October 25th 2008

  Buy Issue 2791

Articles from this issue:

COVER STORY: CANBERRA OBSERVED: Kevin Rudd's desperate gamble

EDITORIAL: Can Australia weather the storm?

NATIONAL AFFAIRS: Defending Australia's independence

CHINA: Milk contamination scandal: tip of the iceberg

NEW ZEALAND: November 8 election: Helen Clark's last hurrah?

FAMILY: Will paid maternity leave help mothers?

VICTORIA: Behind Victoria's radical new abortion law

ECONOMIC AFFAIRS: Can the US adjust to changing world realities?

STRAWS IN THE WIND: Barbarossa II / Our friends

EDUCATION: When the wrong answer is 'right'

SCHOOLS: Minister Gillard backs faulty ranking system

SRI LANKA: Plight of persecuted Tamils worsens

TAIWAN: Ball in Beijing's court for Taiwan's WHO entry

EUROPE: Germany backs Russia against Georgia, Ukraine

AS THE WORLD TURNS: Health and safety obsessions stifle childhood

BOOKS: BLUE PLANET IN GREEN SHACKLES: What is Endangered: Climate or Freedom? by Vaclav Klaus

Books promotion page

Defending Australia's independence

by Patrick J. Byrne

News Weekly, October 25, 2008
The centre of economic gravity is shifting from debtor nations of the West to the savings nations of the East. Patrick J. Byrne reports.

The National Civic Council has produced an important brochure analysing the historic global power-shift underway from debtor nations of the West to the savings nations of the East. This shift will have major consequences for Australia.

The NCC's Strategic Report, The global power shift: defending Australia's independence, argues that Australia's over-dependence on foreign borrowing and direct foreign investment is leaving the nation vulnerable to a new form of strategic dominance. The famous US investor, Warren Buffett, has cautioned those countries excessively depending on foreign borrowing that they risk losing their sovereignty, being "colonised by purchase rather than conquest" (Fortune, October 26, 2003).

The oil-rich nations of the Middle East and Russia, the new industrial power of China, its neighbours and Japan have variously accumulated huge foreign currency reserves, large national wealth funds and large domestic savings pools.

Centre of gravity

The centre of gravity of global production has already shifted to the East; now, as the global financial crisis unfolds, the shift in finance is following.

In 20 years, China's economy could be larger than that of the US. In 50 years, India's economy could well be larger than China's. This would intensify competition for scarce resources like oil, and could lead to conflict.

James F. Hoge Jnr, the editor of the distinguished Foreign Affairs journal, has noted: "Global power shifts happen rarely and are even less often peaceful." Only a century ago, the failure of the imperial order to adjust to the aspiring ambitions of Germany and Japan resulted in conflicts that devastated the globe.

The possible crisis facing Australia arises from:

• the decline of the Australian dollar, after mining commodity prices fall;

• the burden of Australia's $600 billion net foreign debt;

• a consequent flight of capital from Australia; and

• Australia then being caught overly dependent on capital from China, which increased from a trickle three years ago, to an expected $30 billion this year.

For years, Australia's political leaders have insisted that as the foreign debt was held by the private sector – involving contracts between consenting adults here and abroad – the size of it didn't matter. That theory appeared to die last week when Prime Minister Kevin Rudd guaranteed not only bank deposits but also the subsidiaries of all foreign banks in Australia. Both measures were necessary to stop any run on the banks and effectively to prevent a flight of capital.

Herein lies the emerging risk to Australia. The more the Beijing regime has invested in Australia at the moment of a major economic crisis, the greater the likelihood that China could literally buy out Australia using its massive savings pool, foreign reserves and sovereign wealth funds. It has the potential to bail out Australia's foreign debt, but the price could be China taking effective control of key national assets – minerals, energy and possibly banks and the retail sectors.

Iceland, an original NATO bloc country, has recently been bankrupted by the financial meltdown. Russia has offered to bail out Iceland. As The Times of London, noted, "If we are not careful, Iceland will signal the ominous start of a new round of mergers and acquisitions – not of companies, but of whole countries." (October 8, 2008).

The NCC's Strategic Report sets out an integrated policy platform vital to ensuring Australia's independence through the strains and conflicts likely to be generated by the global-power shift.

The foreign investment rules need to be tightened to prevent companies owned by foreign governments taking over strategic Australian industries and resource sectors.

Australia needs to become more self-reliant in capital, reducing its foreign debt, building its domestic savings, and utilising more of its superannuation funds in developing the nation.

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