Declining Empire, Banana Republic, or Failed State?

Not long ago, it would have been seen as something of a joke or the product of a warped mind to ponder whether the United States is a declining empire, a banana republic, a failed state -- or all three.

But these days, there are plenty of serious and intelligent commentators, including historians, ex-public servants, and journalists, who are not raving lunatics, but who are nonetheless disturbed by what they see taking place in this country.

Of course, the fact that the U.S. is on the road to ruin won't be news to those who have been regular visitors to Financial Armageddon and When Giants Fall or who have read my books, but for those who believe today's America is the same as it always was, the following excerpts will be a real eye opener:

"Niall Ferguson: U.S. Empire in Decline, on Collision Course with China" (Yahoo! Finance Tech Ticker interview by Aaron Task)

The U.S. is an empire in decline, according to Niall Ferguson, Harvard professor and author of The Ascent of Money.

"People have predicted the end of America in the past and been wrong," Ferguson concedes. "But let's face it: If you're trying to borrow $9 trillion to save your financial system...and already half your public debt held by foreigners, it's not really the conduct of rising empires, is it?"

Given its massive deficits and overseas military adventures, America today is similar to the Spanish Empire in the 17th century and Britain's in the 20th, he says. "Excessive debt is usually a predictor of subsequent trouble."

Putting a finer point on it, Ferguson says America today is comparable to Britain circa 1900: a dominant empire underestimating the rise of a new power. In Britain's case back then it was Germany; in America's case today, it's China.

"When China's economy is equal in size to that of the U.S., which could come as early as 2027...it means China becomes not only a major economic competitor - it's that already, it then becomes a diplomatic competitor and a military competitor," the history professor declares.

"America’s Banana Republic Economy" (Reuters Blogs post by James Pethokoukis)

Is the decline in the dollar merely a “return to normalcy” story, as many bulls contend, and not a harbinger of a coming currency crisis?

Short version: The 2008 financial crisis and ensuing collapse in confidence drove investors to dollars and dollar-based instruments. And as the crisis has ebbed, investors are rebalancing back toward riskier assets.

Thus the falling dollar should rightly be interpreted as a sign of “new economic optimism,” argues JPMorgan Chase economist Jim Glassman.

Then again, perhaps future economic historians will look back at this stage of the dollar’s decline as the currency calm before the storm. Because at some point, investors may suddenly realize that America’s already somewhat devalued currency should not be trusted.

As Senator Judd Gregg, a New Hampshire Republican and noted budget hawk, said recently, “We’re basically on the path to a banana-republic type of financial situation in this country … You can’t keep throwing debt on top of debt.”

"America the Banana Republic" (Vanity Fair commentary by Christopher Hitchens)

The ongoing financial meltdown is just the latest example of a disturbing trend that, to this adoptive American, threatens to put the Land of the Free and Home of the Brave on a par with Zimbabwe, Venezuela, and Equatorial Guinea.

In a statement on the huge state-sponsored salvage of private bankruptcy that was first proposed last September, a group of Republican lawmakers, employing one of the very rudest words in their party’s thesaurus, described the proposed rescue of the busted finance and discredited credit sectors as “socialistic.” There was a sort of half-truth to what they said. But they would have been very much nearer the mark—and rather more ironic and revealing at their own expense—if they had completed the sentence and described the actual situation as what it is: “socialism for the rich and free enterprise for the rest.”

I have heard arguments about whether it was Milton Friedman or Gore Vidal who first came up with this apt summary of a collusion between the overweening state and certain favored monopolistic concerns, whereby the profits can be privatized and the debts conveniently socialized, but another term for the same system would be “banana republic.”

What are the main principles of a banana republic? A very salient one might be that it has a paper currency which is an international laughingstock: a definition that would immediately qualify today’s United States of America. We may snicker at the thriller from Wasilla, who got her first passport only last year, yet millions of once well-traveled Americans are now forced to ask if they can afford even the simplest overseas trip when their folding money is apparently issued by the Boardwalk press of Atlantic City. But still, the chief principle of banana-ism is that of kleptocracy, whereby those in positions of influence use their time in office to maximize their own gains, always ensuring that any shortfall is made up by those unfortunates whose daily life involves earning money rather than making it. At all costs, therefore, the one principle that must not operate is the principle of accountability. In fact, if possible, even the similar-sounding term (deriving from the same root) of accountancy must be jettisoned as well. Just listen to Christopher Cox, chairman of the Securities and Exchange Commission, as he explained how the legal guardians of fair and honest play had made those principles go away. On September 26, he announced that “the last six months have made it abundantly clear that voluntary regulation does not work.” Now listen to how he enlarges on this somewhat lame statement. It seems to him on reflection that

“voluntary regulation” was fundamentally flawed from the beginning, because investment banks could opt in or out of supervision voluntarily. The fact that investment bank holding companies could withdraw from this voluntary supervision at their discretion diminished the perceived mandate of the program and weakened its effectiveness.

Yes, I think one might say that. Indeed, the “perceived mandate” of a parole program that allowed those enrolled in it to take off their ankle bracelets at any time they chose to leave the house might also have been open to the charge that it was self-contradictory and wired for its own self-destruction. But in banana-republicland, like Alice’s Wonderland, words tend to lose their meaning and to dissolve into the neutral, responsibility-free verbiage of a Cox.

And still, in so many words in the phrasing of the first bailout request to be placed before Congress, there appeared the brazen demand that, once passed, the “package” be subject to virtually no more Congressional supervision or oversight. This extraordinary proposal shows the utter contempt in which the deliberative bodies on Capitol Hill are held by the unelected and inscrutable financial panjandrums. But welcome to another aspect of banana-republicdom. In a banana republic, the members of the national legislature will be (a) largely for sale and (b) consulted only for ceremonial and rubber-stamp purposes some time after all the truly important decisions have already been made elsewhere.

I was very struck, as the liquefaction of a fantasy-based system proceeded, to read an observation by Professor Jeffrey A. Sonnenfeld, of the Yale School of Management. Referring to those who had demanded—successfully—to be indemnified by the customers and clients whose trust they had betrayed, the professor phrased it like this:

These are people who want to be rewarded as if they were entrepreneurs. But they aren’t. They didn’t have anything at risk.

That’s almost exactly right, except that they did have something at risk. What they put at risk, though, was other people’s money and other people’s property. How very agreeable it must be to sit at a table in a casino where nobody seems to lose, and to play with a big stack of chips furnished to you by other people, and to have the further assurance that, if anything should ever chance to go wrong, you yourself are guaranteed by the tax dollars of those whose money you are throwing about in the first place! It’s enough to make a cat laugh. These members of the “business community” are indeed not buccaneering and risk-taking innovators. They are instead, to quote my old friend Nicholas von Hoffman about another era, those who were standing around with tubas in their arms on the day it began to rain money. And then, when the rain of gold stopped and the wind changed, they were the only ones who didn’t feel the blast. Daniel Mudd and Richard Syron, the former bosses of Fannie Mae and Freddie Mac, have departed with $9.43 million in retirement benefits. I append no comment.

Another feature of a banana republic is the tendency for tribal and cultish elements to flourish at the expense of reason and good order. Did it not seem quite bizarre, as the first vote on the rescue of private greed by public money was being taken, that Congress should adjourn for a religious holiday—Rosh Hashanah—in a country where the majority of Jews are secular? What does this say, incidentally, about the separation of religion and government? And am I the only one who finds it distinctly weird to reflect that the last head of the Federal Reserve and the current head of the Treasury, Alan Greenspan and Hank “The Hammer” Paulson, should be respectively the votaries of the cults of Ayn Rand and Mary Baker Eddy, two of the battiest females ever to have infested the American scene? That Paulson should have gone down on one knee to Speaker Nancy Pelosi, as if prayer and beseechment might get the job done, strikes me as further evidence that sheer superstition and incantation have played their part in all this. Remember the scene at the end of Peter Pan, where the children are told that, if they don’t shout out aloud that they all believe in fairies, then Tinker Bell’s gonna fucking die? That’s what the fall of 2008 was like, and quite a fall it was, at that.

And before we leave the theme of falls and collapses, I hope you read the findings of the Department of Transportation and the Federal Highway Administration that followed the plunge of Interstate 35W in Minneapolis into the Mississippi River last August. Sixteen states, after inspecting their own bridges, were compelled to close some, lower the weight limits of others, and make emergency repairs. Of the nation’s 600,000 bridges, 12 percent were found to be structurally deficient. This is an almost perfect metaphor for Third World conditions: a money class fleeces the banking system while the very trunk of the national tree is permitted to rot and crash.

"U.S. Joins Ranks of Failed States" (Commentary by Syndicated Columnist Paul Craig Roberts)

The U.S. has every characteristic of a failed state.

The U.S. government's current operating budget is dependent on foreign financing and money creation.

Too politically weak to be able to advance its interests through diplomacy, the U.S. relies on terrorism and military aggression.

Costs are out of control, and priorities are skewed in the interest of rich organized interest groups at the expense of the vast majority of citizens. For example, war at all cost — which enriches the armaments industry, the officer corps and the financial firms that handle the war's financing — takes precedence over the needs of American citizens. There is no money to provide the uninsured with health care, but Pentagon officials have told the Defense Appropriations Subcommittee in the House that every gallon of gasoline delivered to U.S. troops in Afghanistan costs American taxpayers $400.

"It is a number that we were not aware of, and it is worrisome," said Rep. John Murtha, chairman of the subcommittee.

According to reports, the U.S. Marines in Afghanistan use 800,000 gallons of gasoline per day. At $400 per gallon, that comes to a $320,000,000 daily fuel bill for the Marines alone. Only a country totally out of control would squander resources in this way.

While the U.S. government squanders $400 per gallon of gasoline in order to kill women and children in Afghanistan, many millions of Americans have lost their jobs and their homes and are experiencing the kind of misery that is the daily life of poor Third World peoples. Americans are living in their cars and in public parks. America's cities, towns and states are suffering from the costs of economic dislocations and the reduction in tax revenues from the economy's decline. Yet, Obama has sent more troops to Afghanistan, a country halfway around the world that is not a threat to America.

It costs $750,000 per year for each soldier we have in Afghanistan. The soldiers, who are at risk of life and limb, are paid a pittance, but all of the privatized services to the military are rolling in excess profits. One of the great frauds perpetuated on the American people was the privatization of services that the U.S. military traditionally performed for itself. "Our" elected leaders could not resist any opportunity to create at taxpayers' expense private wealth that could be recycled to politicians in campaign contributions.

Republicans and Democrats on the take from the private insurance companies maintain that the U.S. cannot afford to provide Americans with health care and that cuts must be made even in Social Security and Medicare.
So how can the U.S. afford bankrupting wars, much less totally pointless wars that serve no American interest?

The enormous scale of foreign borrowing and money creation necessary to finance Washington's wars are sending the dollar to historic lows. The dollar has even experienced large declines relative to currencies of Third World countries such as Botswana and Brazil. The decline in the dollar's value reduces the purchasing power of Americans' already declining incomes.

...

The regulatory agencies have been corrupted by private interests. "Frontline" reports that Alan Greenspan, Robert Rubin and Larry Summers blocked Brooksley Born, the head of the Commodity Futures Trading Commission, from regulating derivatives. President Obama rewarded Larry Summers for his idiocy by appointing him director of the National Economic Council. What this means is that profits for Wall Street will continue to be leeched from the diminishing blood supply of the American economy.

An unmistakable sign of Third World despotism is a police force that sees the pubic as the enemy. Thanks to the federal government, our local police forces are now militarized and imbued with hostile attitudes toward the public. SWAT teams have proliferated, and even small towns now have police forces with the firepower of U.S. Special Forces.

...

In any failed state, the greatest threat to the population comes from the government and the police. That is certainly the situation today in the U.S.A. Americans have no greater enemy than their own government. Washington is controlled by interest groups that enrich themselves at the expense of the American people.

The 1 percent that comprise the superrich are laughing as they say, "Let them eat cake."

Comments

[Marion Shaw]

I have followed Panzer's blog for over a year and often comment. But today there
is something eerily circular about the information that keeps repeating the
same notions of desperation; failure; bankruptcy; denial; emerging police
states, astronimical debt, etc. This relatively new electronic venue is beginning to remind me of a church I once belonged to in Boston. It was decided
to create a Sunday School class for all the "intellectuals" and talkers who
voiced some Christian conscience at the evident collapse of the family in
Mass; the increase of homelessness once they closed the mental institutions;
etc. One day it dawned on me that the brains behind this class had succeeded
in giving expression to those who had no intention of actually doing anything
about anything but serving their own specific interests' but it gave relief to
talk about it. There is nothing like attending a dinner party with the wealthy
who spend a great deal of time discussing the plight of the hungry and homeless.They are not blogging.

[roger]

In the 50's you would have been investigated by
the house of un-American activity,your books would
have been unpublishable, you would have been
black listed, you would have found it impossible to
land a job,you would have lost all your friends and
the good Christians of that day would have given you
a one way ticket to hell. The number of good people
sacrificed on the Altar of conformity was considerable.
let's hope we never see those days again.

[Rocky]

We do not have a bastille, but 740 Park Avenue will do as a symbol of super rich decadence. Once the home of John D. Rockefeller Jr. and Marshall Field III, the famous co-op (opened in 1930 during the last depression) in recent years was (or is) the home of billionaires such as Stephen Schwartzman, Ronald Perlman, Henry Kravis and Steve Ross, not the sort of people "the" Mrs. Astor would have invited to her dinner parties. When the revolution comes, I can imagine the locals marching down from 125th St. or across the 59th St. Bridge from Queens.

[cinefoz]

I read about a half of your piece and then remembered human nature. You are describing a case of pure theory. People don't act that way. Yes, the financial excesses of the US are putting the empire in decline and the decline will continue. China, politically, is a mess and will likely remain a mess even if their economic system takes the lead. Remember, they are blowing asset balloons and building excess capacity today in order to ride out the rough waters. China is an economic disaster waiting to happen and it will happen in a few months. Rather than presume China will win with some kind of economic purity, I think you should consider this to be an eventual competition between two cripples who are tying to differentiate themselves by having different limps.

[nevket240]

Any nation that can idolise rubbish such as Big Brother and American Idiot. Treat as intellectuals Dr Phil & Oprah (lipsticked pig) Winfrey, cannot hope to survive let alone prosper.

vale 1776.
regards

[Johnny]

And you know what is more stupid in all this ?
Is that the the general public illiterate and ignorantosaurus KEEPS voting and voting and voting in them ! They have the legitimacy of the VOTE

I say RIGHT here that democracy is failing us and that not everyone should be allowed to vote

[Gregor Macdonald]

IIRC the classical notion of a banana republic is a Keynesian concept, and refers specifically to the phenomenon of a government monetizing its own operating budget, through straight printing.

[mistah charley, ph.d.]

The Wikipedia article on the term "banana republic" credits it to author O. Henry's 1904 book of linked short stories "based on Henry's 1896-97 stay in Honduras, while hiding from federal authorities for embezzlement in the United States."

[Nick Beckdub]

I like this article but I don't really like the unnecessary pot shot at Ayn Rand. The very creation of the inflationary Federal Reserve is antithetic to Randian principles. While Alan Greenspan might be her little protege or something, that doesn't mean he enacted her policies while he was chairman. Quite simply: he didn't. He blew up the biggest asset bubbles of all time (until now) by intervening in the market and rampantly inflating the economy through artificially-low interest rates. He started the viscious cycle, Bernake has just taken over and now Paulsen is his puppet, which is counterintuitive to the Fed's stated purpose. The treasury and the Fed should be autonomous organizations, completely separate.

Thanks for the writing, but if we were living under Randian principles, we would have sound currency--probably even competing currencies--market-dictated interest rates, and no Federal Reserve at all. Oh, and none of this 'derivative' crap either--which is just another bubble, blown up by the powers-that-be at the Federal Reserve. If all of this capital wasn't flowing through the market, people wouldn't have unknowingly thrown it at the psuedo-high-rated derivatives in the first place.

[not buying]

Paul Craig Roberts is an idiot
He makes some good points and them destroys them and more with his utter ignorance. He is the anti-glen beck (who is another idiot on the other side of the coin)
With guys like this spouting trash, its no wonder we will never think clearly enough to begin to solve any problems... If morons like this are what it has come to.... I say nuke the planet... Most humans are brain damaged beyond salvation and will not notice.

[Marc]

what is worrying is the state of hysteria Americans seem to be having. Pull yourselves together!
Lets state it correctly and without all the hyperbole and nonsense shall we?
YES the US Doillar is much weaker now than it was say ten years ago. But NO other currency can match it still- the Euro is recovering ALSO from the same crisis that hit the US; the Yen and the Pound are in no state to replace it; the Rubel is a joke; and the Chinese currency is not freely traded so cannot qualify and be used like the US curency- or in otherw ords- folks will be using the dollar for at least another five years or so....
YES- you have overspent seriously- but you will recover- this too will pass. You have faced massive 35 year recessions (look to the situation in the US economy about 100 years ago) and come back stronger.

The people should not be afraid of the goverment they should be afraid of the people. Listen to some of half informed bullshit they are coking out with (both left and right). So much of your nation only works becasue you have a cenral government and actually most of the world think you are nice people who try to do whats best by everyone.

You reached the zenith of your power on September 12th 2001- the day AFTER 9/11; everyone supported you, no one objected to you going after the Taliban. The loss of your 'power' was caused the moment you invaded Iraq. The biggest government overspend in your history was caused the day you invaded Iraq.
Things really started to go to hell for America the day you inavded Iraq.
Once you realise that, jail those responsible and move on, you will start feeling much better.

The annoying thing about this hysteric over reaction by the American peoples?
It means they see those Americans who oppose them as 'Socialists' or 'Red neks'- as opposed to what they really are- PATRIOTS who have differing opinions.

Time for Americans to find the strength of their founding fathers and stop being such whiney cry babies. Pull yourselves together. STOP saying its the end of the world! Find the issue- find consensus with OTHER Amercans and fix the problems.

Or will they keep NOT finding common ground and wondering why thing are not solved in a nation that CANNOT WORK unless there is consensus?

Just because you cannot face your responsibilities in solving your issues (aka you have to find common ground with those people who disagree with you) does not mean the human race is beyond salvation. It just means you are too lazy to make the effort.