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U.S. China Conflict, We're Not Saber Rattling, We're Simply Connecting the Dots

Politics / New Cold War Aug 06, 2012 - 10:51 AM GMT

By: Money_Morning


Best Financial Markets Analysis ArticleWilliam Patalon III writes: I love it when our readers take the time to drop us a note. It's tells me they're not only reading but actually care enough to be engaged.

A Money Morning subscriber named Peter M. is one of those folks.

Peter was so struck by what I had to say about the escalating controversy in the South China Sea he decided to leave the following comment:

"Seems like Money Morning is saber rattling. Not a word about the heat & drought in the Midwest and Great Plains? Seems some discussion about our rapidly changing climate might be a better discussion."

First, let me say that Peter's note was well received. But I'd be remiss if I didn't take the time to delve into what Peter viewed as "saber rattling" because I just don't see it that way. As always, my goal is to simply connect the dots.

The thing is, the South China Sea is just one of them.

Here's my response...

Dear Peter,

Thanks for the taking the time to comment. We've found that folks like you who take the time to post a comment -- and who actually contribute some thoughts of their own to the posting - tend to be very well informed folks.

And believe me when I tell you that we like and respect that a lot.

I zeroed in on your comment in particular because I agree with part of it - the part about the importance of the drought. I've written a number of columns about that issue in Private Briefing over the last month or so, including one in back in June that that warned readers that the crop numbers were going to be a lot worse than the government was saying.

In recent weeks, that's just what's happened. (Fortunately, we also showed readers how to protect themselves).

So, again, you and I are on the same page when it comes to the drought.

Now, as far as this business about our South China Sea coverage being "saber rattling," I have to say that I very much disagree.

Part of the problem is that this escalating disagreement isn't getting much coverage in the mainstream U.S. media (and I spent more than 20 years as a mainstream media journalist, and spent time abroad, so I understand this very well).

What's happening in the South China Sea is a tinderbox just waiting for the right spark. And believe me when I tell you that this scares the hell out of our government. We could very well end up being caught in the middle.

On one hand, we want to maintain our allegiances with Taiwan and the Philippines, and build an economic bridge to Vietnam (our leaders in Washington realize that a bigger economic presence in Asia is one of the only things we can do to jump-start the U.S. economy in the long run). At the same time, we don't want to square off against China, and lose out on that trade potential and create another military headache.

This is a huge issue in Asia, where it's causing considerable angst.

A hefty portion of a recent Radio Voice of Vietnam broadcast to North America that I monitored was devoted to the South China Sea standoff. And that's telling.

As you and I both know, those broadcasts are, in part, carefully crafted propaganda. So Vietnam wants us to know how upset it is over China's alleged incursion into its territorial waters.

And the fact that an Asian country would admit, well, weakness in such a public forum tells us that it is much more interested in having us understand how problematic this is than they are in projecting the image of a strong, in-control emerging economic power.

Two final points - one dealing with the U.S. economy, and the second dealing with a future filled with natural-resource shortages.

Regarding that first point, understand (as I mentioned earlier) that Washington sees this South China Sea mess as a major potential problem -- at a time when we can't afford additional major potential problems.

U.S. Sec. of State Hillary Clinton has been working on this issue for two years. Beijing wasn't happy when we first got involved via Sec. Clinton two years ago. And it was a major focal point of her recent visit to Southeast Asia.

You see, Clinton's bosses realize that close economic ties with Southeast Asia are one of the few long-term solutions to this country's economic malaise. So a standoff that forces us to choose sides is the absolutely the last thing Washington wants right now.

And the potential for this situation to turn military is very real.

Just last week, a new report by a think tank called the International Crisis Group warned that the risk of escalation was high. The think tank also urged the countries that all claim control of this area to find a way to collaboratively manage the fishing and energy resources and to create a forum to handle the "incidents" that will inevitably take place in such a disputed region.

Warned the report: "In the absence of such a mechanism, tensions in the South China Sea could all too easily be driven to irreversible levels."

That brings me to my second final point - shortages.

You need to look at the big picture here (just as you so shrewdly did with the drought issue). China's aggressiveness in the South China Sea region is fascinating. The country is being as sweet as honey in all of its public statements and its acts of diplomacy. But it's being aggressive as hell (including allegedly sabotaging Vietnam drilling rigs in this region) in its physical actions.

And this aggressiveness isn't confined to the South China Sea.

Throughout the world, China is buying up energy, food, water, mineral and any other natural-resource assets companies are willing to sell or lease into a long-term contracts.

In fact, Chinese companies recently agreed to spend $15 billion to buy a major Canada-based oil-sands player and $1 billion for a natural-base pipeline that serves more than 7 million customers in the United Kingdom.

China is snapping up or leasing natural-resource assets in Latin America, Africa and the Pacific region as well.

And with $3.4 trillion in foreign reserves, the country can shop "til it drops for a long time to come.

Beijing sees this aggressive buying as necessary for China's continued growth. But most of these resources are finite - either in terms of reserves (oil) or in terms of how much can be created in any single year (food).

So whether we're talking about the South China Sea, or the oil-sands purchase in Canada, there's only one conclusion to reach: All of these stories, taken together, demonstrate that future shortages of oil, gas, food, water and other natural resources are a mathematical certainty.

In other words, in the long run, these shortages cannot be avoided. And some of those shortages will start to appear sooner rather than later.

Investors and consumers who prepare for these eventualities will be able to navigate the whipsaw markets that are headed our way - and may actually fare quite well.

Investors who ignore this will do so to their own detriment - and to the detriment of their families.

Take another look at this, Peter, and you'll see what I'm saying. Take a look at our new documentary investigation on this and you'll begin to understand how all of these dots are connected. You can see it by clicking here.

Given the excellent thinking you demonstrated with regard to the drought (where, as I said, we're in complete agreement), I think you'll come to the same conclusion as us on this other topic, too.

Thanks again for taking the time to offer your comments and insights. I hope you write again very soon.

Source :

Money Morning/The Money Map Report

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