And The Band Played On
November 10, 2010 by John Myers
Another election is over and the sweet promise of more change in two short years is wistfully blowing. It looks like it will be a humdinger of a Thanksgiving for Republicans.
While I will be giving thanks, I won’t be celebrating. The new Congress, packed with what Bob Livingston correctly calls the Ruling Elite, will be rearranging the deck chairs on the Titanic.*
Some think the nation took a turn for the worse with President Franklin Delano Roosevelt. I disagree. What came after FDR was total victory over Hitler and Tōjō as well as immense new wealth. By the late 1950s America was rich, stable and could call on the most dominant army ever assembled.
From the ashes of World War II the United States was the only major power that became richer rather than poorer. By the early 1950s the U.S. was the world’s largest creditor and was posting unprecedented trade and budget surpluses. America’s immense agriculture base and mineral wealth were just beginning to be exploited, and the country was the number one producer and exporter of crude oil.
Writing for Benjamin M. Rowland’s 1977 book, Balance of Power or Hegemony: The Interwar Monetary System, Charles P. Kindleberger said that in 1950 Washington possessed $20 billion in gold reserves or almost two-thirds of the world’s total of $33 billion.
In 1950 America’s per capita gross domestic product was seven times that of Japan’s and was almost double that of Great Britain’s. Today Japan and Great Britain have per capita GDPs that measure more than three-quarters of America’s. In fact Ireland, home to one of the worst famines of the post-Industrial Revolution, has a higher per capita GDP than does the United States.
America’s economy was also a dynamo that just kept spinning faster. Measured in constant dollars, the nation’s GDP rose tenfold between 1940 and 1969.
A half century later the U.S. was the largest borrower in history, the biggest buyer of fossil fuels and was posting staggering deficits. And by the dawn of the 21st Century the U.S. held slightly more than 25 percent of the world’s official gold reserves, or about $355 billion worth. That won’t even pay down 4 percent of the $13 trillion in U.S. Federal debt.
The onset of the massive decline began in the 1960s under President Lyndon Baines Johnson. It is worth noting that that Democratic President’s agenda was similar to President Barack Obama’s. Both set out to redistribute America’s wealth and both sent young men to fight and die in a losing war halfway around the world.
America was on the brink of revolt following Johnson’s election in 1964. It is worth remembering that things did not get much better after his successor — the deeply conservative President Richard Nixon — was elected four years later. Over the next decade American’s fortunes became progressively worse, and the nation has continued in a state of decline that persists to this day.
It all adds up to America’s grand decline, declared National Affairs earlier this year in an article with the headline, “Complexity and Collapse: Empires on the Edge of Chaos.“
“Imperial collapse may come much more suddenly than many historians imagine,” is the summation of that article written by Niall Ferguson. “A combination of fiscal deficits and military overstretch suggests that the U.S. may be the next empire on the precipice.” You can read the article here.
Ferguson cites two troubling trends in America’s decline:
First, that America’s public debt may skyrocket from 44 percent of GDP before the 2008 financial crisis to more than double that figure within a generation.
Second, China will have a larger economy than America in 17 years and India’s GDP will exceed America’s in less than 40 years. If so, the U.S. could soon be a third rate power.
Ferguson is not the first historian to point out that America is an empire in decline. In 1987, Paul Kennedy’s book, The Rise and Fall of the Great Powers: Economic Change and Military Conflict From 1500 to 2000 traced the decline of dominant nations beginning 500 years ago.
Kennedy’s conclusion is that all great powers have a natural progression that starts with a rise to prominence and then an inevitable decline. This erosion of wealth and influence has affected every leading power including Spain, the Habsburgs and Britannia.
“Imperial expansion carries the seeds of future decline,” wrote Kennedy. "If a state overextends itself strategically… it runs the risk that the potential benefits from external expansion may be outweighed by the great expense of it all.”
This phenomenon of "imperial overstretch," says Kennedy, is common throughout history.
Even America’s own regression has long been understood. In the 1960s, Arkansas Senator William Fulbright, the Democratic chairman of the Foreign Relations Committee, wrote the book, The Arrogance of Power. He was highly critical of overspending and the Vietnam War. The title became something of a slogan for the antiwar protests of the 1960s.
In the 1980s I started doing my own research into America’s decline. I found that in the 1950s one out of every three cars made worldwide was built by General Motors. At that time, GM sold more than one out of every two cars made in America. By the late 1980s, GM’s share of the domestic market had fallen to around 35 percent, and today it stands at less than 20 percent.
At the height of American power, General Motors President Charles Wilson said, “What’s good for General Motors is good for the country.” I think the converse could also be argued. America’s Ruling Elite seem as arrogant as Charles Wilson and Henry Ford II and if that is the case the nation itself is headed for bankruptcy. The only difference is that General Motors could count on Washington to bail it out. But who can bail out America?
Yes, we have elected a new Congress. And yes, in two years we might have a new President. But how much of a difference will it make? Not much. Consider that America has been in a state of decline for more than four decades. The nation’s multitude of problems — the war in Afghanistan, the energy and debt crisis, illegal immigration and spread of immorality — cannot be cured over the next few years.
My friends, the die is cast for America just as it was for all the great empires. Consider Spain. In the late 16th Century it was the most dominant power in the world. One hundred years later the plague, corruption and sweeping emigration had reduced Spain’s population from 8 million to 7 million. By then it hardly mattered who carried the crown once worn by the laudable Charles V.
A more contemporary example is England. After compiling huge debts and barely surviving the onslaught of Nazi Germany, did it much matter if Conservative candidate Winston Churchill or his opponent, Labour’s Clement Attlee, formed the Government that was elected in 1945? Of course it didn’t; not in the long run. And neither will it much matter who we elected last week or whom we elect two years from now.
Action To Take
It is important to note that when all empires collapse so, too, do their currencies. I believe the dollar is doomed and don’t see much hope for the euro either. Keep the bulk of your assets in physical gold with a sprinkling of silver and only a select group of natural resource stocks.
Yours for real wealth and good health,
Myers’ Energy and Gold
* Footnote: The origin of this quotation is The Washington Post, May 16, 1976, when Rogers Morton, an American public relations officer, told the newspaper: "I’m not going to rearrange the furniture on the deck of the Titanic."