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23 May 2018

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At one level, Phil's reaction to this article makes sense. After all, it didn't need the resources of the CIA to uncover the nature of China's grand strategy in the Pacific.

That said, I think it is a serious error to underestimate just how effective this strategy will ultimately become.

History tells us that big powers like to dominate small powers within their self described sphere of influence and will do whatever it takes to achieve this objective.

So China is simply proceeding down a well trodden path and one which is entirely consistent with both its history and its current ambitions.

It amuses me when the governments of tiny and penurious countries like Vanuatu proclaim that they can and will resist pressure to allow China access to ports or airstrips. This is simply whistling in the cemetery.

The truth is that they will, eventually, do as they are told because they will have no other sustainable options.

If they imagine that simply reneging on their debts is a viable option, then they ought to look at Argentina as a guide to their likely fate.

Argentina is battling with 40% interest rates, a desperate shortage of capital and a great deal of social dislocation and misery. In addition, the government is fighting off law suits from creditors who are determined to extract their financial due from the beleaguered country.

Countries like Vanuatu are ludicrously ill equipped to cope with the impact of any economic melt down whereas the Chinese can weather global financial storms with relative impunity.

And make no mistake, the financial winter is coming. Total world debt now exceeds US$200 Trillion or 300% of world GDP, interest rates are rising (notably in the US) and, unless the rules of economics as we know them are entirely wrong, the day of reckoning for the over leveraged is coming.

It requires truly heroic optimism to believe that we collectively can somehow deleverage our enormous indebtedness without pain. There is literally no example of such a painless transition in history: the usual pattern is an enormous economic implosion followed by widespread impoverishment and dispossession.

It requires even more heroic optimism to believe that the current crop of politicians across the globe possess the insight, judgement and resolve to actually manage a successful transition onto a more sustainable footing.

In this context, in the absence of any other plan, perhaps Vanuatu and the rest of us might as well continue to whistle in the cemetery.

Fiddle de do, meanwhile flower power, the Hon Julie's swanning onnnnnn.

Ho-hum.

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