When a company goes broke, analysts always say: ‘it made mistakes.’ But people always make mistakes. One invests too little. Another invests too much. One innovates too little. One innovates too much. Over time, all companies go broke.
Countries make mistakes too. Reliably. One empire declines so another can rise. In modern history, one western country has replaced another, as the world’s dominant power, about every century. Spain until the Armada sank, France until the battle of Waterloo, England until 1914, and then America until…?
The mistakes made by America are the same mistakes that empires always make. “Imperial overstretch,” it is called. Spain reached for England…and drowned in the North Sea. France stretched to Moscow…and froze in the snow. England’s elastic stretched all over the world – to colonial outposts in Singapore, Australia, and Rhodesia. But by the time she was challenged by the Huns in WWI, her economy had already been surpassed not only by Germany but by America too.
Now, it is the US that wears the purple. It has its fingers in every pie, its ships in every port, and its red ink running over everywhere. Even at the very peak of its authority – in the ’90s – it was already relying on the savings of poor people in Asia in order to continue its big spending ways. And now, confronted with the challenge of a worldwide financial meltdown…the obvious consequence of too much spending and too much borrowing for too many years…what does it do? Does it cut back? Does it bring the troops home and the deficit down?
NO! It spends and borrows even more!
In other words, it makes a grand, fatal mistake. Now, an amount equal to its total receipts must be borrowed just to keep the federal government going. Even taking 100% of domestic savings only brings in less than half of the amount needed to finance its deficit. So, the rest – an amount equivalent to the entire US military budget – must be borrowed from kind strangers, business competitors and potential rivals for power.
Sooner or later, the foreigners will not be so easy with their money. Instead of buying US Treasury debt, they will sell it. Instead of supporting America’s imperial ambitious, they will undermine them.
for The Daily Reckoning Australia