Edward Gibbon described the happiest age of mankind as the period of the five good emperors between AD98 and AD180, when Marcus Aurelius died.
What was America’s Golden Age?
It is much too soon to write the history of America’s decline and fall. Still, that doesn’t stop us from guessing.
We would name the period between the fall of the Berlin Wall and the fall of Lehman Bros — a period of only 19 years — as the peak of US power and wealth. Of course, Americans were dreaming during those years. The dreams were the usual imperial sort — that the US Empire was such a benefit to the rest of the world that the foreigners would support it indefinitely. Rome didn’t take any chances; it forced its conquered nations to render tribute slaves gold and wheat. The American empire depended on trade and the dollar. As long as the United States had a commercial advantage, the empire was profitable. But as the 20th century aged, so did the US economy. Its competitors — notably Germany and Japan — had a big advantage. They had been bombed out in the ’40s. They could build anew. America’s trade advantage slipped away and then its trade balance went negative in the mid-’80s. It has been getting more negative almost every year.
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The trade losses shrank after the fall of the House of Lehman. Americans cut back. But today we get news that the trade deficit has just grown more than in any month in the last 10 years. Have Americans suddenly become big spenders again? Probably not. But we’ll have to wait for another explanation; we don’t have one.
No account of America’s glory years — roughly the period between the reign of George Bush I and that of his son, George Bush II — would be complete without mention of the events that happened on this day eight years ago. A small group of terrorists pulled off an amazing coup — bringing down two of America’s iconic buildings, right in the heart of New York City and on primetime TV! Historians might be tempted to use this event as a milestone, marking the end of the period of maximum happiness in the United States of America. We caution against it. It was only later that it became apparent that the US reaction to the terrorist incident was suicidal. The nation desperately needed to bring its ambitions back in line with its means. It needed to save and invest in new factories and new infrastructure. Instead, it wasted trillions fighting phantoms and nobodies. But as far as anyone knew, US influence, prestige and power remained near its zenith throughout the wars on terror and Iraq.
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The fall of Lehman changed things. Then it was obvious that not only was America vulnerable, she was an enemy to herself. She had diddle-daddled during the glory years, dawdling with the lion cubs that would grow up and maul her. Now, in the period we are living through, she attempts to go back to sleep and rerun her balmy dreams. That is what recovery is all about — a return to the land of nod and nonsense in which people think they can actually become wealthier by squandering money they don’t have on things they don’t need.
Fortunately, as near as we can tell, most private citizens are now awake. A report at the beginning of this week showed that they repaid debt at a rate four times faster than economists projected. Savings rates are rising. Spending is falling. People are doing what they should do — they’re cutting back.
But the feds continue their efforts to sabotage the correction and destroy the empire. They have already blown-up the budget — with $9 trillion in deficits expected over the next 10 years. Now, they’re working on the dollar.
Yesterday, the dollar fell to $1.45 per euro. Gold remained just below the $1,000 an ounce mark. And the Dow rose 80 points.
Stock market investors seem to be looking forward to another big bull market. But with the economy deteriorating, they are probably just dreaming, too. Median household income fell 3.6% over the last 12 months. Of course, that’s just what you’d expect in a correction. But it’s not what the feds were hoping for. So, they’re pulling out all the stops to try to turn it around. Most important, they’re pulling out the stop that keeps the dollar from rolling down the hill.
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The empire sinks into the mud. Yes, this is the downhill period the slide into corruption the period in which Juvenal complained that Romans were only interested in u201Cbread and circuses.u201D
When you are on the board of a decent corporation, for example, if you have a direct financial interest in a matter under consideration you’re expected to declare an interestu201D and absent yourself from the vote. But in a mature democracy, the most self-interested citizens are those most likely to vote. Currently, about 20 million people work for government. About 45 million receive Social Security benefits. About 34 million depend on food stamps.
(People who count on the government to feed them, warned Jefferson, will soon want bread. That doesn’t seem to worry many people. But at least the state of Maryland has an Orwellian sense of humor about it. People who depend on government for food are given Independence cards.)
That’s 99 million people who have a direct interest in expanding government outlays with some overlap, of course. And it doesn’t mean that every person receiving a Social Security check is going to back the feds. But it doesn’t count all the millions more who get subsidies, bailouts, welfare payments (often masquerading as tax credits), government contracts, and so forth, either.
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Well, how many people does it take to win a national election? Obama won with 63 million votes.
The dollar’s weakness hasn’t been missed by it biggest foreign holder — China.
Reported earlier this week in the Telegraph:
We hope there will be a change in monetary policy as soon as they have positive growth again,’ said Cheng Siwei talking about America.
If they keep printing money to buy bonds it will lead to inflation, and after a year or two the dollar will fall hard. Most of our foreign reserves are in US bonds and this is very difficult to change, so we will diversify incremental reserves into euros, yen, and other currencies,’ he said.
China’s reserves are more than — $2 trillion, the world’s largest.
Mr. Siwei continued: Gold is definitely an alternative, but when we buy, the price goes up. We have to do it carefully so as not to stimulate the markets,’ he added.
Then, two days ago, in came a report that China is going to issue bonds of its own — in yuan.
This news is a shot across the bow of America’s imperial currency. It signals that China is moving into position to eventually challenge the greenback. Investors will have another alternative to the dollar another bond issued by another government and backed by another economy maybe one that is on the way up, rather than on the way down.
Meanwhile, Americans grow poorer. Bloomberg reports:
The decline in incomes we’re seeing certainly has implications for consumer spending, particularly post-housing bubble when families can’t tap into home equity through loans,’ said Heather Boushey, a senior economist at the Center for American Progress, a research organization headed by John Podesta, a leader of the Obama administration transition team.
The poverty rate is likely to keep rising through 2012, even after the recession ends, adding to pressure on the Obama administration to enact a second economic stimulus package, said Isabel Sawhill, a senior fellow at the Brookings Institution in Washington, a policy research group.
We will likely have not only a jobless recovery but also a poverty-ridden recovery,’ Sawhill said. The stimulus money is going to go away long before the poverty rate peaks.’
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 and the co-author with Lila Rajiva of Mobs, Messiahs and Markets (Wiley, 2007).