on the bank" will ensue.
This is a very, very large gamble. The ROW will go along with this "treaty" ONLY as long as the U.S. continues its real world dominance. Thus, the U.S. will likely become more aggressive to countries that run contrary to its interests.
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