The decline of the US economic system which began quite a few years ago has accelerated dramatically since the summer of 2007 to reach a seismic climax in September/October of 2008, inevitably affecting all other countries with varying intensity. As a result of the loss of confidence in the international financial and political structures supported by the American superpower, resulting from the latter’s catastrophic eclipse, the ideology championed by the US rulers and their allies and vassals is increasingly being questioned, challenged and called up for review. What are some of the main trends emerging out of this wholesale reassessment?

Fall of the “Bretton Woods” financial system

The demise of the “Fiat Currency” based international structure that the Nixon Administration imposed in 1971 when it delinked the Dollar from the gold standard is long overdue, as it has already caused great damage to the global economy by allowing virtually unchecked money creation, thus paving the way for devaluation and hyper-inflation while enabling the USA to borrow its way to insolvency, thus taxing the rest of the world to support its unsustainable profligacy and simultaneously de-industrializing by exporting its manufacturing sector to “Third World” cheap labour nations, China in particular.

Not a few insiders, including former Deputy Treasury Secretary Paul Craig Roberts, are very harsh in their description of the nature of the American economic policies in recent decades. Richard C. Cook, a former US Government analyst who served with the Civil Service Commission, the Carter White House and the Treasury Department, says (Vijayvaani 5 October 2008) that the Bush-Paulson $ 700 billion bailout plan is “…a crime, a grand larceny on a monumental scale” and goes on to charge the Republican administration with an elaborate conspiracy to defraud the US taxpayers and foreign countries as well. 

He points out: “The Bush Administration tied these acts of reckless lending into an institutional programme of mortgage fraud…Directions soon began to come down from the banks to mortgage brokers to falsify borrower income information to allow them to qualify for loans that were otherwise out of reach.  When the states attempted to intervene, they were blocked by the Treasury Department’s Office of the Comptroller of the Currency”.

Cook rhetorically asks: “Why did the Bush administration do this? The only possible answer is that it had every intention of producing the housing bubble…(which) acted as a kind of substitute engine…It also resulted in tax revenues that allowed the Bush administration to implement its 2001 and 2003 tax cuts for the rich and provide funding for the Afghanistan and Iraq wars”.

A consensus is building around the view that the current US Government, beholding to a philosophy of “Apres moi le deluge”, decided to artificially create economic good times for their friends and supporters, sticking their successors and future generations with unpayable bills while trying to secure for “their” energy companies the monopoly of Middle Eastern and Central Asian oil and gas resources through direct military interventions. Those plans can only be compared with Hitler’s scheme to conquer Europe and dominate the world at any cost. Likewise, they seem doomed to breed disaster for the average American and for many others on all continents. 

The $ 700 billion “bailout” which is in fact a blank cheque to the Federal Treasury to support its cronies on Wall Street amounts, as Cook puts it, to “massive raid on the Federal Treasury to pay off the peoples within the financial industry who have been operating the housing scam because the politicians told them to do it”. 

However it can only amount, if at all, to a temporary reprieve and we have to agree with Cook when he writes that “in the post-bubble era there will be no more economic engines…A long-term recession and depression are inevitable…In fact, there has been a plan in the works for a very long time to bring down the US economy and it will be happening in the coming months. This is why the Government is also preparing to implement martial law”…and is already, should we add, deploying military units on American soil in order to repress the predicted civil unrest. 

Many experienced observers coming from very diverse horizons have been making similar forecasts for a longtime, including Lyndon LaRouche, Michael Ruppert, Matthias Chang, Nouriel Roubini, Krassimir Petrov, Catherine Austin Fitts, not to mention several foreign statesmen, such as Cuba’s Castro, Iran’s Ahmadinejad, Venezuela’s Chavez and Malaysia’s Mahathir Mohammed.

The results are becoming known to all and can be summed up in a few dramatic numbers: a low figure for the derivatives created to date by the US financial sector is $ 25 trillion (30% at least of which consists of sub-primes and their byproducts), about one half of the total wealth of the US and twice the size of its 2006 GDP. The country’s total unfunded liabilities are close to 100 trillion dollars. On 19 September 2008 the fiscal deficits and unfunded Treasury debt stood at $ 9.7 trillion (about the amount that has been wiped out from global stock markets in the current crisis as of this date), of which 5.5 was held by the public. The total current outstanding US debt hovers between 53 and 60 trillion, depending upon the estimates.

The need for urgent and drastic reforms has been voiced by a number of prominent economists for years. One of the most clear-sighted is the 1988 Economics Nobel Prize Maurice Allais, who announced the coming collapse of the US “pyramid scheme” and who is now coming out with a book entitled “La Crise mondiale d’aujourd’hui: pour de profondes reformes des institutions financiers et monetaires” (Paris, 2008) (or “Today’s Economic Crisis: A call for in-depth reforms of financial and monetary institutions”). 

Vivan Sethi, a cutting edge analyst for Mandalay Capital concludes in a recent report (“Trading and Investment: US Government Debt”): “The US is in reality bankrupt and, in my opinion, the only options are beyond the conventional. The US Treasury Certificate is a certificate of confiscation by inflation at best, or you will totally lose your principal in or out of default”. He points out that “under the monetary system, the US economy has been presented as the engine of world growth when in fact it has been an engine of borrowing…If consumption in the US falls dramatically, the Chinese incentive to hold dollars and to accumulate them vanishes,” and concludes that “whatever option is chosen, what is clear is that this debt cannot be paid without default on the liability side (deflation) or inflation (hyper-inflation)”. 

Yet, he, like others, warns against the automatic recourse to the obvious fix of diversification into other paper, tangibly unsupported monetary units and notes that “the resource countries… can go through the illusory process of diversifying into another currency under the (present) system but all other paper currencies are essentially derivative currencies of the Dollar”.

It is thus far from clear that another global reserve denomination can be called upon to replace the greenback in short order. The Euro may suffer from some of the same flaws and liabilities that are sinking the dollar and the only alternative in the view of some economists may be the return to metal-backed monetary systems, but the latter are likely to be national and regional. 

Some of those that may come into being – or re-emerge – in the coming years are the Chinese silver Tael (Silver dollar), the Russian gold Rouble, the South African gold Rand, the Islamic gold Dinar (long promoted by Malaysia) which should get the backing of both Saudi Arabia and Iran and a Mexican-South American gold and silver currency. Significantly all those prospective metal standards are wedded to areas or states that have developed substantial financial autonomy and strength and are playing or about to play leading roles in a new multi-polar world. 

New fragmentation

The global “community” may fragment into several camps built on geographic, linguistic, ethnic and economic lines. The North American, US and Canadian “de facto” confederacy will have to create its own, presumably metal-based currency, as will Europe, if the EU manages to keep itself together, which is less than certain. 

There is indeed a possibility that the Union will break up into at least three blocs: the old Franco-German core will probably hold out, while the South East of the continent may gravitate a lot closer to Russia under the pull of energy-based and financial considerations, not to mention the common Slavic or Orthodox heritage. Scandinavian nations might remain on the periphery with Britain, which history and geography separate from the continent, while Italy and the Iberian peninsula would form yet another sub-region with strong links to Latin America, the Mediterranean South and Near East and the Russian-dominated Orient. Border states such as Poland, the Czech Republic, Hungary and the Baltic states whose national identity is fragile may have trouble surviving in their present forms between those blocs and could well provide causes for international tensions and crises.

Whereas Africa will have difficulty as a whole in fending off the neo-colonial assaults it is already prey to from both old western imperial powers and emerging regional hegemons in Asia and South America, it will probably remain an area of rivalry between the Americans, the Europeans, the Arab powers, China and India, to mention only those obvious contenders for its natural resources. 

South Asia’s future is uncertain, keeping in mind the explosive potential for conflict between its major religious groups in an overpopulated area whose vast majority will remain materially deprived for the next two or three decades at least. The Far East, on the other hand, may benefit from a gradual mutual accommodation between Confucian-Buddhist China and Japan, which are already more complementary than competitive as the ageing, maritime Nippon investor-economy finds its counterpart in the fast-growing, labour-intensive industrial, traditionally land-based Chinese neighbour.

Whether Russia and China will manage to preserve their current marriage of convenience or whether, as Immanuel Wallerstein predicts, they will resume their old hostility remains to be seen. An intensifying rivalry over their overlapping areas of influence in Central Asia and Siberia does not bode well for their alliance, especially if Russia achieves growing integration with the other nations of Europe with which it shares common misgivings about Beijing’s ambitions. Russia’s contradictory tendencies towards East and West have an equivalent in India’s conundrum which impels the country to strive for a precarious neutrality between the NATO forces and the Russian-Chinese bloc, an attitude that will become increasingly untenable in an increasingly divided world.

In any event, the global order that will emerge in the years to come will be tempered in the crucible of the meltdown of the current financial-industrial-agricultural system. What will happen to such universally accepted mechanisms as western-style democracy, free enterprise, more or less free circulation of capital, goods and people is an open question, but it can be predicted with a fair degree of confidence that nothing will remain unchanged. As the motto enigmatically puts it on the Seal of the United States it will be the “Novus Ordo Seclorum” (New Order of the Ages) in one way or another, but probably not as the American founding fathers had envisioned.

The author is Convener, Editorial Board, World Affairs Journal