400 million Chinese middle-class consumers, the War on Drugs, and the future of the USD


I think that the story of China up until now has been that it’s mainly been an export driven economy where they basically exist to service the US consumer. I think we’re at a kind of inflection point where the story starts to change and more and more, the economy of China, and not only China, but of Asia generally, are gonna be more focused on servicing a growing Asian middle class.

CLSA, which is known as Asian investing specialists, put out a report called The Future of Asia is Domestic. They had the number of Asians with disposable income of $3,000.00 annually – $3,000.00 or more, and this excludes Japan – will rise from 570 million to 945 million people by 2015, and more than two thirds of that increase is from China alone. Just think about that number. You’re talking about almost 400 million middle class consumers coming online here in a not very long time. We’re just talking about the next five years or so.

So they’re all gonna wanna enjoy the things that we sort of take for granted, and they’re just getting into that. China’s already become the largest cell phone market, for example. Within the next five years, it’ll be the largest market for luxury goods. China is the world’s largest market for automobiles. So, we start to see how this is gonna evolve, and the opportunities, I think, will be along those lines – will be finding ways to service the basic consumer needs that the Chinese want.

If China can transition its production from the USA consumer to the Chinese consumer, China can also transition its foreign holdings.

Let’s assume the five year timeline is realistic. If there are no black swans within those five years, then the USA will probably be caught off guard. USA policies are dictated by lobbyists, not statesmen. The lobbyists will not put in enough time to watch out for the interests of the USA citizens.

The only group that might be able to preserve a bit of USA stability is the banksters. I suspect that most banksters are not especially eager to put their survivalist preparations to the test. Thus they will try to save the USA dollar and the USA bond market for as long as they can. They are financially and emotionally invested in it. They have recently bribed Congress to give the Federal Reserve still more privacy and authority. Thus they hope to use the Federal Reserve for the near future, at least.

Even with a lot of “fancy footwork” and “off-balance-sheet-accounting,” the banksters probably can’t save the dollar completely. Military and espionage forces might allow various USA elites to keep client states in line. Consider, for example, the fact that USA elites have a great deal of influence in the world illegal drug trade:


Peter Dale Scott
Will the current crisis in Kyrgyzstan lead to greater instability, and perhaps an expansion of the current conflict in Central Asia?

Conclusion: The Global Banking System and the Global Drug Trade
I believe that Ivanov is correct in linking terrorism to local drug money. I fear also that there might be an additional dimension to the problem that he did not mention: transnational deep forces tapping into the even more lucrative market for drugs in western Europe and America. Undoubtedly proceeds from the global opiate traffic (estimated at $65 billion in 2009), are systematically channeled into major banks, as has also been well documented for the profits from cocaine trafficking into U.S. banks. When just one U.S. bank – Wachovia – admits that it violated U.S. banking laws to handle $378 billion in illicit cocaine funds, this supplies a measure of how important is the transnational dimension underlying local fusion drug-terror networks, whether in Dagestan or the Persian Gulf.
Antonio Maria Costa, head of the UN Office on Drugs and Crime, has alleged that “Drugs money worth billions of dollars kept the financial system afloat at the height of the global crisis.” According to the London Observer, Costa
said he has seen evidence that the proceeds of organised crime were “the only liquid investment capital” available to some banks on the brink of collapse last year. He said that a majority of the $352bn (£216bn) of drugs profits was absorbed into the economic system as a result…. Costa said evidence that illegal money was being absorbed into the financial system was first drawn to his attention by intelligence agencies and prosecutors around 18 months ago. “In many instances, the money from drugs was the only liquid investment capital. In the second half of 2008, liquidity was the banking system’s main problem and hence liquid capital became an important factor,” he said.
As a former diplomat, I sincerelyhope that the U.S. and Russian governments will collaborate to address these drug-related problems together, in Kyrgyzstan, in Afghanistan, and on the level of curbing? a venal global banking system.
As a researcher, I have to say that I see the U.S. Government as part of the problem, not as a very likely solution to it. We have too often seen the U.S. habit of turning to drug traffickers as covert assets in areas where it is weak, from Burma in 1950 right down to the U.S. invasion of Afghanistan in 2001.
I conclude that some other major force will have to be assembled to force a change in U.S. government behavior. Russia is right in bringing this problem to the attention of the Security Council, but this is a problem transcending governments. Perhaps religious organizations around the world could be one place to start mobilizing an extra-governmental force. Journalists and other researchers could also supply a component. Somehow the world must be made aware that it does indeed face a triple threat: the threat of drugs, the threat of drug-financed terrorism, and eventually the threat of war.
Meanwhile it is far too early to predict what may eventually transpire between America and Russia in Kyrgyzstan. But it is none too soon to assert that history is repeating itself in an alarming and predictable way, and to recall that the ingredients of the coup-drug-terror syndrome have led to major warfare in the past.
My personal conclusion is that deep forces, not fully understood, are at work now in Kyrgyzstan, as they have been earlier in Afghanistan and other drug-producing countries. My concern is heightened by my increasing awareness that for decades deep forces have also been at work in Washington.
This was demonstrated vividly by the U.S. government’s determined protection in the 1980s of the global drug activities of the Bank of Credit and Commerce International (BCCI), which has been described as “the largest criminal corporate enterprise ever.” A U.S. Senate Report once called BCCI not just a “rogue bank … but a case study of the vulnerability of the world to international crime on a global scope that is beyond the current ability of governments to control.” Governments indeed long failed to regulate BCCI, because of its ability to influence governments; and when BCCI was finally brought down in 1991, it was as the result of relative outsiders like Robert Morgenthau, District Attorney of New York:
In going after BCCI, Morgenthau’s office quickly found that in addition to fighting off the bank, it would receive resistance from almost every other institution or entity connected to BCCI [including] the Bank of England, the British Serious Fraud Office, and the U.S. government.”
I have tried to show elsewhere that BCCI was only one in a series of overlapping banks with similar intelligence connections, dating back to the 1940s.
When I first wrote about Washington’s protection of BCCI, I assumed that the BCCI benefited from its status as an asset or instrument for covert U.S.and British intelligence strategies. Since then I have come to wonder if CIA and BCCI were not both alike instruments for some deeper force or forces, embedded in the state but not confined to it, which has or have been systematically exploiting the drug traffic as a means to global power.
Not until there is a more general awareness of this deep force problem can we expect Washington to respondwith a more rational drug policy. My hope in this essay is to provide a further step in the effort to clarify just what these deeper forces are, and the extent to which they are responsible for America’s current, grave, constitutional crisis.

Peter Dale Scott, a former Canadian diplomat and English Professor at the University of California, Berkeley, is the author of Drugs Oil and War, The Road to 9/11, The War Conspiracy: JFK, 9/11, and the Deep Politics of War. His American War Machine: Deep Politics, the CIA Global Drug Connection and the Road to Afghanistan is in press, due in fall 2010 from Rowman & Littlefield.

Chinese culture is not friendly to illegal drugs. The Chinese have no reason whatever to end the international War on Drugs. Thus, even if the USA dollar were to collapse, the USA elites could continue to be elite international drug dealers. An open question is how many black swans might obstruct their survival as an elite.

At present the USD is the world’s reserve currency. Even if it loses that status, the USA might be able to maintain a hold over China if the USA devalues the USD and China maintains its currency peg.


Will Devaluing The U.S. Dollar Work?
Devaluation is the U.S.’ only remaining option but, as pointed out in Comstock Partners’ special report of February 25th, “The Cycle of Deflation, Impediments to Debt Relief”, the major impediment to a U.S. devaluation to reduce debt is China saying:
“There is a stumbling block to the normal competitive devaluations that typically take place. In the past, a country that incurred too much debt just did what they could to devalue their currency in order to export their way out of the dilemma by exporting their goods and services to their trading partners…[but] the Chinese have linked their currency to ours, so as we debase our currency, one of our major trading partner’s currency is also declining and China becomes the major beneficiary of the debasement of our dollar.”
The China peg to the U.S. dollar thus prevents the U.S. from altering its trade deficit by currency devaluation, but it does not prevent the U.S. from devaluing the dollar for other reasons. If the U.S. does devalue the dollar, it will not be to reduce debt—it will be to maintain its advantage over the world in general and China in particular.

Conversely, dagezhu has pointed to predictions of deflation, saying that banksters hold most of the debt and would prefer deflation.

Who is sitting on $8 trillion in cash? Some insurance companies, mutual funds and pension funds–so-called institutional investors–are sitting on piles of cash, but a significant chunk of the cash is owned by the top 1% of households who own the vast majority of all assets–liquid and fixed–in the U.S.

While debt loads are heavy in many of the 117 million bottom 90% households, cash and other liquid assets are concentrated in the top 10% and especially the top 1%.

So if high inflation is bad for the Power Elites who own 75% of the productive assets of the nation, and this same Power Elite wields unassailable influence over the processes of governance (Congress, the Fed, the Treasury, etc.), then why would they allow the Fed and the Treasury to inflate away their wealth?
The standard analysis sees the Federal government acting in its own interests, and as a major debtor, it is assumed the Central State will actively promote high inflation as a way of reducing its monumental debt load.
The flaw in this thinking is obvious: why would the Power Elite which controls Federal policy allow its wealth to be destroyed just so the government’s own debt load would be reduced? That makes no sense. In fact, as I suggested in The Con of the Decade Part II (July 9, 2010) and The Con of the Decade Part I (July 8, 2010), it is in the interests of the Power Elite to buy Treasury bonds once interest rates rise. The last thing the Financial Plutocracy would want is to see its trillions of dollars in Treasuries diminished via inflation.
The last thing the Power Elite wants is high inflation.

This is an excellent argument, but it assumes that the Power Elite can control the monstrosities that they have created.

What if the Power Elite forces Federal policy to increase USA debt indefinitely, and China produces a black swan event?

What if the Power Elite think they have hyperinflation under control, but they make a tiny error, and hyperinflation gets out of control?

What if (for whatever reason) the USA has to impose martial law within its borders and the international markets panic?

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