….is that it’s been a blessing in disguise for the EU. Before the crisis the Euro was heading towards 1.50, now it is down to a more reasonable 1.35. If Greece defaulted on its debt, it would probably go down to 1.2. Would that be bad for Europe? Most would say no. In a world of competitive devaluations in which China has been amassing $2.4 trillion in reserves thanks to an artificially devalued currency, exporters in the EU would welcome the fall of the Euro. Moreover, the only real danger of a declining currency, inflation, looks very well under control: labor costs are down because of unemployment and energy costs are down because of lack of demand. No wonder it’s taking so long to bail out Greece.

Obama was elected…

“on a platform of universal health care, ending the Iraq war, a massive cap and trade system, 18 billion in new money for education, a revamping of the tax code to make it more progressive, a restoration of our civil liberties and enforcement of our anti-discrimination laws, a doubling of foreign aid, a huge expansion of national service tied to making college more affordable, tightening regulation in the financial markets, an unprecedented set of ethics and transparency rules governing the white house.”

For a while it seemed that the USA was headed nowhere. Now, as Lessig says in this great but long article, there is hope.

Let me put a string of assumptions about the Middle East, the USA and China together and see if we draw similar conclusions.

The Iraq and Afghanistan wars are not about democracy, they are about the free flow of oil. While the USA and China are not in agreement about democracy, they both want free flow of oil. Free flow of oil benefits both nations.

The Middle East is a region that is not driven by economics in the same way that the USA and China are driven by economics. In the Middle East, ideology and religion are extremely powerful. There were successive attempts by leaders like Qaddafi, Saddam Hussein, Osama Bin Laden and now Ahmadinejad to be the rulers of the Muslim world, and this is something that neither the USA nor China want, because they both have oil dependent economies. In general, the strategy of the Muslim leader is always the same. It resembles that kid who tried to kill Reagan to impress Jodie Foster (replace Jodie Foster for the average inhabitant of the Middle East). Stand up against the USA and Israel, and get Muslims to admire you. Then become the “natural leader” of the Muslim world. So far this has not worked. Now Ahmadinejad is going at it with nuclear weapons, making it ever more urgent for the USA to align with the Chinese.

Free flow of oil benefits the Chinese Communist government more than the American government. The USA is a solid democracy that can withstand a recession, China is an unstable autocratic nation with a government whose people tolerate it because it gives them prosperity. Cut off the flow of oil and the Communist government becomes very unstable.

Russia is not a natural ally for the USA in the Middle East for the simple reason that Russia is an energy exporter. It is only partly an ally in the sense that Russia, as well as China, are frequent victims of Muslim extremism. But Russia does not want the free flow of oil.

China has 2.2 military personnel and spends $60bn per year on the military. The USA has 1.4 million and spends $600bn. The economic advantage that China has in manufacturing jobs is similar to what China has in military costs. China is a low cost military producer whose labor is especially good in wars of occupation. The USA is a high cost high quality military producer whose advantage is in air and tactical wars which is exactly what the current Iraq, Afghanistan and Pakistan wars are not.

The cost of the Middle East wars over the last 10 years has been estimated at $1 trillion. Coincidentally, USA debt to China grew to close to $1 trillion during these wars. So it is fair to say that it is China who is financing the wars for the free flow of oil. It benefits from them, but does not fight them nor spend on them. China just lends money and expects to be repaid in full. Owing a lot of money to the Chinese is not a great idea for the future national and foreign policy of the USA. For example, the next time the USA says that Chinese should revalue or that they are dumping goods, the Chinese will say shut up and pay your debt. The Chinese will do what the USA did to the UK and France in the Suez Canal dispute (USA told the UK that if they insisted in fighting the Egyptians over the Suez canal it would pull off the financing of the pound and destroy its value. The UK gave up. I learned this reading IOUSA).

Given these assumptions I come to the following theses. I think the USA should have China fight and equity finance the Middle East wars for free flow of oil instead of just debt financing them. If China fights it, it is China that spends the money, not the USA indebted to China. Moreover, China can do the job 90% cheaper than the USA. If the Chinese can send a soldier to Afghanistan for $100K per year, and the objective to send this soldier is to prevent an Al Qaeda takeover of the middle east, why send a US soldier for $1M?

The USA may be afraid of having China become a global military power, but the sooner the USA drops its pretenses that it fights wars to promote democracy (why not fight the most undemocratic Saudi Arabia then?), the sooner it realizes that it fights them to promote free and cheap oil, the sooner the US government will come to the conclusion that it should partner with China. That either it gets China to fight and pay or otherwise it just waits it out. The USA has to stop thinking of itself as the first victim of any global crisis. The Communist Party of China would be the first victim. But they know it, and that’s why they pile up while the USA spends.

The last US president who understood how to make others pay for war and not take the country to bankruptcy was Bush senior who able liberated Kuwait with little investment of US money. He knew how to fight an efficient war (USA is best in the world at short tactical wars) and when to pull out.

Moreover, while many are afraid of China, I think that the Chinese, at least so far, have proven to be much more gun shy than the USA when fighting what they believe is right. China waited to regain Hong Kong without fighting, it will probably regain Taiwan amicably and will continue to deal with the uncomfortable situation of Tibet without a war. This is because the Chinese are patient and smart. This is also why, if the Chinese are willing to fight for free oil, then we should join them because when they are ready, things will be really serious and not fake serious (WMD).

Now don’t take me wrong. I prefer democracy to dictatorship and I still overall prefer the USA to China, in spite of the US voracity for foreign interventions . I especially still prefer a USA led world over a Communist Chinese led world. But if the USA doesn’t realize how China is both getting to own the USA and benefit from free oil while not contributing any sweat or real equity in the war efforts, it will go bust. And if somebody goes bust, I prefer it be the Chinese Communist party. That is why if I had anything to do with US military policy, I would not go on fighting without engaging them.

Lastly, I would like to say the same about North Korea. If anyone should worry about North Korea it’s the Chinese who are next door. They should worry about their nuclear ambitions, the potential for a nuclear war at their borders, and the enormous economic disruption that could come from a conflict in the region. And yet, the USA goes at this problem alone, and so far it has achieved nothing. This is another conflict that the USA should work closely with the Chinese on.

What brought the USSR down was the combination of a corrupt regime that was unable to deliver prosperity to its people and its disproportionate level of military spending. So long as the USA makes it easy for China to focus on prosperity and outsource most of its foreign policy to USA, the Communist will stay in power.

This is a video about fashion in a blog that is not about fashion so if fashion is uninteresting to you avoid it. In this video I follow @ninavarsavsky as she shops in Shibuya 109. Now right next to Shibuya 109 there are many gadget shops….not in this video however.

And here are some pictures of Tokyo taken today.

I am looking for an an analyst to work for me. Job consists of helping me evaluate investment projects in the areas of Internet, Telecoms and Alternative Energy. The ideal candidate will be a recent graduate, somebody who blogs and/or writes good reports in English, who has a great understanding of technology, and especially of how to turn new technologies into businesses. The job is based in Madrid and should be seen as a first training job. I have found that I work well with bright people who analyze and communicate well, but who have not received formal training in a large company. The companies that I have invested in already appear on the right side of the blog. The job also includes doing research for me for conferences related to my job as CEO of FON, this blog, other publications, teaching at IE and on different subjects that I may find of potential. Please write to me at martinvars@me.com.

This video, that I shot this morning in the outskirts of Gstaad, shows how well cows live in Switzerland. And it shouldn´t surprise you, since in Switzerland according to the Becker-Posner Blog, 68% of farmer’s income comes in the form of a government subsidy. A billion of people on this planet live on less than a dollar a day. The average European cow gets $2.7 per day, and Swiss cows get way more than that. Here’s another interesting article on subsidies and how unfair their distribution is.

If you understand Spanish here’s a similar article but the video has a special star.