Posts Tagged ‘First World War’

Hasbara through the ages

August 5, 2014

Chancellor Bethmann Hollweg, in a July 1914 telegram to the Reich’s ambassador in Vienna, counsels tact in the practice of Weltpolitik.

Trumping up a plausible pretext for war requires both finesse and patience; at the last moment, a headlong rush may be thwarted:

As we have already rejected one British proposal for a conference, it is not possible for us to refuse this suggestion also a limine.

If we rejected every attempt at mediation the whole world would hold us responsible for the conflagration and represent us as the real warmongers. That would also make our position impossible here in Germany, where we have got to appear as though the war had been forced on us.

Our position is the more difficult because Serbia seems to have given way very extensively. We cannot therefore reject the role of mediator; we have to pass on the British proposal to Vienna for consideration, especially since London and Paris are continuously using their influence on Petersburg.


The Imperial government is thus put into the extraordinarily difficult position of being exposed during the intervening period to the other Powers’ proposals for mediation and conferences, and if it continues to maintain its previous reserve towards such proposals, the odium of having provoked a world war will in the end recoil on it, even in the eyes of the German people.

But a successful war on three fronts (viz., in Serbia, Russia and France) cannot be initiated and carried on on such a basis.

It is imperative that the responsibility for any extension of the conflict to Powers not directly concerned should under all circumstances fall on Russia alone.

Twenty-five years later, Hitler fears similar delays and obstructions:

All these fortunate circumstances will no longer prevail in two to three years. No one knows how long I shall live. Therefore conflict better now…

I am only afraid that at the last minute some Schweinehund will make a proposal for mediation.


State debt as the best money: the US Federal Reserve system turns 100

February 19, 2013

This year marks 100 years since the US Federal Reserve system was established.

It was among the final grafts attached to the executive branch of the federal state, in several decades of enlargement begun under Cleveland, McKinley and Roosevelt, which would reshape and beef up the federal apparatus, and stabilize its finances to fit the demands of a unified national market, the world’s new industrial workshop, and an aspiring imperial power.

State expansion took a literal form: the stock of federal assets was sharply increased from the 1890s by the addition of vast tracts of land reserves and natural resources in the country’s west and northwest. These 150 million acres contained valuable timber and mineral deposits.


The addition of such non-financial assets to the US federal government’s balance sheet helped to secure the state’s debts, including currency issues. If need be, the state could always sell its physical assets or borrow against the marketable resources they contained.

Most importantly, federal liabilities were backed by the largest non-marketable asset of the government: the discounted present value of future primary fiscal surpluses from tax and custom receipts.

State liabilities thus became more central to the workings of the monetary system.

Almost immediately following the Fed’s creation, and ever since, the exigencies of war and economic crisis have ratcheted upwards the role of the national central bank in monetary and credit arrangements.

Wartime collapse of the gold standard began the pattern: as the central bank evolved, so did capitalist money pass juddering through stages of development, with state liabilities (US Treasury bills and central bank notes) eventually taking over from gold as the supreme measure of value for commodities, as well as the basic means of payment and purchase.

The Fed, its initial reach extended beyond any imagining, thus became central to the functioning of a world monetary system that now operates on a US dollar standard.

This status has only strengthened the historically observed tendency for emergencies, economic and military, to prompt a wholesale renovation and sudden, spasmic swelling of the institution (the Fed) and augmentation of its authority in a compressed period of time.

Since the outbreak of crisis in 2008, for example, the Fed has been obliged to take large parts of the market-based credit system on to its own balance sheet, in an attempt to maintain liquidity and support asset valuations.

It extended currency swap lines to other central banks and introduced the novel Term Auction Facility, the Term Asset-Backed Securities Loan Facility, the Primary Dealer Credit Facilitiy and the Commercial Paper Funding Facility.

In 2009 the Fed began purchasing Mortgage-Backed Securities outright.

This new ‘market-making’ role led Jan Toporowski to describe the new ‘central bank as hedge fund’ and Perry Mehrling to name the Fed ‘dealer of last resort.’

The Fed’s balance sheet grew from $800 billion in 2007 to $3 trillion today.

Federal Reserve holdings

The Fed’s maintenance of a liquid market in US Treasury securities, through open-market operations and lender-of-last resort facilities, comports with the United States’ global borrower-of-last-resort status.

Since 1945 the US has effectively been the creator of money for world capitalism. The emission of dollars  first through postwar trade surpluses recycled as loans and capital export, then more recently via the outflow of government liabilities  has provided liquidity to the global financial system.

The enthusiastic purchase of dollar liabilities by foreign governments and private lenders has effectively removed the budget constraint for US military activities and armaments spending.

How did such a position arise?

nimitz class supercarrier

Following US entry into the Great War (and amendments to the Federal Reserve Act), the Fed’s chief task became to maintain a liquid market in US Treasury securities (‘shiftability’) so the wartime government could borrow cheaply.

As of 1917, the Signal Corps which then controlled US military aviation had received just 142 aircraft during the previous ten years.

Yet enormous Congressional appropriations (including the largest ever single authorization of $640 000 000), creation of an Aviation Board and tightly organized production allowed the War Department to order 22 500 Liberty engines and 15 000 aircraft were quickly built.

Federal debt grew from $1 billion in 1917 to $25 billion in 1919.

The Fed itself absorbed $2 billion in Treasury issues, financing these purchases by expanding its own deposit liabilities. This liquidity injection, swelling bank reserves and note issues, then funded private purchases of federal debt.

Treasury bonds thus became the preferred form of loan collateral and main source of liquidity support for the US private money and capital markets.

Liberty bonds

Yet by 1919 Washington had assumed a new position as global creditor, thanks largely to the enormous wartime growth of intergovernmental liabilities.

By 1923, with the Fed’s Tenth Annual Report, Benjamin Strong was positioning the Fed as a global central bank responsible for credit stabilization and returning European economies to the gold standard.

Over the next decade the US state leadership, holder of nearly half the world’s gold reserves, used this privileged status as a lever to intervene in the fiscal and monetary affairs of debtor governments, especially the European powers, and thereby to shape their foreign and security policies.

Here, in the years of so-called isolationism, was the seedbed for the protection racket established after 1945, and never dissolved: in which the other advanced capitalist states of Europe and East Asia were subordinated within a US-controlled Cold War military and security ‘alliance’: Tokyo reduced to a diplomatic underling and European troops serving deferentially under NATO integrated command.

I’ll discuss this period (the 1920s) in the following post.

Dean Acheson NATO

A clap of thunder in the summer sky

September 27, 2011

Precipitous collapse of the nineteenth-century peace, and of the first era of haute finance, into a mess of squabbling empires and aggressive militarism, as described by Karl Polanyi:

The breakdown of the international gold standard was the invisible link between the disintegration of world economy since the turn of the century and the transformation of a whole civilization in the thirties. Unless the vital importance of this factor is realized, it is not possible to see rightly either the mechanism which railroaded Europe to its doom, or the circumstances which accounted for the astounding fact that the forms and contents of a civilization should rest on so precarious foundations.

The true nature of the international system under which we were living was not realized until it failed. Hardly anyone understood the political function of the international monetary system; the awful suddenness of the transformation thus took the world completely by surprise. And yet the gold standard was the only remaining pillar of the traditional world economy; when it broke, the effect was bound to be instantaneous. To liberal economists the gold standard was a purely economic institution; they refused even to consider it as a part of a social mechanism. Thus it happened that the democratic countries were the last to realize the true nature of the catastrophe and the slowest to counter its effects. Not even when the cataclysm was already upon them did their leaders see that behind the collapse of the international system there stood a long development within the most advanced countries which made that system anachronistic; in other words, the failure of market economy itself still escaped them.

The transformation came on even more abruptly than is usually realized… The conflict of 1914-18 merely precipitated and immeasurably aggravated a crisis that it did not create. But the roots of the dilemma could not be discerned at the time… For suddenly neither the economic nor the political system of the world would function… In reality, the postwar obstacles to peace and stability derived from the same sources from which the Great War itself had sprung. The dissolution of the system of world economy which had been in progress since 1900 was responsible for the political tension that exploded in 1914… The only viable solution of the burning problem of peace… [was] completely out of reach; so much so that the true aim of the most constructive statesmen of the twenties was not even understood by the public, which continued to exist in an almost indescribable state of confusion.

What appeared a sudden and violent collapse had been coming for some time.

The booming third quarter of the nineteenth century, with a wave of technical innovations from the 1850s (e.g. the ‘American system’ of production engineering using interchangeable parts, and invention of the Bessemer process allowing cheap production of steel), led swiftly into a crisis of profitability.

The Long Depression of the 1870s was followed by a belle époque during the late Victorian and Edwardian eras.

In Britain this age of finance saw the former ‘workshop of the world’ submit to the supremacy of the City of London. Britain’s Bank Charter Act of 1844 had constrained the growth of state money and circulating notes, limiting inflation and thus favouring the creditor interest in that country.

A generalized switch to the gold standard in the 1870s allowed the integration of the financial systems of Britain, western Europe, the United States and their respective empires.

The industrial capitalist class, which hitherto prided itself on sobriety and delayed gratification, now mimicked the extravagant habits funded by current expenditure of the old landed aristocracy.

The appreciation of financial assets during this boom corresponded to a change in the real economy, as a smaller portion of profit was materialized in new equipment, plant and machinery. Instead it was stored as money capital, and labour re-deployed towards construction, restoration and furnishing of stately homes in the countryside, on domestic servants and other luxury consumption, and from the 1890s on armaments as Britain, Germany and France, the industrial powers of Europe, contended for control of African colonies.

These territories, seized or merely dominated, served as suppliers of cheap raw materials, keeping wage costs down. They also were outlets for the excess liquidity of rentiers.

When the music stopped in 1914, the rival empires faced each other armed to the teeth.

Earlier this year Harvard University Press published a new book by Michael S. Neiberg on the outbreak of the Great War.

Dance of the Furies claims that the populations of belligerent Powers, as opposed to their leaders and the power elite, never saw it coming. When troops were mobilized and war was declared (even in the parliamentary states, Neiberg shows, the critical decisions were made by fewer than a dozen men), it came as ‘a clap of thunder in the summer sky’.

Most people were innocent of their state leadership’s longstanding territorial and economic ambitions. Nor were they swayed necessarily by nationalist bloodlust (an eventual result rather than a pre-existing cause of war, he avers).

Rather ‘the people of Europe accepted the necessity of war primarily because they believed their wars to be defensive’ and themselves subject to existential threat:

The “militarism run stark mad” that the American Presidential advisor Edward House saw on his visit to Europe in 1914 was limited to the governing elites… The overwhelming response of the people of Europe was not enthusiasm or joy but sadness and resignation.

The German government, latterly under the liberal Chancellor Bethmann-Hollweg, was scheming to dominate a Mitteleuropa through creation of a continental customs union, seizure of the Belgian coastline, annexation of the ore-rich Longwy-Briey territory, expansion eastwards into the Russian Empire, political-military subordination of France, Italy, Scandinavia and the Netherlands, and creation of a colonial Mittelafrika between the Atlantic and Indian oceans by taking over Portugal, Belgium and France’s African possessions.

As much was revealed by Germany’s war aims as stated in the Septemberprogramm.

These expansionist ambitions were more than two decades old. Diplomatic secrecy and an obliging media helped to shield them from popular scrutiny, but were the people of 1914 really so ostrich-like, such that general war between the Powers appeared to arrive with ‘truly dizzying speed’, and so that their own country, alone, seemed engaged in a battle for existential survival?

Neiberg has assembled enough letters and diaries to suggest as much.

Imagine that some nosy historian will, one hundred years from now, pore similarly over the private communications of today’s intelligentsia: the liberal professions (civil servants, lawyers, doctors, architects, etc.), academics, journalists and artists. Will this examination reveal minds any more perspicacious?

Or is this social layer, like its forebears, so attached to its own epoch that its members delude themselves about the fundamental nature, and likely fate, of the present order?


August 27, 2011

With the return of Great Power imperialism in something like its classic form, ghosts from the not-so-deep past are appearing.

In Libya today we see a revival of the means first used to achieve formal British domination over the energy-rich territory of the former Ottoman Empire.

During the First World War intelligence officers — most famously T.E. Lawrence — were used to infiltrate behind enemy lines, conduct reconnaissance, call in air support, liaise with, train, equip, fund (11 million pounds, mostly in gold) and organize Feisal’s irregular local rebel forces in the Hejaz into mobile combat units, and finally to set up puppet governments following the terms of the Sykes-Picot Agreement.

Thus the Arab Bureau in Cairo directed the Arab Revolt for the British Empire. Feisal got the Iraqi throne, the RAF got bases in Basra and Mosul, Anglo-Persian got Abadan, and the Royal Navy controlled all waters between the Red Sea and the Bay of Bengal.

During the Second World War a similar task was entrusted to the Long-Range Patrol/Desert Group and the newly-formed SAS commando regiments.

These ranged across North Africa, crossing the border from Egypt to conduct reconnaissance of Italian bases before war was declared, reporting on and interrupting enemy traffic along the Mediterranean coast, assisting with sea landings, and conducting raids on airfields, harbours, railway lines, etc.

This week British and US newspapers have sketchily detailed the role of British SAS and French and Qatari special-operations forces, US intelligence agents and assorted mercenaries, in arming, training and directing the rebels in Libya, providing intelligence for air strikes, and organizing the assault on Tripoli.

Of course we have seen something similar before with the KLA and Northern Alliance proxies. But here historical echoes of strategies from the British and French imperial past are uncanny, as when twelve years ago German aircraft flew sorties over the Balkans.

In fact, even the propaganda niceties used for public consumption are familiar.

From today’s perspective, the agents of European colonialism and pre-Wilson diplomacy often seem blunt and (almost refreshingly) candid, scarcely bothering to shroud their strategic aims in blandishments like our Responsibility to Protect. But the British imperialists of one century ago were themselves attentive to appearances and PR.

In September 1916, they decided that landing a brigade at Rabigh, on the Red Sea near Mecca, would be a bad look, especially around the time of the Hajj. As they hastily trained and armed indigenous troops, and directed Sherifian assaults on Jeddah, Medina and nearby cities, British ships and aircraft supported the irregulars by destroying Turkish artillery, against which the rebels were helpless. The Royal Navy then landed Muslim troops from Egypt to help the locals take Mecca. (The French sent 1000 Algerians.)

Two years later, Allenby insisted that British and French forces linger outside Damascus, allowing the Hashemites to enter as liberators and hoist the Hejaz flag.

As described in the previous post, the diplomatic objectives of Great Powers are increasingly being pursued by special forces personnel. These elite non-conventional units are used not just for so-called stability operations (counterinsurgency and ‘peacekeeping’) but also to foment and facilitate the move, where this is desired, from political instability to armed uprising.

By militarizing a protest movement, regime change in a strategic location can be achieved; through a judiciously applied assassination programme, covert or not so much, a friendly government can be propped up, etc. This dual role is shown most clearly by astonishing growth in the reach of US Joint Special Operations Command.

Maintaining leadership

May 30, 2011

The US Secretary of State’s budget-request speech before the Senate Foreign Relations Committee in March was, as might have been expected, tedious and slow going.

Her remarks on funding for climate-change programmes, therefore, were calculated (42 minutes in) to straighten her audience’s back and command its attention:

We have a lot of support in the Pacific Ocean region. A lot of those small countries have voted with us in the United Nations.

They are stalwart American allies. They embrace our values… [and] we are in a competition for influence with China.

I’ll just be  let’s put aside the moral, humanitarian, do-good side of what we believe in, and let’s just talk, you know, straight Realpolitik.

We are in a competition with China.

Take Papua New Guinea, huge energy find, to go to one of Senator Lugar’s very strong points. ExxonMobil is producing it [LNG]. China is in there every day in every way trying to figure out how it’s going to come in behind us, come in under us.

They’re supporting the dictatorial regime that unfortunately is now in charge of Fiji.

They have brought all of the leaders of these small Pacific nations to Beijing, wined them and dined them.

I mean, if anybody thinks that our retreating on these issues is somehow going to be irrelevant to the maintenance of our leadership in a world where we are competing with China that is a mistaken notion.

With the obvious proviso that no public pronouncement, whatever the official’s apparent candour, can be taken as a straightforward expression of private opinions and strategic priorities  as though arcana imperii were artlessly disclosed without heed to audience or consequences here some conclusions may safely be drawn.

Washington is indeed disturbed by Beijing’s ability to exert political influence, and meet other objectives, through the offer of credit and provision of funds to states in the southwest Pacific and elsewhere.

Take the US diplomatic cable dated 19 June 2009, sent out of Beijing, and titled ‘PRC/SOUTH PACIFIC: INTERNATIONAL ISOLATION OF REGIME IN FIJI AN OPPORTUNITY FOR CHINA’.

A Fijian embassy official in Beijing, the State Department contact Filipe Alifereti, confided that Chinese economic and development assistance (both ‘project assistance’ and cash grants, including one of 10 million RMB) had won it a degree of influence among the Fijian elite.

Beijing, he claimed, ‘valued Fiji as a useful transit point and for its proximity to important shipping lanes’:

Beijing was privately candid about linking development assistance and economic engagement with “guaranteed” political support on issues of interest to China…

Alifereti asserted that there was little need for the Chinese to push directly for political support from Fiji on issues of Chinese interest, because such support was “guaranteed” and China’s interests were well-understood by Suva.  He indicated that such political support was a simple consequence of the enormous economic influence China had on the island.

In addition to assistance, trade and investment ties, the Chinese government was providing Fijian government officials with training on a range of skills in China, Alifereti reported. This included training military officials, a practice that began after the 2006 coup, he added.

The influence in regional capitals of China’s foreign ministry and Navy  and investment abroad by its companies acquiring productive assets in strategic industries  has grown sharply in recent years.

This blog has shown previously the disquiet this has prompted in the chancelleries of Washington, Canberra and elsewhere, provoking figures charged with strategic policymaking, and alarming media commentators and academic theorists.

While vexation is commonly voiced, a quick glance at a map does not show obvious reason for their unease. The US Navy retains unchallenged dominance of regional sealanes, its Pacific fleet graciously accommodated in ports from Okinawa to New Zealand. The US Treasury and State Department’s influence over local authorities is, likewise, seemingly boundless.

Yet recent regime change in Timor-Leste, military intervention in the Solomon Islands and attempted isolation of the Fijian leadership has not succeeded in maintaining the existing power balance in the southwest Pacific, responsibility for which had been delegated by Washington to the Australian deputy sheriff.

Thus, newspapers have reported that the Dili government’s dispute with Australian firm Woodside Petroleum over the Sunrise natural-gas processing plant could see the international treaty governing development of the offshore field overturned before development ever begins.

At the July 2009 ASEAN summit, one month after the above diplomatic cable was sent to Washington, Canberra and Wellington, Secretary Clinton declared that ‘the United States is back’ in the East Asia-Pacific region.

This return has been accompanied by a characteristic mode of public-diplomatic presentation, repeated faithfully in the newspapers.

As Clinton’s Senate testimony makes clear, officials denounce what they see (or affect to see) as the Beijing elite’s search for a Platz an der Sonne (often described in these very words), including naval expansion and quest for secure energy supplies.

This, the US and their allies tremble, will inevitably lead the Chinese leadership to naked aggression, just as it did for Wilhelmine Germany at the dawn of the twentieth century.

The historical comparison is regularly made.

“The Next Empire”, a 2010 article in The Atlantic, described Chinese outward investment in copper mines and railways in Zambia, the Democratic Republic of Congo and other parts of southern Africa:

The truest intellectual forerunner of China’s strategy seems to be a plan once pursued by Germany. Before its defeat in World War I, Germany’s leaders had dreamed of a continental empire, a Mittelafrika stitched together by railways stretching from Dar es Salaam to the Atlantic Ocean…

Germany’s railway schemes were driven by intense competition with Britain. Although China may claim to be a new kind of power, its plans, too, have always had a strategic component, including rivalry with the West, and lately a desire to circumvent the regional economic powerhouse, South Africa, and ultimately control the markets for key African minerals.

But the comparison is not apt.

What is described both by Clinton, in her Senate testimony, in The Atlantic article, and in a April 2011 report by the Lowy Institute on loans to Pacific countries, is Chinese export of funds and the acquisition of stocks of foreign productive assets, which then allows Beijing to exert political influence and meet strategic objectives.

This practice of net capital export is only open to countries, such as China and Germany, that persistently export more commodities than they import and run a surplus on the current account.

But this prerequisite was not met by the Kaiser’s Germany, which had balance of payments difficulties. It was because the gaining of influence through capital export was closed as a policy option that genteel figures like Bethmann Hollweg resorted to aggression and the seizure of territory.

In the decades before the First World War, Imperial Germany sought to add Angola and Mozambique to its existing territorial holdings in Rwanda, Burundi, Tanzania, Namibia, Kamerun and Togoland.

At the time Angola and Mozambique were Portuguese possessions. But the Portuguese government was massively in debt. In order to secure loans from foreign creditors, it was willing to put up its African colonies as security.

The deepest capital markets in those days were in London and Paris. In 1898 and again after 1911, Whitehall and the Wilhelmstrasse secretly negotiated to partition Portugal’s African possessions between themselves in the event of a default. (More recently the crippled Portuguese state has been bailed out in return for agreeing to privatize state assets.)

But in the first event Lisbon’s finances recovered, and in the second case agreement could not be reached.

Germany was left empty-handed, powerless to act alone (the British Foreign Office had understandably been less eager to conclude a deal).

To the east, as well, stakes in the Ottoman Public Debt were mostly held by French and British creditors, granting the Quai d’Orsay and Whitehall strategic influence.

Thus the Ottoman Finance Minister reported to the German Ambassador that ‘Germany could not expect to be treated the same as France. The latter had, through the granting of the loan, saved Turkey from a desperate situation while Germany, the power on which Turkey had placed all her hopes, had failed her completely, not only financially but also politically.’

Ultimately, access to Persian, Mesopotamian and Caucasian oil rested on this.

Before the Great War broke out, Deutsche Bank and the construction firm Philipp Holzmann AG had reported an ‘unavoidable breakdown of negotiations’ in extending the existing Berlin-Constantinople railway to Baghdad.

The outline concession for the project had been granted in 1899, and in 1903 a supplementary agreement allowed construction to extend to Basra, with the German firms granted authority to make exploratory bores for oil, and given options on confirmed discoveries around Mosul. The line was to be built in separate 200 kilometre sections.

But by 1913 Germany’s financial resources were such that it could not support completion of this project while also pursuing Ottoman-Balkan deals to supply arms, develop civilian and military port facilities, etc. The steel and armaments firm Krupp could not raise a loan for a planned Ottoman-Bulgarian arms deal on the Berlin market while Deutsche Bank refinanced its work on the Mesopotamian railway.

Britain and France, with their more liquid money markets, were able to produce funds for loans, German influence thereby losing out irretrievably.

Thus, in the years before war broke out, Turkish battleships were built in British shipyards by firms such as Vickers (two super-dreadnoughts, due for delivery in August 1914, were famously confiscated by the First Lord of the Admiralty). Meanwhile British leverage over the Porte’s public finances assisted the rise of the Anglo-Persian Oil Company, which together with part-British firm Royal Dutch/Shell secured control over Persian and Mesopotamian oil.

The same was true for achieving Rathenau’s strategic goal of a Mitteleuropa, set out as war aims in the September programme: Belgium ceding to Germany a coastal strip on the North Sea, the Netherlands annexed, France subordinated (with the Longwy-Briey iron-ore basin seized) and Russia’s European territory turned over.

This subordination of the European economy to German strategic imperatives (which has since been achieved peacefully) could not, at the time, be accomplished except by force.

So in general there seems to be an inverse relation between capital export and naked aggression. The latter is the policy resorted to when economic influence wanes or is no longer sufficient to keep out competitors.

Today, as Clinton’s opening remark makes clear, this describes the condition of the United States, which has become a net borrower, unable to pay for its imports with matching exports. Its political leadership, and the propertied classes that control it, must therefore rely on coercive means to preserve their international position relative to rival firms and territorial states.

The latter, on the other hand, can go on achieving export surpluses, with a corresponding buildup of overseas assets and supplicant borrowers, granting them ‘guaranteed political support on issues of interest.’

This does take a peculiar form.

Since many US and European manufacturers have shifted production to low-wage China, and the material form taken by the Chinese export surplus is primarily consumer goods, Chinese capital cannot be exported to the US or Europe productively, i.e. as intermediate or capital goods.

And US firms (e.g. Walmart) and their subsidiaries do own foreign assets in China. They may own plant outright, or hold controlling shares in plant, employ workers in Chinese factories, hire equipment, etc. But the stock of buildings and machinery for these factories hasn’t been manufactured in the US then shipped over. It has, by and large, been produced in China, as have the consumer goods that make up the real wage of the workers employed in these factories.

And, because the US runs a net trade deficit, the local currency necessary to purchase these assets is not obtained from the Yuan receipts of US firms exporting to China. Instead it is converted from dollars which are taken on as IOUs by the Chinese central bank, with these holdings then converted into US government assets, financing the arms expenditure of the Pentagon.

Chinese capital export to the US and Europe thus takes the unproductive form of credit, financing public spending and funding household loans to allow purchases of Chinese consumer-good exports. (Due to this, and to the advent of funded pension schemes, US financial markets remain by far the world’s largest and most liquid).

But there is export of productive capital assets, too. Aside from high-profile cases like Lenovo’s takeover of IBM’s PC division, this has been concentrated in strategic raw materials, and thus towards acquisition of assets in countries like Kazakhstan, Iran, Sudan, Zambia, Australia, Indonesia, Venezuela and (following Sinopec’s purchase of Addax Petroleum) Nigeria.

In short, Chinese firms can finance their railways and mines in southern Africa, and Beijing can afford infrastructure projects in Timor-Leste and the ‘wining and dining’ of people like Frank Bainimarama, in ways that the German Empire could not.

Washington, on the other hand  to ‘maintain its leadership’ and prevent its rivals ‘coming in behind and under’ it  must rely on force.

In the First World War, as now, the grand strategic prizes did not lay in the deserts of the Kalahari, the swamplands of the Caprivi, or even the more mineral-rich territory of southern Africa.

They dwelt in Persian Khuzestan (where in recent years the Chinese National Petroleum Company and Sinopec have negotiated production licences with the Tehran government), the oilfields around Basra (where the largest fields are allocated to ExxonMobil, BP, Shell and CNPC, remaining stakes are divided between mostly British, Dutch and US firms, but where more importantly the US has 50 000 troops, in addition to its various garrisons dotted around the Arabian peninsula), and the Caucasus and Caspian Basin (where the discovery of Tenghiz and Kashagan has raised the stakes, where NATO has recently intruded, which region is subject more generally to Russian-US strategic manoeuvring, e.g. in Georgia and Chechnya, and where, finally, the Shanghai Cooperation Organisation is something to watch).

It is in these territories that the State Department and the Pentagon have been most eager to plant occupation forces, establish large bases and overthrow governments.

Before this brazen and lawless Drang nach Osten, Beijing’s reliance on dollar diplomacy and penetration through loans and capital export can seem strategically unshrewd and hopelessly effete, much as the British and French political class and military High Commands once appeared mysteriously deferential and transfixed, during the first half of the twentieth century, by the expansionism, spiked helmets, and Nietzschean grandeur of their counterparts in the German Reich.

By extending hundreds of billions of dollars in credit, while the Pentagon undertakes its wars and ‘limited kinetic actions’ throughout the geostrategic Heartland of the World-Island, aren’t the Bank of China, the Chinese state and the Chinese capitalist class merely funding their own strategic encirclement?

Yes, but the overriding aim for the moment seems to be obtaining technical know-how through compulsory technology transfer.

The key concern here, it seems, is in developing a domestic industrial base to allow production of Beijing’s own aircraft carriers (the nearly-complete Shi Lang is a refitted Russian purchase), carrier-based fighter aircraft (the new J-15), and ballistic-missile submarines (of which the PLAN still has limited numbers). Today this level of naval development (i.e. being able domestically to build fleets of capital ships from which expeditionary air power can be projected) is a necessary attribute of a first-rate imperial power.

Only once this capacity is achieved, presumably, will the strategic middlegame be over, a prospect, properly considered, which ought to inspire dread.