Luck and Virtue Run Out

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The yuan was is the news again this morning. The Chinese said they would not revalue.

Who knows what the yuan should sell for?

The answer is “no one.” The remarkable thing is that so many Americans have opinions about it. China can set its exchange rate anywhere it wants. If it sets the rate too high, its products will be too pricey for Americans to buy. If it sets the rate too low, it will be able to sell…but it could lose money on each sale.

Americans must think that the magic of currency adjustments can help them get rich…and think they know better than the Chinese monetary authorities what the dollar exchange rate of the yuan should be. But we look on the editorial page of the International Herald Tribune and we find opinions on all sorts of thing — things far away physically, and even more remote in theory.

Over the last week or so, we have put forward a hypothesis. It explains everything and nothing at very same time.

No sparrow can fall anywhere in the world without Americans thinking they need an opinion about it. This is because, we believe, between the years 1917 and 1971 — almost unnoticed at the time — the U.S. took on imperial responsibilities and imperial attitudes. When that change occurred it transformed America’s role in the world, the way it was run at home, and the views Americans had about themselves and the world they lived in. For example, they felt obliged not only to read about dreary events on the other side of the world — but to have an opinion about them. The shift to an imperial stance — taking over from Britain at the end of WWI — defined modern American society and government.

Americans came to see their system, their government, their society and their economy not as innovations that suited them now, but as universal constants, superior to all others for all time; they then came to believe the world would be a better place if others were to do as they had done; they believed others wanted to be like them and were prepared to use force to prove it;

The American republic was fashioned, intentionally, on the Roman model. The modern American empire evolved naturally, as did Rome, into a system of bread and circuses at home…and near-constant wars on the periphery.

Americans believe they got to their superior position as a result of their own virtue. This is partially true. The virtues of hard work, thrift, enterprise, innovation, low taxes, respect for private property, and minding your own business helped make the country rich. But it was luck, too, that put them on a nearly-empty continent far from European wars…and brought the industrial revolution to them, from England, just as the nation was founded. It was luck, too, that brought them to a position of industrial prominence just when European powers were bashing out each other’s brains.

But for all empires, great and small, luck and virtue run out. The old habits are lost. The young energy matures into decrepit institutions…and the order that the empire has established begins to work against it. Industries on the periphery are leaner, more competitive. Nations on the periphery are unburdened by imperial expenses. The virtues that were so important to building the empire emigrate outside the homeland. People in the periphery states work harder and save more of their money, while those in the homeland focus on art, education, games, architecture and style. Soon or late, the periphery states are able to compete with the homeland — not just economically, but militarily. And finally, the empire is buried under a mountain of debt and conceit.

Where we are in the imperial cycle it is hard to say. But who knows? The American imperium could take hundreds of years to fall apart.

Bill Bonner [send him mail] is the author, with Addison Wiggin, of Financial Reckoning Day: Surviving the Soft Depression of The 21st Century.

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