Ming the Mechanic:
Empires of Debt

The NewsLog of Flemming Funch
 Empires of Debt2003-04-20 12:55
2 comments
picture by Flemming Funch

Excellent article from New York Times, The True Cost of Hegemony: Huge Debt. (Registration required).

It examines the strange picture of how the apparent U.S. power is paid for from borrowed funds. And a lot of the money comes from overseas. The U.S. government is now occupying Iraq, but optimistically has set aside hardly any money for reconstructing the country.
Can the United States provide the necessary cash, even in the form of private-sector money? The answer is yes — so long as foreign countries are willing to lend it to the United States. For the fact is that America is not only the world's biggest economy. It is also the world's biggest borrower. Its muscular military power is underwritten by foreign capital.

This is an unusual circumstance. In the prime of the European empires, when the British ran much of the Middle East, the dominant power was supposed to be a creditor, not a debtor, investing large chunks of its own savings in the economic development of its colonies. Hegemony also meant hegemoney. Britain, the world's banker before 1914, never had to worry about a run on the pound during its imperial heyday.

But today, as America overthrows "rogue regimes," first in Afghanistan and now in Iraq, it is the world's biggest debtor. This could make for a fragile Pax Americana if foreign investors decide to reduce their stakes in the American economy, possibly trading their dollars for the increasingly vigorous euro.
It is an unusual situation. When Britain was playing empire, it was able to do so because it also acted as a bank for the world, and it would invest a big chunk of its capital on overseas infrastructure. When the U.S. took part in the two world wars, and built up Europe with the Marshall Plan, it was all from a position of financial strength, where the U.S. actually had a surplus to take from. But now, since the time of Ronald Reagan, the United States economy is run to a large extent like that of a third world developing country, depending on foreign willingness to invest heavily into it, despite questionable returns.

The only example from the past of a great empire relying on foreign loads is Czarist Russia under Nicholas II. Looked good for while, but eventually it collapsed, from the costs of war, and it collapsed politically and turned into a communist country.



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2 comments

20 Apr 2003 @ 17:24 by shawa : Hope...
...more intelligent people understand America´s economic situation, and how they could help stop the advance of American fascist imperialism. Vaxen has posted things elsewhere in NCN about that.  


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