Speculations about Fed’s policy moves have been overtaken as trading events by extremely dangerous developments on the Korean Peninsula and in the broader northeast Asian region.
People betting with their savings are realizing that the world economy is faced with an irreconcilably adversarial relationship between the U.S. and China.
They should also know that America’s best Sinologists have no operational advice for the U.S. government on how to deal with that situation. Indeed, these experts’ views range from warfare (the sooner the better) to bromides about cooperation in a “multipolar world and globalized economy.”
I would defer to our defense scholars about security arrangements, but I would suggest again that America has no chance of winning this high-stakes contest unless it promptly breaks out of its pathetic 1.5 percent noninflationary economic growth potential.
Yes, this is an America First moment where it is urgent to (a) expand and upgrade the human capital (i.e., labor supply), (b) repair and rejuvenate the infrastructure, (c) reform the tax system to facilitate (physical) capital formation, (d) enhance market efficiency through structural changes, and (e) review foreign trade policies to stop the hemorrhage on external accounts.
Meanwhile, the Korean crisis is a litmus test of American-Chinese relations. This is the time of a long-delayed clarification where America must set its unambiguous turf markers.
But to stay the course, Washington needs to move quickly to double the economy’s current growth potential. That would underpin the dollar-based global financial infrastructure and world economy’s thoroughly dollarized trade and financial transactions.
Will Washington tend to these American nukes that nobody can match?