Don’t go West, young man

That’s it then. In the last 48 hours, the balance of world power shifted from West to East.

With Xinhua reporting China’s “demand” that the US address the structural deficit that drove S&P to withdraw the USA’s triple-A credit rating yesterday, the leverage across the Pacific finally changed direction. (There was the little matter of a $2 trillion rounding error, but a credit downgrade is a credit downgrade.)We all knew it was going to happen, but not quite this soon.

With much of the USA’s debt held by the Chinese government, Beijing now calls the shots – just as the roof over your head is ultimately there because your bank extended you a mortgage. Thanks to its UK-style profligacy in its public sector entitlements, its expensive war efforts, and its absurdly complex tax code that raises very little money, the USA has lost any power over China. And it lost it … yesterday.

I spent a lot of years in the Chinese world and like Chinese culture a lot, but this has nothing to do with Chinese characteristics – or indeed socialism. It’s realpolitik. One country manoevring for advantage in the shadows until it was time to press the button.

The West woke up this morning to a fundamentally changed world. And only time will tell if it was for the better.

 

 

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