Published on October 17, 2009 By Artysim In Politics

Do you remember that timeless saying, it aint over till the fat lady sings? Well folks, I'm sorry to say that she's backstage right now and is just finishing her warm-up. The United States as we know it has about nine years of life left, so you might as well enjoy it while it lasts. It is my opinion that by 2018 the United States could very well be in a state of collapse or worse. Why do I say this? The answer might surprise you, so please read on.

My proposed reason for such a calamity has nothing to do with all of the usual suspects like batshit crazy terrorists or nuclear war. All of the "threats" that are being spouted in the media today fall in line with the popular narrative that we've been programmed through years of awful television and movies to believe- as a society, our disasters must always be dramatic, sexy and easy to understand.

An evil dictator in the middleast develops remote controlled stealth drones to fly over the ocean and scour the countryside with advanced biological weapons that will kill millions (that's a shout-out to the speech GWB gave to the U.N to justify attacking Iraq, in case anyone's forgotten)

A heavily militarized China or Russia launches a crippling first strike that involves a combination of cyber attacks and EMPS' that shut down most of the communication and power grids on the continent, then invade at leisure or follow it up with conventional strikes on strategic assets to render us utterly helpless.

Islamic terrorists win a string of victories overthrowing Arab governments friendly to the west and then destroy Israel. They create a powerful caliphate spanning the entire middle-east and even a few European nations that have large muslim populations. This newly emboldened theocracy then spreads their holy war abroad and America is overwhelmed by a combination of external attacks and internal infiltrators. Try as we might, they fight us "over here" as we slowly lose running gun battles in the aisles of WAL-MART's and Home Depot's across the Midwest. An enthusiastic branch of the Taliban is chosen to be the administrators of newly conquered North America and the White House is leveled to be replaced with a Mosque.

The evil left wing cements their hold on government and abolishes the rights of Americans to bear arms. The NRA is dissolved and it's leadership publicly executed. Abortions are openly sponsored by the government as the preferred method of birth control and anyone who gets pregnant must pass a feasibility test- if it turns out that they will not be able to financially support the child they will be subject to an involuntary abortion. Churches are outlawed and atheism is taught as the only correct belief. The ACLU and ACORN become armed secret police branches incorporated to national law enforcement. The rich are taxed 99% of their income, the minimum wage goes up to 30 dollars an hour and by law every company MUST employ unionized labor!!!! AAAAARRRGGHHHH!!!!!!!

Get my drift? This is the drivel we're spoonfed day in and day out, and 99% of it is absolute garbage. But, it's easily digestable garbage. It's easy to understand and most importantly it's entertaining, it's dramatic, and it elicits an emotional response from us. Rationality or feasibility unfortunately have nothing to do with it. Now, I'm not going to say that the above couldn't happen. What people have to keep in mind is that in order for things like this to happen, a series of very bad things have to occur first to create the right conditions. So, what is the real threat we have to worry about?

You're about to lose your credit card.

Doesn't sound very exciting or threatening, does it? For the next few minutes, please banish the Tom-Clancyesque view of the world that we've all been indoctrinated with and take the following into consideration. Up until 1970, the value of a United States Dollar was based on gold reserves. However, thanks to the Vietnam war in addition to other expenses, the bean-counters stumbled on an unavoidable truth- if the U.S stayed on the gold standard, it would go broke very soon. So, after Bretton Woods you now had something called "Fiat" currency, wherein the United States Government proclaimed that the USD was "as good as gold" because it was backed with the full faith and credit of the U.S.

Now, the story of the U.S dollar is a long one that is another topic in and of itself. Suffice it to say, that things worked out pretty well and the reason why is that the USD is the reserve currency of the world. It's the currency that everyone has used to buy and sell oil in, so it's also known as the "petro-dollar" for good reason. The advantage of this system, without getting into all the little details, is that it has allowed the United States to live WAY beyond it's means. You know all that manufacturing that was outsourced to Asia? When we buy products from their factories, they've been taking those dollars and buying U.S treasuries. They've been buying our debt, and so have Arab countries and European countries and, well, pretty much the entire world. They've done this when they've traded oil, commodities, manufactured goods, you name it.

The end effect was to give the U.S the biggest VISA card in the history of the world. It's a visa with no limit, and so long as you keep going deeper in debt the due date for the first payment keeps getting pushed back -so long- as foreign countries keep buying the debt by purchasing treasuries.

This is no big news. In fact, this has been hummed and hawed about for 39 years now. What -IS- happening that is radically different and will change everything is that now other nations are actively working to dump the U.S dollar as their reserve currency and to entirely replace it with a new standard. This is not going to happen overnight. To do so would be a massive shock to the global financial system that would be unprecedented in scope. So, most of the major players have built a road-map to gradually get rid of the USD over 9 years.

A few weeks ago there was a meeting in which Russia, China, Japan, Brazil, France and most of the Gulf Nations made the decision to stop using the USD as their reserve currency. On the sidelines were other notables like India, Iran, a lot of nations ending in "stan" and so forth.

Representatives from the United States had asked to attend, but were denied. Under the new system, there will not be a single national reserve currency like happend with the USD but rather a basket of currencies including the Euro, the Yen, the Yuan and a possible new "international" dollar. There's also been some talk of maybe throwing the Rouble into the mix as well.

What's important to keep in mind is that if China, Russia, India and most major oil producing nations switch to this new system, the world will pretty much have to do the same. When this happens, the debt recycling machine that's allowed the U.S it's current situation will come to a halt. The bills will come due tomorrow and the Visa will suddenly be maxed out far beyond it's limit.

Blah blah blah, boring financial mumbo jumbo right?

Well, this will have absolutely profound consequences that will take the U.S from being a major world power to, quite possibly, third world almost overnight. As with all things in life, the devil is in the details.

Currently the U.S imports approximately 60% of it's energy. Under the new system, the U.S would need to buy this energy in another currency- say perhaps the Euro- which would be money leaving your borders and -never- coming back in the form of purchased treasuries.

All of the manufactured goods we buy from Asia? Also money leaving the country and never coming back. Almost over night, the U.S will lose the cyclical relationship of foreign countries buying your debt -and- will be hit with the double whammy of having to pay through the nose for basic needs like energy and most manufactured goods with a currency not your own.

The U.S national debt, already well over 9 trillion (or is it 10???) will mean that the U.S national budget will need to be slashed by an unprecedented amount to not incur anymore debt and to try and at least pay the interest on the existing.

In fact, the debt load and budget cuts, coupled with a national economy in which money leaves the borders but doesn't return, could be so severe that civil unrest and discord prompt the government to simply declare that they're washing their hands of the debt. If the U.S does this, there will be one of two outcomes-

1) A major war. If the U.S wants to remain a world power with a decent standard of living they will have no choice but to decisively defeat one or several major nations, effectively maintaining the status quo by using force where financial means no longer work.

2) Exclusion from world trade. While this might not sound so bad, remember that 60% of your energy is being imported and so are most of the goods you buy and clothing you wear. If the U.S had to go back to living entirely on it's own means it could do so but you'd be living on nothing but bread and potatoes for a long time and most folks would have to give up their autos and most trappings of modern life. Meanwhile, the Chinese and Europeans would be busy building cities on the moon.

I'll be the first to admit that I'm painting a pretty grim picture. As with most things in life, I suspect reality will be more of a compromise in which the U.S gives up it's role as world superpower in exchange for keeping a respectable standard of living and remaining a key player (but not THE player) on the world stage.

The U.S is and....so long as the water tables don't run dry.... will hopefully continue to remain as one of the largest food producers on the planet. If you were to give up cattle ranching...which for energy investment required per pound of beef is ridiculously high... you could probably work out an arrangement in which you feed half the planet and in exchange get reduced rates for international trade on various commodities.

The point I'm trying to make is that in 9 years time, the world won't end. But the United States place in it, most likely, will be drastically different than it is today. One issue that will need to be re-evaluated is the massive U.S military budget. The Pentagon is one of the world's largest real-estate holders and has approximately 700 bases and installations OUTSIDE of U.S borders.

When the USD stops being the reserve currency of the world, the U.S simply won't be able to afford keeping hundreds of thousands of service members garrisoned all over the planet. Military misadventures like Iraq and Afghanistan will simply not be affordable, as paying for them will come down to a decision to abolish millions of retirees meal tickets in order to pay for the campaign (or abolish public education system, or neglect sorely degraded national infrastructure like roadways and water treatment plants)

Also, many nations will use trade concessions to get U.S bases off their soil. One such example would be Okinawa. The Japanese overall are not happy with the U.S megabase there and could agree to trade at a reduced rate in exchange for the U.S leaving. And so it might go.

The beauty of all this? It doesn't have to be so bad. If the United States is capable of recognizing what is going on and what is going to change, you've got 9 years to prepare for it and by the time the USD is no longer the reserve currency, you could even have turned things around enough so that the impacts are negligible. This would also be a good time to study the pitfalls of other countries that have run into major problems in modern times, and learn from them to avoid them (much of central and south America are good examples but unfortunately WE were the ones exploiting them) However, if folks blindly assume that things will just stay the way they are because "we're just that good" then I'm afraid we're in for a world of hurt. I use the term "us" and "we" a lot because even though I am a Canadian, our two nations are major trading partners and allies. What's good is one is good for the other, and I don't want to see unnecessary calamity.

This is what I think needs to happen for us to avoid some very bad times:

1) Recognize that the U.S can no longer be everywhere and do everything on the global stage, and reflect this in foreign policy. In many cases, this means bringing the troops home from various foreign countries and closing down most overseas bases and installations. 9 years from now trying to continue this network of globally positioned forces will cost you precious money and resources that you won't have and could be better spent elsewhere. If other nations desperately want or need U.S servicemen on their soil, then present those countries with the option of paying the entire cost of having them deployed there.

This one act would save the U.S billions of dollars every year- it costs a lot less money to support and maintain a serviceman on the continental U.S than it does on the other side of the Pacific or Atlantic. Also, having most if not all of your armed forces actually in the United States means that you would be much better equipped to respond to disasters or threats at home, and service personnel could possibly be called on to help out with national infrastructure problems... this one sounds funny but the people's republic of China and many other nations have demonstrated that using garrisoned troops at home to assist with road and bridge building and repair is incredibly economical and beneficial. Also, you would be able to actually use the armed forces to defend the country, which is what they're supposed to be doing in the first place. With all the problems of drug smuggling and illegal immigration, what would happen if the 130,000 troops presently in Iraq were deployed along the U.S/Mexico border? This would also be a good time to stop unilateral foreign policy decisions and strengthen mutual defense organizations like NATO. It would also be a good time to cozy up to the European Union instead of seeing them as a rival.

2) Engage in serious dialogue today with major energy producing and manufacturing nations to make sure you will have a place at the table tomorrow. There needs to be a frank discussion about the fact that the U.S will at some point no longer be top dog but can still be a major player, and what that role would look like. This will mean compromise, and that the U.S will have to give up it's economic interests in certain areas of the globe (like say the pipeline they've been trying build for years that would get energy to Europe by bypassing Russia) This could be the beginning of hammering out agreements with China or Japan on what we give them in exchange for lowered prices for their manufactured goods.

3) Start doing national inventory. This means putting together a big honking list of all your imports and items that could be produced domestically instead to reduce the trade imbalance (and reduce energy expenditures) This is a sticky one because many large U.S corporations depend on profits from foreign owned factories that they contract out too. With that said, the sooner you can tackle the trade imbalance the lesser the impact will be one the national VISA card goes away.

4) Start figuring out what you can realistically offer in trade as tangible exports. These are real solid widgets, something that is produced and can be sold abroad. The term "widget" applies to everything from automobile parts to bushels of grain to Stardock games. Abstract financial shenanigans like selling "derivatives" do not count and should be gotten rid of as soon as possible.

5) Reign in the Federal Reserve, the FTC, and the major Banks in the U.S. The financial debacle that occurred and the resulting bailout were the straw that broke the camels back and caused the rest of the world to throw up their arms and move towards another currency. While U.S companies are not solely to blame for today's situation, it is clear that the U.S banking system and it's checks and balances are more akin to a poorly run, corrupt casino in which crooks win big while many honest players lose their shirts. This will cause a lot of short term turmoil and financial pain as the banks will scream bloody murder but the fact that they've received hundreds of billions of taxpayer dollars for their own mistakes and then turned their backs on you should be clear indication of their true colours. The current U.S banking and financial system is largely parasitic if not predatory and has no accountability. But it doesn't have to be that way. In Canada the financial turmoil was minimized compared to the hell you went through because our banking system stuck to proven tenets that were deemed "boring" by your financial gurus.

6) Start looking at what kinds of economic development and expenditures are feasible for the coming change. This is one is multi-faceted. For example on the municipal level if a major developer wants to build a mega-mall out in the suburbs of American city XYZ, it should be denied. The U.S has enough malls already and is drowning in distant suburban housing developments. Big malls and sprawling open air big box complexes will not be sustainable and add to the problem of mass consumer imported junk. Putting up a local dairy or maybe a greenhouse in the place of that mall however should be encouraged!

On a national level this is looking at things like infrastructure and ensuring that you'll have enough spare parts to keep the nation running -or- have the ability to build your own spare parts when the time comes that importing them from abroad is too expensive. I read an article a while back (that I will post if I can find it) wherein an old steel mill was getting turned into a casino, however construction was delayed because there were special steel struts that were needed but not easily obtainable due to all the construction going on in China. Ignoring the sheer irony of that, what would happen if medical equipment, roadways, power plants and water treatment systems all needed repair but none of the components were produced domestically and all had to be imported at prohibitive cost?

Then there is the defence question. The U.S will have to look at it's weapons development programs and make some hard decisions. Many fancy programs in the tens of billions of dollars for weapons systems to be delivered in one or two decades time that may or may not work will have to be cut or drastically scaled back. On the flipside, practical weapons development programs, wherein rugged, relatively low cost weapons systems without too many bells and whistles are produced should be pursued.

The emphasis for this will be to stop trying to make a tank or fighter jet from Battlestar Galactica that supposedly will be able to do everything under the sun and focus on practical systems that do one thing very well and give you the most bang for your buck. Anti-tank, anti-aircraft and anti-ship missile systems that are compact and easily transportable are good candidates, as Hezbollah demonstrated when they stymied the numerically and technologically superior IDF in the summer war of 2006.

7) At all costs, continue to pursue research and development and stay current on the international research scene. This means the pure sciences as well as practical applications. This means keeping university funding for faculties even when it may be painful to do so. Also this should not be confused with my last point about cutting defence spending on wasteful programs. The Chinese have a fraction of the military budget that the United States does and yet they are going to be one of the first nations on the planet to implement IP version 6 on their networks. While this is being done out of necessity it is nonetheless admirable. Also, look at CERN. While the U.S is a contributing nation, the facility is nonetheless is on another nations soil staffed mostly by foreign scientists and scientific organizations. In terms of space exploration, NASA is currently unable to return to the moon as the projected budgets will not allow for it. However the Chinese and Indians are working on their own missions.

If you're still reading this, thanks for your time and patience by sticking through to the end. In summary, things right now ain't half bad, but that's only going to last so long as the oil and entertainment do, which looks to be about another half hour. Then it's going to be time to face reality and make some tough decisions. But, if we acknowledge the profound changes that are coming and act accordingly, we can prevent a disaster well before it happens.


Comments
on Oct 17, 2009

One way for the US to learn is to look at many other smaller economies, which have had to ensure that their local production is equal to imported goods and services. Most of these countries have been tied to the current account deficet, eg. the balance of trade, because we have to to ensure growth. 9 years is a long time, if the US started now they would be well on the way of self reliance. Although I doubt the Govt, both state and national, have the inclination to do anything. Lets hope I'm wrong. Just shutting down overseas bases would be a big start in cost reduction.

on Oct 18, 2009

The decline of the US dollar is interesting. Just a few years ago an Australian dollar would buy 70 US cents. Now they're reaching parity, and it can't all be laid down to the mining boom. Effective regulation of the financial sector has left Australia more or less untouched by the GFC.

By mining boom i mean the spiralling demand in China and India for minerals such as coal, iron/steel, aluminium, rare earths etc. This has helped the US too.

on Oct 18, 2009

I disagree. First of all in terms of the impact of being reliant on other countries lending to them, one measure to look at is the balance of payments (which in simplified terms is looking at the difference between the money you get coming into the country and the money you have going out, i.e. imports make it worse, exports make it better). Now I wasn't able to have much success doing a quick google search for some BoP figures, but I did find this graph from some study site which plots the UK and US's balance of payments deficits (as well as giving a quick overview of it):

http://tutor2u.net/economics/revision-notes/a2-macro-balance-of-payments-deficits.html

Now the UK is running a deficit (albiet not as large as the US), and certainly doesn't benefit from the GBP having the reserve currency status that the USD has, yet they haven't experienced a massive economic collapse

The advantage of this system [USD not being on the gold standard], without getting into all the little details, is that it has allowed the United States to live WAY beyond it's means.

The UK and numerous other countries have similar systems where the currency may at one point have been linked to something of value, but is now a 'faith' currency, and the system works fine so long as there is confidence in it. This has also been happening for a long time now. To give a simplified 'evolution' of the currency system, you initially have a currency system based on something of value, such as gold (e.g. gold coins, etc.). Then the country (/area using the currency) decides they need more money, so they issue notes entitling people to redeem them for gold if they wish. Not everyone wants to do this (redeem the notes), so you can have far more notes in circulation than you have gold (once you get people to accept the notes). The next step is to take out the redeeming option, and if you can get people to still accept the currency you can have even more of it. Since it is now essentially just bits of paper you then need to manage the currency carefully to ensure people don't lose confidence in it, but providing you can do that, it should be fine.

 

That said, I would agree with you that sometimes the 'major threats' can be exagerated (e.g. terrorism), while other bigger threats that aren't so noticeable, such as gradually losing the no.1 spot for economic power don't get enough attention. However I believe the US will lose it's no.1 spot not so much due to a crash in their economy, but due to a boom in others, such as China. I expect it will take quite a bit more than 9 years though.

 

On to your points:

1) Recognize that the U.S can no longer be everywhere and do everything on the global stage

Agreed, as the US's (relative) economic power starts to wane they won't be able to afford to be the global policeman.

2) Engage in serious dialogue today with major energy producing and manufacturing nations to make sure you will have a place at the table tomorrow...This will mean compromise, and that the U.S will have to give up it's economic interests in certain areas of the globe (like say the pipeline they've been trying build for years that would get energy to Europe by bypassing Russia)

Disagreed - the US is going to be a major player even if they're not the top dog. That means that it will be in other countries interests to trade with them, and not trading with the US would just mean hurting yourself, hence something you'd only do if you hated the US (and while that is entirely plausible in a war or buildup to one, it doesn't look likely in the present climate). Also thanks to the globalised nature of the world even if one big country stopped trading to the US there'd be plenty of others to take it's place.

3) Start doing national inventory. This means putting together a big honking list of all your imports and items that could be produced domestically instead to reduce the trade imbalance

Disagreed. Trade exists to allow countries to focus on what they make most efficiently relative to other countries. Just because you can make something domestically rather than import it, it doesn't mean it'd be better for you to (the reverse in fact, it'd hurt your economy). Again this is assuming a peace-time scenario. I could see a case for ensuring there is the ability to produce the most basic of necesseties domestically for such a contingency.

4) Start figuring out what you can realistically offer in trade as tangible exports...Abstract financial shenanigans like selling "derivatives" do not count and should be gotten rid of as soon as possible.

Disagreed again. Just because some things are more tangible than others, it doesn't make them more valuable. Financial services including derivatives can be a valuable export and money maker for a country, so you shouldn't look to shut these down just because they're less obvious in value than manufacturing some good and selling it.

5) Reign in the Federal Reserve, the FTC, and the major Banks in the U.S.

Depends on how you suggest - my preferred solution is either to force banks to be small (so they can't be too big to fail and so never need to be bailed out) or to split up the banking areas so you have the 'retail banking' side of things separate to the more risky ventures, and the retail aspect has to follow requirements to reduce the risk that they'd ever fail (hence meaning they shouldn't ever need bailing out). I don't think massive regulation or continued bail outs are the way to go though.

6) Start looking at what kinds of economic development and expenditures are feasible for the coming change. This is one is multi-faceted. For example on the municipal level if a major developer wants to build a mega-mall out in the suburbs of American city XYZ, it should be denied. The U.S has enough malls already and is drowning in distant suburban housing developments... Putting up a local dairy or maybe a greenhouse in the place of that mall however should be encouraged

Disagreed again. If they want to set up a mall, and are paying for it, and it will make things better for the population (since they'll be using it, and presumably get access to a wider range of goods at lower prices) why shouldn't they? One of the key advantages the US has (and a reason that it's going to be a major economic player for the forseeable future) is that it isn't as restrictive as some countries when it comes to business, meaning it can reap greater benefits from it. As for your issue of importing costly goods, if they do become more costly, you can switch at that point. There's no point switching now to producing something that will definitely cost you money in the short term just because there is a chance it might save you money later on. Better to wait until later on to see if you need it and then look at switching (since it's unlikely anyway that you'd need to switch due to how trade works - if you're importing the goods, it stands to reason the other countries are more efficient at producing it relative to other goods than you are. Hence if the costs rise for them, they may well rise a similar amount for you, and so they'll still be more efficient).

7) At all costs, continue to pursue research and development and stay current on the international research scene.

Agreed research is important and so should be continued, although the private sector can perform quite a lot of it for you.

Looks like I disagreed with you more than I agreed with you, but I did agree with quite a few points you made

on Oct 18, 2009

Can people from the US comment or is this just leftist plans for the US as envisioned by foreigners? Shouldn't you be busy thinking up ways to placate Russia or China when the US can't afford to be "your" policeman? After all someone is going to fill the vacuum. Do you believe it will be your own nations?

Don't worry I'm with you, we need to cut some of you freeloaders off. The sooner the better, I'm tired of paying toward what you should be ponying up for yourselves.

Let me know when you start a thread up criticizing your own countries. I'd love to return the favor and tell you how to fix them.

on Oct 19, 2009

Hahaha... wow.  You know, you sound like Ron Paul.

Of course, everyone in the US (besides me) hated him, so unfortunately he wasn't elected as President.  He is probably the only US politican in office who had the foresight to see this coming - his proposed policies sound exactly like yours, particularly the first one.

As for the topic itself, I have to say I honestly find our government's spending practices disgusting.  Yes, most likely this change will hit us incredibly hard, but we'll be a better nation for it, even if not as prominent.  Talk about an instant, forced reversal of 20+ years of bad Democratic policy.

My only regret is that with Obama in office, we have no hope of migitating this.  He'll be in office until 2016 (since he's apparently flawless and must serve two terms), at which point some poor sucker - mostly likely Republican - will be in office when this bomb hits.  Obama, of course, will be remembered in history as a saint.

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