China, Russia to hold joint naval exercises

Is this a 'foreshadow' of something to come?


This is a rush transcript from "Your World," July 2, 2013. This copy may not be in its final form and may be updated.

NEIL CAVUTO, HOST: In the middle of this, we have got this, China and Russia holding their largest ever joint naval drills in the Sea of Japan come Friday, a Chinese general saying, what's the big deal? Outsiders shouldn't consider these exercises threatening.

But KT McFarland is not so sure.

What do you think, KT?

KT MCFARLAND, FORMER DEPUTY ASSISTANT SECRETARY OF DEFENSE: Well, I think these exercises have been planned for a while. So, I don't -- I'm not suspicious of the timing of them. I'm not worried about that.

CAVUTO: Have they done stuff before?

MCFARLAND: They have never done anything like this before, and certainly not of this level.

The problem with it is, is it a foreshadowing of something to come? Is it China and Russia making common cause with each other? Russia needs foreign investment in its -- to develop particularly its energy sector. Is China going to provide that? China needs resources. It needs oil and natural gas. Is it going to buy it from Russia? Are the Russians going to get more foreign exchange to buy Chinese goods?

There is a certain synergy in these two economies. These countries don't have friends, but they have interests, and their interests may coincide. And if they particularly then coincide with Iran, you could see five years down the road a Chinese-Russian-Iranian coalition, really pushing the United States out.

CAVUTO: Oh, my God. Talk about a hat trick from hell.

MCFARLAND: Well, absolutely.

CAVUTO: But they both need -- maybe certainly more China than Russia -- American consumers. So they don't want to risk rattling that cage. Right?

MCFARLAND: They do and they don't.

China wants several things. And I was just in China last month. What is foremost on their mind is making sure that part of the Western Pacific and Southeast Asia are where they want them. They do not want these countries challenging them either economically, politically in any ways causing problems on China's periphery.

The Russians, they want to reclaim the old empire, the good old days of the Soviet Union. So they want to increase their sort of footprint and their domination and hegemony over the countries that used to be in the Soviet Union.

So, each of these countries has objectives that don't interfere with each other's objectives. And I do -- I am concerned that, especially in this current economic environment, and political environment, that President Obama sort of not seen this one coming.

CAVUTO: All right, you mentioned the economic environment.

You know here we're nerds and we just follow the markets.

MCFARLAND: I know, but it's great.

CAVUTO: But if you we could show the Big Board today, if the markets are worried about some contrary superpower cabal against us, they're not reflecting it.


CAVUTO: They're still worried about Ben Bernanke and whether he is going to provide relief. They're more interested in companies and whether their earnings abroad are going to measure up. None of this ever comes up. Are they just whistling past the graveyard?

MCFARLAND: Well, where else are people going to put their money? If you have saved money, where are you going to invest it? Are you going to put it in a bank and get zero percent interest? Are you going to put it under the mattress and see your savings dwindle away?


CAVUTO: But if you fear the U.S. could become some target, then wouldn't you be less inclined to put it here or do you think that that is even realistic and so you just say, well, the U.S. is still the best haven?

MCFARLAND: Well, where else?


MCFARLAND: Still, the U.S. is the best. And I'm talking about something that is on the horizon.

CAVUTO: Right.

MCFARLAND: I think ultimately 10 years from now the United States has a renaissance with our energy resources coming online.

CAVUTO: Do you think down the road that this weighs on investors, though, that they look at this and they start saying, all right, we have an administration that is losing its popularity fast, global powerhouses that are now aligning themselves against us and our interests, not a good environment in which to be?

MCFARLAND: Right, except for the fact that the long-term prospects for the United States are great because when our energy resources come online from fracking, natural gas already is, oil...


CAVUTO: Well, if we don't stop limiting that, right?

MCFARLAND: Yes. But I don't think -- even Obama is not going to be able to stop this tidal wave that is coming.

And once that happens, several things happen geopolitically. The Middle East, which is a dangerous neighborhood to get your energy from, we don't care as much anymore. The world doesn't care as much anymore.


CAVUTO: So, we can ignore them?

MCFARLAND: China comes knocking on your door hat in hand because they need American energy resources. It's a safe, secure, and stable place for them to get them.

Industry repatriates into the United States. All that stuff and all those businesses that left and went to Mexico, went to Asia come back to the United States because energy is almost free. And we enjoy the energy resources that other countries don't have. Everybody has the ability to frack if they get the technology. We have the economic conditions and the way the tide oil is aligned, I won't go into the weeds with it, but we have the ability to get that oil out. It's near where our manufacturing centers are. It's where a lot of water is.

CAVUTO: Well, we have it right here.

MCFARLAND: We have it here.

CAVUTO: The question is are we going to be prevent using it?


MCFARLAND: If you're an alcoholic and you have got a free bottle of booze right there and you have got an expensive couple of bottles behind the bar, eventually you're going to go for the free bottle.

CAVUTO: True. Very true. Thank you very much.

MCFARLAND: Thank you.

CAVUTO: Good seeing you again, kiddo.

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