Monday, October 11, 2010

China and Chesapeake Energy - A Precursor to the Demise of the US?

The New York Times carried this article today: "What China Seeks in Chesapeake Shale Deal". According to the article: "China’s $2.2 billion investment in the Texas oil patch may be small, but the deal with Chesapeake Energy involves a potential transfer of technology and intellectual knowledge to Beijing that some people in Washington may find uncomfortable, and that unease could trip up the deal." This deal, in of itself may not be a big deal; but it could be interpreted as one cut of many future cuts to come leading to the demise of the US. Death by a thousand cuts.

The Times, in asking itself the rhetorical why of this deal, writes: "Part of the reason is that it is simply a way to recycle its stockpile of hundreds of billions of dollars into an asset class other than United States Treasury securities." Though the Times uses the euphemism "recycle", the reality is that our deficit spending is allowing other countries to acquire the financial strength to purchase US businesses by using our own IOUs (treasury securities).  Will our entire country end-up being owned by foreign companies and foreign countries as we spend ourselves into oblivion with money we don't have?

The Times also writes: "But the main reason for this particular deal seems to be the transfer of lucrative shale drilling technology that China has been seeking in its bid to exploit its own shale reserves." While this may be politically unpalatable, the Times overlooked the deeper implications.  The US has been pushing for ever stronger protections for so-called intellectual property.  One example of this process for promoting stronger protections is the international "Anti-Counterfeiting Trade Agreement" (ACTA) which is currently in the process of being negotiated. The problem, in terms of a death by a thousand cuts, is that as foreign countries and foreign corporations in acquiring US assets will also be acquiring so-called US intellectual property, such as shale drilling technologies.  Also, as one commentator noted in a prior New York Times article, that foreign countries will soon be developing their own so-called intellectual property.  The US, by demanding strong protections for so-called intellectual property, will eventually be shooting itself in the foot as the foreign countries mimic US protection measures.  Seems that the US Trade Representative is not concerned with the repercussions that could occur should we lose our technological edge.

Deficit spending by the US is not simply a means of stimulating the economy, it also concerns the issuing IOUs that eventually have to be paid.  Those holding the IOUs can then use those IOUs to buy US companies. China's $2.2 billion dollar investement in Chesapeake Energy may only be a beginning.  A journey of 1000 miles begins with the first step. (Lao-tzu)

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