Posted on 09/13/2009 1:28:36 PM PDT by dennisw
The Destruction of the US Empire
by Bill Bonner
London, England
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.
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.
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.
[But the dollar will eventually come tumbling down...and those who are holding gold are going to be sitting pretty. Gold is, after all, the ultimate store of wealth. We told you yesterday of a way you can get an ounce of gold for just one penny - and that offer is still available. Get all the details here.]
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 'bread and circuses.'
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 interest' 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.
Well, how many people does it take to win a national election? Obama won with 63 million votes.
[You could be getting a check from the government as well - and no, we don't mean a welfare check. Due to a legal 'loophole', you could make up to $17,500 this year - and every year it takes the US economy to recover - in 'bailout income' checks. You first check could be in the mail soon...get all the info you need here.]
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.'"
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Fed's Fake Recovery
by Bill Bonner
London, England
The press attributed this week's rise in gold to benign causes. The end of the world seems to have been postponed - indefinitely. Bloomberg reported that a clear majority of those polled thought the world economy was recovering. With no more fear of the deflation devil investors feel they are in the arms of angels. Surely Ben Bernanke watches over them even when they sleep. Even the President of the United States thinks he saved the nation.
As for Tim Geithner, he takes no chances; he sings his own praises. Speaking to a gathering of the G20, he congratulated them all:
"...facing the greatest challenge to the world economy in generations, the G-20 gathered here in London and committed to an unprecedented program of policies to restore growth and reform the international financial system. Those actions have pulled the global economy back from the edge of the abyss. The financial system is showing signs of repair. Growth is now underway."
Stocks are still up. Commodities too. Oil is over $70. And most encouraging of all: the 10-year US Treasury note yields only 3.47%. So what evil sends investors running to the protection of gold? None at all, say the papers; investors buy gold in anticipation of better times. They see a recovery, bringing with it tightened supplies and rising demand. Every economist, investor and hair stylist knows what this means - inflation.
But if growth is underway, investors should be glad there is not more of it. The key indicators of real economic progress are negative. Unemployment is not rising; it is falling. Nearly 7 million Americans have lost their jobs since the recession began. In California, only 3 of 5 working age residents have a job. And those who are still working are putting in the shortest workweeks ever recorded. How could the economy be growing with fewer people earning money? The New York Times attempted to explain the enigma by calling it a "jobless recovery." But a recovery without jobs is like a loveless marriage or a fat-free burger - it is disappointing.
"There are 500 basis points between zero and 5%. It would take a miracle for central bankers to find exactly the rate the market needs precisely when it needs it most."
Another key indicator is personal spending. Not surprisingly, that is down too. Personal spending has fallen in four of the last six quarters - something that has never happened before, since they began keeping records in 1947. The level of consumer spending is down 33% from a year ago - with discretionary spending in the United States now down to a level it hasn't seen in 50 years. Consumers aren't spending partly because they have no money...and partly because they apply what money they have left to relieving the headache from their previous binge. A report this week showed they had reduced their hangover of personal debt in July by more than $21 billion - four times as much as economists forecast. These are, of course, the same economists who pimp for the angels at Bernanke & Co. If they're right, we have a spending- less, jobless recovery pushing up the price of gold.
We offer an alternate interpretation. We begin with a doubt about the one now on the table. In the popular version, the more the recovery seems real, the more investors fear real inflation. This drives them to buy gold. Of course, it should drive them to sell US Treasury bonds too - which hasn't happened. Nor has inflation gone up. And if this view were correct, we should begin to see remedial measures from the US central bank. The Fed should soon begin to withdraw its monetary stimulus, returning the economy to a kind of normalcy it hasn't seen in years. The risk, not insignificant, is that Fed economists will err. They may loosen monetary policy too slowly or too quickly. Asked about the risk, Janet Yellen, President of the Fed's San Francisco branch, promised to avoid the error of 1937 - she will not "tighten policy too soon, aborting the recovery."
Gold bulls are counting on her. And they may be right. But here on the back page, we add a nuance. We're not surprised by an occasional Fed error. What surprises us is the rare accidental success. There are 500 basis points between zero and 5%. It would take a miracle for central bankers to find exactly the rate the market needs precisely when it needs it most. The '37 error, for example, might have been a success. At least it sped up the process of liquidation so the decks were clear when the post-war boom finally came.
Maybe we'll get lucky and the Fed will make the same error again. Not likely. This time they'll make a different error - adding too much cash and too much credit for too long a time. Today's 'recovery' is based on hot money from the feds. It's a fake. It won't cause real growth. When this becomes clear, commodities will sink - along with stocks...and gold. Central banks, ignoring the futility of their hot money program so far, will add even more hot money. Eventually, the hot money will cause inflation to rise and gold to 'melt up.' Gold bulls will be proven more right than they imagine. But they may be proven wrong first.
Enjoy your weekend,
Bill Bonner
The Daily Reckoning
I hope we remain strong and also an empire if this is what we are. But I see Obama and others doing their best to ruin America
The United States, is not an ‘empire’. The word is an epithet against everything the country stands for.
dittos what he said.
From everything I've studied, what they want to come about has failed miserably every time it was tried.
What's different about them and what they want?
All the bases and military overseas makes it appear we are somewhat of an empire. Maintaining it is costing a lot of money this country simply does not have.
Doomer BS.
Bonner’s been publishing this garbage for 25 years.
Whatever happened to his pal Davidson?
Can’t recall, was Bonner’s company convicted for insider trading?
bookmark
>>> The United States, is not an ‘empire’. <<<<
Absolutely god damned right.
Bonner is despicable.
Yeah some real work there...
Don’t know all that but “The Great Reckoning” by Davidson and Rhees Moog is a must read
Bonner is right today
Many factors delayed the “great reckoning”
Cheap Chinese stuff and foreigners buying up US debt for one.
But this is not how it is today
I checked some old columns by Bonner in 2004-6 and he predicted the real estate bust
Empire?
_______________________
Pretend that word is not there and you might learn something. Myself, I don’t like the left tinged drivel calling the US and empire
Dear Billy Bonner,
Rome was a Republic before it became an Empire. If the American Republic ever falls, I hope it returns as an Empire and I hope idiots like you live long enough to slave in its salt mines. Asshat.
This is simply the work of the government led economy.
This drives them to buy gold.
What good is gold if nobody can afford it and it can't be consumed for sustenance?
A poverty-ridden recovery means a fake recovery.
The period from 1947 to 1967 was the true American golden age.
We have to remind ourselves sometimes that Pax Romana wasn't, in truth, particularly peaceful. We have just fought a half a decade war in Iraq to the tune of some 4000 deaths. Each one is precious to us - in that we're certainly different from the Romans - but Marcus would regard that proportionately as a province for a squad of centurions. Similarly, to compare the bursting of a ridiculous financial bubble with, say, the irruption of the Goths into Gaul might be overstating the case just a bit.
So there are some problems with Bonner's model. The real difficulty with Golden Ages is that nearly nobody realizes that he's in one - they're declared afterward by people who realize to their chagrin how good their predecessors had it. This fits with Bonner's invocation of Edward Gibbon, whose epochal Decline and Fall of the Roman Empire wasn't, in fact, about the fall of Rome, which took place in the first part of the first volume, nor was it about the fall of Constantinople, which took place in the last part of the last volume. It was about the tremendous, barely imaginable sweep of history in between that formed nearly everything we call the Western world. Perhaps we're in a similar arc; perhaps not. Ask me in a thousand years.
The counter-culture movement of the 1960's marked the beginning of America's decline, and the decline has been relentless ever since.
The message of the generation that came of age in the 1960's, i.e. the counter-culture generation, was self-indulgence and irresponsibility. This was the generation of spoiled, over-indulged children of rich, hard-working parents who had prevailed over the Great Depression and World War II. Their parents' generation hoped for better lives, than they had had, for their children. They did not expect their children to opt for hedonism, self-indulgence, and irresponsibility and to scorn the very values that had allowed their parents to prevail over War and Depression and to provide cushy lives for their children. But that's what happened.
I recently watched Hair, the movie of the counter-culture. I had seen the play in London. I was struck by something that escaped me when I first saw the movie: The message was irresponsibility, self-indulgence, and immediate gratification and scorn for those who oppose such things. At the end of the movie, the protagonists sing over the grave of their dead friend. The mood is one of scorn for old-fashioned values. However, the bottom line is that the friend paid a heavy price for his scorn of those values; he was killed.
It's like this: You can drive down the freeway with your eyes closed--and maybe have fun at the time--but you'll pay a heavy price for it; you'll likely be killed and will likely kill other people too. Or as Ayn Rand--another old fuddy duddy--said: "We can evade reality, but we cannot evade the consequences of evading reality."
The reality is that the Western nations--including the United States--are decadent.
It's an old, old story: shirt-sleaves to shirt-sleaves, ascendancy and decay, the rise and fall of civilizations, William Faulkner's Absalom! Absalom!, Gibbon's Decline and Fall of the Roman Empire, Pearl Buck's The Good Earth, etc., etc., et al.
The Romans were oppressed and burdened by an Imperial Rome
We are oppressed and burdened by an Imperial Washington DC via taxation and un-Constitutional liberal laws
We do not have a blood thirsty Empire like the Romans
But we do have a US Dollar Empire. Undoubtedly Bonner objects to the Iraq war too...
The US Dollar as premier reserve currency has given a long free ride
Our Dollar Empire is coming to an end right now as foreigners boycott US Treasury auctions and don’t buy US debt like they once did. The BRIC nations condemn us (and Wall Street) for creating the bubble and the wreckage. If Empire is Dollar dominance then many nations are rebelling against us. We blew it by running up so much foreign debt and by foisting off toxic derivatives on Europeans and others. China has just warned it may break some derivatives contracts. They are stronger than our Wall Street “masters of the universe”
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