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Archive for the ‘World History’ Category

In the “Insight” segment of my series on the Five “I”s of History, I briefly introduced the idea of a new “Vectors” feature in the PHR blog.  The basic theme I had in mind for this segment was that a proper study of history gives us “insight” into how the world around us came to be and the processes that govern how history is unfolding around us.

In that original post I also hinted that the first example of a “vector” that I would be discussing is what I call the “debt aggregation vector.” This “vector,” in my view, is a key mechanism governing how the ongoing global economic crisis is unfolding.  Here is what it is and why it matters, using the obvious and instructive example of Spain–one of the global dominoes that is now falling before the US, and whose fate will be determined by the precise implementation of the debt aggregation mechanism…

Let’s start with the official Spanish Debt-to-GDP.  This is the number that news agencies usually talk about when discussing the solvency of national governments.  As per this article, and countless others, it hovers somewhere around 75 to 80%.

Not bad–compared to the US anyways, which is now over 100%–or Italy, at 137%–or Greece, somewhere around 170%.

The problem with these figures is that they do not incorporate the reality that is debt aggregation.

Every country that has a debt problem–there are no major economies that don’t!–has layers of private and public debt residing below those of its federal government, which–when push comes to shove–are being aggregated to the federal level by some mechanism or other.

In Spain, we see the reality of this with recent news about Catalonia demanding a bailout from the Spanish government.

As discussed on Mish’s Global Economic Trend Analysis (which Powell History recommends) –the federal response has been to propose to collectivize/aggregate regional debt into  “hispanbonos,” or joint bonds, to facilitate debt financing.   This will allow local governments to continued to live beyond their means for some time, avoiding any more “austerity” (in the form of cutbacks in government spending) at a time when the Spanish economy is already in a depression, and where the spending of local governments provides jobs and nominal GDP that no one can accept dropping any further.

But the debt aggregation mechanism keeping the Spanish economy afloat does not just pertain to local governments being bolstered by national ones.  There is another axis of debt aggregation.  Recently Spain announced it would nationalize the third largest Spanish bank, Bankia.  This will add 24 Billion dollars or more to its debt–who knows, the figure increases almost daily.  In a refrain that is familiar to Americans, Bankia is considered “too big to fail,” and Spain’s socialization of its debt is characterized by government officials as an “investment.”

Following not long after this bit of news, it became evident that not just Bankia, but rather the entire Spanish banking system was in need of a bailout.  The latest of 19 EU emergency meetings on the European financial/debt crisis was focused precisely on the question of debt aggregation.   Indeed the entire trajectory of the European Union over the next two-to-three years depends on the answer to the question: to aggregate, or not to aggregate.

That really is the question.

If Germany agrees to issue so-called “Eurobonds” and to supranationalize the banks in the European Union, then the market will be fooled into thinking a solution has been found, and there will be a sense of normalcy returning to the financial world for perhaps a couple years.  What debt aggregation buys is time.  It is what a lot of commentators call “kicking the can down the road.”

Of course, if Germany does not agree, then it’s financial Armageddon for Europe.  Already, French journalist Pierre Jovanovic (sorry, it’s in French!) has been feverishly documenting the aggressive measures being taken by French banks to prevent bank withdrawals in that country.  The bank runs in Greece and Spain being well documented already, it will only take the slightest indication that the banks are on their own, for them all to face the kind of mayhem we all remember from the movie “It’s a Wonderful Life.”  It’s not just George Soros, who recently weighed in on Bloomberg, who thinks the Euro experiment is at the edge of a cliff.

The entire financial market is begging for debt aggregation.  Spain’s debt financing, which is the measure of the market’s willingness to deal with Spain one-on-one, is becoming untenable.  With yields on Spanish 10-year bonds reaching for 7%, Spain needs a bailout of its own.  In the EU context national debt must be aggregated into supranational debt.

This is one of the favorite themes of new French president Hollande for propping up the Eurozone.  In this theory, all European borrowers can benefit from lumping their debt together with Germany, as the core economic powerhouse whose debt financing capability is (relatively) solid.  That way, profligate regions and nations can continue to pile on debt, while not having to pay the rates they otherwise would have to while bankrupting themselves.

Aggregation to this level in Europe is difficult, however, because the United States of Europe are not the federal equivalent of the United States of America.  Germans don’t want so-called “Eurobonds.”  Which is why different forms of more stealthy debt aggregation have been used already and will continue to be used.  The EFSF (“European Financial Stability Facility”) is supposedly morphing into the ESM (“European Stability Mechanism”), which will runs alongside the ELA (“Emergency Liquidity Assistance”) and LTRO (“Long Term Refinancing Operation”), and other sundry mechanisms concocted by central banking philosopher kings that the general populace cannot possible keep track of.  (Don’t think it’s just a European problem! How many Americans know the difference between QE1, QE Lite, QE2 and the Fed’s “Operation Twist”?)

Regardless, at some point, even though you can fool most of the people most of the time, you can’t fake reality.   The games governments are playing with the debt they have accumulated and the debt they have encouraged others to accumulate which they are now socializing lead only to one place: default.

Right now this only seems to be a problem for Greece and Spain.  But I invite every reader out there to go a little debt comparison shopping between the four largest economies in the world–Europe, the US, China and Japan.  If you’re American, and you’re worried about America’s debt, think about what debt aggregation will do to that debt, and how quickly the situation in America could get out of control.  California just voted to aggregate its debt to the federal level, by means of a phantom monorail.  And America’s most cash-strapped cities are now proposing to pay your student loans for you!  These and all the past and present debt-aggregation mechanisms that will pile more debt onto the federal government will eventually reach a dramatic end point.

Watch for it.  You’ll know when the next phase of the financial crisis is coming when debt-aggregation ceases to work.

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Japan has 54 nuclear reactors, but as of Saturday, not one of them will be in operation…

Before the 3/11 disaster, Japan relied on nuclear power for about 30% of its electricity, and there were plans to increase that to 50% by 2030 with the construction of new reactors.  Now what?

http://www.guardian.co.uk/environment/2012/may/03/japan-nuclear-power-closure

Chris Martenson, one of the experts I respect most on the topic of the on-going global economic crisis, has some thoughts about how to integrate Japan’s energy crisis within a broader framework.  Here’s his article:

http://www.chrismartenson.com/blog/japan-another-spinning-plate-global-economy-circus/72033

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Article 9 of the Japanese constitution reads:

Aspiring sincerely to an international peace based on justice and order, the Japanese people forever renounce war as a sovereign right of the nation and the threat or use of force as means of settling international disputes. To accomplish the aim of the preceding paragraph, land, sea, and air forces, as well as other war potential, will never be maintained. The right of belligerency of the state will not be recognized.

As many people are aware, this, along with other essential features of the current Japanese constitution (such as the renunciation of the divinity of the Japanese emperor) were imposed on Japan by the conquering power of the United States following World War II.

In his book Nothing Less than Victory historian John David Lewis explores how the overwhelming use of force brought about the enduring peace with Japan, and one can hardly argue with the results of American policy when assessing the past 60 years, with Japan apparently serving as a loyal subordinate of the United States since the beginning of the Cold War.

But what if we expand the context of our apperception somewhat to a longer continuum of Japan’s past, present and future?  Why is it that geo-political expert George Friedman predicts war between the United States and Japan by the middle of the 21st century in his book The Next Hundred Years?

A meaningful prediction of Japan’s conduct through the next hundred years must be grounded in a proper assessment of Japan’s last hundred years, especially its cultural response to the geopolitical supremacy of first Europe and now the United States.  In 1HFA5-1: The History of Japan, we will explore how Japan responded to the arrival of America’s “black ships” under the command of Commodore Perry in 1854 by trying to overturn that supremacy.  Then, one hundred years later still, during the American occupation of 1945-52, the Japanese struggled to define a new path by accepting it.  Why then, one hundred years later–by 2045 to be sure–as Friedman predicts, will Japan have likely returned to being an belligerent nation once again?

Japan certainly appears quiescent.   What happens, however, when it is forced to declare national bankruptcy within the next five years, due to a debt problem that far exceeds that of the United States and that can no longer be evaded?  What happens when Japanese industry cannot get the raw materials it needs because of expanded wars in the Middle East?  What happens when these factors combined with Japan’s demographic implosion force the Japanese to choose between an even more acute subordinacy in world affairs and the “glorious” hope of a Japan reborn through the “way of the warrior”?   The most essential traits of Japanese culture in the evolving context of American supremacy make a return to war almost inevitable!  Find out why in 1HFA 5-1: The “First History” of Japan for Adults(Pre-registration specials available until April 19.)

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As promised, I’m inviting former First History clients of Powell History to revisit their history studies to explore how to apply what they’ve learned.  The goal is to practice the arts of iteration and integration–two of the Powell History “Five ‘I’s of History.

Of course, anyone who is interested is welcome to participate. So here is the “pop quiz”…

In 1878, Japan was desperate to modernize its army to catch up with the West. It had originally turned to Britain for help in developing its navy, and France for help in developing its army. Now, however, it shunned the French model that it had been following since the mid-nineteenth century and adopted another. Whose model was it and why did the Japanese adopt it?

For students of 1HFA, Part 2: Europe – Context and Foil, the answer is found in lecture 15.

BONUS QUESTION: What is the significance of this shift in Japanese policy to its conduct in the World Wars?

[Answer(s) provided with the next PHR History Pop Quiz!]

Interested in developing an integrated of Western and Eastern civilization?  1HFA5: Japan, China, and India  is coming this summer, and pre-registration is now open (until April 19).

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The new Powell History website features pre-registration specials on 1HFA5: Japan, China, India and the New Era of the Balance of Power.

Pre-registration is open from April 5 – 19 only, and you can save from $20 to $120 by pre-registering, so don’t miss out!

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Yesterday, the first of 2500 American troops arrived in Darwin, Australia to engage in training with the Australian Defense Force.  The exercise is part of a new defense pact, the reasoning behind which is explained by Australian Defense Minister Stephen Smith:

“We see this very much as responding and reflecting the fact that the world is moving into our part of the world, the world is moving to the Asia-Pacific and the Indian Ocean…The world needs to come to grips with the rise of China, the rise of India, the move of strategic and political and economic influence to our part of the world.”

Here’s the full article in the NY Times.

One of the crucial themes of the upcoming First History for Adults, Part 5: Japan, China, and India will be the “balance of power” and why postmodernity makes this construct so disproportionately important.  (Full course descriptions and pre-registration will be available starting tomorrow!)

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Announcing the "First History" of Asia for Adults!

Western civilization has dominated the world for centuries now. Until the 20th century European empires spanned the globe, subordinating every other culture. Now America stands as the world’s sole superpower. When Columbus sailed in 1492, however, it was to reach Asian civilizations described by Marco Polo whose wealth and power were in advance of the West. Over the course of the Age of Discovery and subsequent colonial and imperial periods, an inexorable tide seemed to carry that wealth and power from East to West. However, if the world’s economists and historians are to be believed, that tide is reversing—and just as inevitably as before. But are the “experts” right? Will the 21st century will be the “Asian Century”?

Any valid prediction must be anchored in history. Thus, Powell History presents:

A First History of Asia for Adults, Part 5 – Japan, China, and India: The New Era of the Balance of Power


Here is a basic outline of the course, with details to follow soon…

Part 1: Japan

(Jul14 – Sep6:  8 weekly lectures — mark your calendar!  Times TBA)

An industrial powerhouse whose infrastructure and environment have recently been devastated; now a net importer with a staggering debt-to-GDP; how will Japan’s insular culture emerge from the multiple crises it faces in the next generation?

Part 2: China

(Sep – Oct 2012; 8 lectures; exact dates TBA)

The world’s most populous nation, second largest economy, and the greatest creditor nation in history. How will its codependency with the United States – the largest debtor nation in history – affect its fragile oppressive “state capitalist” system?

Part 3: India

(Nov – Dec 2012; 8 lectures; exact dates TBA)

The world’s 2nd most populous nation is projected to have the largest economy on earth by 2050. Is India the most western of the great Asian nations? How did its utter subordination to Britain and subsequent independence define its cultural trajectory?

PLUS: A FREE BONUS LECTURE! For students of all three course segments: Preparing for the New Era of the Balance of Power.

As with all Powell History courses in the past, the lectures will be given live, so live attendance is an option via Internet and telephone conferencing, and recordings will also be available in MP3 format and via iTunes.  This course will also be given using a new WebEx  format currently being used in HistoryAtOurHouse, which means there will be a visual component as well.

More information on the attendance options, formatting of the material, and pricing will be available prior to the launch of pre-registration April 5th.  Look for more news in forthcoming posts of PHR.

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