Desperate times for a declining superpower

us-collapseWhat do…central bank money debasement, celebrating trophy deaths of terrorist leaders, rising tax rates, huge and rising government debt levels, the making of new wars, using diplomatic leverage to impose trade and currency pressure on other nations, spending trillions on homeland security, enriching banks and the military-industrial complex at the expense of the rest of society, and defunct municipal governments…all have in common?

They’re all classic signs of a dying desperado superpower trying to clutch in vain onto the hope of a glory that is slipping mercilessly and relentlessly from its grip.

But very few superpowers simply fade away.  They usually burn out and die with a bang.  One of the rare exceptions to this is the case in which one superpower is superseded by another superpower of the same ilk, the same culture, the same ethos, the same nation, just greater strength.  That is what happened when Britain handed the baton to the US sometime I suppose in the interwar period and then wholly after WWII.

But historically the cases of the benign imperial handover have been rare. 

What more often happens is that the preeminent power of the globe begins to fray at the edges and begins to be picked off where it is most vulnerable – in its areas of geographic over-reach.  As it gets picked off and its interests compromised so it ramps up military expenditures.

pentagonGreater military expenditures mean greater debts and superpowers always fund their debts by debasing the currency because they typically control global currency, trade, and commerce.  Currency debasement will be tolerated for a while as long as the benefits of trade freedom, the gains from commerce and the return on loans to the state outweigh the incessant losses from debasement.  In other words, as long as wealth creators are reasonably protected by the inflation, and the masses don’t yet notice, the superpower can merrily inflate debts away, pay for wars, and fund its geostrategic objectives through wealth redistribution toward the centre.

Eventually it becomes a pure numbers game.  When will the nagging threats on the periphery grow collectively large enough to require a level of military expenditure sufficient to prompt enough debt monetisation to undermine wealth creators and the collective well-being of the masses through inflation to the point where the currency is rejected and vulnerable citizens seek protection in wealth preserving assets and hard currencies?

This is all compounded in the case of the US today.  Unlike all hegemons before it (even Britain), the US has the unique characteristic of being a democratic superpower.  Not only that, it is social welfare democracy (which is where all democracies end up anyway).

Why is this important?  It is important because it means that a) imperial leaders are chosen by the masses, and b) they are chosen not for their ability to expand territory and increase national glory alone, but expand territory and increase national glory specifically insofar as it benefits the subjects’ material wealth and comfort.

This means that not only is there an unrelenting increase in military expenditures to protect the hegemon’s geostrategic objectives around key global resources, but there is arguably an even greater imperative to multiply and distribute the dividends of the national prosperity to the majority.  Indeed the majority vote for such distribution, and will tolerate the cost of wars in far-flung never-heard-of-before regions if the benefits felt at home outweigh these costs in terms of treasure, life and limb.

As the empire tries to placate domestic wants, it is discovered by the leaders that real capital can be collateralised either by debt on, or by excessive taxation of, that capital, and the proceeds used to distribute consumable income to an ever less industrious populace.

The people in their new-found ‘wealth’ forget the ethics of hard work and systematic wealth creation, and as a result, new capital formation wanes.  As the real wealth base declines relative to the needs and demands of the population, the democratic system dictates that the state must find new sources of wealth to plunder in order to ensure survival and placate the majority.

But taxes become democratically increasingly difficult to raise, at which point the printing press becomes a very palatable resort, and one which the state tends to use with exponential penchant in order to maintain the guise of real wealth growth even while monetary debasement is destroying, not creating, real value.

 And then BANG!  Suddenly the numbers game comes into sharp focus, always too late for anything constructive to be done to save the system.  The currency begins to be rejected, first by the few then quickly by the many, the state cannot locate any further sources of funding other than Draconian taxes, land-grabs, gold-grabs, and more and more money printing.

The military, getting paid in ever more worthless currency starts demanding payment in something solid that holds value.  When the state cannot get enough hard currency to meet these obligations, the army starts threatening to either disband (best case scenario), undermining all imperial operations and fragmenting the foreign balance of power, or revolt (worst case scenario), taking out key imperial bases of power by force and declaring military-controlled enclaves.

Peace begins to unravel, trade is severely compromised (even using hard money), investor confidence begins to die, slowly at first, then rapidly.

Gold and other hard currencies and vital basic commodities soar in price, both in currency terms but also in real terms.  In other words they rise in currency terms because the currency is being rejected by all, but they also rise relative to other goods and services as they become of supreme importance for the protection of value, for the facilitation of trade so vital to maintain the division of labour, and for meeting basic human needs.

Egyptriots2011By this stage the hegemon is in an irreversible collapse.  All projection of foreign power becomes a joke to foreigners who can plainly see the charade.  Regions within the superpower’s territory secede and form independent nations/enclaves/countries/states, and those foreign regions under the hegemon’s direct or proxy control, begin to experience revolts, revolutions, and great social upheaval.

Gold and other precious metals become the new monetary standard once more (as they have been for 6,000 years).

goldpileThis is the fate that awaits the current global hegemon, the United States of America.  And it is the fate that awaits the once mighty (but never secure) dollar…

…and it is the destiny that awaits gold and precious metals.

The precious metals are ready to take their place once again as the only true and trusted global monetary standard.

Are you ready?

 

For an excellent exposition of the collapse of the Roman Empire, read Inflation and the Fall of the Roman Empire by Joseph Peden.

One Response to “Desperate times for a declining superpower”

  1. AL says:

    Thanks for the great post. It was a nice read.
    I’m based in Cape Town and when searching the web tend to find more US based websites. It’s great that we have some great SA voices

    AL