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.
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 The threat was believed, the Canal returned and forces withdrawn.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
However China’s largest market for their goods is the US and collapsing our economy would lead not only to a US collapse, but likely a global collapse. They would have no one to sell their goods to, or at least not at the current mark-up and we’d all be plunged into debt and their own economy would stall. This would then likely turn things into a military battle for global resources. They have a trump card they can’t really use.
Comment by eschultz — January 31, 2012 @ 8:20 pm
It is certainly as limiting factor but a limit is not preclusion.
The hope is that China collpases before they can bully us with the bonds.
Comment by Obtuse Observer — February 2, 2012 @ 3:08 am
[...] money too fast and it has to end before our debt becomes a major national security issue, see: Why (knowing) History Matters and Why Our Debt Crisis Matters. [...]
Pingback by Obama and the Budget « Obtuse Observer — April 4, 2012 @ 10:34 pm
[...] what President Eisenhower did to the Brits when they seized the Suez Canal in 1956. (see earlier blog Why (knowing) History Matters) He threatened to sell all American holdings of UK bonds which would collapse the Pound Sterling [...]
Pingback by Why (Knowing) History Matters… updated « Obtuse Observer — September 18, 2012 @ 6:41 pm