In western economics, to deal a recession usually depends on either the Classical Liberalism of Adam Smith (1723 – 1790), whose preference is laissez-faire or homeostasis, a choice for convenience in governing; or the Keynesianism of John Keynes (1883 – 1946), whose preference is government intervention with massive spending stimulus, even with deficit, a choice for necessary in governing. Smith’s approach would take longer and risk competitive ability lost in modern globalization. Most of economists, if not all in America, prefer Keynesian to deal this Great Recession. However, the monetary authority in America already reached its limit to stimulate the economy: due to liquidity trap and marginal efficiency of capital; and the Federal Reserve chief admitted recently that the US economy is not “out of the woods” yet. It appears that fiscal authority of Keynesian is the only way to continue the stimulus: including expenditures, revenues, and debt. We know Americans are short of revenues, for Americans have dire debt (near $900 billions owe to China); and we know massive expenditures ($700 billions in TARP and more $800 billions in stimulus) imply more debt while Americans cannot find enough revenues; and we know during a recession, taxation hike is not a favorite choice. So, the Americans are under pressures to find more revenues before the current stimulus money running out, in case of the economy is not “out of the woods” and the second stimulus is out of the question in near future.
Where is the money to increase revenues? This is not difficult to find out: China has hoarded $2.4 trillions foreign exchange reserves. That probably incurs US to call for a global economy rebalancing. Naturally, China is reluctant to give its money up in vain, some Chinese PLA generals called the Chinese government to use its monetary advantage to punish America for selling arms to Taiwan; and certain Chinese economist claimed to lift its currency peg in September, just before America’s mid-term election in November. It is clear that the Chinese Communist is trying to influence itself directly on American politics with its money power; and we know how the Chinese Communist treat its political slaves by using its power. Immanuel Kant (1724 – 1804) understood this danger of money power deeply. In his Perpetual Peace, which is the philosophical foundation of the League of Nations before and the United Nations now, Kant wrote:
The accumulation of treasure would have the same effect [in making war], for, of the three powers – the power of armies, of alliances, and of money – the third is perhaps the most dependable weapon. Such accumulation of treasure is regarded by other states as a threat of war, and if it were not for the difficulties in learning the amount, it would force the other state to make an early attack.
… [money power] is dangerous because it is a war treasure which exceeds the treasures of all other states; it cannot be exhausted except by default of taxes (which is inevitable), though it can be long delayed by the stimulus to trade which occurs through the reaction of credit on industry and commerce. This facility in making war, together with the inclination to do so on the part of rulers – an inclination which seems inborn in human nature – is thus a great hindrance to perpetual peace. …
Realizing the danger of the Chinese money power in this Stockholm syndrome, some Americans prefer the risk-control; others prefer the damage-control; and yet it had better not be a unilateral action by America alone, they argued. The risk-control is necessary, and that means to stay with your captor, and borrow more debt. But this financial war has been starting already, and the American is not in a good position, if not losing. The damage-control is inevitable, even this means to declare China a currency manipulator officially. Otherwise, Americans still risk money shortage in case of the economy is not “out of the woods” and there is no second stimulus bill to be passed. Either way, this odd couple’s relationship will be broken sooner or later, “though it can be long delayed by the stimulus to trade which occurs through the reaction of credit on industry and commerce.” Meanwhile, the Chinese government already starts to scheme its new “super-sovereign reserve currency” in its region, so what are the Americans waiting for? An invitation? Even if the Chinese yuan were fully convertible, the danger will be still there. The Chinese Communist is not a good partner for perpetual peace in any measures by Kantian.
While the American meditates, if not dithers, its best option, I am feeling bad for the Chinese Communist, for China’s 2.4 trillions foreign exchange reserves have not been benefiting those ordinary Chinese people, but those Chinese elites. This is obvious without “the consent of the [Chinese] citizens” (Immanuel Kant). For Kantian, people in this People’s Republic are subjects and not citizens; the ruler is proprietor and not a member of the state. While the American ebbs, if not withers, its capitalism, I am feeling bad for the American neoliberalist, for the American is losing not only its “most dependable weapon” – money power, but also its alliances’ expectation world-widely. It appears that the neoliberlist dries the American well to water the Chinese Communist soil. This would be too much even if the Chinese Communist were a good partner; and yet, it is hardly to believe that the Chinese Communist will not be “a great hindrance to perpetual peace” for Kantian.
