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by Kenneth E. MacWilliams

Very recently a few political commentators have said they’ve figured out why the Obama administration is not going to push for a second stimulus plan. They think the administration has been intimidated by Wall Street economists frightening them with economic scare stories.

Those political analysts need to think some more because although they are running around the bases in the right direction, their thinking so far has gotten them only to second base.

The real reason for no second stimulus plan is still hiding in plain sight.

Sometimes when you want to deliver a very heavy message, a close and trusted friend can play the heavy for you and deliver the very tough message in his or her own name, which if it were delivered directly by you or your lieutenants the risk of serious blowback might be greater for your interests than the expected benefit of the message. Many of us may have done this before in our lives, both individually and on behalf of our organizations. It is a millennia old technique.

And it just happened again, at a very high level.

Minister Mentor Lee Kuan Yew, former Prime Minister of the Republic of Singapore, remains one of the most powerful men in Asia. The closeness of his personal ties with past and present leaders of the People’s Republic of China is legendary. In mid October there were extended exchanges between Chinese President Hu Jintao and Lee during which Hu requested that Lee deliver directly to top officials of the United States — but in Lee’s own name and unofficially and not through normal diplomatic channels — the message that the People’s Republic of China has gone as far as it intends to go in enabling the United States to continue to incur debt seemingly without limit, and that the end of the road is about to be reached no matter what the consequences may be economically for China (because, in China’s calculus, to continue in this fashion would be to expose themselves to even greater risk).

Thus Lee spent the last ten days of October in the United States, ostensibly for just another friendly visit and for some speeches, but during which he had a series of one-on-one very private and serious talks with (from bottom to top) all of the key people at the Council on Foreign Relations, the heads of the key investment banks in the US, the President of the World Bank, Ben Bernanke, Tim Geithner, Larry Summers, and President Obama. And to all of whom he likely delivered a cold and clear message probably quite close to the following:

“You all know how long and how well I have known all the leaders of the People’s Republic of China, and you all know how close I am with President Hu, and you all know how closely in touch with current thinking in China I am, and you all know how much I love the United States and wish for you only the best, and you all know how I would do anything to prevent any misunderstandings or horrible miscalculations between China and the United States... and so given all of that I hope you will with the utmost seriousness reflect upon what is just my own personal opinion, namely that it is just my own perception that the People’s Republic of China has come to the end of the road in terms of sitting by and watching the national debt of the United States continue on its way to the moon and be assisted as it is by Chinese purchases of U.S. debt obligations... and even though it would appear to be in China’s interest on several levels to continue to aid and abet the United States in this regard, it is again my view - and I stress that it is only my personal view - that China appears ready to disengage forcefully from this mutually dependent death spiral because not to do so, I think they have decided, will hurt them even more. So if the United States wishes to avoid such a mutual catastrophe, then - and this again is just my personal opinion (but I need not remind you of my closeness with my decades long friends in China) - that the United States must realize that China has reached the end of the line and the United States must begin making financial decisions that will be very politically difficult but which will reflect this realpolitik situation.”

Far, far more than the input of any economists on Wall Street, such a message from Lee turned the lights on inside the Obama administration.

And that is what is just beginning to be reflected.

And some of our normally very highly perceptive political analysts need to power-up their microscopes.

Kenneth E. MacWilliams
Portland, Maine

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