Monthly Post ecosophia
Dancing on the Brink
Neocon intellectual Francis Fukuyama insisted in a once-famous 1989 essay that having won the top slot, the United States was destined to stay there forever. He was of course wrong, but then he was a Hegelian and couldn’t help it. (If a follower of Hegel tells you the sky is blue, go look.) The ascendancy of one empire simply guarantees that other aspirants for the same status will begin sharpening their knives. They’ll get to use them, too, because empires invariably wreck themselves: over time, the economic and social consequences of empire destroy the conditions that make empire possible. That can happen quickly or slowly, depending on the mechanism that each empire uses to extract wealth from its subject nations.
The mechanism the United States used for this latter purpose was ingenious but even more short-term than most. In simple terms, the US imposed a series of arrangements on most other nations that guaranteed that the lion’s share of international trade would use US dollars as the medium of exchange, and saw to it that an ever-expanding share of world economic activity required international trade. (That’s what all that gabble about “globalization” meant in practice.) This allowed the US government to manufacture dollars out of thin air by way of gargantuan budget deficits, so that US interests could use those dollars to buy up vast amounts of the world’s wealth. Since the excess dollars got scooped up by overseas central banks and business firms, which needed them for their own foreign trade, inflation stayed under control while the wealthy classes in the US profited mightily from the scheme.
The problem with this scheme is the same difficulty faced by all Ponzi schemes, which is that sooner or later you run out of suckers to draw in. That happened not long after the turn of the millennium, and along with other factors—notably the peaking of global conventional petroleum production—it led to the financial crisis of 2008-2010. I don’t imagine it’s escaped the attention of my readers that since 2010 the United States has been lurching from one crisis to another. That’s not accidental. The wealth pump that kept the United States at the top of the global pyramid has been sputtering as a growing number of nations have found ways to keep a larger share of their own wealth. The one question left, as I noted back in the day, is how soon the pump would start to fail altogether.
Fast forward to last year. When Russia launched its invasion of Ukraine in February 2022, the United States and its allies responded not with military force but with punitive economic sanctions, which were expected to cripple the Russian economy and force Russia to its knees. Apparently nobody in Washington DC considered the possibility that other nations with an interest in undercutting the US empire might have something to say about that. Of course that’s what happened. China, which has the largest economy on Earth in purchasing-power terms, extended a middle finger in the direction of Washington DC and upped its imports of Russian oil, gas, grain, and other products. So did India, currently the third largest economy on Earth in the same terms; so did more than a hundred other countries.
Then there’s Iran. Most Americans are impressively stupid about Iran, so it’s probably necessary to cover some details here. Iran is the seventeenth largest nation in the world, more than twice the size of Texas and even more richly stocked with oil and natural gas. It’s also a booming industrial power. It has a thriving automobile industry, for example, and builds and launches its own orbital satellites. It’s been dealing with severe US sanctions since not long after the Shah fell in 1978, so it’s a safe bet that the Iranian government and industrial sector know every imaginable trick for getting around those sanctions.
Right after the start of the Ukraine war, Russia and Iran suddenly started inking trade deals right and left, to Iran’s great benefit. Pretty clearly one part of the quid pro quo was that the Iranians passed on their hard-earned knowledge about how to dodge sanctions to an attentive audience of Russian officials. With a little help from China, India, and most of the rest of humanity, the total failure of the sanctions followed in short order. At this point the sanctions are hurting the United States and Europe, not Russia, but the US leadership has wedged itself into a position from which it can’t back down. This may go a long way toward explaining why the Russian campaign in Ukraine has been so leisurely. The Russians have no reason to hurry. They know that time is not on the side of the United States.
For many decades now, the threat of being cut out of international trade by US sanctions was the big stick Washington DC used to threaten unruly nations that weren’t small enough for a US invasion or fragile enough for a CIA-backed regime change operation. Over the last year, that big stick turned out to be made of balsa wood, and snapped off in Joe Biden’s hand. As a result, all over the world, nations that thought they had no choice but to use dollars in their foreign trade are switching over to their own currencies, or to the currencies of rising powers. The US dollar’s day as the global medium of exchange is thus ending.
It’s been interesting to watch economic pundits reacting to this. As you might expect, quite a few of them simply deny that it’s happening—after all, economic statistics from previous years don’t show it yet! Some others have pointed out that no other currency is ready to take on the dollar’s role; this is true, but irrelevant. When the British pound lost a similar role in the early years of the Great Depression, no other currency was ready to take on its role either. It wasn’t until 1970 or so that the US dollar finished settling into place as the currency of global trade. In the interval, international trade lurched along awkwardly using whatever currencies or commodity swaps the trading partners could settle on: that is to say, the same situation that’s taking shape around us in the free-for-all of global trade that will define the post-dollar era.
One of the interesting consequences of the shift now under way is a reversion to the mean of global wealth distribution. Until the era of European global empire, the economic heart of the world was in east and south Asia. India and China were the richest countries on the planet, and a glittering necklace of other wealthy states from Iran to Japan filled in the picture. To this day the majority of human population is found in the same part of the world. The great age of European conquest temporarily diverted much of that wealth to Europe, impoverishing Asia in the process. That condition began to break down with the collapse of European colonial empires in the decade following the Second World War, but some of the same arrangements were propped up by the United States thereafter. Now those are coming apart, and Asia is rising. By next year, four of the five largest economies on the planet will be Asian. The fifth is the United States, and it may not be in that list for much longer...
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