It was an important symbolic step in America’s transition from from a policy of self-defense to one of international policing.   “Teddy” claimed that his policies as president were derived from the Monroe Doctrine, the culminating foreign policy statement of the Founding Fathers.   In truth, however, he was the president most responsible for the dramatic shift in American foreign policy towards “making the world safe for democracy.” This resulted in its entanglement in first European, then Middle-Eastern, and — in the shift that will characterize the 21st century — far-Eastern affairs (beginning with Obama’s “pivot to Asia”).

The expansion of America’s capability to project force anywhere in the world was obviously a part of its shift towards actively engaging the world as a police power, and the Great White Fleet announced this capability to the world.

The “Great White Fleet”: Teddy’s “Big Stick”

In 2002, less than a hundred years later, the Chinese navy completed its first circumnavigation of the globe.   It was far less spectacular, to be sure, with the expedition consisting of a single missile destroyer and fueling ship.  Nonetheless, it was a statement, to be considered within a wider context of China’s changing conduct.

In 2008, Chinese navy vessels began operating in the Gulf of Aden against Somali pirates, in the first ever military deployment for China outside of the “Asia-Pacific” region.

In 2010, Chinese navy ships were deployed for the first time in the Mediterranean Sea, which, in consideration of world history seems to have an even greater symbolic significance than the prior circumnavigation.  Undoubtedly, they watched as Western powers overthrew the Libyan regime, and are there to gather as much intelligence when Syria is targeted.

In September 2011 the PLAN made further steps to a “blue water navy” when its first aircraft carrier, the rebuilt ex-Soviet carrier Varyag was deployed for sea trials.

That’s an interesting list of firsts.

In the explosive geo-political context of Asia, I’m struck by the following:  How long was it, after the US navy circumnavigated the world was it that the United States was playing the decisive role in World War I?  Ten years.

We are now ten years after the Chinese navy first did it.

To be sure, China has not indicated that it intends to police the world.  Wen Jiabao is no Teddy, and the world can be thankful for that. However, with virtually all of its oil flowing from the Indian Ocean into the Straights of Malacca, it is notable that China’s naval development is accelerating and its posturing for control of the South China Sea is increasing.

In the second installment of 1HFA5: Japan, China, India, and the New Era of the Balance of Power, we’ll be looking specifically at China, and its increasingly confident and aggressive response to subordination by the West.   We’ll explore the history of China, from its founding through to the present, in order to answer the question:  What is China?  And what will it do?  

It is perhaps the question of the 21st century.  It certainly is not a question Americans can afford to ignore.

Registration for this course segment, as well as the entire “First History” of Asia, is now open.

We’ll cover the story of China in eight lectures, once a week, starting September 22.  See the program webpage for details. Live classes using WebEx are available, along with podcast recordings, easily accessible through iTunes.

Registration is available here.

First, from Zero Hedge:

Valencia Announces SOS, Needs To Tap Government LIquidity Support Just Eurogroup Accepts Spanish Bailout Plan

Spain’s heavily indebted eastern region of Valencia said on Friday it would apply for help under the government’s 18 billion euro plan passed on Thursday aimed at helping regional finances.

This, just shortly on the heels of a Spanish bank rescue announcement, from Bloomberg:
Euro Finance Chiefs Give Final Approval to Spain Bank Rescue

Euro-area finance ministers gave final approval to as much as 100 billion euros ($122 billion) of bank aid for Spain, putting Greece back on the front line of the bloc’s crisis-fighting agenda.

Note that the “bank aid” is a loan, via the EFSF mechanism.  This is the essence of debt aggregation: with national “too big to fail” institutions given cheap money permitted by international collusion to keep them afloat.”

For the foreseeable future, Europe’s leaders will use debt aggregation to “kick the can down the road.”  It never ceases to amaze me that this works to assuage the financial markets, and how well it “works” to keep the economy going, but piling more debt onto already un-payable debt leads to only one place: default.    In a coming update, I’ll try to predict when that is going to happen, by dissecting Germany’s untenable position in the Eurozone from a historical perspective.

A Japanese nobleman prepares to kill himself. Why? Because he’d rather die than try to make sense of Japanese history using conventional sources!

The answer is Powell History’s “First History” method!  The first lecture of my new course on the  First History of Japan for Adults will be available FREE as a podcast, exclusively on Facebook, as of this Saturday!

Please join me at:  http://www.facebook.com/AFirstHistoryForAdults for the solution!

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.

To rate Japan A+ is generous, to say the least.  It is *impossible* for Japan to meet its obligations by growing its economy.  It is undergoing the early stages of a demographic implosion, and its economy is a shambles after the 3/11 disaster.  As Kyle Bass is well known for explaining, Japan’s financial situation is “spring loaded,” with disastrous consequences, if even the slightest changes occurs to its debt financing costs, and these changes are coming fast!  Here’s Bass, discussing the matter, in brief:

In my upcoming course, The First History for Adults, Part 5-1: The History of Japan, I will discuss how Japan got into its present predicament, what the essence of the present historical moment is for Japanese culture, and what the likeliest outcomes are that will shake the world in the 21st century.  The course starts July 14th, and discounted registration is still available!

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Thucydides is the first historian to explicitly identify that history should be pursued for the purpose of instruction, as I discussed recently here.  As a tribute to Thucydides, I thus refer to the objective pursuit of knowledge about the past–as opposed to the intrinsicist and subjective approaches–as “Thucydidean.”

http://historyatourhouse.podbean.com/2012/04/30/the-thucydidean-approach-to-history/

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

http://historyatourhouse.podbean.com/2012/04/23/subjectivism-vs-history/

Pre-registration for 1HFA5:  Japan, China, India and the New Era of the Balance of Power, and separate pre-registration for the first course segment: 1HFA5-1: The First History of Japan both close tomorrow, April 19.

Save up to $120 by pre-registering!