Giant in decline

Giant in decline
By Marshall Auerback

In his 1849 novel Les Guepes, Alphonse Karr penned the classic line: "The more things change, the more they stay the same." In the case of the United States in 2005, however, the opposite might be true: The more things stay the same, the more they are likely to change ... for the worse. In that regard, compiling a list of potential threats to the US this year has a strangely deja-vu-all-over-again feeling. After all, such a list would represent nothing more than a longstanding catalogue of economic policymaking run amok. Virtually the same list could have been drawn up in 2004, or 2003, or previous years.

Such threats would include: a persistent and increasing resort to debt-financed growth and a concomitant, growing imbalance in the trade deficit, leading the US ever further into financial dependency and so leaving it dangerously indebted to rival nations, which could (at least theoretically) pull the plug at any time. This, in turn, is occurring against the backdrop of an increasingly problematic, Vietnam-style quagmire in Iraq, against imperial overstretch, and against a related ongoing crisis in energy prices, itself spurring an ever more frantic competition for energy security, which will surely intensify existing global and regional rivalries.

Just as a haystack soaked in kerosene will appear relatively benign until somebody strikes a match, so too, although America's long-standing economic problems have not yet led to financial Armageddon, this in no way invalidates the threat ultimately posed. For economy watchers in 2005, the key, of course, is to imagine which event (or combination of them) might represent the match that could set this "haystack" alight - if there is indeed one "event" which has the capability of precipitating the bursting of a historically unprecedented credit bubble.

The odd thing about credit bubbles is that they have no determined resolution, nor is there anything about such a dynamic that specifies the path by which it will be reversed; nor is there some specific level of financial excess guaranteed to eventually put an end to it. The beginning of that end could potentially be set off at any level at any time. Nevertheless, it is possible to sketch out several scenarios that could conceivably, in the 11 months left to 2005, trigger such a reversal or even something approaching economic collapse.

Debt: A policy on steroids
The Achilles' heel of the US economy is certainly debt. It is generally assumed that increases in credit stimulate consumer demand. In the short run that is true, but the long run is another matter altogether. When debt levels are as high as those the United States is carrying today, further increases in debt created by credit expansion can come to act as a burden on demand. Signs of this are already in the air - or rather in what has been, by historic standards, only feeble economic growth in the US economy over President George W Bush's first term in office.

Think of the present mountain of national debt as the policy equivalent of steroids. It has so far managed to create a reasonably flattering picture of economic prosperity, much as steroid use in baseball has flattered the batting averages of some of the game's stars over the past decade. But unlike major-league baseball, forced to act by scandal and Senate threats, America's monetary and financial officials still refuse to implement policies designed to curb the growth of a steroidal debt burden. If anything, addiction has set in and policy has increasingly appeared designed to encourage ever larger doses of indebtedness. Each bailout or promise of a government safety net has only led to more of the same: the Penn Central crisis; the Chrysler and Lockheed bailouts; the rescue of much of the savings-and-loan as well as commercial-banking system in the early 1990s; the 1998 bailout of the hedge fund Long Term Capital Management; and the persistent reluctance of US officials to regulate the country's increasingly speculative financial system, which not only has led to fiascoes like Enron - the 21st-century poster child for what ails the US economy - but speaks to the dangers of excessive debt, corrupt financial practices, highly dubious accounting, and endless conflicts of interest.

The result of this reluctance to confront the consequences of America's credit excesses - a federal-government debt level that is now at US$7.5 trillion. Of this, $1 trillion is ancient history; the other $6.5 trillion has built up over the past three decades; the last $2 trillion in the past eight years; and the last $1 trillion in the past two years alone. According to economist Andre Gunder Frank, "All Uncle Sam's debt, including private household consumer credit-card, mortgage etc debt of about $10 trillion, plus corporate and financial, with options, derivatives and the like, and state and local government debt comes to an unvisualizable, indeed unimaginable, $37 trillion, which is nearly four times Uncle Sam's GDP [gross domestic product]" (see Why the emperor has no clothes, Asia Times Online, January 6). This rising level of indebtedness will become a huge deflationary weight on economic activity if debt growth should seriously slow - which is the economic equivalent of a Catch-22.

The 'Blanche Dubois' economy
The situation of the US economy becomes yet more precarious when you consider that the country's major creditors are foreigners. Today, the US economy is being kept afloat by enormous levels of foreign lending, which allow American consumers to continue to buy more imports, which only increase the already bloated trade deficits. In essence, this could be characterized in Streetcar Named Desire terms as a "Blanche Dubois economy", heavily dependent as it is on "the kindness of strangers" in order to sustain its prosperity. This is also a distinctly lopsided arrangement that would end, probably with a bang, if those foreign creditors - major trading partners such as Japan, China and Europe - simply decided, for whatever reasons, to reduce the lending substantially.

China, Japan and other major foreign creditors are believed willing to sustain the status quo because their own industrial output and employment levels are thought to be worth more to them than risking the implosion of their most important consumer market, but that, of course, assumes levels of rationality not necessarily found in any global system in a moment of crisis. All you have to do is imagine the first hints of things economic spinning out of control and it's easy enough to imagine as well that China or Japan, facing their own internal economic challenges, might indeed give them primacy over sustaining the American consumer. If, for example, a banking crisis developed in China (which has its own "bubble" worries), Beijing might well feel it had no choice but to begin selling off parts of its US bond holdings in order to use the capital at home to stabilize its financial system or assuage political unrest among its unemployed masses. Then think for a moment: global house of cards.

Already China has given indications of its long-term intentions on this matter: roughly 50% of China's growth in foreign exchange since 2001 has been placed into US dollars. Last year, however, while China saw its reserves grow by $112 billion, the dollar portion of that was only 25% or $25 billion, according to the always well-informed Montreal-based financial-consultancy firm Bank Credit Analyst.

Beijing has already made it clear that it will spread its reserves and put less emphasis on the dollar. As one of America's largest foreign creditors, China naturally has the upper hand today, like any banker who can call in a loan when he sees the borrower hopelessly mired in IOUs. If such foreign capital increasingly moves elsewhere and easy credit disappears for consumers, US interest rates could rise sharply. As a result, many Americans would likely experience a major decline in their living standards - a gradual grinding-down process that could continue for years, as has occurred in Japan since the collapse of its credit bubble in the early 1990s.

Even if China, Japan and other East Asian nations continue to accommodate US financial profligacy, a major economic "adjustment" in the United States could still be triggered simply by the sheer financial exhaustion of its overextended consumers. After all, the country already has a recession-sized fiscal deficit and zero household savings. That's a combination that's never been seen before. In the early 1980s, when the federal deficit was this size, the household savings rate was 9%. This base of savings enabled the government to finance its vast deficits for a time through a huge one-time fall in net savings, the scale of which was historically unprecedented and not repeatable today in a savings-less United States.

At the edge: Imperial overstretch
A restoration of national savings is fundamentally incompatible with continued economic growth, all other things being equal. And the United States can ill-afford even lagging economic growth, given the magnitude of its burgeoning - and expensive - overseas military commitments, especially in an Iraq that is beginning to look like Vietnam redux.

President Bush likes to compare his combination of economic, military and diplomatic strategies with president Ronald Reagan's blend of tax cuts, military assertiveness and massive borrowing in the 1980s. Bush's economic advisers, especially Vice President Dick ("deficits don't matter") Cheney, appear to believe that the present huge trade and fiscal deficits will prove no more disruptive in the next decade than they were in the Reagan years.

But if we turn to the Vietnam parallel, we find a less comforting historical precedent: the decision, first by president Lyndon Johnson and then by president Richard Nixon, to finance that unpopular conflict through borrowing and inflation, rather than higher taxes. The ultimate result of their cumulative Vietnam decisions was not just a military humiliation but also a series of economic crises that first caught up with the US in the late 1960s and continued periodically until 1982.

In a sense, the dollar's continuing fall last year (especially against the euro), in spite of significant interventions by central banks in the global foreign-exchange markets, reflects a similar loss of respect for US policymaking - and especially for the linking of the dollar and the Pentagon through an endless series of foreign adventures. In addition, a national economy that cannot itself produce the things it needs and invests instead in military "security" will eventually find itself in a position in which it has to use its military constantly to take, or threaten to take, from others what it cannot provide for itself, which in turn leads to what Yale historian Paul Kennedy has described as "imperial overstretch":

That is to say, decision-makers in Washington must face the awkward and enduring fact that the sum total of the United States' global interests and obligations is nowadays far larger than the country's power to defend them all simultaneously.

That descent into imperial overstretch explains how in the early 1940s a United States much weaker in absolute terms, fighting more evenly matched opponents, could nonetheless prevail against its enemies more quickly than a state with an $11 trillion GDP and a defense budget approaching $500 billion (without even adding in the $80 billion budgetary supplement for Iraq and Afghanistan that the Bush administration is reputedly preparing for the current fiscal year) fighting perhaps 10,000-20,000 ill-armed insurgents in a state with a prewar GDP that represents less than the turnover of a large corporation. The US today is a nation with a hollowed-out industrial base and an increasing incapacity to finance a military adventurism propelled by the very forces responsible for that hollowing out.

Oil: The dividing line of the new Cold War
And then there is the problem of crude oil, which, despite predictions from ever-optimistic financial analysts, has once again begun to approach $50 a barrel. The one thing Mr Bush has never mentioned in relation to his Iraq war policy is oil, but back in 2001 former secretary of state James Baker presciently wrote an essay in a Council on Foreign Relations study of world energy problems that oil could never lurk far from the forefront of US policy considerations:

Strong economic growth across the globe and new global demands for more energy have meant the end of sustained surplus capacity in hydrocarbon fuels and the beginning of capacity limitations. In fact, the world is currently precariously close to utilizing all of its available global oil-production capacity, raising the chances of an oil-supply crisis with more substantial consequences than seen in three decades. These choices will affect other US policy objectives: US policy toward the Middle East; US policy toward the former Soviet Union and China; the fight against international terrorism.

The CFR report made another salient point clear: "Oil-price spikes since the 1940s have always been followed by recession." In its current debt-riddled condition, further such price spikes could bring on something more than a garden-variety economic downturn for the US, especially if some of the major oil-producing nations, such as Russia, follow through on recent threats to denominate their petroleum exports in euros, rather than dollars, which would substantially raise America's energy bill, given the current weakness of the dollar.

The most recent spike in the price of oil was not simply a reflection of rising political uncertainty and conflict in the Middle East. There are other reasons to expect higher energy-price levels over the next two to three decades - the most notable among them being strong demand from emerging economies, especially those of China and India.

The parallel drives for energy security on the part of the United States and China hold the seeds of future conflict as well. Yukon Huang, a senior adviser at the World Bank, recently noted that China's heavy reliance on oil imports (as well as problems with environmental degradation, including serious water shortages) poses a significant threat to the country's economic development even over the near term, the next three to five years.

China's already vigorous response to this challenge is likely to bring it increasingly up against the United States. Venezuelan President Hugo Chavez, for instance, returned from a Christmas trip to China, where he apparently sold America's historic Venezuelan oil supplies to the Chinese together with future prospecting rights. Even Canada (in the words of President Bush, "our most important neighbors to the north") is negotiating to sell up to one-third of its oil reserves to China. CNOOC, China's third-largest oil-and-gas group, is actually considering a bid of more that $13 billion for its US rival, Unocal. The real significance of the deal (which, given the size, could not have been contemplated in the absence of Chinese state support) is that it illustrates the emerging competition between China and the US for global influence - and resources.

The drive for resources is occurring in a world where alliances are shifting among major oil-producing and consuming nations. A kind of post-Cold War global lineup against perceived US hegemony seems to be in the earliest stages of formation, possibly including Brazil, China, India, Iran, Russia and Venezuela. Russian President Vladimir Putin's riposte to a US strategy of building up its military presence in some of the former SSRs of the old Union of Soviet Socialist Republics has been to ally the Russian and Iranian oil industries, organize large-scale joint war games with the Chinese military, and work toward the goal of opening up the shortest, cheapest, and potentially most lucrative new oil route of all, southward out of the Caspian Sea area to Iran. In the meantime, the European Union is now negotiating to drop its ban on arms shipments to China (much to the publicly expressed chagrin of the Pentagon). Russia has also offered a stake in its recently nationalized Yukos (a leading, pro-Western Russian oil company forced into bankruptcy by the Putin government) to China.

In a one-superpower world, this is pretty brazen behavior by all concerned, but it is symptomatic of a growing perception of the United States as a declining, overstretched giant, albeit one with the capacity to strike out lethally if wounded. US military and economic dominance may still be the central fact of world affairs, but the limits of this primacy are becoming ever more evident - something reflected in the dollar's precipitous descent on foreign-exchange markets. It all makes for a very challenging backdrop to the rest of 2005. Keep an eye out. Perhaps this will indeed be the year when long-standing problems for the United States finally do boil over, but don't expect Washington to accept the dispersal of its economic and military power lightly.

Marshall Auerback is an international strategist with David W Tice & Associates, LLC, a US Virgin Islands-based money-management firm. He is also a contributor to the Japan Policy Research Institute. His weekly work can be viewed at prudentbear.com. This article appeared on Tomdispatch.com and is used here by permission.

I had considered posting the following JPRI article by Mr. Auerback on a separate new thread, but since there is already this thread, here it is:

Critique, Vol. XII, No. 1 (January 2005)
Will Japan Go Nuclear?
by Marshall Auerback

"In order to prepare for the defense of Japan, the SDF [Self Defense Forces] has to be not only involved in its own efforts, but also in international efforts." – Akihiko Tanaka, defense expert at Tokyo University

“There has been a remarkable growth of pro-Taiwan sentiment in Japan. There is not one pro-China figure in the Koizumi Cabinet.” – Phil Deans, director of the Contemporary China Institute at the School of Oriental and African Studies, University of London

In his now infamous “Axis of Evil” speech, President Bush explicitly warned that North Korea and Iran, not just Iraq, threatened the world because of the nuclear weapons they were developing. With the United States increasingly preoccupied by the war in Iraq, these other two “members” of this so-called Axis surged ahead with plans to advance their respective nuclear weapons programs. Both reasonably concluded that what distinguished their situations from Iraq was that Iraq proved not to have nuclear weapons. North Korea and Iran may indeed have already obtained the technology required to manufacture nukes, thereby creating a far more powerful deterrent against a pre-emptive strike by the U.S. military.

Over the past couple of years both Iran and North Korea have been playing a game of chess with America -- and if they have not exactly won, they have advanced by several moves. In the case of Iran, Tehran’s strategy of playing off Europe against the U.S. appears to have been largely successful, with even Britain having publicly gone out of its way to disparage the notion of a pre-emptive military strike. There is mounting evidence that Iran’s nuclear program has been well hidden and broadly dispersed across the country, including in crowded cities. Confronted with intelligence evidence, Iran admitted to inspectors last year that it had hidden critical aspects of its civilian program for 18 years, and even today Pentagon analysts raise questions as to whether all of its nuclear-related sites are known. Iran has also sought to exploit the growing chill in Russo-American diplomatic relations. In mid-December of 2004, it said Moscow would have to show “readiness” to expand nuclear ties with Tehran if it wanted to secure a solid share of Iran’s atomic market in face of growing competition from Europe.

Because it lost time and squandered resources, the United States now has no good options for dealing Iran. What about North Korea?

Here too, the U.S. likely has no good options in a military sense, but there are growing indications that Washington will exploit its longstanding ties with Tokyo as a means of containing Kim Jong Il’s regime. While the rest of the Asia/Pacific region is increasingly turning to Beijing as its new economic and political locus, Japan appears to have made the decision to throw in its lot completely with Washington. Economically, the Bank of Japan has systematically destroyed its balance sheet through its longstanding (and ultimately futile) dollar support operations to accommodate the most egregious excesses in U.S. economic policy-making. But as Japan’s Iraq deployment indicates, this cooperation is now manifesting itself to a greater degree in the military sphere.

Although not yet explicitly stated, the logical culmination of these ties would be to encourage Japan to go nuclear at some stage in the future. From Washington’s perspective, this would also have the added advantage of curbing China’s growing influence in the Asia/Pacific region.

In regard to North Korea, Tokyo has for many decades implicitly encouraged the perpetuation of a divided Korean peninsula. Pyongyang has returned the favor, first through repeated abductions of Japanese citizens during the 1970s (an issue brought to the fore again last year when some were finally reconciled with their respective families) and more recently after North Korea tried to pass off a box of mixed human bones as the remains of a woman who was kidnapped from Japan years ago as a teenager. DNA tests showed that the bones belonged to a variety of people, the announcement of which created shock waves in Japan.

Of more immediate military consequence is a report published by the National Bureau of Asian Research some two years ago. Little noted at the time, the report made comprehensive -- and alarming -- assessments of the ballistic-missile capabilities of various Asian countries (including China, India, Japan, Pakistan, Taiwan, and the two Koreas). In the section on North Korea, the Nodong-1, a Scud-derived missile the country is known to possess, was said to be capable of delivering a nuclear weapon to U.S. military bases in Japan. The Taepodong-1 missile allegedly has an even greater range, and a few years ago the North Koreans test-fired one that landed off the Alaskan coast. The Taepodong-2, which some observers believe the North Koreans may try to develop into a three-stage version, could go farther still. According to the NBAR: “Such a missile could reach most of the continental United States from North Korea.”

Although the non-discovery of Iraq’s alleged weapons of mass destruction, (and the current politicization of the CIA), creates justifiable scepticism of current American intelligence claims, it is noteworthy that North Korea’s growing nuclear capabilities are also confirmed by International Atomic Energy Agency head Mohamed El Baradei. Mr. El Baradei has said he is sure that in the two years since his inspectors were ejected from North Korea the nuclear material his agency monitored has been converted into fuel for four to six nuclear bombs. His assessment aligns with private assessments of many American intelligence officials, although it goes well beyond anything the Central Intelligence Agency or President Bush and his aides have said in public.

It has been said that the retention of U.S. military bases in Japan no longer serves any significant strategic rationale for current American defense needs. But if the objective is to conduct the next major conflict with Pyongyang from the shores of Okinawa as opposed to Los Angeles, then these bases certainly have considerable attractions, not the least because over 60 per cent of the operating costs are underwritten by the Japanese government. The initial Japanese contribution, dubbed the “sympathy budget” in Tokyo (originally on the grounds that the American government told its Japanese counterpart it was experiencing budgetary difficulties following the Vietnam war and could no longer cover the cost of its bases in Japan), was introduced by the LDP in 1978 initially to cover the medical insurance of Japanese civilians working on the bases. But the size and scope of the Japanese government contribution has risen almost every year since 1978 even as the U.S. was ostensibly scaling down its post Vietnam overseas commitments. Additionally, as Japan scholar Chalmers Johnson notes, most of the land that the Americans occupy in Okinawa is still legally owned by 31,521 individuals or families who are forced by various laws to lease it to the Japanese government, which in turn sub-leases it to the Americans free of charge.

Moreover, under Prime Minister Junichiro Koizumi, Japan has become one of the most outspoken supporters of the Bush administration’s global agenda, even to the point of enthusiastically committing troops to Iraq in spite of significant domestic political opposition. In early December of 2004, Mr Koizumi extended by a year the deployment of 550 ground troops in Iraq, the biggest and most controversial dispatch since the second world war. His government has also continued to push for a revision to the 57-year-old pacifist constitution that would enable more effective participation in such missions as a way of strengthening the U.S.-Japan alliance.

No post-war Japanese leader, not even the noted nationalist, Prime Minister Yasuhiro Nakasone, has gone as far as Koizumi. His government’s stance is in marked contrast to Tokyo’s reticence to commit anything beyond substantial sums of cash during Gulf War I, payments which were made under duress following some very open arm-twisting by then Secretary of State, James Baker.

Given the extent of Japan’s financial and (growing) military contribution to this effort, playing the nuclear card would seem a logical culmination of this cooperation, especially in light of Washington’s current military limitations, now vividly on display in Iraq. Japan’s potential arrival as a nuclear power, however, has implications well beyond North Korea.

Although the Bush administration may no longer refer to China as a “strategic competitor” as it did before the September 11, 2001 attacks, there is little evidence to suggest that it has undergone a Damascene conversion in respect of its relations with the PRC. Beijing has replaced Tokyo as Washington’s leading “unfair trade” bogeyman, presumably because although Japan’s bilateral surpluses with the U.S. remain significant, Tokyo can offer something in the way of a strategic quid pro quo -- clearly not the case with China.

Both the U.S. and Japan retain strong economic links with Taiwan and both regard Beijing’s increasing emergence as the new economic and political regional power of Asia with less than wholehearted enthusiasm. Even during the Clinton administration, the U.S. signed agreements with Japan undercutting the latter’s so-called “Pacifist constitution,” and securing Tokyo’s cooperation to help “protect” the Taiwan Straits.
China has vigorously protested any intrusion by the U.S. and its Japanese client into Taiwanese affairs, but to little avail. And Tokyo itself is beginning to shed its customary reticence in this area. It has risked provoking a downward spiral in its relations with Beijing with the announcement that it planned to grant a visa to Lee Teng-hui, Taiwan’s former President, to visit the country during December, 2004. And Prime Minister Koizumi has also made clear his intention to continue visiting the Yasukuni shrine, which China regards as a monument to Japanese militarism. Interestingly enough, public opinion polls in Japan show many more citizens supporting Mr Koizumi’s visits, as well supporting further cuts in development aid to China. This creates a political context that may render it easier for the government to embrace the nuclear option.

Equally significant, Japan’s most recent Strategic Defense Review named both North Korea and China as causes for security concern as it instigated an overhaul of defense priorities. The plan, to be executed with a budget of Y24,240bn ($230bn, ¤174bn, £120bn) over the next five years, cut from Y25,160bn for the current period, also aims to promote greater participation by Japanese forces in international peacekeeping operations.

The inclusion of China as a country that needs “carefully watching” follows a gradual build-up in tension between the two countries, particularly after the November 2004 incident in which a Chinese submarine was discovered in Japanese waters.

A private-sector committee that provided the basic recommendations for the five-year plan refrained from referring explicitly to China in its report. But recent spats appear to have stiffened Tokyo’s resolve and induced a more explicitly hostile policy stance. A senior defense policy official told Britain’s Financial Times: “There’s a growing mood in Japan that we ought to confront China. They keep coming into our zones and their activities are annoying us.” He added: “We are keenly aware of the growth of China’s military capabilities.” Beijing’s defense spending was much higher than it admitted, he said.

Part of Japan’s response to China and North Korea is to develop a joint missile defense system with the U.S. The new defense review outlines further funding for that program, as well as a partial lifting of a self-imposed arms-export ban in order to allow Tokyo to ship parts related to missile defense. It is easy to envisage how other self-imposed bans (such as the current one on nuclear weapons production) could be lifted in the future.

Before America went to war in Iraq, its military power seemed limitless. There was less need to actually apply it when all adversaries feared that any time Washington unsheathed the sword it would win. Now the limits on the country’s military manpower and its sustainability are all too obvious. For example, the Administration announced this summer that in order to maintain troop levels in Iraq, it would withdraw 12,500 soldiers from South Korea. The North Koreans, the Chinese, the Iranians, and other unnamed members of the “Axis of Evil” who have always needed to weigh the prospect of potential U.S. military intervention now realize that America has neither the stomach for additional wars, nor the ability to conduct them successfully.

Today’s situation is somewhat comparable to the period that existed during the Cold War, when the threat of nuclear annihilation clearly limited the prospect of direct military conflict with the former Soviet Union. The U.S. response to this strategic limitation was to conduct war by proxy in the developing world. Although the threat of “mutually assured destruction” has dissipated, the ongoing risks of “imperial overstretch” (given the scale of Washington’s current global strategic aspirations), make nuclear containment via client states a less economically taxing option for the U.S.

While the ‘realists’ of previous administrations tried to figure out how to follow the British strategy of surviving the downward glide-path of American power and protecting their class interests in the process, the neo-cons – and this is why they are ascendant – have made up their minds that they will keep that geo-political power at all costs. While the perceived immediate threat is North Korea, the ultimate threat in the eyes of the neo-cons is China. They continue to see China as a major strategic competitor, particularly as Beijing embarks on diplomatic efforts to win the hearts and minds of other Asian governments. With the exception of Japan, it is succeeding. Since Taiwan’s recent legislative election implicitly rejected President Chen Shui- bian’s call for moving toward independence, the prospects of a peaceful reunification with Taiwan have increased at some distant date in the future. Left to its own devices, China will become the diplomatic king of Asia cutting the U.S. out of the most dynamic region of the world (and the world’s largest repository of savings). In the eyes of Washington’s neo-cons, it is better to try and curb that growth sooner rather than later.

How to do it? Not by direct attack, but indirectly. Encouraging Japan to become an explicit nuclear power would be one means doing this in a relatively cost-effective manner. It would enhance Washington’s currently limited options in dealing with North Korea, while having the additional (and more important long term benefit) of curbing China’s strategic aspirations in the Asia/Pacific. We may still be a few years away from that prospect. But just as September 11, 2001, and Pearl Harbor have so often been described as “hinge events” that changed Americans’ previous assumptions, so too a decision by Japan to embrace the nuclear option would send comparable shockwaves around the Asia Pacific and beyond.

MARSHALL AUERBACK is a British-based international financial analyst who writes regularly for JPRI on economic and political developments in East Asia. His last article was “China Scrutinizes the Almighty Dollar” (October 2004).

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