Empire ends with colossal deceit
By
Bill Bonner Dec 24, 2008
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There are many ways to tell the tale of the "Great Unwind". We told you it would never work, say the old leftists. The system is broke, say the politicians; we'll fix it. The press, meanwhile, is in full pursuit of desperadoes... Madoff... The City... the bankers and their henchmen.
The hacks don't do it justice. So we turn to Shakespeare for a more poetic view: "Let Rome in Tiber melt, and the wide arch of the ranged empire fall!" So said Marc Antony as he drew the Queen of the Nile into his embrace. This is another way to look at the crisis of 2008. First you notice that it is centred on just two countries: Britain and America. Not coincidentally, those two countries are the twin capitals of the world's only surviving empire, an empire built on industry and technology – but lately richly redecorated in an elaborate rococo style of modern debt and finance.
Beginning in the 19th century, factories in England and New England transformed the value of a working man. Instead of being equal to his counterpart in China or India – as he had been for a thousand years – he was suddenly superior; he could produce more. By the 21st century, the average day labourer in Britain and America earned ten to 20 times more than his counterpart in China or India. Of course, the English speakers had rivals. They were challenged by other Europeans... and the Japanese. All learned that the same machines that produced wealth could destroy it even faster. The Germans were particularly tenacious competitors. By 1910, their factory output was greater than that of the UK. But Britain and America ganged up against them. In a couple of costly wars in the first half of the 20th century, the Teuton threat was finally crushed.
By 1945, the Anglo-American empire had only one challenger still standing – the Union of Soviet Socialist Republics. Militarily, the USSR was a real menace. But commercially, it was no more than a comic footnote in economic history. At first, the weakness in the Soviet's system was not obvious, especially not to economists. The figures – put out by the USSR – showed rapid growth. But nobody flew to Moscow to buy the latest fashions nor bragged about Soviet autos. Nor did people hasten to open accounts in Russian banks or seek heart transplants in Soviet hospitals. The Soviets had managed to create a rare thing – a value-subtracting economy. They took valuable raw materials out of the ground and turned them into worthless finished products. Given a choice, no one would buy Soviet-made goods. The longer this went on, the poorer the Russians got. Finally, the whole system caved in – in 1989 – leaving the Anglo-Americans masters of earth, sky and the seven seas.
The years 1989-2007 were remarkably pleasing to almost everyone. Even former enemies rushed to stock the empire's shelves and lend it money. Overstretched, over-indebted and over-there, it had military bases all over the world. No swallow could fall anywhere in the world without it being captured and interrogated by the Pentagon or its proxies. Back in the homeland, the imperial race went a little mad. They spent too much money, distracted themselves with bread and circuses and flattered themselves with delusions of mediocrity. It seemed perfectly normal to them that they consumed while the foreigners produced and spent what the foreigners saved. The imperial youth studied gender sensitivity at school; rivals studied engineering. And as for the foreigners themselves, like gigolos complimenting an ageing heiress, they barely suppressed a snicker: "Your hair is beautiful," they remarked. "Have another sherry." And while the poor woman admired herself in the mirror, they rewrote her will.
Soon, competitors had more modern factories, more savings, better-trained workers and lower costs. Then the empire turned to a colossal conceit; that it could pay its way by financing things, rather than making them. Gradually, the Anglo-Americans developed a value-subtracting society too – financing, derivatising, borrowing, flipping, consuming – all at the expense of real production. Russians would recognise the symptoms. In both Britain and America, the leadership was largely delusional, industrial capacity was largely archaic and dysfunctional, and the working class was broke. Central banks encouraged the plebs to consume; the more they consumed, the poorer they got.
The old Bolsheviks would recognize the rot too. What the Romans called consuetude fraudium became business as usual. By 2006, practically every transaction was tainted with swindle. Banks sold packages of scammy debt composed of mortgage contracts on houses sold to people who couldn't afford them. These were fraudulently rated Triple A by the rating agencies based on quack formulae invented by Nobel-prizing-winning economists. This took place in a party atmosphere created by central bankers, who had put something in the water; they spiked the entire economy by under-pricing credit and then urged consumers to drink up, by buying SUVs (Fed governor Tier, 2002) and using sub-prime loans (Fed chairman Greenspan, 2005).
The Russians would recognise the next stage too. After the collapse, the ruins are liquidated, picked over, and parcelled out to the politically well-connected. But the Russkies had an advantage; their system had already accustomed them to poverty.
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