The Degenerate Empire

When we left off the other day, we were exploring how we got into our current jam. No one ever proposed that America become an empire, but it did anyway. No one ever suggested that the nation drown itself in debt, but it is up to its eyeballs already. Things happen that no one particularly wants or especially encourages. And the average man goes along with whatever humbug is popular — with no real idea where it leads or why he favors it.

Each person plays the role given to him; everyone believes what he needs to believe to play the part.

Alan Greenspan was famously against paper money un-backed by gold — when he was a libertarian intellectual. When he became a government functionary, his views conveniently changed. He came to believe what he had to believe in order to be the head of the American empire’s central bank — the Federal Reserve. The empire needs almost unlimited amounts of credit — to carry out its foreign wars…while making bread and circuses available at home. Alan Greenspan makes sure it gets what it needs.

Expensive foreign wars…expensive bread…expensive circuses — these are, of course, what bankrupted almost every empire from Rome to London. But that is just the point; institutions play their roles, too. One grows; another decays. One is young and dynamic; another is old and decrepit. One has to die to make way for the new one to take its place. One has to ruin itself so that another may flourish.

Americans could cut their military budget by 75% and still have the biggest, most advanced army in the world. They could trim their household spending by half…and still live well. They could drive less, in smaller cars…they could cease mortgaging their houses…they could “make do” with last year’s clothes and yesterday’s laptop. But how could they ruin themselves if they put on the brakes before getting to where they are going?

Alan Greenspan’s easy money policies — the Fed has been lending money at a rate at or below the level of consumer price inflation for more than two years — do not merely lure Americans to borrow and spend. They also grease the skids of history, permitting one empire to slip away while another slides in to take its place. The main beneficiaries of the present gush of globalization are the Asians. As American consumers turn to Wal-Mart to buy more and more things at Everyday Low Prices, they find products from China and Malaysia on the shelves. Were it not for Greenspan’s low lending rates, they would not have found it so tempting to borrow. Were it not for Greenspan’s low rates, they would not have found it so alluring to spend. Were it not for Greenspan’s low rates, they would not have bought so much from Asian manufacturers, the Asians would have made less money and would have built fewer new factories and trained fewer new workers. Were it not for Greenspan’s lending policies, in other words, Asia would not have grown so quickly and would not now pose such a competitive threat to the rest of the world’s industries…and Americans would not owe Asians so much money.

• Surprise, surprise — it’s expensive to live in California…

San Diego’s Union-Tribune reports that the Golden State dwellers have to stretch and contort their incomes, just to afford their homes.

A new study shows that those buying homes in San Diego aren’t rich newcomers to the market, but middle-class thirty somethings who are willing to pay a ridiculous amount of money on their mortgages.

The percentage of recent California homebuyers spending half their monthly income on housing is twice the national average, said Hans Johnson, who co-authored the study.

“For moderate-income Californians — those earning $30,000 to $60,000 — almost a third are spending more than half their income on housing,” he added.

Interestingly, DataQuick Information Systems says sales of California homes and condos slowed in July, even as homebuyers helped push prices to new records.

Hmmm…the end is coming…but not quite yet…

• Americans also believe that houses always go up in price. No cobwebs grow over a real estate office door. No mortgage lender sits by the phone waiting for it to ring. And yet, it is impossible for real estate prices to exceed the rate of GDP growth for very long. This belief too will have to be crushed out…by a long, bear market in property. Prices in Rome began a downturn in the year 300AD or so (this we do not know for a fact, it is just a good guess). They did not stop going down until a 1000 years later…in the Renaissance…or maybe later. Even as late as the 18th century, sheep were grazing where the Forum used to be.

The belief in the American empire — in American cultural, political, social and economic superiority — must also be crushed out somehow. That is the likely next phase…the degenerate stage of empire…

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