You’re damned if you do; you’re damned if you don’t. That is the dilemma faced by ‘alpha dog’ Barack Obama.
When the US pushed everyone around during the Bush/Cheney years, unilateral America was the global bully; now that its treats everyone with multilateral respect, it is a wimp. As I jump from one media bubble to the next – from the Holy Roman Empire [read the Christian West + India] to the Orthodox Cyrillic Khanate of Russia, past the Islamic Caliphate to the atheist Middle Kingdom — it is clear that provincial ‘alpha dogs’ don’t like being ‘beta males’ on the world stage. As the saying goes, “Only alpha dogs breathe fresh air.”
The alpha dogs of the BRIC nations – Brazil, Russia, India and China – Luiz Inácio Lula da Silvada, Dmitry Anatolyevich Medvedev, Manmohan Singh, Hu Jintao — made a spectacle of themselves last week. They stood up to the all-mighty dollar and called ‘bullsh*t’. Their message resonated through their respective media bubbles – ‘pull down that dollar Mr. Obama’ — tapping into the aspirations of millions of emerging alpha dogs who want to lead the pack and see the horizon , not follow in the footprints of America and Mr. Obama.
The fallacy of their message – which appears to have been lost on their eager local elites – is that strength of the dollar has less to do with budget deficits and printing presses on overdrive and more to do with ownership. In America, you can own something – a car, a house, a company, a trust fund — and it is rather hard for the government to take it away from you – if you pay the crushing taxes.
In America, everyone with cash is welcome. If you have $700,000 to invest, you can become a citizen and will be protect by the rule of law. In the BRIC countries ownership is, at best, an uncertain proposition and, at worst, an illusion. If Dmitry Anatolyevich wants to take his place at the front of the pack, he needs to protect Telenor ‘s investment in Vimpelcom from Mikhail Fridman’s Alfa Group; if he ignores this expropriation of private property by the local elite – tenderly called oligarchs by the worshipping Russia middle class; the Russians love their oligarchs the way their loved the Czar – then the Ruble has no chance of being a ‘reserve currency’.
The same goes for China. So far, the mainland Chinese have been very reluctant to let foreigners own anything in the Middle Kingdom. And if the foreigners think that they do, they usually find out too late that they can’t get their profits out of the country. The Han Chinese, still xenophobic and obsessed with the fact that a string of foreigners have ruled their country since Kulbai Khan in 1279 (only the Egyptians can boast a more pathetic record – i.e., occupied since Cambyses II, the Persian Emperor, in 525 BC only to regain home rule in 1952 under Gamel Abdel Nasser ) are highly unlikely to create the new store of global value, based on the rule of law, unrestricted currency flows, made incarnate by the people’s currency, the Renminbi and its greenback equivalent, the Yuan.
I also doubt that many ‘landless’ investors of ‘hot money’ are going to pin their dreams of retainable wealth on the land of Gandhi with its boisterous democracy, cumbersome bureaucracy and opaque banking system. Though the Government has promised to ease currency controls, any hint of a run on the Rupee will bring them back with surprising force and swiftness (as well as controls on gold exports; the Indian populace holds the largest gold reserves on the planet).
Which leaves emergent Brazil. Brazil represents the best store of value of the BRIC nations with its vast territory, Germanic elite and its maturing democracy. But Brazil simply does not have the scale to displace the US as the world’s center of economic gravity. According to the World Bank, Brazil’s GDP is a trifling $1.6 trillion compared to the US’s $14.3 trillion. There is just not enough to own in Brazil, yet.
Some of you like the Brazilian fashion model , Gisele Caroline Bündchen, are probably thinking that Euros would make a better multilateral reserve currency. Perhaps. But don’t confuse the Euro with the Deutsche Mark. If you strip away the erratic fringes of the European Union and just focus on its solid core, even the EU is not big enough to lead the global dog pack.
For better or worse, we are stuck with the dollar as the world’s store of value for another generation — at least. In the end, Gisele married the quarterback of the New England Patriots, Tom Brady, in a small Catholic ceremony in Los Angeles. Talk about owning a dollar denominated asset !
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