Why an Empire that Borrows from its Rivals is Doomed to Fail
Wall Street suffered its first reversal in eight days yesterday. The Dow dropped a modest 7 points.
For its part, gold rose $1.30 and the dollar fell.
More importantly, the latest news is that inflation rates continue to fall. Producer prices went down 0.8% in the last two months – and the rate of decline is accelerating. It won’t be long before the US is in outright deflation – just like Japan.
What’s more, the yield on the 10-year note is telling the same story. It fell below 3% yesterday.
And here’s something. The Washington Post reports that home foreclosures are expected to rise to a new record this year – over 1 million.
What this tells us is that the Big D’s are still in charge. Deflation. Default. De-leverage. Depression.
Want another one? How about ‘Decline?’ What do we mean by ‘decline?’ We’re talking about the thing the anglo-saxon empire is in.
Wait a minute. We’re still Number One, right?
Yes…in the sense that we can, in theory, kick any butt in the world. That is, if the Chinese let us. They’ve got so much of our money and so many of our bonds, if they decided to dump them, we’d be in one helluva fix. Because we don’t pay enough in taxes to fund our social programs and the Pentagon at the same time. We can’t afford it. So the nice Chinese lend us money.
But don’t worry. They’ve promised not to dump our bonds. And we’re sure they’ll honor that promise for as long as they want to.
As far as we know, no empire that had to borrow money from its rivals has ever lasted very long. Britain got itself in that position in WWI. It could no longer afford the carrying costs of the empire – including the huge cost of the war itself. So, it borrowed from the US. The Germans borrowed from US lenders too. But America’s lenders to Britain had more money in New York and more power in Washington. So, the US entered the war on Britain’s side rather on Germany’s side.
Then, in WWII, when an American general was put in charge of D-Day, it was clear that Britain had ceded the lead dog position to the US. It was a friendly handover, achieved by force of economics rather than by force of arms. The US did not have to defeat Britain militarily. Instead, she merely had to finance her.
A few years later, during the Suez crisis, Britain learned what it was like to be a subordinate power. She discovered that she could no longer throw her weight around without US consent.
But that is on the military front. At home, Britons discovered that they were poor…and getting relatively poorer. Under the weight of growing social welfare programs and a shrinking empire, Britain’s economy sagged. Its old allies – France and the US – boomed in the post-war years. So did its old enemies – Japan and Germany. Soon, not only were its friends richer and more powerful…so were its adversaries.
Britain’s growth rate was barely positive. The country limped along through the ’50s, ’60s, and ’70s…with strikes, shortages, rationing, and energy blackouts.
Your editor recalls his first visit in 1971. London was dark. England felt like a depressed, backward country. There were still the vestiges of empire in public places – statues, inscriptions, monuments to heroes who fought and died in places few could find on a map. In private places – such as hotel rooms – life was shabby and cold. Hotel rooms required you to feed coins into metered electric heaters. Otherwise, you just shivered among the flowered wallpaper and drab, worn-out carpets. You could still have a decent tea at the Savoy and buy a hand made suit on Saville Row. As Katherine Hepburn said of aging actors, Britain was “selling its deteriorating self.”
Is that what we have to look forward to in America…a post-imperial decline, where our standard of living stagnates…our economy limps…and our place in the world frays and crumbles?
Yes. Most likely.
Why? Because the government is taking a larger and larger role in the economy. Because US social programs are too costly. Because we don’t have enough money to pay for them. Because not enough money has been invested in productive business. Because our military burden is too heavy…and difficult to escape. Because we have no savings. Because we will likely spend the next 10 years paying down private debt. Because the rest of the world is racing ahead. Because we are growing older. Because our leaders are corrupt and incompetent. And because the whole society becomes more zombified every day.