A comprehensive, integrated 10 part article series on an issue/term/moniker ("Commulism") NEVER media et al mentioned, but massive threat to U.S. national and economic security. The analysis captured in this "Commulism Series". Here is Part 3.

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Analyst's Opening Statement: This 10 Part "Commulism Series" was seven months in development. Considering how fast data changes, the Analyst has strived to keep current the volumes of relevant data throughout, recognizing there may be a few data points that might not be absolutely current at publishing date, particularly during these past few weeks of highly volatile financial market activity. However, the threat assessment, core themes and Counter-Manual (Framework) Guidelines remain fully supported, and not sensitive to the day to day data fluctuations.  

Also, the Analyst views (and intends) this document to be a vehicle to provoke public debate on the theme article issue and that the White House/DOD/State Department et al to read this, "acknowledge" the threat, and revise the following proposed "Commulism Response Framework" accordingly. The ideas presented are aggressive, if not unconventional in some areas, as they must be given the seriousness of the threat. They are provocative, for the sole purpose of sparking that much needed, yet currently absent public and government debate, in the vital interests of collective U.S. national and economic security.  

Finally, it would indeed be refreshing to hear one of the 2008 Presidential hopefuls in either party or a soon to launch Independent, move beyond petty badmouthing of the other candidates. Instead, having them prudently focus on something of substance both the American people and themselves have yet to recognize and mention, but promptly need to become aware and understand. It is an issue/term/moniker ("Commulism") NEVER media et al mentioned. Who on the campaign trail is ready to broach and champion an issue which dwarfs other issues in terms of future U.S. national/economic security impact, yet has never been mentioned in the public or campaign lexicon? Hopefully one of these candidates is ready to step up and be the first to declare the rise of Commulism, and the plan to address it - the "Counter-Commulism Framework". Any reader that is within one, two or three degrees of separation to a 2008 Presidential candidate is encouraged to direct them here to begin that important awareness and education process.   

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Part 1: http://www.opednews.com/articles/opedne_brock_no_080125_u_s__economic_securi.htm concluded with the integrated "5 Pillar Superpower (Commulism) Sustainability Framework" to support the core ideology - Communism:       

                          Economic/Military/Social/Technology/Partnerships 

Note: For the visual, see the illustrative Commulism 5 Pillar Structure Chart at the end of article (note included in all 10 Parts). The columned look was chosen to denote the insidious nature of Commulism, by capturing the underlying Communist ideology intent to displace Democracy.

Part 2: http://www.opednews.com/articles/opedne_brock_no_080126__22commulism_series_22__.htm, provided the first half of the analysis and assessment of the first of the 5 Commulism Pillars - "Economic".  

This Part 3 completes the Commulism "Economic Pillar" with "What's the Endgame?" 

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What’s the Endgame? 

So with the argument made that the (only) objective of the Chinese government is to access and secure strategic information/expertise rather than own or partner a controlling interest in any specific company (in the short term), what then is China’s real motive or endgame plan to use this newfound, coveted expertise? 

Simply, to optimally exploit and leverage the deployment of its bulging trade surplus, or better referred to as its foreign exchange reserve pool. These reserves and the velocity or better yet acceleration, of continued buildup, have now reached a critical mass, such that this excess liquidity is not only becoming inflationary to simply hold onto, but more importantly, a level where China can now elevate the Commulism game plan to begin its bid to control the global economy. In doing so, China moves from heretofore single dimension exporter of manufactured goods to dominating multi-dimensional global financier, spinning a global web of economic control and ownership financed by its robust money making engine and the economic war chest it generates and wields.  

To put the size and stunning growth of the foreign exchange reserves into perspective, consider the startling facts in the June 23, 2007 China Daily article titled “China’s Forex to Invest in Blackstone” which reports that the foreign exchange reserves reached a staggering $1.2 trillion (yes, trillion) in March 2007, of which other sources note some 70% invested in U.S. denominated instruments. In fact, that was an astounding increase of 37% in one year, which equates to an accelerating pool buildup rate of $30 plus billion per month or $1+ billion “per day” (yes, per day). That $1.2 trillion in March is now projected to currently be $1.5 trillion plus. 

Note: An indicator that China has reached a key critical mass milestone or stage where it is ready to unleash its economic might and leveraging its burgeoning financial positioning, consider just within the last month or two the Chinese government’s stunning announcement on currency diversification. The government stated it will start diversifying its $1.5 trillion foreign exchange reserves away from its 70% concentration in U.S. dollar denominated instruments in favor of other currencies. The news sent immediate shock waves through global currency and financial markets, clearly registering and confirming to Beijing the underpinnings of its grand economic domination plan are in place. Consider that straw man announcement as a “cause and effect probe”. The two “effect” conclusions - Beijing clearly saw it can get the world’s attention – quickly. The second, the dollar is clearly very sensitive to it, if not even in hostage condition.   

Putting that in further perspective, consider in comparison the sum of other equivalent U.S. benchmarks as reported in Wikipedia. The concern quickly morphs to panic when considering just China’s foreign exchange reserves. At $1.5 trillion, these dwarf by an order of magnitude or so, the “combined” U.S. foreign exchange reserves ($63 billion) plus gold reserves ($160 billion) plus strategic petroleum reserve ($55 billion), the latter two categories not even included in China’s number.  

The gold reserves, maintained at the United States Bullion Depository (USBD), a huge vault-like building structure within the sprawling U.S. Army reservation called Fort Knox, have a somewhat floating value. The valuation reported by Wilkpedia is a function of both real time inventory and spot gold market pricing. It would therefore vary with inventory changes which generally have been stable, and fluctuate more so due to gold market pricing, quite volatile of late. That said, and for purpose of this analysis and comparison purposes, a range of $150-200 billion in value (call it $175 billion for discussion purposes) at a market price of $800-$900 per ounce is reasonable. In the scheme of things then, this government backstop is neither impregnable nor really potent as most would previously have deemed to be the case, based on the embedded grammar school “Fort Knox” myth. Debunking that myth and false sense of security embodied in the “Fort Knox” brand name, consider how even $175 “billion” in assets compares to a U.S. federal deficit which recently crossed $9 “trillion”. Doing the math, the gold reserves at Fort Knox are therefore a mere pittance, just 2% by comparison. In other words, Fort Knox is publicly perceived, if not revered as huge in size and backstop ability, but now seen as really comparatively small, if not insignificant in the overall U.S. economy, much less the global economy. Cause for concern? Indeed, if the public is “banking” on the myth that Fort Knox is stronger than the Great Wall. Time for the U.S. to take new and substantive economic security/back-stop driven measures (see Commulism Crisis Response Framework later in a later Part in this article).  

Interestingly too, a comparable amount of gold bullion in the United States is held in the Federal Reserve Bank of New York's underground vault in Manhattan, which holds that inventory in trust for many foreign nations, central banks and official international organizations. Again, one must look at this being a relatively small amount in the big picture. 

Alternatively, think of it this way, China’s foreign exchange reserves are almost ten times the U.S. gold reserves in the USBD at Fort Knox. In fact, China’s soaring trade surplus (foreign exchange reserves) is essentially creating a new “Fort Knox equivalent” every 175 days or less, more than 2 per year. 

The question then becomes through what vehicle(s) will this expertise and impressive financial might be deployed by China? Perhaps the biggest and most overt indicator yet that China is positioned to take its Commulism global economic domination game plan to the next level is the establishment and opening Sept. 29, 2007 of its Sovereign Wealth Fund (SWF), known as China Investment Corporation (CIC). Adding more concern to this development is that it was immediately and lavishly funded with $200 billion of the foreign exchange reserves, resulting in CIC overnight becoming by a wide margin, the de-facto largest SWF in the world, dwarfing all others, albeit many like Dubai for example still second tier significant. Incredibly too, this first forex reserve infusion is but a tiny fraction of the exploding foreign exchange reserves pool of the government. Again for direct comparison purposes, the Chinese SWF initial deposit of $200 billion is more than the Fort Knox, and represents just 13% or so of total Chinese foreign reserves.

For a point of important reference, Wikipedia defines a SWF as a fund owned by a state…..broadly defined as entities that can manage the national savings for the purposes of investment. It too notes two supporting major concerns and pertinent to the case made in this article:

First, as this asset pool continues to grow in size and importance, so does its potential impact on various asset markets.

Second, and relatedly, some critics worry that foreign investment by sovereign wealth funds raises national security concerns because the purpose of the investment might be to secure control of strategically-important industries for political rather than financial gain.

As Robert Rennie, chief currency strategist at Westpac Banking Corp. was quoted on Oct. 17, 2007 in Bloomberg.com, “Asian central banks are becoming more conscious of increasing returns…..We're seeing moves to create sovereign wealth funds, which by definition suggest a structural shift away from Treasuries.'' 

The move to a Sovereign Wealth Fund and China’s shift from predominantly buying U.S. Treasuries is even more intriguing from the standpoint that as is the purpose of a sovereign wealth fund, these moves further evidence the real endgame. The Chinese are now setting their sights much higher, ready to cast their net by aggressively and broadly buying into U.S. and WEAST corporate and global finance infrastructure. 

Here too is a different yet supporting viewpoint when assessing the concern. Until just recently, countries like China were considered emerging. The paradigm is now shifting, not slowly but like a tidal wave. Luca Silippo, an economist at investment bank Natixis, notes "What is new is that countries that we have the habit of considering emerging are now pressuring to buy". This Aanalyst adds, in other words, the heretofore hunted are becoming the hunters, and ironically those previously hunters, now the hunted.

Clearly this new SWF development, is beginning to sound alarms in WEAST. The October 15, 2007 Taipei Times article “Europe  Fears Sovereign Funds' Clout” states “Germany and France are worried that funds such as China's CIC might be making purchases based on political strategies”. While the alarms are sounding on the China SWF, the bells still have not gone off as to Commulism in the aggregate, of which the SWF is but a component or but one Commulism puzzle piece.

The article adds “This has caused concern in Western countries with German Chancellor Angela Merkel saying in July 2007 that the power of the funds had reached hitherto unknown dimensions."

That concern is mimicked by the French government, specifically the President of the French Senate’s finance committee, Jean Arthuis who echoed Merkels concerns by stating "Do they (SWF’s) act according to prudent management principles or according to political strategies that could end up in forms of ... economic wars.” And finally the same article notes McKinsey stating ”that while the funds (Analyst note: China effectively just started) have so far obeyed strict economic criteria for their investments, political motivations could disturb the functioning of the markets.”

The concerns by the parties referenced above were effectively provided “before” China was even out of the gate with its brand spanking new SWF, yet the concerns remain fully founded, if not now exacerbated. Arguably the Blackstone investment by Jianyin, which utilized $3 billion in foreign exchange reserves, yet recently absorbed into CIC may be its first assault, albeit not under the CIC name. The true first tapping the $200 billion under the CIC umbrella being the Dec 19, 2007 announcement by CIC that it has invested $5 billion in Morgan Stanley to help replenish its capital, decimated by sub-prime credit losses. That investment equates to as much as 9.9 percent of Morgan Stanley once it converts to common shares in 2010.

Here again the myopic reaction, or rather general blind hoopla, in the global financial markets and political circles was a resounding “this is great”. Senator Schumer of New York State lead the way proclaiming this is helping to prop up a major New York City employer. He and the others seemingly lost in the surface appeal of the deals, failing to see the true insidious nature of the intent behind them.

In fact, the Chinese are preying upon that public, corporate and media myopia, cleverly portraying these transactions as opportunities to seek high returns (Blackstone) and/or invest in distressed assets (Morgan Stanley), and masking their real intent – to seek coveted financial expertise.

Under the premise that the CIC (and its real funding source) is the spearhead or vanguard of the entire Commulism threat, the Analyst would be remiss if not noting more ironic bungling by the U.S. and WEAST, blindly helping CIC take root, develop and grow. In other words, giving away the store. As reported in the Jan/Feb 2008 Atlantic magazine article on China, the CIC, admittedly an overnight behemoth startup lacking financial management and investment expertise (the latter addressed above vis-à-vis Blackstone, Bears Stearns and Morgan Stanley connections), conducted a crash course this past summer (2007) in modern financial operational management, the “training” led in large part by who else – the (naive) U.S.  

That education/training was provided by several expert organizations. McKinsey and Booz Allen provided separate confidential reports about the way CIC should organize itself and the investment principles it should apply, while Towers Perrin provided advice on staffing and pay. The CIC leaders also commissioned studies of other large state run investment funds including Norway, Singapore, the Gulf States and the U.S. (Alaska) – to see which approaches worked and which didn’t. Finally, to round out the CIC “financial/management/organization expertise grab” they indulged their fascination with the way large U.S. university endowments are organized, managed and operated (investments). This was accomplished through long study visits at Yale and Duke among others, by CIC leadership.

Again more “carrot for expertise” trade imbalance, this time unique knowledge (expertise) for a few token fees (carrot). While the U.S. entities received project compensation and goodwill for their services, the CIC reaped quite the opposite - a windfall, a veritable knowledge bonanza. That knowledge gained will now be used in the future against the same entities (and many others) enmasse that gave it away. Did McKinsey, Booze Allen, Towers, Yale and Alaska have to pass Exon-Florio scrutiny. No. Should they have? Absolutely, if one believes CIC fundamentally presents a threat to U.S. national security.     

The Chinese government has therefore with great planning and cunning execution, now concentrated its sizable financial resources and growing financial expertise into one centralized and now U.S. educated, economic power projection entity, the CIC. In doing so, China clearly is pursuing an even more calculated and sophisticated approach than other country SWF’s. Evidence the sheer magnitude of its initial tranche of $200 billion resources, the robust foreign exchange reserve machine in place to continue to feed it and acquiring world class financial (and other industries to come) market expertise; all supporting its ultimate global objectives – to dominate and control the global economy rather than just make specific one off investments and associated returns.

So What Does It All Mean? 

Here’s where it all comes together, yet the connection or rather integration and projection point is neither being recognized nor annunciated by the media or anyone else. The economic spearhead or vanguard in the China economic power projection machine is the vehicle CIC. CIC’s investment banking expertise and private equity expertise will flow from Bear Stearns and Blackstone (and Morgan Stanley) vis-à-vis its sibling government entities making those investments, respectively Citic Group and China Jianyin. Interestingly, China Jianyin was absorbed into CIC in September 2007. And Citic-Jianyin have a significant partnership established in 2005. Therefore, the tripartite linkage between SWF/reserves pool (CIC), investment banking (Citic) and private equity (Jianyin) is complete.  

Importantly, in determining how best to thwart Commulism, as is the purpose and theme of this article, it is important to also understand the foreign exchange money flow noted above, which fuels/drives it.  

It all starts with any and all Chinese manufacturers’ customer payments received. Those funds enter China from contractual relationships these manufacturers have with customers in the U.S. and elsewhere. The Chinese manufacturing company then exchanges the dollars received for Yuan/RMB at their local Chinese bank. Unlike other countries where these local bank equivalents are freely able to invest or trade these dollars for other currencies, the local Chinese banks are required/bound by the government to treat the U.S. dollars as contraband and turn them over to the Chinese equivalent of the Federal Reserve, the Peoples Bank of China (PBOC). The PBOC itself has but one option as respects what to do with the dollars/money received. It is required to then send the dollars to another central government arm – the “State Administration for Foreign Exchange (SAFE)”. SAFE then becomes the vault and/or clearinghouse if you will, for the $1.5 trillion or so foreign exchange reserves already there and the $1-2 billion new dollars coming in every day. SAFE then parcels the dollars out to externally focused central government agencies such as China Investment Corp. Recall CIC received its first tranche of funding in the form of $200 billion. Those funds came from SAFE. 

With that money flow understanding, now back to the three noted entities. While the Gang of Four (individuals) lost their power bid in 1976, this new Gang of 3 or perhaps more aptly labeled “The Gov-3” (government entities CIC, Citic and Jianyin), are now firmly in position and as importantly empowered to execute the Commulism global economic control plan. The source of that power being its unparalleled, covetous and growing foreign exchange reserves war chest (SAFE). Now accessing the missing ingredient, sophisticated financial expertise, poised to unleash integrated, coordinated and centrally orchestrated economic havoc with that raw financial power and muscle. 

It is worth noting and of growing concern, the interest, if not outright requests being made by U.S. investment banks to seek out and secure SWF capital from foreign players like China and Dubai to recapitalize their balance sheet, devastated by recent huge credit losses. Unfortunately, the price down the road for these “country to company” investments will be incredibly high, dwarfing the near term perceived euphoria from the cash infusion.   

In closing out the Economic Pillar analysis/assessment, bottom line, the Soviets had a failed economic model and the U.S. and WEAST had no economic dependency on it. Conversely, the Chinese are pursuing a healthy and robust (dominating) economic model, in fact an economic juggernaut, one the U.S. and WEAST is already substantially dependent upon, and blindly moving towards complete addiction, if not already there.  Now add in the steam roller effects of dominating global financial markets via CIC, and one can readily see the underlying, yet non-vocalized intent of China to totally control the global economy.

Coming Next: “Commulism Series” – Part 4

Part 4 will analyze and assess the next three Commulism Pillars - Military, Social Order and Technology. 

                                        

Authors Bio:

The cleverest of all, is the man who calls himself a fool at least once a month

- Fyodor Dostoyevsky

It is a curious fact that people are never so trivial as when they take themselves seriously...Some cause happiness wherever they go; others whenever they go

- Oscar Wilde

The situation is what it is...so deal with it...and then as General Patton inspiringly told his tankers...ADVANCE!!

- Brock Novak