Obtuse Observer

January 31, 2012

Why (knowing) History Matters

In the busy year of 1956 Gen Gamal Abdel Nasser of Egypt seized the Suez Canal.  The French and British, who relied on the canal as a link between vital economic and geopolitical interests, were not pleased.  There was much political intrigue regarding regional events following WWII that lead to the seizure.  They are too numerous for the purposes of this blog but a short regional list includes:  the Algerian War, Soviet support for the FLN and Soviet Foreign Minister Vyacheslav Molotov‘s offer to French Foreign Minister Guy Mollet to withdraw same in exchange for French withdrawal from NATO, Soviet offers to finance the Aswan Dam, American opposition to the Anglo-French redrawing of the middle-eastern map after WWI which established two Hashemite Kingdoms, how to deal with the new State of Israel, and the Hungarian revolution.

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Diplomacy failed.  The British and French allied with the Israelis, attacked Egypt and seized the Suez Canal.  The well planned and executed military operation was accompanied by a poorly planned and failed political operation.  The seizure was broadly condemned. 

The simplified and condensed factor resolving the conflict:  The Anglo-Franco Israeli coalition was made to collapse by a threat from President Eisenhower to sell the American holdings of UK Pound Sterling Bonds.  The threat if carried out would quickly and catastrophically collapse the British economy.  The threat was believed, the Canal returned and forces withdrawn.

Why is this important?  The United States used their economic leverage, massive amounts of UK war debt not fully paid off until 2006, to force to reverse a British policy the Eden government believed to be in their geopolitical best interests.

Why does this matter to the US today? 

Our 2010 estimated GDP was $14,660,000,000,000.00 ($14T)

As of today our outstanding debt is $15,236,231,788,440.22.   ($15.2T)

Debt held by China is $1,132,600,000,000.00 ($1.1T) or roughly 25% of our sovereign debt as of November 2011.  With a couple subsequent debt ceiling raises of $1,200,000,000,000.00 and Europe in economic crisis the cash total and debt ratio held by China is most wisely assumed to have increased.

Holding 25% of our debt which is the equivalent of 25+% of our GDP gives China a veto on American policy.  That is not a good thing.

 See also, Why Our Debt Crisis Matters

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