Saturday, August 11, 2007
When the Empire Goes Bust
Far be it for me to act as Chicken Little and suggest that the sky is falling. I’d hate to be accused to fear-mongering or hyperbolicity. (Well, actually the latter sounds fun.) But since I’m not the first to do so, I’d like to humbly suggest that the rusting hull of the USS Empire just cracked open a little more.
I’m of course referring to the sub-prime mortgage meltdown now gathering pace and zooming around the world at high speed.
There’s a bit of the chickens coming home to roost in all this – sticking with our initial metaphor. Well, actually, a lot of chickens. A whole coop in fact. In that there might be a certain amount of pleasure except that the people who suffered to create this mess are the same people who are going to suffer as a result of it, ie. US workers.
The recipe for this meltdown looks like this:
1) Impoverish large sections of your population by a two generation assault on living standards and union organization.
2) Sell the store to maintain a global empire through a massive military budget.
3) Lose your global economic supremacy because you spend all your surplus cash on guns instead of on productive economic expansion.
4) Borrow heavily from China and other countries to continue paying for the military hardware you have become utterly dependent upon to sustain your position because you no longer have economic supremacy.
5) Outsource as much productive economic activity as possible to cheap labour districts, like China, resulting in a deepening balance of payments deficit (you gotta buy back all those consumer goods after all).
6) Encourage scams, rip-offs and a casino economy at home to squeeze more consumption out of your population who don’t really have the money because of 1).
7) Light match.
The US ruling-class have so fucked-up their country through their imperial wet dreams that they are now almost completely hemmed in. As they discovered the other day they can’t even encourage productive investment in the US by forcing an increase in the value of the Chinese Yuan (ie. make Chinese goods more expensive so that there’s more incentive to invest in production inside the US). At the mere suggestion, Chinese leaders very publicly reminded Bush (or at least those around him who can understand) that they have the largest holdings of US currency and any attempt to mess with their currency will lead to them selling-off US dollars. A Chinese sell-off will lead to a global sell-off.
And if the US dollar drops, interest rates will rise to defend it, which will kill the US economy big-time. Never mind the effect of dislodging the US dollar as THE foreign reserve currency. This would be massive and I can’t go into it here.
However, If nobody will buy US dollar it means nobody will lend the US any more money to continue its spending spree. In other words this will also lead to an economic collapse. Talk about caught between a rock and a hard place.
So, the only choice that seems on offer for now is to make the ride go faster: Wall St. wants the US Federal Reserve to lower interest rates to boost consumption in the face of a collapsing housing market. But at a certain point enough people are going to point out that the emperor has no clothes – ie. that people are borrowing and spending phoney money.
Real incomes haven’t risen significantly in a couple generations. So, how can US workers consume more? It can only be against phoney value – eg. Housing market speculation: a bubble, which drives up prices even though there has been no increase in REAL value (like, you haven’t done anything to improve your house but it’s price goes up by $50,000). Sooner or later those bubbles burst. Last time it was tech stocks. This time it’s housing. One of these times it’s gonna be the whole shithouse.
When that happens, I suggest running to the woods and hiding in a cave because in a nation like America, with no viable political alternative at present, with so much racism, regionalism, fundamentalism, not to mention a megalomaniacal and sociopathic ruling-class with access to a lot of nuclear weapons – well, it’s gonna make the fall of Rome look like a game of bridge.