The "Sick Man of the Americas"

Regular consumers of DR-related writings know how we like to
find parallels between 21st-Century America and the empires of years
gone by; Bill Bonner and Addison Wiggin even devoted the better part of a book to it.

So when the Harvard historian Niall Ferguson comes along
with a new reflection on America’s imperial role, we sit up and take notice.  Not that we agree with
him.  No, it seems that for all the
crisp perception he has about how empires consistently manage to destroy  themselves, he heartily recommends ever more and grander imperial ventures for America; it’s almost as if he thinks
America has  some sort of cosmic imperial destiny to fulfill even if it destroys
us.  (Either that, or it’s a Brit’s desire for schadenfreude.) 

In any event, Ferguson finds some interesting parallels between America’s present predicament and the situation in which the Ottoman
Empire found itself in the 1870s.

This is the story of how an over-extended empire sought to cope with an
external debt crisis by selling off revenue streams to foreign
investors. The empire that suffered these setbacks in the 1870s was the
Ottoman empire. Today it is the US.

Both the Sultan in Constantinople and his Egyptian vassal racked up huge debts after the Crimean war.  The Warfare State benefited as the Ottoman military was shored up; the Welfare State benefited with the building of railroads and canals, including the Suez Canal.  But after the Panic of 1873 (a worldwide, not just American, event), it was game over, and the Ottoman Empire declared bankruptcy.

The crisis had two distinct financial consequences: the sale of the
khedive's shares in the Suez canal to the British government (for £4m,
famously advanced to Disraeli by the Rothschilds) and the
hypothecation of certain Ottoman tax revenues for debt service under
the auspices of an international Administration of the Ottoman Public
Debt, on which European bondholders were represented. The critical
point is that the debt crisis necessitated the sale or transfer of
Middle Eastern revenue streams to Europeans.

The US debt crisis
has taken a different form, to be sure. External liabilities have been
run up by a combination of government and household dissaving. It is
not the public sector that is defaulting but subprime mortgage

As in the 1870s, though, the upshot of this debt
crisis is the sale of assets and revenue streams to foreign creditors.
This time, however, creditors are buying bank shares not canal shares.
And the resulting shift of power is from west to east.

In the present case, of course, that means the Middle Eastern and Asian sovereign wealth funds (SWFs) buying up pieces of Citi, Bear Stearns, Morgan Stanley, and Merrill Lynch.

In other words, as in the 1870s the balance of financial power is
shifting. Then, the move was from the ancient oriental empires (not
only the Ottoman but also the Persian and Chinese) to western Europe.
Today the shift is from the US – and other western financial centres –
to the autocracies of the Middle East and east Asia…

It remains to be seen how quickly today's financial shift will be
followed by a comparable geopolitical shift in favour of the new export
and energy empires of the east. Suffice to say that the historical
analogy does not bode well for America's quasi-imperial network of
bases and allies across the Middle East and Asia. Debtor empires sooner
or later have to do more than just sell shares to satisfy their

And thus endeth his essay.  Funny that Ferguson leaves "the rest of the story" to be inferred by the reader.  Is it too painful for Ferguson to point out that soon after the Ottoman bankruptcy, the Empire was known as the "sick man of Europe?" Or that 50 years on, the Empire was history, its assorted
hinterlands annexed by European powers, leaving a rump Turkish state to descend
into strongman rule from which it’s still struggling to recover?

Not that the United States is in for the identical fate, of course.  But it seems a curious omission. 

The Daily Reckoning