Chemotherapy is a process I term ‘differential death’. Powerful poisons are administered to the body in hope that cancer cells are killed off either preferentially or at a higher rate than healthy body cells, albeit with the understanding that a certain amount of healthy cells will die during the process. Chemotherapy works only when there exists some finite difference between the growth of the cancer and growth of healthy cells that can be exploited.

In the following arguments, I assert some premises which I believe are supported by observation. One of these premises is that the Government of the United States includes some people who are very intelligent and very clever, despite the obvious inanity of the politicians. Pare away the first layer of politicians, the Congress, the executive branch, and their support ,and there are groups of people who have a very detailed and complete understanding of the various processes occurring in the world. There are also ‘think tanks’ whose stock in trade are ideas, plans and processes, most of which are vetted very thoroughly.

In the recent economic turmoil, the Federal Open Market Committee (The ‘Fed’) made certain statements, raised interest rates multiple times, and even manipulated the acquisition of Bear Sterns. It opened its discount window, once only available to regulated entities such as banks, to unregulated financial firms. While this was hailed as good in the first few instances, as the rates were lowered again and again, voices began to be heard suggesting that the Fed’s monetary policy was in error. In the aftermath of Bear Sterns, more and more editorials in the Wall Street Journal began to address the ‘moral hazard’ of making such liquidity available; the ‘moral hazard’ of Congresional action on bailouts of mortgage companies who made questionable loans; and the decline of the dollar worldwide. Since food commodities and oil are predominately denominated in dollars, the result of the weak dollar has been a run up of commodity prices. The restrictions on investment resulting from the ‘mortgage crises’ generated large amounts of liquidity that would have gone into SIVs and CMOs, but instead went into commodity speculation, exacerbating already high commodity prices.

Yet the ‘Fed’ does nothing. The White House talks about the global significance of a ‘strong dollar’ yet does nothing. The Treasury Secretary makes strong dollar statements one day and recants them the next. What is going on here? These are, in fact, some of the previously mentioned intelligent and clever people. If the news commentators, abjuring their fascination with Amy Winehouse, or other pop-tart-du-jour, can see and comment on the effects of a weak dollar, then it should be blindingly obvious to even politicians.

These events did not occur in a global vacuum. Let’s look at a few of the boundary conditions. China is a developing economy whose growth is poised at double digits. China’s labor markets provide US companies with a means of inexpensive labor for manufacturing. As a result, China sells an enormous amount of goods to the US. While China’s trade balance sheet is balanced insofar as imports and exports, the balance in trade with the US greatly favors exports. Further China is “The Middle Kingdom”, whose negotiation policy is “You give me this, and I’ll take that”. Repatriating profits from a business venture in China is tantamount to impossible. The only way to successfully do so is to create a Chinese corporation with a Chinese national, route the profits to this new corporation and purchase something from a party in which you, the original company, have an interest. Chinese economic development officials are literally dumbfounded at the concept that you, as a businessman, would not want to leave your money in China. China is about dominance and about regaining their (largely hypothetical) position as the Middle Kingdom: the number one military, industrial and political entity of the world.

The US buys goods from China. In return, China obtains a large amount of US currency. Money which is stationary is useless, so China uses this source of funds to invest in various opportunities including those in the US, buying US Treasuries. China also invests in other financial instruments which are dollar denominated. China is also gowing, and uses a significant amount of energy resources. This creates a huge demand for oil and other ‘portable’ sources of energy. Finally, China has a political system which favors central control which makes its responses a tad arthritic.

Economic inequity has been a casus beli for as long as man has existed. So if one were to fight a war with a major power, how would one go about it? Iraq is not a major power. Success in the war in Iraq under whatever one wants to characterize as success, can be obtained through force of arms. Similar arguments can be forwarded for most of the medium sized countries, but the real question is how does one wage war on a China, or a Russia. Even smaller countries such as Venezuela and Iran, due to their economic coupling, cannot be warred upon by force of arms. This is especially true for those countries with their own capable militaries and those with strategic nuclear weapons.

To successfully challenge China, Russia, Iran or Venezuela, they must remain unaware that the war is even being fought.

The United States is by far the most dynamic economy of the world. In its normal course of business, hundreds of companies are created and destroyed each year, with novel companies rising to the top of the capitalization structure in fields which didn’t exist even as much as five years ago. Companies providing basic commodities adapt or are driven under by the competition. A 20% bear market drop in the Dow represents the GDP of almost half of the rest of the world. The markets have legacy sayings — Wall Street sneezes and the rest of the world gets the flu.

So if, by analogy we view the United States as the body and the influence of China as malignant cells, how can we wage war to eliminate this influence. Strangely enough, depressing the value of the dollar is one very astute way. The results of this particular brand of chemotherapy is already showing results. Yes, it’s painful, and yes we are losing our hair, but as a result of the rise in commodity prices, business in China is becoming unprofitable. Even Wall-Mart is reconsidering its manufacturing operations there. Manufacturers, faced with shipping costs that are three to four times the production cost in China, have to sell at markups to cover these costs. It becomes cheaper to manufacturer the products here in the United States. Factories which were moth-balled are being re-opened. It is estimated that the current shipping and energy costs amount to an 9% tarrif on Chinese goods.

The rise of dollar denominated oil has forced China to finally raise its subsidized fuel price to its population by 18%. This has an immediate adverse effect on economic growth which is propelled by both energy and capital. And the Chinese citizens who worked their way to the middle class only to find their manufacturing jobs eliminated, become a burden and place demands for a support net on the government. More money flows into social security and less into the military. And the present value of the investments China has placed in US Treasuries and financial institutions is dwindling. The capital investments they do have are decreasing in value both due to inflation and exchange rates. China has recently allows its currency to increase with respect to the dollar in response to this. This only further makes its products less competitive. So as long as the US can withstand the pain of the chemotherapy, China’s influence will lessen.

While the main force of this attack I believe is China, a more subtle attack is being waged on Saudi Arabia and Russia. This attack consists of inflating the incomes of these countries beyond their ability to control. Saudi institutions like KAUST reflect the belief that money can buy prominence in research and technology, as well as stability and respect. Enormous sums are being spent in developing universities with the belief that a religiously restrictive and closed society can become host to a modern research institution. What both Saudi Arabia and Russia don’t understand is that the wealth and power of the United States is not in its things but in its attitudes, freedoms and optimism. When the price of oil falls, as it must, programs in these countries dependent on this cash flow will cease to function. Chavez in Venezuela is spending his oil revenue on vote buying social programs and doing little to build his country’s infrastructure. When the revenue is no longer there to support the programs, they too will cause more problems for Chavez than the United States ever did.

So as long as we can take the pain and adjust a little, we can limit the influence of the cancer. After all, hair can grow back. America needs to see to the aspects of our society that allow this to work — that is creativity, flexibility, inexhaustible energy and freedom.