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October 19, 2008

The Brain Of The U.S. Overclass Works Sloooooooooooowwwwwwwwwwly

In 1992, when it was first becoming clear the U.S. was running large, permanent trade deficits, a book came out by William Greider called Who Will Tell the People. In it Greider quoted George Soros saying this about the American Empire: "There are many examples in history where military power was sustained by exacting tributes, but there is no precedent for maintaining military hegemony on borrowed money."

Ten years later, in the summer of 2002, I was struck by the way the U.S. foreign debt was still growing explosively, yet the Bush administration was apparently starting out on a new spree of imperial aggrandizement. I assumed this would sooner or later lead us to a situation like that of England during the Suez crisis in 1956. (Like America today, the British had been running their empire with borrowed money—borrowed mostly from us. So when we decided they had to stop attacking Egypt, they were forced to give up immediately.)

I mentioned this to Greider, who unsurprisingly had been thinking along the same lines. And he wrote a column about it in September, 2002:

The imperial ambitions of the Bush Administration, post-9/11, are founded on quicksand and are eventually sure to founder, but for fundamental reasons not currently under discussion...

The US financial position is rapidly deteriorating, due mainly to America's persistent and growing trade deficit...

Elite opinion, after years of offering various faulty explanations for the persistent trade deficits, has now decided they do not matter...

British power was fundamentally eclipsed in 1914, but the United States provided the financial nurture to keep it upright, as a kind of dummy leader in world affairs, until after World War II. Washington decisively pulled the plug in 1956, when Britain (along with France and Israel) invaded Egypt to capture the nationalized Suez Canal. It was the last gasp of British colonialism, and Washington disapproved. By withholding an IMF loan to London, the United States crashed the pound, forced Britain to withdraw from war and its prime minister to resign in disgrace. The Brits were finally relieved of their delusions.

Now, a mere six years later, the Council on Foreign Relations has finally noticed this may be a problem. A new report they've published called "Sovereign Wealth and Sovereign Power" says exactly the same thing:

The lesson of Suez for the United States today is clear: political might is often linked to financial might, and a debtor’s capacity to project military power hinges on the support of its creditors...[I]n some ways the United States’ current financial position is more precarious than Britain’s position in the 1950s...The United States’ main sources of financing are not allies. Without financing from China, Russia, and the Gulf states, the dollar would fall sharply, U.S. interest rates would rise, and the U.S. government would find it far more difficult to sustain its global role at an acceptable domestic cost.

This is notable because the CFR is the mind-crushingly dull heart of the U.S. establishment. They're still not quite sure which way rain falls. (Henry has contributed a terribly convincing piece to Foreign Affairs about how it falls up, although he says he may now need to reexamine the data.)

So if the news has reached even them that the building is on fire, we can be certain the entire structure is about to collapse.

—Jonathan Schwarz

Posted at October 19, 2008 03:47 PM

Great, great post.

Though the fourth paragraph should begin "Now, a mere six years later...", yes?

Posted by: Nell at October 19, 2008 05:15 PM

Our decline probably started around the time of Tonkin Gulf, even if it wasn't immediately apparent. The overclass couldn't care less about the US as long as they have their fancy houses and Bentleys and security systems. Remember how eagerly Kent Brockman welcome the "new insect overlords", and pointed out how as a "trusted TV personality" he could help round up others?

I know Henry "the Chinese connection" Kissinger is a bit less fictitious, but it's reasonable to assume his psychology works the same way, along with the rest of the CFR crowd...

Posted by: Jonathan Versen at October 19, 2008 05:47 PM

The fact that Kissinger is out on the streets and not in prison shows that no one has learned OUR needed hard lessons. Don't worry though, WE WILL.

Posted by: Mike Meyer at October 19, 2008 06:00 PM

Greider and Soros, but Chalmers Johnson and Bill Lind among others as well. LIke the crash itself, with Roubini, Taleb, Engdahl etc first among lots of equals, or Iraqi WMD with Scott Ritter and Michael Scheuer and many more plainly stating what a crock it was well in advance - the info was there, qualified people drew the correct conclusions and went public with them. And were ignored.

Those Americans never miss an opportunity to miss an opportunity.

'Our decline probably started around the time of Tonkin Gulf,'

Ann Berg at Antiwar the other day traces the money problem back to Vietnam: 'the one that gave us the fiat monetary system: the war in Vietnam. Prior to that calamity the world operated under the Bretton Woods monetary system, a post-World War II arrangement that pegged all currencies to the dollar and made only the dollar convertible to gold, thereby ensuring the dollar's reserve currency status. During the 1950s, the system seemed invulnerable as U.S. gold reserves exceeded foreign liabilities by threefold. By 1970, however, as the U.S. inflated its money supply to fund the Southeast Asian conflict, the monetary position of the U.S. reversed, with foreign liabilities exceeding gold reserves fivefold. When France demanded gold for dollars at the statutory rate of $35/oz., President Nixon shut the gold window for good. As a result, currencies went from a fixed to a floating (and pegged) rate system in 1973. It has vexed economists ever since.'

Posted by: Glenn Condell at October 19, 2008 06:29 PM

Capital knows no allegiance. If the US provides its military power to protect and exploit parts of the world to the benefit of this or that corporation, what matter if it eventually bankrupts the US, as long as another source of military power becomes available.

Posted by: Bob In Pacifica at October 19, 2008 11:00 PM

Bob in Pacifica: EXACTLY, corporations of the 2big2fail type will ALWAYS desire and need large armies to project their agenda and reap their handsome profits. Its just they don't want to PAY for said armies. They leave THAT to the suckers=U&I.

Posted by: Mike Meyer at October 19, 2008 11:56 PM


Posted by: Monkay at October 20, 2008 12:04 PM