Russian, Chinese PMs seek to seize control of the dollar

By MARTIN SIEFF  |  Jan. 29, 2009 at 10:39 AM
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WASHINGTON, Jan. 29 (UPI) -- For decades, the Davos economic summit in Switzerland has been the showcase for America's leadership of the globalized free market system, but not anymore: The prime ministers of Russia and China used this year's Davos forum to launch blistering attacks on the feckless economic policy of the United States that, they allege, brought the world to its current parlous state of economic crisis.

The annual World Economic Forum at Davos opened Wednesday, and while many of the usual U.S. and European leaders were absent, being too busy bailing out their leaky financial boats, Prime Minister and former President Vladimir Putin of Russia and Premier Wen Jiabao of China seized the opportunity to castigate the U.S. financial and economic system for getting the global economy into its current mess.

Putin noted that U.S. businessmen at Davos last year boasted of the fundamental strength of the U.S. economy and its "cloudless prospects." Now investment banks, "the pride of Wall Street, have virtually ceased to exist."

Wen said the development model of low savings and high consumer spending had proved unsustainable.

Both spoke of the dollar's role. Wen wanted greater regulation of the international financial system and especially of major reserve currencies -- mainly the U.S. dollar.

Putin said, "Excessive reliance on a single reserve currency is dangerous for the global economy." He proposed a system of regional reserve currencies.

Wen's remarks came in the context of recent criticism by Timothy Geithner, now confirmed as President Barack Obama's first treasury secretary, of China for manipulating its currency.

As is often the case in international rows, there is a lot of truth on all sides to these allegations: The policies of President George W. Bush over the past eight years led directly to the catastrophic Wall Street meltdown of last September and its dire consequences that have been sweeping the world ever since. Bush simultaneously ran up the largest annual budget deficits and international trade deficits in recorded history for year after year with no regard for consequences. He kept U.S. interest rates unnaturally low and appointed Rep. Christopher Cox, R-Calif., to become the most hands-off and anti-regulatory head the Securities and Exchange Commission ever had.

Cox ignored a decade of warnings that should have exposed the $50 billion hedge fund swindle of financier Bernard Madoff and proved totally ineffectual at raising any warnings about or heading off the collapse of the great Wall Street financial institutions.

Premier Wen of China certainly has been consistent and, in the past, constructive in his lectures to the Bush administration to rein in its spending and budget deficits and restore some degree of financial responsibility and credibility to its conduct of affairs. China is the largest holder of U.S. Treasury bonds in the world. As of last September, when the crisis hit, its holdings were worth $585 billion.

However, Geithner's tough talk about China's deliberate manipulation of its currency to undercut U.S. domestic industry and export gigantic quantities of industrial goods to the United States was also accurate.

Wen's anger over Geithner's comments reflects China's concern that the Democrats may very well at long last enact protectionist controls in a bid to protect and restore what is left of the U.S. domestic manufacturing base.

However, the Putin and Wen call to regulate the dollar is a clear power play that would threaten the basic sovereignty of the U.S. government. It also reflects a new upsurge in Sino-Russian cooperation against the United States. This was clearly expressed by the creation of the Russian- and Chinese-led Shanghai Cooperation Organization on June 15, 2001, at the initiative of Putin and Chinese President Jiang Zemin.

In recent years, Russian-Chinese cooperation has stalled over Moscow's refusal to sell the Chinese the ambitious shopping list of advanced ground war and air support weapons systems they want to buy. But Putin and Wen's coordinated tough talk at Davos shows that the two great Eurasian powers have got their act together again and have started a new era of challenging nearly 20 years of U.S. global dominance since the decline and fall of the Soviet Union.

There is a grim irony for U.S. policymakers that Putin and Wen should have chosen Davos as the platform to launch their criticisms and push their radical new global financial agenda. After the collapse of communism, U.S. President Bill Clinton was the unrivaled star of the annual Davos gatherings. His economic presentations were so masterful that they brought jaded finance ministers and bankers from around the world to their feet in enthusiastic waves of applause.

But times have changed, and the very conference that most embodied confident U.S. global leadership and the unstoppable wave of the global free market has now become a major pulpit for slamming the United States and dismantling the global economic system that Americans have led and shaped for so long. Bob Dylan was right: The times, they are a-changin'.

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