Using Their Leverage

By Kevin Freeman
May 06, 2012May 06, 2012

Not a day goes by without something interesting appearing related to the current economic war we enduring (even as most Americans remain oblivious). Friday's example came from George Rasley in a comment posted on Richard Viguirie's Conservative HQ website. The question was very simple but quite insightful. He asked, "Is this Why Obama Won't Help Chen?" His question and answer makes a powerful point we have been underscoring for more than a year in this Blog and longer in the defense and intelligence establishment:

Why are Obama and Clinton not standing-up to the Red Chinese and doing more to help Chen Guangcheng?

One answer is that China holds around $900 billion of U.S. debt and Obama and Clinton are failing the Reagan test on human rights because they are afraid of the economic weapon the Chinese could use against us if they so choose.

In the big scheme of world politics the case of Chen Guangcheng may look like a small matter, but it is a stark reminder that our continued borrowing from China has given the Red Chinese the ultimate soft-power weapon to use against us – our own massive debt.

Make no mistake. The Secret Weapons are economic just as we explained in the book of the same name. It defies logic to believe that the Chinese or anyone else would continue to fund our debt for a 2% interest rate with a depreciating dollar and expect nothing in return. Yes, there are apologists who will argue that there are few credible alternatives to the dollar and U.S. Treasury debt. At best, they are "whistling past a graveyard." A communist regime willing to enforce a "one child" policy, despite all of the social problems it has no doubt caused, is certainly willing to use its holdings of U.S. debt as a weapon. The Chen incident is likely just the beginning of the leverage the Chinese will use against us. The Bible says that the borrower is a slave to the lender. The authors of Unrestricted Warfare knew this. The doctrine was reiterated little more than a year ago by the Communist Party's official publication.

Make no mistake. This is Phase Three as described in the book and the ultimate target is the U.S. dollar and the United States' Treasury. While we talk a strong position, the evidence of the Chen Guangcheng situation demonstrates our vulnerability. Similarly, we are taking a big game with Iran by denying access to the dollar for oil trades. We termed this "Rock, Paper, Oil" and feared that oil really does beat paper. Further support for our concerns were found in the April 22, 2012 issue of Forbes Magazine that featured the article, The Best Reason in the World to Buy Gold, by Gordon Chang:

Beijing is planning to avoid U.S. financial sanctions on Iran by paying for oil with gold. China's imports of the metal are already large, and you can guess what additional purchases are going to do to prices. On the last day of 2011, President Obama signed the National Defense Authorization Act for Fiscal Year 2012. The NDAA, as it is called, attempts to reduce Iran's revenue from the sale of petroleum by imposing sanctions on foreign financial institutions conducting transactions with Iranian financial institutions in connection with those sales. This provision, which essentially cuts off sanctioned institutions from the U.S. financial system, takes effect on June 28.

The NDAA gives the president the power to waive the sanctions depending on the availability and price of supplies from non-Iranian sources. He can also exempt financial institutions from countries that have significantly cut back purchases of Iranian petroleum. Last month, the State Department announced waivers for Japan and ten European countries. China, which has received American waivers in the past under other Iran legislation, is now Tehran's largest oil customer and investor as well as its largest trading partner. Given the new mood in Washington, Beijing cannot count on getting more exceptions in the future. As the Wall Street Journal noted in early January, the sanctions are "an attempt to force other countries to choose between buying oil from Iran or being blocked from any dealings with the U.S. economy." The strict measures put Chinese officials in a bind. They apparently believe their geopolitical interests align with those of Tehran, but their economy is becoming increasingly reliant on America's.

So, which will they choose? Siding with Tehran and their geopolitical interests or a weakening United States who owes them money but buys their exports? We are watching all of this play out in real-time before our very eyes. One thing is clear: there is a global economic war underway. Unless we sharpen our efforts, it will not end well.