The Fall of America? It’s all about the Debt…

Mark Steyn continues to be a fantastic inspiration for impromptu posts with his thoughts on the loss of liberty and the eventual decline of the American empire:

What happens when the policies that brought ruin to Detroit and sclerosis to California become the basis for the nation at large? Strictly on the numbers, the United States is in the express lane to Declinistan: unsustainable entitlements, the remorseless governmentalization of the economy and individual liberty, and a centralization of power that will cripple a nation of this size. Decline is the way to bet. But what will ensure it is if the American people accept decline as a price worth paying for European social democracy.

The United States now spends more on its military than the next 40 or so nations combined. Yet in two rinky-dink no-account semi-colonial policing campaigns, it doesn’t feel like that, does it? A lot of bucks, but not much of a bang. You can understand why the entire Left and an increasing chunk of the Right would rather vote for a quiet life. But that’s not an option. The first victims of American retreat will be the many corners of the world that have benefited from an unusually benign hegemon. But the consequences of retreat will come home, too. In a more dangerous world, American decline will be steeper, faster, and more devastating than Britain’s — and something far closer to Rome’s.

Steyn makes many good points but from an economic perspective America was slated for decline since the 1980’s when they essentially did a kamikaze strike on the USSR. Amid the celebration of Reagan’s low taxes, very few people paid attention to two critical problems –

  1. Spending was far outstripping revenues, despite the increased number of revenue sources and so-called trickle-down
  2. Alan Greenspan was rapidly devaluing American currency (i.e. lowering interest rates) to keep the value of the debt low and to stimulate economic growth

Ironically, currency devaluation -long hailed by capitalists as a way of stimulating expansion- amounts to a hidden taxation – on income AND pre-existing savings. Since the mid 1980’s it has made more sense for consumers to be in debt than have savings, as the value of those debts has decreased rapidly. George Bush I did nothing about this issue (ie fire Greenspan) and Bill Clinton benefited from circumstance when the dotcom boom led to a temporary American surplus.

U.S. Debt Trends

U.S. Debt Trends (source - Wikipedia)

In the meantime, Japan and China bought American debt (e.g Treasury Bills) at a cracking pace – a trend that accelerated when Bush II decided to invade Iraq and will accelerate even more now that Obama has found health-care for 300 million people instead of 50 million.  With China holding nearly $780 billion dollars of American debt, the United States has relegated itself to toothless observer in the largest economic/military growth spot in the world (East Asia). Not a good economic position given China is the major long-term rival and has shown little regard for playing by the rules of most industrial nations.

The final nail in the coffin will probably be when the military-industrial complex collapses and free market forces dictate that weapons are best bought from countries that can produce them for cheaper. Again this will be China, which has both the expertise and the cheap labour. The main reason we all aren’t speaking Arabic is because the Ottoman/Seljuk/etc paid little attention to weapon-making and ended up having to buy weapons from the same “barbarians” they sought to crush during their attempts to conquer Europe. An empire without the ability to produce its own war in-house is doomed to fall.

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