The War on Terror now costs $7 billion per month. Rebuilding New Orleans costs about $16 billion per month. A billion here, a billion there…pretty soon you’re talking about real money…which is just what the empire does not have. It only has make-believe money — credit, offered by the kindness of strangers in strange places.
What we think we are witnessing, dear reader, is this: a great empire is rolling over. That empire got its start with steam engines and mechanized looms. It managed to parley its ‘early mover’ advantage from industrialization into an imperial asset. It could produce more weapons and more machines — and the oil to run them — than any of its competitors.
But the great Anglo-Saxon empire rests on commerce more than outright conquest. Until the mid 1970s, it paid the costs of imperial order with the profits from its factories.
Those profits have now disappeared.
Over the weekend, another little milestone was passed — the $23 billion giant auto-parts supplier, Delphi, went broke. An MSNBC report explains:
“As the auto industry has gone global, U.S. automakers — saddled with high-cost labor contracts negotiated in more prosperous times — now find themselves pitted against leaner overseas rivals.
“Delphi’s bankruptcy filing, which became more likely as the Oct. 17 deadline loomed, nonetheless sent shockwaves through the industry. The company’s management has said operations won’t be affected. And the complicated three-way talks between Delphi, the United Auto Workers and General Motors will continue. At stake is billions of dollars owed Delphi’s work force, including wages, benefits and pension payments — some of which GM agreed to take on when it spun off Delphi to fend for itself.
Of course, Delphi’s 185,000 will be the ones holding the short end of the stick in this situation. They can expect major wage cuts and an elimination of a “jobs bank” that gives full pay to 4,000 laid-off workers.
The report continues, “Delphi’s retirees face similar cuts if the company follows the lead of steel companies and airlines that have successfully used the bankruptcy courts to offload their pension obligations to the federal Pension Benefit Guaranty Corporation, an agency set up in 1974 that is funded by contributions from premiums paid by companies. Once the agency takes over a pension plan, workers receive only part of their benefits.
“The PBGC itself is on a rocky financial footing, in part because of chronic under-funding of older, so-called ‘defined benefit’ pension plans in favor of pay-as-you-go 401(k) retirement savings plans, which don’t leave employers with long-term obligations to pay retirees.
“As of the start of this year, the PBGC was under-funded by some $23 billion. A report last month by the General Accountability Office estimated that gap will swell to $87 billion over the next decade. If the PBGC continues to shoulder the cost of more failed pension plans dumped by ailing companies, those liabilities could hit $119 billion in 15 years and $142 billion within two decades, the GAO report said.”
With no longer a commercial advantage to sustain the empire, the whole apparatus of world domination now rests on debt. America now borrows from (still communist) China to keep its bourgeoisie living in luxury and fantasy.
As the kids say in their text messages: LOL.
Readers less hip than your editor may require a translation. LOL originated as “laugh out loud,” Henry explains. Now it’s used to mean ‘ha ha’ or ‘wow’ or almost anything.
So you see, dear reader, you do learn something from my columns, after all.
But let’s get back to money…
“Even if you are right,” you might object. “Let’s say the Anglo-Saxon empire really is peaking out. Isn’t that just too ‘big picture’ to be useful? What point is there to such an insight?”
The answer is: we don’t know. But we have long ago given up the habit of trying to guess about tomorrow’s stock prices. Even going out a year or two, we still have a very spotty forecasting record.
And yet, we think we can see broad patterns in history — like the ocean currents, long and slow, viewed from outer space — that inevitably and ineluctably float the trash in a certain direction. America was a very good bet in 1900. Is it a good bet now? We don’t know. All the promise that the country held a hundred years ago now appears to be fully realized and fully…or even over-fully…priced.
But wait, you protest. Isn’t it exactly the same country…with same people…with the same constitution…the same commercial energy…the same can-do spirit?
It is certainly the same in form…but perhaps not in substance. Today’s big corporations are rarely run by risk-taking entrepreneurs. Instead, they’re in the hands of professional functionaries, pension funds, and fund managers.
A glimpse of one of these men appeared in the weekend paper. Mario Gabelli, a regular at Barron’s Roundtable, and his family have been accused of “looting the assets of the company, breaching [their] fiduciary duties to the shareholders and oppressing its minority shareholders.” Family members allegedly took out hundreds of millions of dollars in salary and ‘management’ fees.
Mario stands accused by one of his largest investors. Can you imagine what small mom and pop lumpeninvestors get? Is it any wonder that America’s mommas no longer want their sons to grow up and be cowboy entrepreneurs? Instead, they help them to be financiers, and managers and lawyers, oh my.
America has grown old and decadent, along with its leading corporations. The voters still vote. But who really cares what they vote for? The empire has a life of its own…a destiny to be fulfilled…a banana peel to slip on. The people vote, but it is the custodians, the managers and politicians who run the great empire who get the loot.
Bill Bonner [send him mail] is the author, with Addison Wiggin, of Financial Reckoning Day: Surviving the Soft Depression of The 21st Century and Empire of Debt: The Rise Of An Epic Financial Crisis.