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The worst not over yet for US economic woes
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Russia is one of the top energy resources exporting countries in the world and the primary natural gas supplier to EU member states as well as a major oil exporter. The explosive liftoff of oil price helped Russia clear the debts it owed the International Monetary Fund (IMF) ahead of schedule, recharge its military power and build the launch pad for a new foreign affairs strategy.

It was against this backdrop that Russia, with its energy resources as the big stick, reminded Ukraine how important Russia was when the latter moved too close to the West and sought to join NATO. When Georgia provoked it in South Ossetia, Moscow didn't hesitate a minute and conflicts ensued.

As a matter of fact, the latest round of oil price hikes was caused by the US monetary policy, but this did not do the US much good in terms of geopolitical interests. From a geopolitical point of view the higher oil price goes the more it benefits Russia, because it helps boost the country's national strength.

Still, oil price is determined by two factors. One is the supplier Russia no doubt can control oil price through output maneuvering; and the other is the buyer, especially in the financial market, because oil futures as one financial product or another are gaining weight everyday.

The US is the No 1 oil importer and consumer in the world, while the oil futures market in New York wields considerable power when it comes to oil price. For the sake of its geopolitical interests the US government does not want to see oil price keep rising. As the global center of oil price control, America can use its fully developed financial market to sway oil price movement.

In July the US Securities and Exchange Commission "killed two birds with one stone" by ordering all naked-short trades of financials be halted immediately, a decision that directly affected the oil price.

That measure forced financial institutions and speculators of financials to withdraw all their investment from the oil market in order to bail out their money trapped in financials. Because of this a round of panic selling brought a flood of cash into plummeting financial stocks, pumping them back upward by an average of more than 30 percent, and caused the oil price to plunge at the same time.

The US government will no doubt keep its policy geared toward pressing energy resource prices further down in the near future to protect its strategic interests and eliminate the threats facing its financial system.

Even though the US economy has shown some signs it is getting back into growth and the inflationary pressure is lessening because the commodities futures market does not look headed for a big leap anytime soon, the most worrisome danger in the US economy is not gone just yet.

Toward the end of the last century the US launched an all-out financial expansion campaign, which left behind a trail of burst bubbles starting with high-tech, then housing and most recently commodities futures. While the country's financial assets grew from $39.6 trillion in the 1990s to $151.9 trillion in 2006, which gave its economy a rosy look, the deceptive numbers came with a potential crisis, especially in the debt department.

A documentary, titled IOUSA and funded by Pete G. Peterson, secretary of commerce during the Nixon administration, went on a wide release across America in late August. It was intended to highlight the US government's humongous debt problem as an outstanding issue in the presidential election.

Warren Buffet, the securities market guru, after watching the movie, agreed with Peterson on the country's problem of twin deficits. They both believe it could trigger a catastrophe with consequences much worse than the current credit crunch if no immediate action is taken to quash it.

These two US billionaires have warned that several future generations of Americans could be victimized if Washington does not act right now to cut down federal debts, which have exceeded $50 trillion so far.

The author is a researcher with the State Council Development Research Center

(China Daily September 11, 2008)

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