January 12, 2011

The warning signs of trouble ahead

If we look at the situation globally, we see two trends, one good and one bad. The good one is that the gap in average incomes between people in the developed world and the developing world is closing. But while inequalities between nations (as measured by statistics on averages) is decreasing, inequalities within nations are worsening, as income and wealth disparities get larger. As a result, we now have two worlds emerging that, unlike the old divisions of rich and poor nations, now consist of rich and poor groupings that transcend nations. As Chrystia Freeland says in an article in the January/February 2011 issue of The Atlantic titled The Rise of the New Global Elite of the new oligarchy:

Perhaps most noteworthy, they are becoming a transglobal community of peers who have more in common with one another than with their countrymen back home. Whether they maintain primary residences in New York or Hong Kong, Moscow or Mumbai, today’s super-rich are increasingly a nation unto themselves.

No good can come from this trend of a rapidly widening gap between a tiny rich coterie and the ever-increasing numbers of the poor. It is too uncomfortably reminiscent of the pre-revolutionary France and is destined to self-destruct.

Within the US, the collapse of the US empire will not be because of any external threat. Its military is too powerful to be overcome. It will collapse from within for economic reasons, as it becomes bloated, bankrupt, arrogant, over-extended, and hubristic, thinking that its military might alone is sufficient to ensure its continued dominance over other countries. As with past empires, people will not realize until the very moment of collapse how bad things are, and then look back and marvel as to how they could have missed all the screaming warning signs.

The structural warning signs are already there: rapidly rising inequalities in income and wealth, declining services and quality of life, lower standards of living for the many, endemic large budget deficits, a national debt that is approaching the size of the GDP, and a political class that has become so subservient to the oligarchy that it will not address the problems head on but blusters over trivialities.

A serious warning sign is when other nations become wary of the US dollar serving as the reserve currency. That feature has enabled the US Federal Reserve to print money (euphemistically called 'quantitative easing') to paper over its chronic deficits and try and boost the US economy by putting more money in circulation, even though this has a negative impact on the economies of the rest of the world because it essentially devalues the dollar and thus cheapens the value of their dollar reserves. This practice has allowed the US to live well beyond its means for many years now.

But there are limits to how long this can go on. Other countries are starting to seek alternatives to the dollar. Paul Craig Roberts says that here have been rumblings already on this front and that "Russia and China have concluded an agreement to abandon the use of the US dollar in their bilateral trade and to use their own currencies in its place". Troubles with the euro have kept the threat of that currency becoming the reserve temporarily at bay. Meanwhile, China, India, and France are calling for a new international monetary system in which the dollar is no longer the sole reserve currency.

A symbolic warning sign that things are bad is the increasing frequency of grandiose rhetoric making claims to national greatness. Witness this recent effusion from Rich Lowry in the National Review: "Our greatness is simply a fact. Only the churlish or malevolent can deny it, or even get irked at its assertion." It is a truism that the truly great in any field never have to boast about it because they simply take it for granted. It is only those who are insecure who do so.

Barack Obama campaigned on a platform of hope and promises of change and a new direction that we now know he had no intention of fulfilling. He used hope as a lure to delude people the same way that religions use hope of a wonderful afterlife to get them to accept terrible conditions here and now. We need to kill that sense of hope. This sounds terrible but it is only when we lose our illusions about the current state of affairs in the US that we can begin to create a better society. It is only when we see the reality, that the US does not have two parties with different visions but is a one party oligarchic state that is pursuing policies that benefit a few but are causing the nation as a whole to tumble into disaster, that we can set about creating the kind of movement that will unite the base of both parties, including even the tea partiers, and can see clearly what the real problems are and what needs to be done.

Next: Who makes up the oligarchy and what needs to be done?


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Mano, remember the bit in Super Sad True Love Story where the head of the Chinese central bank describes the US as "an unstable, barely governable country"? Well, life is already imitating art...>

Posted by Steve LaBonne on January 12, 2011 09:49 AM


Thanks for that link. Yes, I remember the item in the book. I think the Chinese really don't have to do anything to become more powerful. They can just sit back and watch the US fiddling around with irrelevant issues.

Posted by Mano Singham on January 12, 2011 09:25 PM

The prospect of the dollar losing its status as international reserve currency was one of Chalmers Johnson's key concerns as he surveyed the coming collapse of the American empire. It would not surprise me to see American military might used as a form of geopolitical extortion to artificially prop up the failing dollar. Arguably, this is already happening. Let's look at just a couple of obvious examples.

First, we enjoy considerable leverage over the Japanese, protecting them from a potentially belligerent China (to which the Japanese have never fully apologized for wartime atrocities). Japanese support for dollar-denominated assets and transactions can be expected to continue as payment for defense services which their own constitution makes it difficult for them to provide for themselves.

Secondly, the most notorious and critical relationship here is the long-standing agreement between the U.S. and the Saudis. Thanks to Wikileaks, we know more about the extent to which the Saudis look to America to act as a proxy for Saudi interests throughout the region. They also like to equip their own arsenals with the latest in American weapons. They can be expected to keep accepting dollars for oil for quite a while longer.

In this vein, it is in America's self-interest to keep the world a dangerous place that requires the policing of the one and only superpower. The sudden "rise" of international Islamic jihadism is a perfect pretext for dependence on American might. And what is the price for these security services? Continued support of the dollar.

Thus, the United States is degenerating into, at best, a global mercenary or, at worst, a global gangster. Other actors will grumble, to be sure, but they will have little choice but to toe the line. American-induced instability will prevent the global community from acting on more pressing matters like climate change, biodiversity loss, and water shortages. As it goes down kicking and screaming, America thus risks dragging the rest of the world with it.

Posted by Richard Frost on January 13, 2011 10:26 AM

One extremely vibrant warning sign of trouble ahead is our ever expanding thirst for energy, which powers our ever-growing economic machine. But fossilized energy is finite, and we hit Peak Oil in 2006. We essentially have no idea how to deal with this, so all of our leaders, in a vigorous display of bipartisanship, aggressively avoid acknowledging this structural instability. It would appear that I'm not alone in agreeing with you, Mano, that we need to "lose our illusions" and "see the reality" of the situation. Here's Richard Heinberg, reflecting on the deepening energy crisis and its impact on the fabric of society, in one part of a series of interviews on the topics of Peak Oil and Global Warming being conducted by The Nation magazine:

There's no solution until we actually are able to accept as a people the situation that we're in, where we actually have to change our way of life.

And here's Tom Whipple, who has been doing excellent commentary on the social consequences of the tightening energy crunch:

Why are so many, so mad at the Congress? The answer is simple - they have no idea what is happening to their lives. Since the beginning of the great recession way back in 2007 they have been told by two Presidents, their senior officials, 99 percent of the Congress, and most of the media that recovery was on the way and that prosperity would return shortly.

As unemployment in the U.S. grew and grew, every politician with a prayer of winning positioned him or herself as the "jobs" candidate who could and would get us all working at good high-paying jobs again. This of course has not returned and is unlikely to do so. We are not only contending with a growing debt bubble of gigantic proportions, we are also rapidly running out of the cheap, abundant energy that allowed us to be so prosperous for the last 200 years.

America's problem today is that almost nobody in any official position is willing to publically recognize the real nature of the problem we face and start talking about realistic solutions. So long as our elected officials and our media continue to speak endlessly about the recovery that is supposedly underway and continue to hold out the hope that, by voting for this or that candidate, all will be well, the great charade will continue and the people will get madder and madder.

I strongly encourage you to consider the related factors of a culture of growth, particularly economic growth, which can be seen as an uncompromising goal throughout the history of oligarchy; finite energy and other natural resources; and political instability.

Posted by John L. Clark on January 13, 2011 04:15 PM