Thursday, 18 September 2008

The end of the American century, but not of Britain

When Niall Ferguson predicted the end of the American Empire in 'Colossus', the fiscal deficit was only one of the three legs of the stool that he foresaw would collapse. As I have said before, the 19th century was the British century which ended in August 1914 when the lights went out all across Europe. The 20th century was the American century. I always imagined it going out not with a bang but a whimper, a gradual tailing off of global influence and economic power, but it seems the showdown may be more sudden and dramatic than anyone has imagined.

Max Keiser writes on Al Jazeera:
There's a decoupling in the wind, America is essentially finished as a global economic power. The US dollar is now finished as the world's reserve currency and we are going to see now some other country rise up and take its place, most probably China. This is entirely predictable … [in] the neo-liberal model, which means that credit is available for almost free.

Suddenly last summer, credit was unavailable, and then banks who need credit to live start to tumble. So this is gaining pace [and] there's going to be no credit for banks because you're talking about $700 trillion worth of debt in the global economy. The entire GDP [Gross Domestic Product] of the world is something like $60 trillion, so this has a long way to go as you deflate all of this debt back to something more sustainable. It's not a doomsday scenario if you're in a developing country and you've got stuff like oil in the Middle East or you've got huge savings, like they do in China. It is only a doomsday scenario for America and Britain that have been living on borrowed money for generations. It's a happy day for people who have savings, who have money, who have cash, who have stuff, who have oil, who have resources.
Europe's ascendency is relatively recent. Until the 17th century, Europe, India and China were level-pegging in terms of civilisation; the West has no presumptive or historical grounds for continuing to lead global development. Whilst it's not clear yet whether the 21st century will be the Indian century or the Chinese century, we must surely adapt to the new global realities.

Guthrum's warning is prescient; now is the time that demagogues can rise, the time when extremism can flourish. Those of us of mine and Guthrum's age have enjoyed an unprecedented era of peace and prosperity; unlike our parents and grandparents we have never had to fight a war, never suffered disease, starvation or sudden death at the hands of the anarchic mob, never risked the wholesale destruction or loss of our homes and possessions. We've had a pretty good innings. Fools like Fukuyama who imagined this Edwardian summer would continue for ever learned nothing from history.

We face this crisis more atomised as a nation than ever before; ties of locality and community are loose. Decades of State centralism have sapped local and intermediate institutions. Yet central power is in reality weak; it's wholly dependent on a weakening consensus, nothing more. This is unprecedented. The central State without physical coercive power is in reality no stronger than the international banking community has proven to be. We're the thickness of a Rizla away from throwing excrement at tax collectors.

As banks and financial institutions will continue to tumble and even the public sector's pension funds turn to dross, as tax receipts dry up and the State's coffers yield nothing but a hollow ring, then we'll see what the British people are actually made of - do we still have enough of that indomitable spirit to forge something new from the ashes of the old?


Newmania said...

I think you may be a little premature and in any case whose "Century" it is means what ?
The American Wave i recall Nialls F refferring to was not just financial it was a cultural event by which the West inhabited the whole world .

The West is everywhere now and if Chima makes more tee shirts and sneakers I `m not sure it matters much

Anonymous said...

While I really like your blog, you've got this horribly wrong and given over to the faddish rantings of fools who don't understand finance or economics.

"There's a decoupling in the wind"

No. The decoupling myth broke with the oil bubble popping. Which stock markets have been most brutally hit? Russia, China, Pakistan, Brazil, India. Naturally because they were sham economies too and risk capital always flees the emerging markets.

"America is essentially finished as a global economic power"

No. It's shaken but it's still a major producer, banker and resource field.

"The US dollar is now finished as the world's reserve currency"

It would be if there was an alternative, but the Euro is on the verge of breaking apart and doesn't have a central fiscal authority. The Reminbi is a manipulated inflationary joke. The dollar sucks but nothing else can compete, except perhaps gold.

"nd you've got stuff like oil in the Middle East"

that's rapidly tumbling in price because of global demand destruction

"or you've got huge savings, like they do in China"

Um, remember that phrase about if you owe the bank £30k they own you. If you owe them £30m you own them? Well, China's savings are in in Fannie, Freddie and Treasuries. If the US defaults, bye bye savings.

"Until the 17th century, Europe, India and China were level-pegging in terms of civilisation"

But we had the development of liberalism and the ensuing industrial revolution. India and China are still backward shitholes on the verge of returning to the dark ages. As the Japanese say, China has been failing to live up to it's potential for 1,000 years.

"Fools like Fukuyama who imagined this Edwardian summer would continue for ever learned nothing from history."

Except that ideology really is dead as a competition of fact (liberal capitalism always wins). Where he was wrong was in underestimating the appeal of socialists (either National or Red) to the idiot proles desperate for someone to lynch.


Raedwald said...

Nick -

Like Keynes, I'm quite ready to change my view when the facts change. I won't defend Keiser's view - it's his, not mine, to do so.

Yes, the enlightenment and the Industrial Revolution pushed the West way ahead of the competition, but they were a long time ago. There's still plenty of inertia in the West's flywheel, but rapidly growing university educated middle classes in China and India are increasingly transferable between the West and those places; the very best structural engineers I'm using right now are Indian. They run rings round the indigenous competition - hardly representative of a backwards shithole.

Yes, ideology is dead. I've said so many times. But the West doesn't have a monopoly on the benefits of liberal capitalism. Fukuyama assumed that the ascendency of the West's liberal capitalism guaranteed the ascendency of the West - he was wrong. Remember that it was the Chinese that developed gunpowder, but the West that used it to secure competitive advantage. It can happen in reverse - for gunpowder read liberal capitalism.

I don't think the dollar will die overnight as a reserve currency - as you say, there's nothing else. But I do think the American century is at its end. The extent of Chinese holdings in US bonds and equities - massive - don't signal the strength of the US economy, but its weakness.

Anonymous said...

Sure, but India, China and Russia (much less so Brazil) have such godawful kleptocratic bureaucratic political strucutres that they can't possibly succeed. They got lucky the past ten years when the idiot central planners happened to guess right a few times and made good use of the vast resources (People and extractive industries) that happened to be gifted to them.

But do you really think the RIC of the BRICs can sustainably run centrally planned economies much longer when they normally can't even run a piss up in a brewery. They are going to revert to the historic underperformance that they've long had.

The US has blown it's superpower status but it'll still be world leader by a vast margin. With decent management and a tasty sovereign debt default, they might even regain that status.

I happen to think the West is on the verge of a reversal in social mood away from the crony capitalism and leftist central planning of the past twenty years. Public mood always shifts left in a boom because the proles think the government can guarantee high living into perpetuity and the bureaucrats think it's their skill that made the boom. Busts go right wing as it becomes clear the lefties have bankrupted everybody. It's 1980 all over again, with the volume turned up.


Anonymous said...

Oh forgot to say...

I agree that China and India are pumping out far better graduates than the West. A sympton of the general decadence that always infects empires in a crack-up boom (UK, US), while Chindia is much later in the credit cycle.

But this is a migrationary trend. All the quality will run like hell out of Chindia first chance they get because of the retarded political structures.