Treasury's War Page 49

  12.“Leviathan Inc: The State Goes Back into Business,” The Economist, August 5, 2011, www.economist.com/node/16743343; Niall Ferguson, “In China’s Orbit,” Wall Street Journal, November 18, 2010; “China Buys Up the World,” The Economist, November 11, 2011, www.economist.com/node/17463473/.

  13.Bremmer, The End of the Free Market.

  14.Elizabeth Economy, “The Game Changer: Coping with China’s Foreign Policy Revolution,” Foreign Affairs, November/December 2010, www.foreignaffairs.com/articles/66865/elizabeth-c-economy/the-game-changer.

  15.“Sovereign-Wealth Funds: Asset Backed Insecurity,” The Economist, January 17, 2008, www.economist.com/node/10533428.

  16.“China Buys Up the World.”

  17.Bremmer, The End of the Free Market.

  18.Fred P. Hochberg, “State Capitalists Map Out a New Wild West,” Financial Times, July 11, 2012.

  19.US Census Bureau, “Trade in Goods with China,” 2010, www.census.gov/foreign-trade/balance/c5700.html; Robert J. Samuelson, “China’s New World Order Demands Stronger U.S. Response,” Washington Post, January 24, 2011, www.washingtonpost.com/wp-dyn/content/article/2011/01/23/AR2011012302895.html.

  20.Thomas M. Hout and Pankaj Ghemawat, “China vs the World: Whose Technology Is It?” Harvard Business Review, December 2010.

  21.Samuelson, “China’s New World Order.”

  22.Keith Bradsher, “Chinese Foreign Currency Reserves Swell by Record Amount,” New York Times, January 11, 2011, www.nytimes.com/2011/01/12/business/global/12yuan.html?_r=0.

  23.Geoff Dyer and Jamil Anderlini, “China’s Lending Hits New Heights,” Financial Times, January 17, 2011, www.ft.com/intl/cms/s/0/488c60f4–2281–11e0-b6a2–00144feab49a.html#axzz1BEtk4jFy.

  24.Gary Locke, “Commerce Secretary on Chinese Foreign Investment in the U.S.,” International Information Programs, May 4, 2011, http://iipdigital.usembassy.gov/st/english/texttrans/2011/05/20110505183643su0.5584615.html#ixzz1QYywXPwG. China has also recently announced a new review system to vet foreign investments based on vague national security parameters. Again, while we must wait for implementation, these measures are very broad and provide another unnecessary hoop to jump through for US companies. Even more troubling, the review system allows for competitors and others outside of the Chinese government to influence the process by proposing to the Chinese authorities that a particular transaction be reviewed.

  25.Rob Gifford, “China’s Rise: Inward-Looking or Expansionist?,” NPR, June 30, 2011, www.npr.org/2011/06/30/137460232/chinas-rise-inward-looking-or-expansionist. Some have argued that China may be engaged in a deliberate game of forcing the United States to overextend itself and thereby go bankrupt trying to meet all the perceived challenges from China. See Brad Glosserman, “Is China Trying to Bankrupt US?” The Diplomat, June 9, 2011.

  26.Andrew E. Kramer, “U.S. Companies Get Slice of Iraq Pie,” New York Times, June 14, 2011, www.nytimes.com/2011/06/15/business/energy-environment/15iht-srerussia15.html?_r=1&scp=1&sq=Iraq%20U.S.%20companies%20oil&st=cse; Vivienne Walt, “U.S. Companies Shut Out as Iraq Auctions Its Oil Fields,” Time, December 19, 2009, www.time.com/time/world/article/0,8599,1948787,00.html.

  27.Leila Fadel and Ernesto Londoño, “Risk-Tolerant China Investing Heavily in Iraq as U.S. Companies Hold Back,” Washington Post, July 2, 2010, www.washingtonpost.com/wp-dyn/content/article/2010/07/01/AR2010070103406.html. Since the 2003 invasion of Iraq, China has aggressively sought to secure oil resources for its growing economy. With their once lucrative oil contracts voided by the overthrow of Saddam Hussein, the Chinese have used lower oil prices during this global recession to embark on a resource grab of epic proportions. Maximizing the collective strength of China’s banking institutions and the diplomatic resources of the Chinese government, China’s state-owned oil companies are positioning themselves to control a substantial amount of the oil produced in Africa, Asia, and South America. Whether this is through preferential bank loans to ailing countries or major investments in international oil companies on the open market, one thing has become clear: the Chinese are making sure that they have the oil they need in this limited resource market.

  28.Jalil Jumriany, an adviser to the Afghan minister of mines, as quoted in James Risen, “U.S. Identifies Vast Mineral Riches in Afghanistan,” New York Times, July 13, 2010, www.nytimes.com/2010/06/14/world/asia/14minerals.html.

  29.Robert D. Kaplan, “Beijing’s Afghan Gamble,” New York Times, October 6, 2009, www.nytimes.com/2009/10/07/opinion/07kaplan.html.

  30.US Federal Bureau of Investigation, “Bitcoin Virtual Currency: Unique Features Present Distinct Challenges for Deterring Illicit Activity,” April 24, 2012, http://cryptome.org/2012/05/fbi-bitcoin.pdf.

  31.Moisés Naím, “Mafia States,” Foreign Affairs, April 20, 2012, www.foreignaffairs.com/articles/137529/moises-naim/mafia-states.

  32.“Bin Laden: Goal Is to Bankrupt U.S.,” CNN, November 1, 2004, http://articles.cnn.com/2004–11–01/world/binladen.tape_1_al-jazeera-qaeda-bin?_s=PM:WORLD.

  33.Kristin M. Finklea, “Organized Crime in the United States: Trends and Issues for Congress,” Congressional Research Service, January 27, 2010.

  34.Richard Shultz, Roy Godson, Querine Hanlon, and Samantha Ravich, “The Sources of Instability in the Twenty-First Century,” Strategic Studies Quarterly, Summer 2011; Douglas Farah, “Terrorist-Criminal Pipelines and Criminalized States: Emerging Alliances,” Prism 2, no. 3 (2011), www.ndu.edu/press/emerging-alliances.html.

  35.US Senate Permanent Subcommittee on Investigations, “U.S. Vulnerabilities to Money Laundering, Drugs, and Terrorist Financing: HSBC Case History,” July 17, 2012, http://www.gpo.gov/fdsys/pkg/CHRG-112shrg76061/html/CHRG-112shrg76061.htm.

  36.Benjamin J. Cohen, The Geography of Money (Ithaca, NY: Cornell University Press, 1998), 128.

  37.Hyoung-Kyu Chey, “Theories of International Currencies and the Future of the World Monetary Order,” International Studies Review 14, no. 1 (2012): 51–77; Barry Eichengreen, Globalizing Capital: A History of the International Monetary System, 2nd ed. (Princeton, NJ: Princeton University Press, 1996), 103; Barry Eichengreen, Exorbitant Privilege: The Rise and Fall of the Dollar and the Future of the International Monetary System (Oxford: Oxford University Press, 2011), 40–42; Jonathan Kirshner, “Dollar Primacy and American World Power: What’s at Stake?” Review of International Political Economy 15, no. 3 (2008): 418–438.

  38.“Brazil-China Bilateral Trade in Real and Yuan Instead of US Dollar,” MercoPress, June 30, 2009, http://en.mercopress.com/2009/06/29/brazil-china-bilateral-trade-in-real-and-yuan-instead-of-us-dollar; Toni Vorobyova, “Russia, China to Boost Rouble, Yuan Use in Trade,” Reuters, June 17, 2009, www.reuters.com/article/2009/06/17/russia-china-currency-idUSLH72167820090617.

  39.James Rickards, Currency Wars: The Making of the Next Global Crisis (New York: Penguin, 2011), 107.

  40.Niall Ferguson, The Ascent of Money: A Financial History of the World (New York: Penguin, 2008), 336–337. In Ferguson’s view, “Chimerica” was “the underlying cause of the surge in bank lending, bond issuance and new derivative contracts . . . the underlying cause of the hedge fund population explosion . . . the underlying reason why private equity partnerships were able to borrow money left, right, and center to finance leveraged buyouts . . . the underlying reasons why the US mortgage market was so awash with cash in 2006 that you could get a 100 per cent mortgage with no income, no job or assets.” Ferguson has further argued that the United States’ loose monetary policy is its own form of currency manipulation, causing the dollar to depreciate approximately 25 percent against the currencies of its major trading partners in recent years (9 percent against the renminbi).

  41.Ferguson wrote: “One important lesson of history is that major wars can arise even when economic globalization is very far advanced and the hegemonic position of an English-speaking empire seems fairly secure.” Ferguson, The Ascent of Money, 339–340.

  42.Rickards concluded: “The path of the dollar is unsustai
nable and therefore the dollar will not be sustained. In time, the dollar will join a crowd of multiple reserve currencies, be subordinated to SDRs, be rejuvenated by gold or descend into chaos with both redemptive and terminal possibilities.” Rickards, Currency Wars, 255.

  43.Chey wrote: “And in fact, a group of prominent international banks, among them HSBC, Standard Chartered, Citigroup, and JPMorgan[,] have recently been holding international roadshows to promote use of the renminbi by their corporate customers for trade deals with China, instead of the dollar. Some of them have moreover offered financial incentives, such as discounted transaction fees, to firms opting to settle their trades in renminbi.” Chey, “Theories of International Currencies,” 71. See also Robert Cookson, “Banks Back Switch to Renminbi for Trade,” Financial Times, August 26, 2010.

  44.Testimony of Michael McConnell Before the Senate Committee on Commerce, Science, and Transportation, “Seizing Opportunity While Managing Risk in the Digital Age,” February 23, 2010, http://commerce.senate.gov/public/?a=Files.Serve&File_id=52507485-dfbe-4873–8089–82dd24f7beaa.

  45.James K. Jackson, “Foreign Direct Investment in the United States: An Economic Analysis,” Congressional Research Service, February 1, 2011, www.fas.org/sgp/crs/misc/RS21857.pdf.

  46.US Department of the Treasury, “Major Foreign Holders of Treasury Securities,” www.treasury.gov/resource-center/data-chart-center/tic/Documents/mfh.txt.

  47.US Energy Information Administration (EIA), “Frequently Asked Questions,” www.eia.gov/tools/faqs/faq.cfm?id=32&t=6; Neelesh Nerurkar, “U.S. Oil Imports: Context and Considerations,” Congressional Research Service, April 1, 2011, www.fas.org/sgp/crs/misc/R41765.pdf.

  48.Bremmer, The End of the Free Market.

  49.Richard J. Elkus Jr., Winner Take All: How Competitiveness Shapes the Fate of Nations (New York: Basic Books, 2008).

  50.Mark Clayton, “WikiLeaks List of ‘Critical’ Sites: Is It a ‘Menu for Terrorists’?” Christian Science Monitor, December 6, 2010, www.csmonitor.com/USA/Foreign-Policy/2010/1206/WikiLeaks-list-of-critical-sites-Is-it-a-menu-for-terrorists.

  51.Directorate for Science, Technology and Industry, Maritime Transport Committee, “Security in Maritime Transport: Risk Factors and Economic Impact,” July 2003, Organisation for Economic Co-operation and Development, www.oecd.org/dataoecd/19/61/18521672.pdf, 18–19.

  52.“Highlights: Bernanke’s Press Conference on Fed Policy,” Reuters, April 27, 2011, http://uk.reuters.com/article/2011/04/27/us-usa-fed-bernanke-high-lights-idUKTRE73Q6ZU20110427.

  53.Christine Parthemore, “Elements of Security: Mitigating the Risks of U.S. Dependence on Critical Minerals,” June 12, 2011, www.cnas.org/files/documents/publications/CNAS_Minerals_Parthemore_1.pdf.

  54.See “DeLauro, Wolf to Protect American Defense Interests,” May 25, 2011, http://delauro.house.gov/index.php?option=com_content&view=article&id=536:delauro-wolf-work-to-protect-american-defense-interests&catid=7:2011-press-releases&Itemid=23. Congresswoman DeLauro, a sponsor of the amendment to the defense bill, stated: “With China making significant progress in the defense and aerospace industries, including a Chinese state-controlled company considering a bid for the next presidential helicopter, it is critical that we ensure U.S. national security is protected and that the highly skilled jobs and associated technologies in these industries are not outsourced overseas.”

  55.US Department of the Treasury, “Statement from the Treasury Department on the President’s Decision Regarding Ralls Corporation,” September 29, 2012, www.treasury.gov/press-center/press-releases/Pages/tg1724.aspx.

  56.Testimony of Michael McConnell Before the Senate Committee on Commerce, Science, and Transportation, “Seizing Opportunity While Managing Risk in the Digital Age,” February 23, 2010, http://commerce.senate.gov/public/?a=Files.Serve&File_id=52507485-dfbe-4873–8089–82dd24f7beaa.

  57.“Internet Matters: The Net’s Sweeping Impact on Growth, Jobs, and Prosperity,” May 2011, McKinsey Global Institute, www.mckinsey.com/mgi/publications/internet_matters/pdfs/MGI_internet_matters_full_report.pdf.

  58.Keith Alexander, “Cybersecurity,” speech at the Aspen Security Forum, July 26, 2012, www.aspeninstitute.org/about/blog/general-keith-alexander-protecting-homeland-cyber-attacks.

  59.McAfee and Science Applications International Corporation (SAIC), Underground Economies, 2011, McAfee, Inc., www.mcafee.com/us/resources/reports/rp-underground-economies.pdf. Note that McAfee has extrapolated the figure $1 trillion in economic loss from its study and estimates of value of intellectual property and expenses paid by companies affected by cyber-attacks and espionage.

  60.Dmitri Alperovitch, “Revealed: Operation Shady RAT,” Threat Research, McAfee, Inc., August 3, 2011, www.mcafee.com/us/resources/white-papers/wp-operation-shady-rat.pdf.

  61.Joseph Menn, “Chinese Hackers Hit Energy Groups,” Financial Times, February 10, 2011, www.ft.com/cms/s/0/8a4b497a-34b4–11e0–9ebc-00144feabdc0.html#axzz1R3BKyVFS.

  62.Keith Alexander, “Cybersecurity and American Power,” July 9, 2012, American Enterprise Institute, www.aei.org/events/2012/07/09/cybersecurity-and-american-power/.

  63.“Code Wars,” editorial, Washington Post, June 3, 2012, www.washingtonpost.com/opinions/code-wars/2012/06/03/gJQAlUM1BV_story.html.

  64.Nicole Perlroth, “Virus Seeking Bank Data Is Tied to Attack on Iran,” New York Times, August 9, 2012.

  65.Katherine Maher, “Did the Bounds of Cyber War Just Expand to Banks and Neutral States?” The Atlantic, August 17, 2012.

  66.Kim Zetter, “Researchers Seek Help Cracking Gauss Mystery Payload,” Wired, August 14, 2012, www.wired.com/threatlevel/2012/08/gauss-mystery-payload/.

  67.Ibid.

  68.David Nordell, “Is the New ‘Gauss’ Malware a Counter-Terror Finance Intelligence Tool?” August 12, 2012, Terror-Finance Blog, www.terrorfinance.org/the_terror_finance_blog/2012/08/is-the-new-gauss-malware-a-counter-terror-finance-intelligence-tool.html?utm_source=feedburner&utm_medium=email&utm_campaign=Feed%3A+TerrorFinanceBlog+%28The+Terror+Finance+Blog%29.

  69.E. Scott Reckard, Andrew Tangel, and Jim Puzzanghera, “Banks Fail to Repel Cyber Threat,” Los Angeles Times, September 27, 2012; see also Kaspersky Labs, “Kaspersky Lab Discovers ‘Gauss’—A New Complex Cyber-Threat Designed to Monitor Online Banking Accounts,” Kaspersky Labs Virus News, August 9, 2012, www.kaspersky.com/about/news/virus/2012/Kaspersky_Lab_and_ITU_Discover_Gauss_A_New_Complex_Cyber_Threat_Designed_to_Monitor_Online_Banking_Accounts.

  70.Harald Malmgren and Mark Stys, “Computerized Global Trading 24/6: A Roller Coaster Ride Ahead?” The International Economy, Spring 2011, 32.

  71.Rob Iati, “The Real Story of Software Trading Espionage,” Advanced Trading, July 10, 2009.

  72.“Findings Regarding the Market Events of May 6, 2010,” Report of the Staffs of the CFTC and SEC to the Joint Advisory Committee on Emerging Regulatory Issues, September 30, 2011, www.sec.gov/news/studies/2010/marketevents-report.pdf.

  73.Ibid., 62.

  74.World Economic Forum, “Global Risks 2008: A Global Risk Network Report,” January 2008, https://members.weforum.org/pdf/globalrisk/report2008.pdf,10–11.

  75.In Eric Doll, “The Price of Globalization: Economic Growth Requires Corporate Responsibility,” September 2009, JP Morgan, www.jpmorgan.com/cm/ContentServer?cid=1159398714398&pagename=jpmorgan%2Fts%2FTS_Content%2FGeneral&c=TS_Content. Senator Carl Levin is quoted as saying, “Estimates are that $500 billion to $1 trillion of international criminal proceeds are moved internationally and deposited into bank accounts annually. It is estimated that half of that money comes to the United States.”

  76.Rule 204T was adopted in 2008 in response to continuing concerns regarding “fails to deliver” and potentially abusive “naked” short selling. In particular, Rule 204T(a) makes it a violation of Regulation SHO if a broker-dealer does not close out a fail resulting from a short sale in any equity security by no later than the beginning of trading on the day after the scheduled settlement of the trade. Under Rule 2
04T(a), a broker-dealer that is a participant of a registered clearing agency (a “participant”) must deliver securities to a registered clearing agency for clearance and settlement on a long or short sale in any equity security by the settlement date. If a participant has a fail position at a registered clearing agency resulting from a short sale, the participant is required, by no later than the beginning of regular trading hours on the settlement day following the settlement date (i.e., T+4), to immediately close out the fail by borrowing or purchasing securities of like kind and quantity. See “SEC Issues New Rules to Protect Investors Against Naked Short Selling Abuses,” September 17, 2008, www.sec.gov/news/press/2008/2008–204.htm.

  77.“Mullen: Debt Is Top National Security Threat,” CNN, August 27, 2010, http://articles.cnn.com/2010–08–27/us/debt.security.mullen_1_pentagon-budget-national-debt-michael-mullen?_s=PM:US.

  78.James G. Rickards, “Economic Security and National Security: Interaction and Synthesis,” Strategic Studies Quarterly, Fall 2009, www.au.af.mil/au/ssq/2009/Fall/rickards.pdf; Vincent Cable, “What Is International Economic Security?” International Affairs 71, no. 2 (1995): 305–324.

  79.Robert M. Kimmitt, “Public Footprints in Private Markets: Sovereign Wealth Funds and the World Economy,” Foreign Affairs, January/February 2008, www.foreignaffairs.com/articles/63053/robert-m-kimmitt/public-foot-prints-in-private-markets.

  80.Robert M. Kimmitt, “Give Treasury Its Proper Role on the National Security Council,” New York Times, July 23, 2012, www.nytimes.com/2012/07/24/opinion/give-treasury-its-proper-role-on-the-national-security-council.html.

  81.Chi Lo, “Going Global: The Risks and Rewards of China’s New International Expansion,” The International Economy, Spring 2011, 55. Chi Lo wrote, “New times need new policies. A plausible way to make China play by the international rules would be to weave a web of multilateral arrangements into which China could fit and by which China would be bound.”