The Sick Man of North America
by Eric Margolis by Eric Margolis
An empire built on debt, is an empire built on sand.
The US government now owes a staggering $10 trillion. American consumers owe $14 trillion. Welcome to the United States of debt. Twenty-four trillion dollars is a gargantuan sum, even for the mighty US economy. It is now clear that America’s once lauded "prosperity" was built on runaway debt rather than productivity or innovation.
At the end of the 19th Century, the dying, debt-ridden Ottoman Empire became known as "the sick man of Europe." Under the Bush administration, the United States has become the Sick Man of North America.
Like the British Empire after 1945, the United States has gone bankrupt thanks to a national orgy of borrowing, the replacement of manufacturing by financial manipulation, two ruinous foreign wars, and a government whose stunning incompetence and ignorance was exceeded only by its reckless imperial arrogance.
The financial panic that has gripped the globe, and the ignominious collapse of once mighty Wall Street, proved the American colossus had feet of clay. Washington’s furious printing of untold billions of new dollars to prop up its sinking economy, finance this year’s staggering $1 trillion deficit, and pay gargantuan foreign debts looks very likely in the long term to unleash a storm of dangerous inflation that will infect the world’s financial system.
Short-term the current financial crisis will have a deflationary effect, but in years to come the full effects of devalued US currency must bring serious inflation.
Recall the great economist John Maynard Keynes warned that the quickest way to destroy a nation was by wrecking its currency through inflation.
The world balance of power is already shifting. For example, Pakistan’s new president, Asif Zardari, just went cap in hand to China, seeking $4—6 billion in emergency loans. Pakistan is on the verge of bankruptcy and may shortly default on its debt, risking social chaos.
But Pakistan’s patron, the United States, which has been paying that nation’s politicians and army $1.2 billion per annum to support the occupation of Afghanistan, has no cash to spare for Pakistan. So Pakistan is turning to China, which has $19 trillion in foreign exchange reserves — the world’s largest. Beijing cautiously responded it would help old ally Islamabad "within our capabilities."
The US-led occupation of Afghanistan is likely to be adversely affected by Washington’s new pauper status just at a time when the war is going very badly for the American-led occupation.
Bankrupt people, companies, and nations have to sell assets to meet their debt obligations. China and Japan alone hold over $1.5 trillion of US government securities in the form of US Treasury notes and bonds (which are really IOU’s).
Nervous Chinese and Japanese central bankers now want real assets rather than more paper. So there is talk of America’s Asian creditors demanding their IOU’s be converted into shares in US corporations and property.
Sovereign wealth funds from the Arab oil states and Singapore may soon demand chunks of premier US corporations and property. This is ironical, given all the previous hue and cry in the US about "Arabs" having too much influence due to oil sales.
In the 19th century, European imperial powers used to force loans on China, Egypt, the Gulf, Iran, and Latin America. When the locals could not pay off these debts, parts of their territory was seized. Russia was forced to sell Alaska to the US for next to nothing when it could not repay its debts.
China’s coast was carved up by the British, French, Germans, Russians, Americans and Japanese. These imperial foreclosures created the trading "concessions" of Hong Kong, Shanghai, Tsingtao, Tianjin, and Port Arthur.
Now, it’s payback time for China. How ironic that the Chinese Communists have ended up with a so-far sound financial system while the Wall Street bandit capitalists have gone bust and are groveling for foreign loans.
To help pay its monster debts, I suggest Washington consider selling Louisiana back to France. Canada, whose banking system remains solid, ought to pick up Florida for a song. Switzerland would do well to spend some if its gold and buy Vermont and New Hampshire.
Mexico will want to buy Texas, Arizona and New Mexico. Russia, of course, will buy back Alaska and Washington State. China will purchase California. San Francisco will become "New Shanghai" and Los Angeles, "New Beijing."
Japan will buy up Oregon, Montana, and Hawaii. Holland will repossess New York State, and Germany will buy Pennsylvania and Minnesota.
Just kidding, of course, but this joshing shows how bad things have become for poor old Uncle Sam.
Pakistan’s move into China’s financial embrace is a harbinger of things to come. Unless the US quickly repairs its economy, its world power could slip away as quickly as postwar Britain’s, leaving China, Japan, Russia, the EU, the Arab oil states, and India as the world’s new superpowers.
This may not be so awful. All power, as Briton’s Lord Acton famously said, corrupts; and absolute power corrupts absolutely. As the world’s sole superpower, the US under the Bush administration became totally corrupted by imperial hubris, financial fraud, lust for resources, and greed.
A world with more balanced, diffused power may be preferable. But such profound historical change is always dangerous and unpredictable. Right now, China looks like top dog. Mao must be smiling.
Who would have ever imagined the "godless Red Chinese hordes" would end up propping up America’s sleazy economy?
Eric Margolis [send him mail], contributing foreign editor for Sun National Media Canada. He is the author of War at the Top of the World and the new book, American Raj: Liberation or Domination?: Resolving the Conflict Between the West and the Muslim World. See his website.