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Sunday, 29 December 2013

Lessons from History: How will the End of the US Empire continue in 2014?

Immanuel Wallerstein’s highly influential, multi-volume (currently 4 volume) opus, The Modern World-System, is one of this century’s greatest works of social science. An innovative, panoramic reinterpretation of global history, it traces the emergence and development of the modern world from the sixteenth to the twentieth century. In essence it traces the shift of economic hegemony from China to Europe.

We get to this at the end

Although now a retired academic Wallerstein continues to observe and write from his website.
I have long argued that U.S. decline as a hegemonic power began circa 1970 and that a slow decline became a precipitate one during the presidency of George W. Bush. I first started writing about this in 1980 or so. At that time the reaction to this argument, from all political camps, was to reject it as absurd. In the 1990s, quite to the contrary, it was widely believed, again on all sides of the political spectrum, that the United States had reached the height of unipolar dominance.
This meshes neatly with the gold community who point to the closure of the gold window by Nixon after which point it was no longer possible to exchange your dollars for gold, in effect the end of a Gold Standard.

Looking at the role of Gold in the financial history of the United States this includes
By an executive order (No. 6102 issued on April 5, 1933), the US administration under President Franklin D. Roosevelt made ownership of gold illegal due to the “economic emergency” of the Great Depression.
If you owned 100 ounces of gold bullion, worth $20.67 per ounce at the time, you would have been obligated to turn it in to the Fed, which would have paid you $2067 in paper currency for your 100 ounces.
After depriving the American public of the right to own gold, the following year the government devalued the dollar by 41% by raising the gold price from $20.67 to $35 [a price at which it stayed until 1974]. This increased the nominal dollar value of the now-enlarged US gold reserves by 69%.  
The forced call-in was done not as a punitive measure against gold owners but as a way to enrich the government at the expense of the entire US population, whose purchasing power would be reduced in the future by both inflation and the subsequent devaluation. The government’s new-found wealth supported New Deal programs such as Social Security (1937).
The gold price was controlled through the Exchange Stabilisation Fund, a fund which is still around today using derivatives to control all markets (and therefore the price of all goods). It controls interest rates through interest rate swaps, is responsible for the waterfall decline in the price of Gold futures and the price of Oil.

Everything is controlled including the now regular 'debt ceiling debates' in the US for which a complete playbook is available.

But let's just roll back through time to the height of Great Britain's economic hegemony, the “Great Game” or the geo-political rivalry between Great Britain and Russia for supremacy in the central Asian region during the nineteenth and early part of the last century. In his famous speech, “The Geographical Pivot of History”, to the Royal Geographical Society in 1904, Sir Halford Mackinder outlined his “Heartland Theory.

Mackinder’s theory was a counter-argument to notions that maritime supremacy was sufficient for a power such as Great Britain to safeguard its hegemony. He claimed that, with the emergence of new transportation routes [e.g. Trans-Siberian railway largely completed by 1916] and technology, a power that could control the centre (and the abundant resources) of the Eurasian landmass...would ultimately be able to attack the colonies of a sea power everywhere on the continent. 

When the British Navy switched from coal to oil power and with techonological advancement in the form of the creation of 'HMS Dreadnought' [based on observations of the Sino-Soviet Naval conflict of 1906] which at a stroke made all other Royal Navy ships obsolete. In trying to maintain Naval Superiority which in British eyes meant having a Navy the size of the next two largest navies combined (in this instance the US and Germany), bankrupted the nation and lead to the United Kingdom abandoning the Sterling [Silver] standard which it had entered into at the end of the Napoleonic Wars, establishing itself as the 'Global Economic Hegemon'.

The establishment of a 'gold back' global currency for trade is therefore the key element of Economic Hegemony. The period between 1914 and 1945 when there was no stable gold backed currency was marked by economic uncertainty and of course world wars.

Going back to Wallerstein he continues:
"However, after the burst bubble of 2008, opinion of politicians, pundits, and the general public began to change. The real question is what the consequences of this decline are. The first is the manifest reduction of U.S. ability to control the world situation, and in particular the loss of trust by the erstwhile closest allies of the United States in its behaviour. In the last month, because of the evidence released by Edward Snowden, it has become public knowledge that the U.S. National Security Agency (NSA) has been directly spying on the top political leadership of Germany, France, Mexico, and Brazil among others (as well, of course, on countless citizens of these countries). 
I am sure the United States engaged in similar activities in 1950. But in 1950, none of these countries would have dared to make a public scandal of their anger, and demand that the United States stop doing this. If they do it today, it is because today the United States needs them more than they need the United States. These present leaders know that the United States has no choice but to promise, as President Obama just did, to cease these practices (even if the United States doesn’t mean it). And the leaders of these four countries all know that their internal position will be strengthened, not weakened, by publically tweaking the nose of the United States."
The same process as occurred in the early twentieth Century is now at work today. The battle for McKinder's heartland is renewed and the tensions along the River Euphrates, the fertile crescent, the Sunni/Shi'ah muslim conflict.

So what exactly divides Sunni and Shi'ah Islam and how deep does the rift go?
The argument dates back to the death in 632 of Islam’s founder, the Prophet Muhammad. Tribal Arabs who followed him were split over who should inherit what was both a political and a religious office. The majority, who would go on to become known as the Sunnis, and today make up 80% of Muslims, backed Abu Bakr, a friend of the Prophet and father of his wife Aisha. Others thought Muhammad’s kin the rightful successors. They claimed the Prophet had anointed Ali, his cousin and son-in-law—they became known as the Shia, a contraction of "shiaat Ali", the partisans of Ali. Abu Bakr’s backers won out, though Ali did briefly rule as the fourth caliph, the title given to Muhammad’s successors. Islam's split was cemented when Ali’s son Hussein was killed in 680 in Karbala (modern Iraq) by the ruling Sunni caliph’s troops.
Just another example of the corruption of a spiritual ideal for how an individual should conduct oneself, by self-serving, power hungry humans eager to inflict their views on others.

It has been observed that the message of Al'Qaeda changed in 2005 from being 'we are all Muslims and we should unite against outsiders trying to tell us how to live' to 'we are Sunnis and our mortal enemy is the Shi'Ah'. The Golden Jackass postulates that it was in 2005 that Osama Bin Laden dies and not, as claimed by the US, in 2011. The movement then took on a new direction under other Saudi Princes/CIA backing.

The 'reconciliation' between the US and Iran recently may well have significant consequences for the region. How will the US allies Israel and Saudi Arabia react? The Saudi's have underpinned the US dollar since World War II, insisting that any oil purchased must be purchased in US dollars - both Saddam Hussein and Colonel Gaddafi had been trading their oil for Euros immediately prior to their demise. The US military acting to secure the US economy and the dollar's hegemony.

Back to Wallerstein:
Insofar as the media discuss U.S. decline, most attention is placed on China as a potential successor hegemon. This too misses the point. China is undoubtedly a country growing in geopolitical strength. But accession to the role of the hegemonic power is a long, arduous process. It would normally take at least another half-century for any country to reach the position where it could exercise hegemonic power. And this is a long time, during which much may happen. 
Initially, there is no immediate successor to the role. Rather, what happens when the much lessened power of the erstwhile hegemonic power seems clear to other countries is that relative order in the world-system is replaced by a chaotic struggle among multiple poles of power, none of which can control the situation. The United States does remain a giant, but a giant with clay feet. It continues for the moment to have the strongest military force, but it finds itself unable to make much good use of it. The United States has tried to minimize its risks by concentrating on drone warfare. Former Secretary of Defense Robert Gates has just denounced this view as totally unrealistic militarily. He reminds us that one wins wars only by ground warfare, and the U.S. president is presently under enormous pressure by both politicians and popular sentiment not to use ground forces. 
The problem for everyone in a situation of geopolitical chaos is the high level of anxiety it breeds and the opportunities it offers for destructive folly to prevail. The United States, for example, may no longer be able to win wars, but it can unleash enormous damage to itself and others by imprudent actions. Whatever the United States tries to do in the Middle East today, it loses. At present none of the strong actors in the Middle East (and I do mean none) take their cues from the United States any longer. This includes Egypt, Israel, Turkey, Syria, Saudi Arabia, Iraq, Iran, and Pakistan (not to mention Russia and China). The policy dilemmas this poses for the United States has been recorded in great detail in The New York Times. The conclusion of the internal debate in the Obama administration has been a super-ambiguous compromise, in which President Obama seems vacillating rather than forceful. 
Finally, there are two real consequences of which we can be fairly sure in the decade to come. The first is the end of the U.S. dollar as the currency of last resort. When this happens, the United States will have lost a major protection for its national budget and for the cost of its economic operations. The second is the decline, probably a serious decline, in the relative standard of living of U.S. citizens and residents. The political consequences of this latter development are hard to predict in detail but will not be insubstantial."
Looking back when the United Province (modern day Netherlands) lost hegemonic sovereignty it did so at the hands of France who were a potential successor only to be eclipsed by the United Kingdom over the period 1779 to 1815. When the United Kingdom's star faded they appeared to be likely to be eclipsed by Germany, but were to be eclipsed by the United States over the period 1914 to 1945.

Something happened in the 1990's between the US and China, the US can not possibly have simply granted China 'most favoured nation' status for no return consideration. Our friend the Jackass postulates that the US took a loan from China in the form of a loan of Gold. A loan ten years later which they could not pay back, a gamble by Bill Clinton that he could turn the economy around although how he hoped to achieve this whilst simultaneously exporting all industry to China one can only imagine. This coincided with the return of Hong Kong to the Chinese at the end of the 100 year lease with all the expertise of that area and with the 'Brown bottom' in Gold of $295 per ounce.

The US defaulted on its mortgage, not the government of the US, for the loan was taken out in the name of the people of the United States, by their elected representatives in whom they had entrusted such authority. It is the people of the US and not the government who will have to pay it back. The price of this failure to repay may already be in the public domain, perhaps it is the return of the continent to nature as pictured at the start of the Article. From FEMA resettlement camps to the mega-cities of tomorrow.