Wednesday, November 26, 2014
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The Coming CLASS War

HONG KONG – The eighteenth-century German military strategist Carl von Clausewitz defined war as the continuation of politics by different means, and, like the ancient Chinese strategist Sun Tzu, believed that securing peace meant preparing for violent conflict. As the world becomes increasingly tumultuous – apparent in the revival of military struggle in Ukraine, continued chaos in the Middle East, and rising tensions in East Asia – such thinking could not be more relevant.

Wars are traditionally fought over territory. But the definition of territory has evolved to incorporate five domains: land, air, sea, space, and, most recently, cyberspace. These dimensions of “CLASS war” define the threats facing the world today. The specific triggers, objectives, and battle lines of such conflicts are likely to be determined, to varying degrees, by five factors: creed, clan, culture, climate, and currency. Indeed, these factors are already fueling conflicts around the world.

Religion, or creed, is among history’s most common motives for war, and the twenty-first century is no exception. Consider the proliferation of jihadist groups, such as the Islamic State, which continues to seize territory in Iraq and Syria, and Boko Haram, which has been engaged in a brutal campaign of abductions, bombings, and murder in Nigeria. There have also been violent clashes between Buddhists and Muslims in Myanmar and southern Thailand, and between Islamists and Catholics in the Philippines.

The second factor – clan – is manifested in rising ethnic tensions in Europe, Turkey, India, and elsewhere, driven by forces like migration and competition for jobs. In Africa, artificial borders that were drawn by colonial powers are becoming untenable, as different tribes and ethnic groups attempt to carve out their own territorial spaces. And the conflict in Ukraine mobilizes the long-simmering frustration felt by ethnic Russians who were left behind when the Soviet Union collapsed.

The third potential source of conflict consists in the fundamental cultural differences created by societies’ unique histories and institutional arrangements. Despite accounting for only one-eighth of the world’s population, the United States and Europe have long enjoyed economic dominance – accounting for half of global GDP – and disproportionate international influence. But, as new economic powerhouses rise, they will increasingly challenge the West, and not just for market share and resources; they will seek to infuse the global order with their own cultural understandings and frames of reference.

Of course, competition for resources will also be important, especially as the consequences of the fourth factor – climate change – manifest themselves. Many countries and regions are already under severe water stress, which will only intensify as climate change causes natural disasters and extreme weather events like droughts to become increasingly common. Likewise, as forests and marine resources are depleted, competition for food could generate conflict.

This kind of conflict directly contradicts the promise of globalization – namely, that access to foreign food and energy would enable countries to concentrate on their comparative advantages. If emerging conflicts and competitive pressures lead to, say, economic sanctions or the obstruction of key trade routes, the resulting balkanization of global trade would diminish globalization’s benefits substantially.

Moreover, the social unrest that often accompanies economic strife could cause countries to fragment into smaller units that fight one another over values or resources. To some extent, this is already occurring, with Iraq and Syria splintering into sectarian or tribal units.

The final key risk facing the world concerns currency. Since the global economic crisis, the expansionary monetary policies that advanced-economy central banks have pursued have caused large-scale, volatile capital flows across emerging-economy borders, generating significant instability for these countries and fueling accusations of “currency wars.”

The extra-territorial use of regulatory and tax powers – particularly by the US, which has the added advantage of issuing the world’s preeminent reserve currency – is reinforcing the view that currencies can be wielded as weapons. For example, the US has effectively balkanized global banking by requiring all foreign banks operating there to become subsidiary companies and requiring international banks with US-dollar clearing accounts to comply fully with US tax, regulatory, and even, to some degree, foreign policy (for example, refraining from trading with US enemies).

Hefty fines imposed by US regulators for breaching the rules – notably, the recent $8.9 billion settlement by BNP Paribas – are already causing European banks to re-think their compliance costs and the profitability of operating in the US. Meanwhile, American courts have forced Argentina into another national default.

But perhaps the strongest message is being sent via targeted sanctions on Russia’s oil, finance, defense, and technology industries, as well as on Russian officials. With this approach, the US and its allies are sending a clear message to anyone who may disagree with US policy: avoid using the dollar and dollar-denominated bank accounts. Some financial activity has already been driven into the shadows, reflected in the use of Bitcoin and other currencies that are beyond the reach of US regulators.

A recent example of the disaffected seeking an alternative to US leadership is the establishment of a New Development Bank and a contingent reserve arrangement by the BRICS (Brazil, Russia, India, China, and South Africa). The problem for the US is that, in this case, the disaffected are five of the world’s major emerging economies, wielding combined resources that exceed those of the Bretton Wood institutions. It is highly unlikely that BRICS bank transactions will be denominated in US dollars.

In a recent speech, US President Barack Obama declared that the question is not whether the US will lead, but how it will lead. But, as creed, clan, culture, climate, and currency cause the world to become increasingly alienated from the US-centric international order, such declarations may be excessively optimistic. Indeed, in the coming CLASS war, no one seems quite sure whom to follow.

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    1. CommentedNichol Brummer

      In Africa, the mix of people is bewilderingly divers. The idea that you could possibly draw borders on the map to define ethnic nation-states in Africa is pure nonsense. The current countries have largely gotten used to their current borders, neighbours, and the consequences. Most countries are doing ok with that. And it is an illusion that Africa could be cut up into ethnically homogeneous entities to form nation states. Let's not even try. And Africans seem to understand: there is a strong taboo on changing existing borders, though sometimes a country does get split. Like Sudan.

    2. CommentedDaryl stevens

      Started Interesting, although other commentator correct, too much for a brief piece, could only be a superficial discussion.

      Religion and creed, also within and around China, Russia, India and South Africa.

      Population 1/8 today, but not during the period, higher growth rates encouraged by the Nationalstically driven post-colonial countries, whi under terms of, often, socialism, desired to increaase population thinking that would be strength, along with societies that failed to traverse many necessary political, legal, social and economic landscapes required for evolution, under elites who often inhibited such led to a vast population exploson along with global advances in technology, agriculture and medicine, thus vast increases often couched in cultural preferences but which often relate to lack of social safety nets and inhibited societal evolution otherwise. But of course population can and just might be the opposite a grave weakness, especially with the advance of robotics, micro-manufacturing, DIY, makers, ability to custom design your own circuits, sutainability, design for recycling, high energy prices, local manufacturing, etc...

      Unique identities are a red herring, having lived in several regions of the world it is mostly for those who experience culture shock, those who might feel inferior (wrongly, as a mere human, we all, I might add), and for the purposes of managing national discourses or advancing socio-political agenda's (religious, otherwise).

      BRICS are countries (as listed in your article) Bretton Woods are institutions, need we mention, or have you straw manned, the OECD, or countries. Future linear projections are well not necessarily destined to be the case, unless you are harnessing money printing, surplus taking, and financial repression to money creation cum lending targets to prop up GDP in a system largely hollow, malinvested and vastly increasing legacy costs for the maintenance of investments, while not addressing a fairly rapidly aging population which will exceed the OECD elderly population alone in less than 30 years.

      THE USD is a public good of the commons provided by the beneficience of the American people, one day it might need be rescinded, problem is there is n replacement. The SDR without further agreement won't suffice, as financial repressors will merely do the same as they have done to the USD, but relative to the coutnries and proportions in the basket, and no-one will hold signifigant long-term assets in countries where 50% of all equities are owned by the government, and where there is not a transparent open market for the trade of fairly valued assets, in lightning fashion, at the push of the button, based on mere extrapolations of false data (current leadership, all is made up).

      So,..... not much in the article really....and, despite the BRICS, which poorly complement each other, most of it is over. We will see if Modi can reign in the States, push reform, and manage the interests to move the country past lethargy, South Africa is a basket case, China is at the point of change (maybe fail), hit a wall, definitely fail, Russia is, well, trying to re-establish Imperial pasts, has 480 billion in reserves, 720 billons in loans from international banks, and this, in an extended period of high energy, and BRazil is being swamped by chinese products. So.......

    3. CommentedTruong Chung

      CLASS war in this article stands for "creed, clan, culture, climate, and currency" war. It's a horrible article, by the way.

      1. "The eighteenth-century German military strategist Carl von Clausewitz defined war as the continuation of politics by different means, and, like the ancient Chinese strategist Sun Tzu, believed that securing peace meant preparing for violent conflict. As the world becomes increasingly tumultuous – apparent in the revival of military struggle in Ukraine, continued chaos in the Middle East, and rising tensions in East Asia – such thinking could not be more relevant."

      What? Such thinking could not be more irrelevant. War is not the continuation of politics, but the result of political failure. Keep this line of thinking, and no doubt we never escape the perpetual of war.

      2. As a finance expert, what the author really wants to talk about the last factor: currency. But his effort to put the the term to a larger context, a CLASS war, is so lame. Those five factors are too disproportionate that trying to group them together in a single entity is not fit at all.

      3. "But perhaps the strongest message is being sent via targeted sanctions on Russia’s oil, finance, defense, and technology industries, as well as on Russian officials. With this approach, the US and its allies are sending a clear message to anyone who may disagree with US policy: avoid using the dollar and dollar-denominated bank accounts. Some financial activity has already been driven into the shadows, reflected in the use of Bitcoin and other currencies that are beyond the reach of US regulators."

      Wait! To mention Bitcoin here is totally wrong context. The article is talking about big stuff, international relation, countries vs. countries. Bitcoin is a different thing, more of a search of individual freedom. Very few countries if not none, officially admit the validity of this currency, some even attempt to ban it.

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