Hello, visitors from Digg, Reddit, StumbleUpon, and Slashdot. Summary in one paragraph: This is the leader of the Swedish Pirate Party explaining how the US went bankrupt in 1971, and has been covering it up through an accelerating whack-a-mole borrowing frenzy that is bursting right now. It has been paying rapidly growing VISA bills using MasterCard and vice versa for 37 years. The creditors are catching up, and the US is about to go extinct as a superpower. Become irrelevant. It is not yet on its death bed, it is still walking, breathing and capable of entertaining a conversation in public. But there are ominous bloodstains on its hands used to cover the painful coughing.
Last summer, I wrote (in Swedish) about how the US is in grave danger of becoming the Fourth Reich. I also said that such a state would not last for more than 15 years, because of a number of factors I would elaborate on later.
I was right about the sequence of events, but horribly off on the timing. Where I had expected them to happen gradually in about ten or 15 years, instead they are unfolding before my eyes at an accelerating pace.
Some people believe that pirate politics is somehow about the right to obtain music and movies without paying. Some, a bit more initiated, believe it is for fight for civil liberties. In that, they are correct. But few understand the scope of this fight. It is not against the music industry. It is not against entertainment cartels.
I see the pirate fight as being against corrupt governments that systematically curtail civil liberties as the primary and only defense of a gigantic and growing financial bubble, built over four decades. A fight against a small elite that are literally killing people to be able to keep living in luxury without paying the bills for it. Some bloggers have called this Fascism 2.0. The entertainment cartels are just a small part of this bubble, and fascism is used here in its most lexical sense.
fascism n. a merging of the interests of big corporations and government, adjoined with a systematic curtailment of civil liberties
In order to understand what pirate politics are really about, you need to understand global economic politics in ways that most people will never encounter. You need to understand the gold coin of Bretton-Woods, Toyota’s impact on Detroit, the strategic dollar advantage of the Marshall Plan, why the WTO and UN WIPO are rivals, how and why the US uses threats of trade sanctions, and how money is created and ceases to exist on today’s financial markets. I will cover the basics in this blog post.
The most prominent of these bubble-pumping governments is the US. And their bubble is bursting. The dollar is not just falling in exchange rate, as in “oh, the curves are on a downslope, interesting, btw I wonder what’s for lunch today”. The US dollars are about to become as irrelevant as the rubles, the deutschmarks, and the sesertii.
For these empires – the Soviet, German and Roman empire – followed the exact same pattern. And if history is a teacher, future empires will do so too.
Part I: Background
Some of you may have noticed that the dollar has lost some of its value against other currencies, the euro in particular. Usually, with a healthy currency, this would not be a cause for alarm, other that a sign that the American households might be overborrowing and overmortgaging, and thus increasing the money supply, causing the rate to fall due to supply/demand rules.
It is much more serious than that.
Let’s go back to 1947. The US did two extremely strategic moves at that point. One was called The Marshall Plan and looked like charity, giving money away to all of war-torn Europe, officially to help repel communism.
Three years prior, it had established the Bretton Woods system, which put the US Dollar at the center of rebuilding the countries, and guaranteed an exchange in gold for the US Dollar. Every 35 US Dollars would be exchangable and refundable with one ounce in gold.
I genuinely believe that these two deals were good for everybody involved. The ruined Europe got a foundation for rebuilding its nations.
But what the US accomplished was much more important than that: it succeeded in making its own currency into a world currency. The dollar became the trade standard.
This status is extremely important. In fact, it carries the entire US economy and its continuous overspending. Let’s stop for a moment to understand why.
Every nation has a currency reserve today. Savings in a piggy bank, if you like. This currency reserve was filled with the world’s most stable and standard currency, the dollar.
Let’s take that again: every nation has been buying dollars for the past 60 years just to stockpile it, because the US Dollar has been the standard currency.
And since they are buying the dollar, this means that the US is getting something else of value in return. In effect, the US has been able to print money at a rate that outpaces its industrial production, just because countries have been buying its currency.
At the end of 2007, this stockpile across the world was two and a half trillion dollars. More specifically, it was 2,445,180 million dollars.
What this means, is that unless the US has an equivalent on two and a half trillion dollars in cash on hand, which it absolutely doesn’t, the US has consumed goods and services for two and a half trillion dollars that are not yet paid for. The countries bought dollars in exchange for yen-or-whatever, the US bought shiny toys for the yen-or-whatever, and never gave it a second thought.
This is like going on a shopping spree and paying with checks, and having the luxury of the checks never arriving at the bank to charge the account.
But the checks for that two and a half trillion dollars haven’t vanished. They are sitting in vaults. And they are starting to trickle in to the bank. A barely noticeable dripping at first, it is now starting to turn into a small stream, and once people figure out what is happening, it’s going to be a burst dam torrenting down the valley of global finance.
How much is two and a half trillion dollars? Actually, it isn’t a lot of money in the global economy. It’s about $7,500 for every man, woman and child in the US. It is about four years’ worth of American military spending. It’s about one-quarter of the American GDP.
The key here, however, is not how much money it is. It is that there is no financial coverage for it. Spending $1,000 on a TV set isn’t a lot of money, but it can cause a lot of bad consequences for you and your standing if you don’t happen to have those $1,000, and no more creditors are willing to lend you a hand.
And the US is running out of new creditors fast.
Part II: The war bankrupted the US
I wrote previously, that under the Bretton-Woods agreement, the dollar was essentially an IOU. A loan paper, an obligation to the US. Every 35 dollars was good for one ounce of gold, to be paid at any time of the creditor’s choosing. However, the war tore through the American economy like a plough through a golf course. At the start of the war, the gold coverage was 55%, which is healthy by modern bank standards. During just 1970, however, that coverage dwindled from 55% to 22%.
Wait. 1970? Right. I’m not talking about Iraq. I’m talking about Vietnam.
At this point, economists no longer believed in the US’ capacity of regulating its expenditure and making good on its promises. International pressure mounted to exchange
d
ollars for the promised gold, particularly from France, which converted large amounts of its dollar currency reserves into gold at this time. It was a run on the bank to withdraw the savings while the bank was still alive.
On August 15, 1971, president Nixon declared bankruptcy. It wasn’t worded like that, of course. But what Nixon did was to state that the US would no longer honor its creditors and pay gold for the dollar. He declared the credit documents invalid. This event has been dubbed The Nixon Shock. In any other milieu, cancelling payments is the same as declaring bankruptcy. Here, it was “just an executive order”, and the world at large didn’t really appreciate its consequences.
One such consequence was that the US was free to print as much money as anyone was willing to buy, inflating the bubble without any check, balance, or irritating warning light.
At the end of 1995, the foreign US Dollar stockpile was 610,337 million dollars. As I wrote earlier, today that number has grown to 2,445,180 million. That’s close to two trillion in 13 years. A fourfolding of the debt. A 300% increase. Who is buying all of these dollars?
Asian countries, it turns out. A small handful of countries have been derogatorily called ODIC – Organization of Dollar Importing Countries.
The U.S. trade deficit was 763.6 billion dollars in 2006. This means that the United States bought goods and services for three-quarters of a trillion more than it was able to sell to other countries. Where did the US get three-quarters of a trillion dollars to fund this trade deficit in 2006? And an equal amount in 2007? And 2005?
You should start to get the answer by now. It didn’t. Part of it came for printing money for foreign cash reserves, predominantly Asian ones. In any case, the US spent that money anyway.
To put this in context, in a list of global trade balances for 164 countries, the US is at the bottom of the list. The worst of all measured countries.
Not only that, but the silver medal goes to a country with a trade deficit of 125 billion dollars. That means that the US’ trade deficit is six times larger than the second worst! We’re not talking about a goal photo here to determine who’s the worst offender, folks, we’re talking about piles of money that are burning so big and fast you can see the smoke from weather satellites!
The US is running a federal budget deficit as well, with a current official debt running over nine trillion dollars and increasing fast.
Part III: Compensating by enforcing lopsided trade terms
Towards the end of the 1970s, economists in the US administration panicked. The Japanese cars, which flooded the market, struck at the heart of the American pride.
Foreign cars were better than American cars from proud Detroit. This just could not happen. Toy-o-ta. Even the name didn’t sound very American. And yet, people in America were rejecting the pinnacle of American engineering – cars – for a foreign-produced equivalent.
So the administration concluded quite simply that American’s dominance in industrial production was over. Far from throwing in the towel, another question was asked: “How can the US have a continued economic dominance in a world where the US does not have an industrial production of tradeable value?”
The answer came from an unexpected source.
Some time in the early 1980s, the then-CEO of Pfizer, Edmund Pratt, was frustrated with competition from foreign companies that (quite legally) copied and improved Pfizer’s products. At the point, however, there was no way to change foreign laws to create a trade environment where such competition would be outlawed.
To cut a long story short, Pratt ended up on the ACTN – the Advisory Committee on Trade Negotiations – and recommended a plan to the Department of Commerce that would guarantee American trade superiority.
In short, it involved a two-pronged approach. The first part of it was to enforce trade laws that favored American interests, and then establishing “free trade” within that framework, set up to favor US interests. The second part was to threaten trade sanctions against countries that did not agree to this lopsided “free trade” agreement.
At first this was believed a risky business, since trade sanctions had never been used as part of a systematic policy before, but only used in exceptional cases. However, the strategy – focused on intellectual “property”, i.e. mostly-American monopolies – turned out to work extremely well.
A forum was sought to establish the new American trade terms as a world standard. Pratt and ACTN went to WIPO, the UN-controlled World Intellectual Property Organization, to seek their blessing. They were basically thrown out on their faces, when the UN realized what they were trying to accomplish.
So hijacking another vessel became necessary. That vessel was the GATT, General Agreement on Tariffs and Trade.
Using a combination of unilateral threats, bilateral agreements of “free” lopsided trade, and multilateral agreements once enough countries had agreed to the terms, an all-encompassing and lopsided trade agreement was devised. It would prohibit third world countries from manufacturing medicine to save lives in their own population. It would make sure that established players, primarily in the US, could outmaneouver upstarts not by building better products, but through the legal framework. The companies in the agreement, such as the record industry, are now lobbying for warrantless searches of people’s mail and homes to find out when their monopolies are infringed.
Using a combination of deceit and tricky negotiations, the agreement was signed by many enough countries. That agreement is called TRIPs. The vessel enforcing it is GATT, which was renamed World Trade Organization, or WTO.
And that is how America came to enforce its monopolies over civil liberties of the people in the US and elsewhere. The key takeaways here is that America deliberately skewed international trade through a combination of threats and coercion, in an attempt to irrelevantize the fact that American industry didn’t produce anything sellable.
With the US now having a record trade deficit, the strategy has ultimately failed.
(The full background to the TRIPs agreement can be found in the book Information Feudalism. A very worthwhile, although very heavy, read.)
Part IV: Understanding the monetary system
Most people, I would say it’s so “most” it can be approximated to “all”, do not know where money comes from. How does a dollar appear? If there is $1,000,000,000 in the total economy, who makes the decision to change that number to $1,000,000,100?
Most people would answer “the government” or “the central bank”. This is wrong.
The correct answer is: you do. When you borrow a hundred dollars, those hundred dollars appear magically in the economy. They did not exist before and will not exist after they have been repaid.
The monetary system works like this, somewhat simplified: a bank must have a certain fraction of its outstanding loans as savings accounts. If that fraction is 1/9 (a common number), and you deposit $1,000 in a bank, that bank has the right to lend $9,000 to other people, at a higher interest.
UPDATE II: the above paragraph has received a lot of comments on various forums. To clarify: I simplified it a bit to not go into too much detail. In the full somewhat more complex picture, the $1,000-becomes-another-$9,000 involves a cascade of deposits in different banks, multiplying the original limit. The first bank c
an only lend $900 for the $1,000 of deposit, but those $900 becomes a deposit somewhere else, generating another $810 in debt and magical new money, which becomes a deposit in turn, etc, and that’s how $1,000 of deposit generates another $9,000 of magical new shiny money in the economy. If you’re interested, I reiterate – take 45 minutes to watch the Money As Debt animation.
This is called the Fractional Reserve banking system. It is now doing its third tour of the United States, introduced by President Wilson in 1913. Before that, Andrew Jackson killed the second tour in 1836.
Lately, through lobbying and obscurity, the fractional reserve requirement has all but disappeared. Banks can now practically create as much money as you want to borrow.
In short, while Andrew Jackson was able to remove the central bank, he wasn’t able to eliminate unsound fractional reserve banking. When one such unsound bank in Massachusetts collapsed, it was discovered that its bank note circulation of $500,000 was backed by exactly $86.48. Why is this obvious absurdity, and the banks’ protection from criminal prosecution if they suspended payments, not called into question?
This has a number of interesting consequences. From a monetary perspective, it means that if the interest rate is 4%, then 4% of all credit will default, as that money must be used to pay interest on the remaining money pool. Since every dollar in the system is borrowed, every dollar is also owed interest on. Every single one. Where would the money come from to pay that interest? The answer is that it doesn’t. The system is designed so that a certain percentage of people must go bankrupt.
Europe has had a similar system since the 1600s. If you’re interested in more about this, I would very much recommend the 47-minute movie Money As Debt.
But the most important aspect is that the money supply is tightly tied to household borrowing. If people were frugal and economical, and everybody paid off all their debts, there would not any money left in the economy! There would be a shortage of money, meaning that there would not be any money to pay wages, rents, or creating new businesses.
On the other side, the more people borrow (particularly using house mortgages), the richer everybody feels because it increases the money supply, without increasing actual value of goods, commodities and services.
In 2006, this household debt was $45 trillion, compared to $5 trillion in 1969. The money supply has been expanded ninefold.
This is significant because a collapse of the credit system means a collapse of the money supply, and therefore create a society where nobody will have any money.
You can see where I’m going with this with the recent subprime mortgage market collapse, which is now snowballing.
Oh, and you’ve heard about the crash of 1929? The crash which everybody talked about as the worst in history? That crash saw a mere 27% reduction in the money supply. Compare this with the fact that if the US is forced into going back to a pre-1971, pre-bubble economy, we’ll see an 89% reduction in the money supply.
To be absolutely clear: These numbers mean that in a worst case scenario, every working citizen in the US is about to receive an 89% pay cut on average. The best case scenario is hard to predict but I’m betting my money that the money supply will reduce a good bit more than the 27% of 1929.
The United States is heading for something that will make 1929 look like just an ordinarily disturbing day with some red numbers. And its fall will affect the rest of the Western world, as well.
Part V: The fall of the dollar and of the US
Like I wrote previously, the US’ money printing machine is dependent on the dollar being the world standard currency. It was so by legacy even after the collapse of Bretton-Woods in 1971. No other economy was large enough to back another currency. There was no competition for a world standard.
Until 1999.
Since a few years back, the European Union has a larger economy than the United States. This is according to three different sources, all American: CIA, the World Bank, and the International Monetary Fund.
Let’s take that again, because it is a shock to many: The European Union has a larger economy than the United States. A larger economy with which to back its currency, the euro. Reuters reported this the other day, but incorrectly attributed it to the decline of the dollar. It has been true since at least 2005.
When the euro debuted in 1999, it was introduced at just above the US dollar, but quickly fell to about .89, lower than the dollar. Today, it is trading at 1.55 dollars per euro. Two euros is more than three dollars.
To put fuel to the fire, the American Federal Reserve is expected to cut interest rates on the dollar from 2.25% to 1% by mid-2008. In contrast, the European Central Bank has been holding interest steady at 4%.
What do the central banks’ interest rates have to do with this?
When keeping a national reserve, choosing between the dollar and euro here is like having a choice of two different banks with different interest rates. Everything else being equal, anybody rational would choose the euro as savings account, because it gives a better interest rate. But as I have already said, everything else is not equal. The dollar is losing value quickly, too.
Many empires have overspent on their military using borrowed money, and collapsed as a result. This was a major reason for the fall of the Soviet Union, for instance. It is generally agreed that the macroeconomically sustainable limit for military spending hovers around 2% of GDP.
The US is currently spending 5% of its GDP on its military. It tops the league of military spenders with an expenditure of 625 billion dollars yearly. (That’s before emergency expenditures for the ongoing war.) To hide the real numbers, only $515B are allocated to the Pentagon openly. You need to dig deeper to discover that the funds for building and maintaining the expensive nuclear arsenal lies with the Department of Energy. The funds for funding and training insurgents across the world lies with the Secretary of State. And so on.
To put this number in perspective, the world’s second largest spender – China – spends $60 billion. About one-tenth. The total world military spending is $1.1 trillion. This means the US spends more on its military than the rest of the world combined.
The same U.S. military is also used to enforce the dollar bubble.
Like I said earlier, the dominance of the US depends on the dollar being a standard currency. But with Bretton-Woods gone, the dollar’s status as a world standard instead depends on many other things.
One of these things is oil trade.
Oil is currently – mostly – traded in dollars per barrel, which creates a defacto dollar-based economy. A few years back, one prominent oil producer switched to trading in euros per barrel.
This threatened the entire stability of the dollar as a world currency, and by extension, the US’ economic bubble. After some chaos and turmoil involving the bubble-funded US military, that particular country is now exporting oil by the dollar again, thus once again contributing to the dollar bubble.
That country was Iraq.
(The interpretation that the US administration invaded to protect its currency bubble is mine and mine alone. But in this light of things, it would have made
perfect sense to do so. The alternative to spending trillions on the war would have been risking a collapse of the entire economy, one that now seems inevitable anyway. When I have checked this hypothesis with Americans, though, they generally brush it off, saying that I vastly overestimate the intelligence of the current president.)
Today, Venezuela is trading in euros per barrel, and Iran has announced plans to open a euro-based oil bourse in Teheran. (Yes, the same Iran that the Republican candidate McCain is now singing about bombing.)
In international trade, more and more agreements are being signed in euros where anything else than dollars would have been unthinkable a few years back. In New York, tourist shops are now brandishing “we accept euro” signs – equally unthinkable a few years back. In Amsterdam, most exchange offices have stopped accepting dollars for currency altogether. It is falling so fast, they can’t resell it for profit any longer.
In China, exporters are complaining about the cost of currency insurance on trade deals signed in dollars, and are switching to the euro. In Germany, Volkswagen is not selling one of its top models to the US solely due to the falling dollar. In Tchad in Africa, people on the streets have switched to the euro.
The thing that happens when we reach a critical tipping point – which may already be here – and currency reserves start switching from the dollar to the euro en masse, is that the collection agencies of the world’s economy will come for two and a half trillion dollars of US debt, which is currently held in stasis in currency reserves.
There is nothing that can pay these two and a half trillion dollars of debt when the repo man comes knocking.
That tipping point will kill the dollar as a currency, sending it plummeting to levels previously inconceivable. It will kill the dollar as a world trade standard, the American economy, the American military, and the United States’ status as a superpower. Just like when the Soviet union collapsed. It is even conceivable that the United States will fracture as a nation, just like the Soviet Union did.
But unlike the Soviet Union, the American public will be hit hard. In the Soviet Union, not much changed when the government-owned homes weren’t paid for. They hadn’t been before either. Not much changed when the food supplies were formally not coming, for they had not come before either. People had learned to live with a malfunctioning system. In the US, however, a lot of people will lose their homes and might not be able to get food. This is not a recipe for a happy society.
One prominent US economics professor recommends immediate investments in precious metals: “gold, silver, and copper-jacketed lead”.
This difference in functionality of society before and after a collapse is called the collapse gap. And it’s much larger in the US than what it was in the Soviet Union, Germany, or Rome.
Final words
This is what the pirate fight is about, in my eyes. Preventing fascism from spreading amongst corrupt administrations; defending civilization against the systematic curtailment of civil liberties in order to maintain a false image of prosperity and enrichen a self-serving elite. You could even say “defending democracy”. The file sharing debate is but the symbol, but a very powerful symbol. Like the insignificant Belgian village of Waterloo, or the small overlooked Pennsylvanian town named Gettysburg. They, too, were important battlegrounds.
The US is already lost. I can think of no action that would prevent its downfall. My fight is for Europe, which has copied every US “intellectual property” policy in what can only be described as cargo cult economics, and risks a similar fate.
UPDATE I at Mar-22 17:23 CET – added links to Amsterdam story, Orlov’s Collapse Gap, Information Feudalism
UPDATE II at Mar-23 11:30 CET – fixed some typos, added clarification on federal reserve requirement
(Blog tags in Swedish:)
Pingat på Intressant. Andra bloggar om politik, piratpartiet, WTO, Trips, GATT, dollar, fascism 2.0, fildelning, integritet
Please do not taint the pirate fight with your pseudo-conspiratorial wacko economics theories about the U.S. dollar. Whether I agree with you or not is irrelevant; this has almost nothing to do with pirate politics, except tangentially. This sort of thing smears the pirate movement with a “crazy wacko” brush which we do not deserve or need. Stay on topic.
I cannot for my life understand how you consider the emergence and justification of WTO and TRIPs – which is THE framework used to justify and expand intellectual property law – irrelevant to pirate politics?
Since we Americans can’t control our appetites, nor our government, perhaps it’s good that our economic system is collapsing.
For when people are driven out of their homes and living hand to mouth, they will finally realize what in the hell their government has been doing in their name.
Once the dollar is worth about the same as a peso, we will no longer be the self-apppointed rulers of the world that love to get their kicks and natural resources by invading other countries.
Now, think i’l go to my bank and see if i can’t borrow several million dollars, using the goverment’s line of BS, that the loan is backed by my “full faith and credit.”
Should be no problem, right?
Exactly HOW does “the collection agencies of the world’s economy will come for two and a half trillion dollars of US debt” happen? If the countries holding dollar reserves want to “collect”, don’t they have to trade them for U.S. goods and services like everyone else? I can see how this may lead to inflation and/or devaluation of the dollar, but am I missing other consequences (e.g. national “bankruptcy”)?
Could you clarify what you mean by this?
Rick: Yes, exactly – I was speaking metaphorically when I spoke about the world economy’s repo man.
A further devaluation of the dollar will accelerate the current desire to sell from the big holders, which will put more dollars on the open market, etc. An oversupply of two and a half trillion dollars cannot be absorbed by anywhere near normal demand.
So you’re right on the money – I’m talking about an oversupply of dollars on the market leading to a catastrophic devaluation.
Is the majority of dollar reserves distributed among tens of thousands of investors, or among a handful of foreign countries? If the latter, isn’t it to their advantage to NOT have a run on dollars? Wouldn’t self-interest and the relatively small number of investors prevent the kind of run that happened in 1929?
Also, I must ask – where did you American guys find this story? I can’t see it on any major outlet yet.
Rick: True, to an extent. European countries are exercising caution when it comes to selling off dollars, as to not cause a devaluation of the stock already on hand. They calculate very carefully how much the market can absorb.
But all countries are not as predictable.
Comment on last: Actually, I think I confused that one with gold, sorry, I responded too quickly. European banks are regulating the gold selloff rate.
I probably found it while browsing reddit. (Not the front page).
It’s up on reddit.
If a large part of the debts in USA are defaulted or paid back there will be a reduction of the supply of USD (as you pointed out). But this wont lead to the dollar falling, instead it will lead to deflation (google debt deflation). So what happens to the dollar doesn’t seem very certain.
Is the total supply of USD really equal to the debts? Do you have any source for this?
malavel: it’s been that way (that the total money supply is equal to the debt) since Woodrow Wilson signed the Federal Reserve Act. See the movie Money As Debt (linked).
The other way for the world to deal with a devalued dollar is to trade them for tangible assets inside the USA. With the dollar so weak it will be a bargain to buy real estate, service-oriented businesses, or intellectual property companies such as pharmaceuticals and recording companies.
This will lead to the USA being beaten with its own stick. As the economy does recover, Americans will find themselves paying rents and royalties to people outside the country. Oppressive intellectual property laws will mean the foreign companies owning this this formerly American “property” can dictate terms; American politicians will be the ones wanting to join the Pirate Party.
Let me ask you a simple question:
If you believe that the US fostered war to maintain their standard (I do), destroys governments that oppose its will (I do), and creates disparity so that it might profit (I do)…
What do you think will protect you from us? You have this fantasy that the US is a massive, rabid animal, set to furiously chew on its own legs in an effort to break free from its chains. You are manic with the thrill of watching it do so.
The dog is not on a chain. And it is looking directly at you. And it is very, very hungry.
Americans are people. People are shit. But you did write a fascinating article, and I only ask that if what you say DOES come to pass through competency of your leaders, you give me a nice rate on my home when you buy it out from underneath me.
Thanks, sire!
Geoff
(read this from stumbleupon)
Låter ungefär som det här:
http://www.kristianstadsbladet.se/article/20080131/KULTUR/642208117/1012
Klart det har med piratfighten att göra.
The problem isn’t that the US is going to default on its debts, mathematically speaking. Foreign governments hold large amounts of dollars, and also large amounts of US treasury bonds (debt).
The US can’t pay the interest on those bonds without printing a whole lot of money,in the process devaluing the dollar. The motivation for foreigners is then to sell off those dollars before they become worthless.
Rick pointed out that they can’t start selling massive amounts reserves without devaluing them. That’s the only reason that a hyper-inflationary collapse hasn’t already occurred.
But you know what? China holds about $500 Billion in US dollars. That’s our annual military budget. They could completely destroy our economy, effectively winning a war against us, for that amount. Doesn’t seem so bad a deal for them, does it?
The Great Depression was a deflationary collapse; people defaulted on debt, and it became worthless. But people can’t print money. The government can. So when it defaults on its debt, it prints its way out, leading to hyper-inflation.
I enjoyed your blog and your passion for the subject, although I disagree with you that the u.s. dollar is en route for an imminent collapse.
Yes, the usd has depreciated against many currencies of late. This will come with reduced buying power for the u.s., and domestic consumers will see some inflation in the months and years ahead.
But the U.S. still has the largest economy in the world of any single country; yes, it has significant debt, but it has for some time and I believe their debt to GDP ratio is as high as its been at other times in the country’s history.
This reduction in the dollar’s is going to hurt the U.S. inflation wise, but it will help make U.S. exports more affordable, which in turn will help domestic jobs. Increasing exports and possibly reducing imports may help their trade imbalances in 2008 and beyond.
The u.s. dollar has its challenges, but many countries who hold u.s. reserves, and who trade with the u.s., do not want to see its collapse, and will do what they can to avoid it.
Your explanation of Fractional Reserve Banking is incorrect. If the Reserve Ratio, set by the Central Bank, is, say 10%, then for every $10 dollars deposited, the bank can lend out $9, not $90 as your example asserts.
After lending out $9, the bank is left with $1 on reserve, which is 10% of the total depsosits, corresponding to the Central Banks Required Reserve Ratio.
But the bank cannot lend out more than it has on deposit, as you state.
Wikipedia has good explanation of it, along with a chart showing the resulting Money Multiplier effect:
http://en.wikipedia.org/wiki/Fractional-reserve_banking
Wow…
An excellent article.
How is this for prescient, this art was created in 2004… and here you are tying in copyright to facism!
http://wulfius-khan.deviantart.com/art/Copywrong-fascism-7141285?offset=10
You might want to add StumbleUpon to your first line.
Nice article.
Byron:
you’re right. Like I noted briefly, my explanation is extremely simplified.
However, if I’m to elaborate a bit, a deposited $1000 will generate close to $10,000 using the multiplier effect you talk of. While different banks have to be involved, since the bank system is a closed loop, it doesn’t make a lot of difference.
Very well done. I had the pieces to figure this out but I couldn’t put it all together until now. Also thanks for all the links to your sources. I am much wiser now.
@Byron:
No, he has it right. You are right too, but you didn’t carry it through to the end. If you deposit $10 then a bank can lend out $9 (not $90), as you say, but that $9 gets deposited somewhere (e.g., the bank account of the store), and now that bank can lend out $8.10 on that $9, which gets deposited at some bank, who gets to lend out $7.29 on it, an so on. Once you sum up all the money lent, it totals $90, all based on the original seed $10. The rest of the “deposits” are not inputs to the system, but rather debt created within it.
2007 Public debt as % of GDP
(via https://www.cia.gov/library/publications/the-world-factbook/rankorder/2186rank.html):
United States 36.8% (ranked 65th)
Sweden 41.9% (ranked 52nd)
This is my first time to read something about your blog and probably my last.
The topic is way off the scope of this blog and you seem very biased.
Anon: I have not talked about the US federal debt in this article other than mentioned it being over nine trillion.
The keys of my argument relate to foreign currency reserves, lack of industrial production, military overspending, trade deficits and – most importantly – the weakening credibility of the dollar.
Federal debt can be controlled as you have a creditor and an agreement. Foreign currency reserves and foreign trade cannot, other than through military coercion.
Anon: excuse me, but I am quite certain it is my prerogative to decide what the scope of my blog is.
As for whether I’m biased, I guess that depends on your previous point of view. I like to think of myself as rational, and I have presented numbers and sources above what I usually do.
Jag delar också åsikten om att en stor anledning till USAs invasion av Irak var att man började sälja oljan i Euro. Jag har skrivit lite om det här:
http://jakopdalunde.wordpress.com/2007/03/21/usa-och-oljedollar-irak-och-euron-del-1/
Poorly written, rambling narrative, faulty logic, incorrect definition of fascism.
Anon: As for my writing style, I’m not going to ask for feedback – however, if you can point out flaws in my logic, I’m more than happy to hear them.
As for the definition of fascism, there are many, partly conflicting ones. I am using a definition I have found most people agree on. Regardless, it is the trend that is important, not its label.
Jakop: I believe a lunch is long overdue. If you have connected the dots in the same way, we should definitely talk.
I am an American. As far as I can tell, everything you have written here is accurate.
As to your assertion that the Iraq invasion was occasioned by the Iraqi move to the euro in the oil bourse: while it is true that George W. Bush is a stupid man, his handlers are not stupid men (in the ways of Machiavelli, that is). I have heard the suggestion somewhere previously that the Iraqi euro move might be part of the reason for the invasion. I do not find it unreasonable: the fascists in the White House do not tell us their true reasons for what they do.
When I was much younger I found the vast US military to be a comfort. But that was in the old days, when the US was still against fascism. Now I fear our own power more than anyone else’s.
I honestly cannot understand why people believe the world functions like a chalkboard.
Has nobody heard of the continental currency that developed precisely because of this sort of abuse?
Or of New York’s Ithaca Hours?
What we need is functional currency.
The BIGGEST TRAGEDY of the great depression was the fact ABLE MEN AND WOMEN could not trade their skills for EACH OTHER’S NEEDS.
Honestly, there should have been marches led by veterans into the unpopulated areas. Many farming communities survived and thrived during that time.
The survival of citizen journalism and activism depends on the ability to acquire and to provide the necessary services and materials.
We need to start a trilateral currency where CPU cycles, Gigabytes, and Gigabytes per month are traded with each other and for the necessary equipment to do journalism and activism and even burgers or at least some random piece of land on which to pitch a tent and wave magnets really fast to send a satellite signal.
The American here again:
Rick, I think your definition of fascism is good enough. Here’s the one I use: fascism = absolute monarchy + corporations + modern propaganda. Really fascism is just old-fashioned feudal monarchy with a fresh coat of paint, since by the 20th century nobody wanted to be the property of a king, his nobles, and the church. Nowadays, fascism is also discredited, so it now must wear new masks: “free trade,” “intellectual property,” “security,” “patriotism,” and so on.
Here in America, it has somehow become unpatriotic to desire real liberty.
Pirate Dude said…
“…wacko economics theories about the U.S. dollar”
Certainly the idea must be wacko if you don’t understand it, or can’t be bothered to do a little research to see if it has any merit.
America should never have left the gold standard, however, I believe this has to happen in order to usher in a One-World government, with one-world currency. The devaluation of the dollar and the rising power of the Euro is part of the larger move towards a world-wide dictatorship led by the anti-christ. Bible believing Christians are totally NOT surprised at this turn of events as it all lines up with Bible prophecies regarding the endtimes.
Check out Robert Newman’s History of Oil. It deals with the same topics as Rick Falkvinge’s article.
http://video.google.com/videoplay?docid=-8957268309327954402&q=robert+newman&total=671&start=0&num=10&so=0&type=search&plindex=0
I have done my own tesearch on this topic and happen to agree with this posting and everyone that reads it should wake up to the fact that my country is on the down hil sliperry slope. The USA is no longer a great power in the world. It is rapidly turning to Fascism to control it’s people that is the only way that big business can remain in power!
I am curious- where does the value of actual goods and services, intellect, military might, political change, big business knowhow play in this supposed downfall?
Are we to assume that all American people provide no value to society (or the world it seems) other than the ability to borrow money? That Manhattan property values will plummet (never happened historically) or that billion dollar stealth bombers will sit and rot in a forgotten deserted airbase? Or that the next Star Wars movie will only be made in Swedish? I guess I don’t think America will be falling off the map anytime soon.
Besides, a system/govt/economic crash (or collapse) isn’t the worst thing that can happen to any society, especially a modern one with the ability to go back to work the day after tragedies like 9-11. Germany, Japan, etc… are examples of where collapse, while devastating initiallly, was more than survivable, but indeed beneficial. And those countries were severely lacking global friends and influence, which is not the case of America, contrary to popular belief. Not to mention an undamaged infastructure and information technology that surpasses anything in history.
People aren’t going to run crazy in the streets like some fantasy Y2K scenario. We have some of the brightest people in the world within the borders of this nation, some of which would love the opportunity to start over and create a whole new system that actually won’t financially destroy itself.
Maybe this is the best thing that could have happened to us.
Everybody shows up to pick away at a good hypothesis… Vultures, the lot of them. Proof you’ve written something good if people get pissed off, I say. Kudos!
If I may add on:
The repo man: Great metaphor; when you buy more than you can afford, he comes to take your shit. Your TVs and couches and stereos, your wireless home computer system, your gas guzzling v8 engine with the truck still wrapped around it, and if you’ve screwed the pooch badly enough, your house too.
Well, we’ve screwed the pooch, well enough to have our house repossessed. What does that mean in real time American economical terms? Our land. They’re going to come for our land. And we’ll have a hard time justifying any defense of it with weapons our conquestors paid for in full. If China comes knocking, and they want a piece of California, we’ll have to give it to them. Hell, we owe it to them.
Our land and intellectual property rights are all we have left to barter with, the only solid things left, and they’ll be the first to go. A number of companies are already here, Toyota is a prime example. Soon, some of these same countries that we’ve outsourced our labor force to will be sending their upper echelon corporate executives to run the whole show over here. America won’t collapse… It will close for renovation, like a badly managed restaurant, and then reopen with a new name.
The United States of China.
I look forward to an marked improvement in the quality of Chinese food around here.
That is all.
Here I am, the goldsmith; a craftsman working with silver and gold, making jewelry and ornaments, who is about to start a monetary system:
I suggest you obtain the number of coins you require from me. There will be no limit, except for your ability to repay. The more you obtain, the more you must repay in one year’s time.
And how will I, the goldsmith, benefit from this?
Since I am providing a service, that is, the money supply, I am entitled to payment for my work. Let us say that for every 100 coins you obtain, you repay me 105 for every year that you owe the debt. The 5 coins will be my charge, and I shall call this charge interest, which is thus 5 percent.
At the end of the year, for all the people who owe me money it’s time to pay up. Some have more than they borrowed, but this means that others have less, since there were only a certain number of coins issued in the first place. Those who had more than they borrowed paid back each 100 plus the extra 5, but had to borrow again to carry on.
The others discover for the first time that they have a financial debt. Before I would lend them more money, I take a mortgage over some of their assets, and everyone goes on once more to try and get those extra 5 coins which seem so hard to find.
No one realised that as a whole, the country can never get out of debt until all the coins are repaid, but even then, there are those extra 5 on each 100 which have never been lent out at all. No one but me, the goldsmith, can see that it is impossible to pay the interest – the extra money has never been issued, therefore someone has to miss out.
It is true that I spent some coins, but I couldn’t possibly spend anything like 5% of the total economy on myself. There were thousands of people and I am alone. Besides, I am still making a living as a goldsmith.
At the back of my shop I have a strongroom and people find it convenient to leave some of their coins with me for safekeeping. I charge a small fee depending on the amount of money, and the time it is left with me, and I give the owner receipts for the deposit.
When a person went shopping, he did not normally carry a lot of coins. He would give the shopkeeper one of the receipts to the value of the goods he wanted to buy.
Shopkeepers recognise the receipt as being genuine and accept it with the idea of taking it to me and collecting the appropriate amount in coins. The receipts passed from hand to hand instead of the coins itself being transferred. The people have great faith in the receipts – they accept them as being as good as coins.
Before long, I noticed that it was quite unusual for anyone to actually call for their coins.
So I thought to myself, here I am in possession of all these coins and I am still a hard working craftsman. It doesn’t make sense. There are dozens of people who would be glad to pay me interest for the use of these coins which are lying here and are rarely called for.
It is true, the coins are not mine – but it is in my possession, which is all that matters. I hardly need to make any new coins at all, I can use some of the coins stored in the strongroom.
At first I was cautious, of course, only loaning a few at a time, and then only on tremendous security. But gradually I became bolder, and larger amounts are loaned.
People now accept the receipts as being as good as the coins themselves, and many receipts are deposited for safe keeping in the same way as coins. When a merchant wishes to pay another for goods, he simply writes a short note instructing me to transfer money from his account to that of the other merchant. It takes me only a few moments to adjust the figures.
This new system became very popular, and I named the instruction notes “checks”.
The notes are much easier to carry and they soon become accepted by the people. Despite their popularity however, these checks (notes) and coins are used for only 10% of transactions. The records show that the check system accounts for 90% of all business.
Until now, people were paying me to guard their money. In order to attract more money into the vault, I offer to pay depositors 3% interest on their money.
Most people believe that I will be re-lending their money out to borrowers at 5%, and my profit would be the 2% difference. So, for the people, getting 3% is far better than paying to have the money guarded.
The volume of savings grew and with the additional money in the vaults, I am able to lend 200, 300, 400 sometimes up to 900 in notes for every 100 in notes and coins that I hold in deposit. I have to be careful not to exceed this nine to one ratio, because one person in ten did require the notes and coins for use and if there would not be enough money available when required, people could become suspicious, especially as their deposit books show how much they have deposited.
Nevertheless, on the 900 in book figures that I loan out by writing checks myself, I am able to demand up to 45 coins in interest, i.e. 5% on 900.
When the loan plus interest is repaid, i.e. 945, the 900 is cancelled out in the debit column and I keep the 45. I am therefore quite happy to pay 3% interest on the original 100 deposited which has never left the vault at all.
This means that for every 100 coins I hold in deposits, it is possible to make 42% profit, most people believing I am only making 2%.
In other words: I get 100 coins for safekeeping and pay 3% over that amount. I now loan out those 100 coins 9 times, on paper with paper, i.e. with checks (notes) … against 5%. This means that I make 9 x 5% – 3% = 42% over 100 coins.
I have thus created the possibility to create money (credit) out of nothing at the stroke of a pen and then charge money (interest) on top of it.
Cool, no?
Since we are able to deduce that credit and interest merely appears to be money (currency) – since it never existed, doesn’t exist and never will – what are we going to do about it?
Social Credit perhaps, instead of Social Debt?
Social Credit
Within a Social Credit system, money gets its value, not from raw materials itself, but from the products which that money buys.
Money then, is an accountancy; credits passing from one account to another in accordance with sales and purchases, i.e. the sum total of production.
Each time production increases, there is a corresponding increase in the amount of money.
Never at any time interest is paid on (new) money.
Progress is marked, not by an increase in public debt, but by issuing an equal dividend to each individual, and prices are adjusted to the over-all purchasing power by a coefficient of prices.
Nobody loses, everybody wins.
And there you have it, “Social Credit”.
Simple huh?
As long as politics, financial or otherwise, appears unable to come up with Social Credit, we know it’s a Punch and Judy show. I mean, really, if we can think up the Social Credit system, “they” cannot?
I don’t think that the economy will collapse, but I do see inflation and a weakening dollar in our future.
Someone from above mentioned a more favorable trade situation with a weaker dollar. This individual has a point until you look at the big picture.
It takes months for interest rate cuts to feel their immediate effect in the US and the fed began cutting rates tremendously and way too quickly a few months ago. From 5 something in late 07 to low 2% now is crazy. This puts huge inflationary pressures on the economy.
The Iraq war and our surging deficit puts huge inflationary pressures on the economy.
Our dependence on oil and it’s very quickly accelerating price thanks to huge increases in demand from places like China and India.
I would be hard pressed to believe that a better trade situation thanks to a weaker dollar will counteract all of these issues and many I have not mentioned.
Excellent article, I don’t think we should be as doom and gloom as you say, but Americas ship is sinking fast.
anonymous says “Besides, a system/govt/economic crash (or collapse) isn’t the worst thing that can happen to any society”
That’s true, and in fact people/societies generally don’t make changes, even changes broadly recognized as necessary, until a crisis ensues. As often as not change comes too late, but as you also pointed out, there is no shortage of talented, intelligent, even brilliant people in the US, and there is no reason to think that the extinction, disappearance, or whatever it is Mr. Falkvinge is wishing for the US is fait accompli. That is really the main problem with this essay, as I see it: Mr. Falkvinge makes excellent points about the many structural weaknesses of the US and its smoke and mirrors economy, as well as the absurdity and immorality of its military spending, and then infuses them with his own wishful thinking about the relegation of the US to undeveloped-world status. He can’t see any alternative to the failure of the US because he so clearly wants to see it fail. Like every other type of extremist- Islamic extremists who identify the US/West as the font of all evil, Western right-wingers who take a similar monolithic view of Islam, US Cold Warriors who actually called the USSR “the focus of evil in the modern world”, etc., ad nauseum- Mr. Falkvinge has identified the source of his nightmares, and can dream of nothing but its destruction.
This agrees impressively well with my own independent reading and research, though I had pegged 1973 as the hinge where everything fell apart, not 1971. When I came across the Nixon issue, I was blown away – why is it never mentioned, anywhere?
I’ve been wondering for a while what to do with all of the data, the collection of events that would otherwise be coincidences… write a book? What would that help?
It’s a bad, bad, bad situation. I am impressed that this post has gotten such broad attention – it is a sign of the mass realization that something is deeply wrong with the United States.
I hope everyone had fun in the 90’s and early 00’s, because it’s all down from here!
Cheers, Rick.
The word is getting around:
“Everybody knows that the dollar could crash, but nobody knows where it will start.”
http://www.youtube.com/watch?v=4n3g5lUgkWk
The fact of the matter is that the US is bankrupt. David M. Walker, Comptroller General of the US and head of the Government Accountability Office, in his December 17, 2007, report to the US Congress on the financial statements of the US government noted that “the federal government did not maintain effective internal control over financial reporting (including safeguarding assets) and compliance with significant laws and regulations as of September 30, 2007.” In everyday language, the US government cannot pass an audit.
http://www.inteldaily.com/?c=139&a=5638
“Unless the United States moves quickly to fundamentally change and restrain its fiscal behavior, its bankruptcy will become a foregone conclusion.”
http://www.counterpunch.org/roberts03182008.html
Yes this issue is important. I think that our MEP’s* should talk about this as a warning and make the EU democratic and free.
Pirate fight is about this in a larger scale than national parliament. (European Union)
* EU elections in 2009
I thank you for your clear perspective on our situation.
American’s are so trough fed and been dumbed down so long they buy the bull shit broadcast by the CFR controlled media.
Unfortunately, we deserve what we get.
We should be prosecuting people for treason right now. Rounding up the rest to be incarcerated for life for helping.
We can use the same torture, they approved for others, of on them.
The blood is on the hands of every American for not paying attention and allowing this to happen.
For thinking we are conspirators not regular people trying to say..WAKE UP!
They deserve what they get.
Time to demand the return of every troop to this country… protect her boarders, get all those out who do not have citizenship, and take back the control of her monetary system.
We need to give up the materialistic attitudes and buckle down for some rough times. We need to be humbled for all we have allowed these greedy, low life bastards to do and get away with.
Every one of them needs to pay. The Feds, the Presidents, the politicians, all of them should get exactly what they have given: Suffering, debt and death.
I do not feel sorry for this country…we deserve what we get.
Maybe this will get these ignorant people off the trough… God only knows. Again, thank you for your wisdom and opinion… I found them to be exact and you described exactly how things really are
here in America.
This is not open for discussion.. it is just the facts
A lesson for the entire planet NOT to follow.
I’m not sure whether any of his stuff is online, but the Marxist economist David Mcnally has been making some similiar arguments regarding the dollar as world currency.
Excellent, concise piece.
I think the essential point to be taken from this is that the USA is effectively a corporation – albeit one with ‘projection of force’ on a massive scale.
The US Military is the arm of this corporation that exists to keep the Corporation at the top of the tree.
My question is this – what will the US do if they are faced with the collapse of some of the fundamentals of dominance that has existed since the middle of the last century?
We have seen that Iraq was merely an oil war, as will Iran be if and when it comes. But who is next?
Hi all. Nice flood of comments while I’ve been sleeping.
Three things to follow up on good points:
Europe and Asia will buy the US with a weakened dollar: actually, the US doesn’t allow this, and has the world’s largest military to back up that nonallowance. The only thing in the US that foreign currency reserves are allowed to buy are government obligations, that is, giving more credit.
There are lots of great minds in America, it will rebound fast: So was there in Soviet/Russia. And Germany – heck, Germany was and is a country of world-class engineering. And Soviets put robots on Venus, the Moon and Mars. These countries didn’t rebound fast with an economy in tatters.
I’m just wishing for America to go downhill, the numbers are correct but I’m jumping to the conclusion that they mean the end of the United States: Obviously, the facts I’ve presented here isn’t all I’ve read on the subject. It’s just an attempt to connect a few dots. But (like Anon said), the comptroller general also says that the US is… I’m not sure if he uses the word bankrupt, but the message is similar. I’ve seen numbers attempting to estimate how much federal spending must be cut in order to save the economy. That number was 134%. (Unfortunately, I can’t find the source for that now. You know what it’s like – you read a lot of material constantly and only later realize its significance.)
To reiterate, to re-balance the US economy, federal spending needs to be cut by 134%. This obviously cannot be done.
This is one of the signs that the US economy has been cooked for so long it’s done for. My interpretation, but I stand by it.
Unfortunately it’s not about US vs the rest of the World. It’s about that elite you talk about and it’s presence in every country. They would do everything to fend off a collapsing US economy since it would only hurt their own interests. And if we all go bust don’t wait for your leaders to go after the US, instead they will send out military force to control unrestful crowds in their own countries. Violence is a very useful tool. Don’t forget the US military power, a large part of the striking power automated or depending on very low personal resources, and the fact that they have a presence in some 150 countries. If we see a dollar crash it’s you and me that will pay for it, not our leaders, especially not in the White House.
I think you underestimate the power of the American empire. There are too many dictatorships and other regimes depending on the US empire for survival to let the American economy fall apart (eg. Saudi Arabia). The ‘mercans aren’t going to take this sitting down, unfortunatly.
Anon “it’s not about the US vs the rest of the world”:
I agree that several leaders will be so harmed by a dollar crash that they would rather perpetuate the bubble.
That’s why I’m looking for grassroots signs instead. If there’s a switch in the everyday economy, there’s absolutely nothing the elite can do to prevent a crash.
Yes, there is a national guard and such to deal with riots, but that comes much later. You don’t expect the military to come out to exchange offices in Amsterdam to force them into accepting dollars.
That’s why I’m listening to grassroots signs of switching. And such signs are coming daily now. In Amsterdam. In Guangzhou, China. In Tchad, Africa. Not big bank leaders – but everyday people choosing to not trade in dollars.
Very interesting indeed.
As for people getting used to living within a broken system, I gather from my working poor and/or disabled US friends that at least some have already had lots of practice with that. Many of them live in conditions that people here in Sweden find difficult to believe.
You failed to mention one important point – the U.S. economy is entirely dependent on cheap gasoline. Our currency is backed by oil. It’s really not debatable, and only a hand-full of wall street traders will admit this. The U.S. is experiencing an economic perfect storm. The high price of oil + inflation + credit crunch.
I don’t give a shit what you think – it’s about oil, and the price of gasoline first and foremost. Most Americans have no clue how many products depend on cheap oil prices. Most of the world has no idea how dependent it is on oil.
If gasoline goes up $1, 300 million Americans feel the pinch – 50% of which, don’t care… 10% of which are in jail, but 40% of which feel it and can no longer afford good food. Some can’t get to work. Productivity goes down nationwide.
It’s about the oil.
You may very well be right about everything your wrote here. I had watched the Money as Debt some time ago. The ideas certainly sounds plausible and appealing. But here’s the thing: I don’t care if they are correct or not.
These sort of ideas are the sort of things wacko conspiracy theorist have. If you espouse them here, even on your private blog, you will paint yourself and the whole pirate movement with a “crazy wacko” brush, which will be hard or impossible to remove. I mean, it’s not like we pirates don’t have that problem already! Please don’t make it worse.
One of the great things about the internet is that it allows lunatics to not only have a voice, but to congregate the absurd.
It strikes me a bit ironic that the only one using the word “whacko” is the one concerned for the pirate movement. Several times, even.
Your arguments make sense and I luck the financial background to judge them fully, but pleeeeease…
The incompetent leechers of this world our going to save us?
If you’ve talked about the open source community or artists that give their music for free I would have bought it.
I don’t give a shit if you spend all day downloading or uploading crap, and I don’t give a shit if corps are loosing money. Just don’t play saviors, it’s ugly.
Who is this guy calling himself Margin on line one, anyone?
The assertion that it matters what currency oil is being traded in is incorrect. Money is just a mechanism for exchange. Much of the time oil is priced in $US as a convenience. However, the buyer may trade their local currencies into $US before making the trade, and the seller will trade out once they get the transaction.
For all I know they don’t even do that – they might just price it in a currency but then agree to take delivery in another form for equivalent currency for the exchange rate of the delivery day.
If the sellers are accumulating money, then it *is* important to know what their long-term holdings are in, but that’s a completely separate issue as to whether the trade is done in euros or dollars. The choice of oil producers on their holding currency or asset is no more significant than that of other profitable ventures.
The exchange Tehran want to enforce will be a joke – all that will happen is that people will create contracts for trades on the Tehran exchange.. and then sell those contracts on a London, Frankfurt or NY market as oil futures as they have always done and it won’t make a bit of difference. The extra overhead of costs for the Tehran exchange will be borne by Iranian producers.
You lost me at your bogus definition of fascism.
Repent o ye dumb masses! The end is near!
Please… Fear makes for a powerful blog topic. But do not mistake this post as educational, it is fiction, old fiction that is rehashed every 8-12 years for ‘the kids.’
If you want a clear view of current macro-economic state, and an very good education on basic economics, read Alan Greenspan’s book, ‘The Age of Turbulence.’ Many of topics broached in this post are discussed in detail.
Yet another american here.
There is a lot of truth here. I’ve been trying to inform my friends about these topics for the last few years now. Today, however, I’ve an additional source of hope as one of those friends who a year ago called me crazy sent *me* this link and a comment that said he more or less agreed with it.
There is an active minority here in the states that wants to kill off (or at least more directly regulate) our Corrupted (privately owned, in the truest american tradition) central bank. We’re also working hard to attempt to restore our freedoms, freedoms that so many of our fellow citizens understand why it’s important to preserve them, or have been convinced that if they don’t give them up some terrorist will come and get them. And we’re also trying to make the point that we need to *not* be in the middle of everybody else’s affairs…with a military base.
It’s slow going, but we’re gaining momentum.
@cratuki: you’re right, the actual currency of trade is not really that important – the sum of open oil contracts at any time isn’t enough to make a big difference.
What does matter is what people are stockpiling, and there’s a transaction cost involved in stockpiling money in something else than your common trade currency.
Very good article. Your history is excellent: it includes most/all of the relevant bits and accords them each the proper weight. I do, however, believe your conclusion is by no means inevitable, and is actually unlikely.
The reason for this is that the US is not the only bad actor. British, Japanese and European banks have also been participating in the Ponzi scheme, and will also suffer in the coming collapse, to the relative detriment of their respective currencies. The problem has to do with the excesses of fiat money, and all of the big international currency countries have been participating. They will all suffer.
I wouldn’t rule out a short-term hyperinflationary scenario in the US during the relatively short period it might take for the contagion to reach the other markets, but I believe the ultimate result of the coming catastrophe will be global deflationary depression, just as it was in the 1930s.
“These countries didn’t rebound fast with an economy in tatters.”
Maybe not “fast” to your standards, but along with Japan and China, they are currently both on the top 5 list that you reference for ranks of current account balances.
Looking at the history of an entire nation, a rebound that quickly seems pretty fast to me.
@David: Yes, I agree that the economies are all interlinked enough that practically everybody will be hit. By no means did I mean that the US will fall alone and Mexico and the UK will hum along like nothing happened.
I believe the US will be hit harder, though, since it is the currency itself which is at the heart of the problem. If you have any thoughts on this, I’d love to hear them.
Anon – “You lost me at your bogus definition of fascism.”
“Fascism should more properly be called corporatism because it is the merger of state and corporate power.” – Benito Mussolini.
I’d say his definition is pretty accurate.
So…if all your predictions are certain and your logic is sound, you should be able to capitalize on your predictions and make a fortune.
Calculated economics are bullshit. You might as well be using a crystal ball and finding stock charts to back up your theories of future actions.
If you could apply your vast knowledge to accurately predict world markets, the world would beat a path to your door. Perhaps, you should invest your total wealth based on your confidence in your speculation. Then, if you actually *do* own South Dakota in a few years, you can claim some credibility.
As it stands, you’ve mixed together a bunch of crap about black helicopters and war-for-oil with basic economics in hopes that the United States will “fail” so you can say “I told you so, see…it’s in my blog”.
People have been predicting the “fall of the American empire” for a lot more years than you’ve been alive. This article proves nothing more than the fact that a Swedish leader of the Pirate party can have an opinion, back it up with some selective research, and post it on the internet. A bunch of posts stating “yeah…I think that, too” doesn’t add any validity to the selective research.
Congratulations,
Larry
The difference comes from financial globalization. Formerly, most of a nation’s economy took place within its own borders, with some trading of goods and a bit of international finance (mostly conducted by governments and entities closely connected to them) at the margins, which together weren’t normally more than 10% or so of GNP. Under this scenario, the performance of an economy and its currency was largely the consequence of events that took place within its own borders, be they droughts or poor governance. Yes, it was possible for one nation to become too indebted to others, with resultant economic consequences, but the point at which the imbalance would become untenable arrived quickly and further credit was cut off, war was declared, etc., etc.
With the advent of financial globalization, capital can chase the best returns wherever it finds them. In recent years, the best returns have come from toxic US debt. The whole financial world – Yen carry-traders, sovereign wealth funds, the Chinese central and state banks, the Landesbanken in staid and prudent Germany, pension funds in Finland – piled in, and actually bought the fictitious capital that supposedly backed this debt. Corporations worldwide built factories and call centers predicated on selling to and servicing economies distended to several times their true size.
When the hangover comes, the investments will be written off, the factories and call centers will close, and credit will contract sharply. These effects will not be limited to the US, but will be worldwide, just as happened in the Great Depression. The difference this time around largely has to do with greater financial interpenetration and the greater speed with which transactions can be conducted.
The state of affairs began with US abuse of its currency, you have that 100% correct. But the rest of the world acted, and invested, according to the world as they found it and participated and profited. Other countries did not see untenable imbalances and refuse to involve themselves. Rather, they facilitated the sloshing of fictitious capital and its knock-on effects within their own borders and currencies, and will face many, if not all, of the same consequences as the US.
All of that having been said, the matter of the US deficit is relevant, and will weigh heavily on its future, but this will not be a problem faced by a uniquely damaged and disadvantaged nation.
obviously you know nothing about economics. USD is the most powerful currency and economy even today.
You are saying as if American people are sitting idle, doing nothing and looting the world. American is the most hard working(after China) and smart working nation in the world. there is only 5% unemployment is US. Try finding another nation with such stats.
Fine, what if it is all horribly true?…and it all collapses? What do regular working stiffs do?
I don’t have an extra 20 thousand lying around to sink into precious metals.
My best suggestion is to let your personal debts ride. Pay the minimums for now and sink whatever extra cash you have into stockpiling goods, i.e., canned goods, toilet paper, gas, etc… If the worst does happen, you would have at least something of a buffer to “weather” the storm. An extra $1000 or two spent on supplies now would be worth an untold amount later to relieve your own comfort.
@All: This kind of discussion was exactly what I had hoped for. I’ve been thinking about how to connect the dots for a long time now, and insightful comments here provide very valuable nuances.
@Larry: well, I’m not exactly alone in saying that the US is going down the drain. You need only look at the US dollar decline to see that, and then look at fall scenarios that each and every one start with that particular decline of the dollar. What I’m writing is not new. I’m just putting pieces together in a way I haven’t seen others do before.
As for crystal ball economics, no, I don’t have a crystal ball. This time, it’s hardly necessary, though – I’m just following the daily news feed.
@Greyghost: The oil trade is part of the whole picture, but I disagree that it’s all about the oil. Fuel prices inside the USA may be hard on Americans, but gas in the US costs nowhere near what it does in Europe, which is getting along fine. So while you see some of the dollar effects on rising crude oil prices, I like to think of the rising oil price as a symptom of the dollar mismanagement.
@David: good point. So we should expect a short localized hyperinflation scenario followed by a global credit crunch and associated shortage in the money supply.
I’m not too sure a lot of the dollar investments will be write-offs, though. The reason fictional dollars are being passed around is that the US doesn’t allow anything significant American to be bought by foreign reserves. The only thing that can be bought by foreign-owned dollars today are state obligations, i.e. giving more credit to the US. Because of this disparity – it’s not entirely the free market you suggest – I’m still leaning towards the US being hit harder. As to how much harder, well, I don’t have a crystal ball.
It’s possible entire dollar currency reserves will be written off in a hyperinflation scenario. I’m not sure how much it would affect the economy, though: you couldn’t buy anything for the dollars before, you couldn’t buy anything for them after, what’s the difference?
@Rajeev: No, I’m sorry, a very major part of my point was that the USD is not backed by the world’s largest economy. The European Union has been a larger economy than the US for at least three years. Otoh, that depends on what you mean by powerful. If you factor in the military, I could agree, but then we’re not exactly talking a free market anymore.
@Ad man: Check the link to Orlov’s Collapse Gap. He describes in great detail the differences and similarities between the US and Soviet Union, and shares experiences from the collapse of the latter.
I enjoyed your writing. Gotta point out though, Ron Paul had stated the Iraq-dollar supremacy issue several years ago long before his fame spread.
looking forward to your future articles!
-Rocko Chen
looks like everyone here is practically salivating at the idea of the collapse of the american economy. I’m sure it won’t affect europe or the rest of the world. nope.
Oh, didn’t europe invent fascism? and communism? You guys are so much more educated and enlightened then us dopey americans.
We should have let hitler have his way with you.
@Anomymous
Very few people salivate at the idea of the collapse of the american economy. It is inevitable that it will affect all of us in one way or another.
Sure a lot of crap like fascism has it´s origin in Europe. Oh, I guess your ancestors came from Europe too….
Nice point though that you should have let Hitler have his way with us.
dont forget we americans are your best friends, believe it or not.
I was kidding about hitler… The point was that we are europe’s friends, we are not a fascist regime, and we do far more good for the world than bad.
Who wants russia or china to lead the world?
Let’s hope the U.S. economy doesn’t collapse, shall we? 😉
Yes, in many ways you are our friends. In other ways you are not. You are not our friends when it comes to enforcing laws in the EU that only helps US companies to rule. Stuff like intellectual property and other niceties comes from the US.
Not that it necessarily is my standpoint, but saying that the US has a regime with fascistoid tendencies doesn´t in any way indicate that the average american is a fascist.
No one has said that we prefer that China or Russi should rule the world, but this leads to an interesting question. Is the present ruler of the world USA?
Yeah, let´s hope that the US economy doesn´t collapse. Hoping is not the same as believing though.
@ Rick Falkvinge
Thanks for this interesting blogpost.
Very interesting article. I was planning on working on some software projects this afternoon, I think I’m going to go read up on some various background articles in economics instead.
To everyone from the US (well, really everyone I suppose) reading this, I would suggest that if you *think* you disagree with whats written here, that you go do some of your own research.
If you don’t understand the issues and background enough to write an article like this, and you live in the country it is pertaining to, perhaps its time to do a little of your own reading.
Thanks for the insightful post Rick. Much appreciated.
Rick. I commend you on all the work, research, time, and thought you put into this. You have written a thought provoking piece. Many of the points you make are excellent, you back it up with relevant data, and I agree with almost all your points.
But the tone of your writing makes me wonder how much time you have spent in America?
As an American who lives in Sweden, I am often amazed at the perception people here have of America. People who have never been to America sadly make overseas national generalizations of a country with over 300 million people in it.
For those who have been there, they see the dynamism of the domestic economy, and also how connected American consumption is to the economies of other countries, including China, Sweden, and many others. While America’s debt is large, it comes with many caveats as that consumption fuels other economies.
America’s current financial troubles will probably play out over the next few years with inflation, reduced housing values, and a depreciated dollar. But even if the U.S. has high inflation for the next few years, it will still be a country where one’s dollar goes much farther than it does in many other countries. (even with 10% inflation for the next few years, a pint of beer will still cost less than 30 SEK in most parts of America)
So, your points are very well documented and I enjoyed reading them all, but the underlying tone gave me the impression you were wishing for a doomsday scenario.
Anon: Good and very relevant question.
I love America, I love the American spirit that you can be whatever you want to be if you are willing to work to get there, I love America’s friendly people (the atmosphere is much warmer than in my home town of Stockholm, Sweden), and I adore the breathtakingly beautiful nature.
But I think the current administration is a disaster. (When I say this to Americans, they just laugh at me and say “and that would set you apart from Americans… exactly how?”.)
I worked in the US part-time (one week out of four) for several years while employed with Microsoft in Sweden, reporting to a US manager both at that job and the next. I’ve been in pretty much all major cities, except Las Vegas for some reason, for business.
So while I haven’t lived in the US for an extended time (years), I am no stranger to it.
Also, if it comes across that I am somehow hoping for US (and therefore Western) collapse, nothing could be more wrong. I am hoping for a restoration of civil liberties, though.
But I do believe that we have tough times ahead in both areas.
Frank and courageous words from a Swedish party leader. I share your views and agree about oil currency as a partial motive for attacking Iraq and threatening Iran. Protecting the dollar is of course a US national interest.
Anonymous wrote:
>Unfortunately it’s not about US vs the rest of the World. It’s about that elite you talk about and it’s presence in every country.
This elite, who has been said to include 358 people, is trans-national and only share US national interests up to a point. Three years ago a German govt. analyst anonymously said: “Who is it that mandates the destruction of sovereign nation states and their replacement by economic zones of interest? The transnationals that make up a part of the military-industrial corporate-complex. In order to make this possible, three things have to happen first. The U.S. Constitution and Bill of Rights must be weakened. The dollar has to lose its international trade and reserve standard position. The U.S. military personnel needs to be taken out of the picture as a national defense force and be eventually replaced by mercenary forces with utopian weaponry under the transnationals’ control.”
In his analysis, destruction of the US was an integral step towards regionalization and globalization and a world government under corporate control. To reach this goal, it is in the trans-national elites interest to create a US military over-stretch and if possible provoke a clash with Russia and China.
I get real annoyed when I hear people point to fluffy, meaningless attributes like “the american spirit” as the escape from the mess. The American spirit is to work hard, and only pay attention to things which directly affect you, right now. That’s why nobody is trying to fix the problem, except Ron Paul.
Besides, this great and powerful is only going to do one thing: bring the country back after the collapse. But by mentioning that, the focus of the argument is taken away from the direct consequences of a collapse. It would be very, bad. It would likely cause tens of thousands of deaths, in the US alone, and nobody would be happy. The American way is to pretend that it’s not happening until it actually happens, and then, after rebuilding, pat ourselves on the back because it wasn’t a complete apocalypse. As for the dead ones, well, they probably deserved that for being poor.
Interesting article, some very good points.
But I think it is still not the complete picture. For example: The problem with high oil prices is rather not the fact that we can’t drive around anymore. It’s that the chemical industry is relying on oil for certain product, some of them very essential ones. And what is even worse: Food. I can’t recall the source, so you can either believe me or not (I wouldn’t), but as far as I recall nowadays at an average for every joule of food that we produce we need 30 (!) joules in form of oil/other energy sources. So problem is not about driving our cars, it’s about “btw. what’s for lunch”. We need to come up with something else.
I’m sure there are a lot of other things to consider, too. Time will tell.
And one final thing: I wouldn’t consider “Money as Debt” a trustworthy source. It’s masked as a documentary, but then the maker starts making political statements and then even preaches crude conspiracy theories.
I can’t elaborate on the factual correctness of the first part since I only had a basic course in economy (though it did cover money creation), I just think that something that fills entire libraries can’t possibly be explained in 30 minutes.
Anyway, basically I agree with you and, for all of us, I hope we’ll get off lightly.
-Alex
PS: Greetings from Bavaria, Rick. Maybe you remember me, the one asking the PP’s chariman for his permission to transcribe his speech 😉
Using the term “bancrupcy” is wrong, a goverment cant go bancrupt, it has always the people to tax, thus always a source of income.
@Alex: Hi, long time no see! 🙂 Yes, I agree that the Movie As Debt becomes overly propagandistic instead of informative towards the end. I should probably have mentioned that.
As for the extremely bad yield of energy in today’s food… yes, that is a real problem, especially given the global population curve, but not one I’m going to involve myself in, as others are already doing seeking to address that.
As a Canadian, I have nothing but praise for you Rick. You’ve said it better than I ever could, in words that just about everyone can understand, yet most will dismiss in sheer denial.
It must be difficult for an American to come to the realization that everything they’ve worked and lived for is a lie.
GODWINS LAW VIOLATION!
I certainly agree that the current administration has done its best to flush the dollar down the toilet.
Yet history has shown that “when America sneezes, the rest of the world catches a cold”
The subprime crisis in the U.S. has resulted in the forced sale of Bear Stearns, but not a literal 1930s-style run on the bank as seen in the U.K. (Northern Rock)
Structual unemployment runs far higher in any E.U. nation versus the U.S.
wonderful article, exceeding rare, clear rational thinking,
except for the bizarre faith in the euro part,
why is the euro a good currency ?
does it not include Italy and other frequently bankrupt nation states ?
I do not see the trade of dollars for euros as a good long term bet either
jim
From a monetary perspective, it means that if the interest rate is 4%, then 4% of all credit will default, as that money must be used to pay interest on the remaining money pool.
If only you could borrow $100,000 at 4% and find some way to use it to create more than $4,000 of value. Then banking systems might actually work.
Oh, wait: you can, and they do.
What exactly do they teach in economics courses in Sweden? I could have sworn you guys weren’t behind the Iron Curtain….
And thanks for the Fourth Reich slur. But you’re confused there, too: Americans were the ones who went over to Europe and shot the Fascists. We didn’t hide behind an ever-more-pro-Nazi “neutrality” like some countries in-between Norway and Finland I could mention.
Sorry. What I meant to say was:
I find your ideas intriguing, and wish to subscribe to your newsletter.
What would happen if all American households would default on all open credit lines. Intentionally and at about the same time?
“It must be difficult for an American to come to the realization that everything they’ve worked and lived for is a lie.”
It was: In November 2000, after the bogus |s|election. I saw then all the handwriting-and the bullet holes-on the wall. I found myself going through Kubler-Ross’ 5 stages of death… as pertained to my very own country. And I still grieve, 8 years later. Many more bullet holes.
Something rotten to the core needs to die, from top to tip of roots. Something new and healthy needs to sprout up in its place, and allowed to grow. We must start over. And do it right this time. We’re capable of it. Death first by elections. Then old guys collapsing. Then a legal cleansing of Justice; State; Energy; Commerce, the Supremes. And the Secretary of us all, Condi, who cannot recall. Bravo to the Sheik-“No Iran war, Bushie!”
Great article, Rick.
Copied and e-mailed around the universe.
actually what also helped was the
exportation of jobs and industries to other countries in an effort
to appease the socialist ideology
running around the globe. once our exports became less than our imports we lost any economic advantage we had established in the previous 90 years.
wally
emergence of new currencies is helping to alleviate transitional friction
value in dollars falls or implodes, real-estate dies & markets stumble… then recover without dependence on singular national currency
except for the blindness and lack of understanding one’s context the shift involves expected returns, estimated/perceived value
realizing that everything is more valuable than a dollar puts currency back where it belongs
Rick. Great post. Your well-research article, plus the 100 comments on it, combine to make the most thought provoking thing I have read in months.
All I can say is “Lol!”
Damn you Rick!
You’re captivating article made loose my entire afternoon 🙂
Anyways I agree with you in most part, except for your faith in the EU. It’s almost as bad as the US, except that the EU nations don’t have a fake sense of union.
As for those that say America has lots of great people, you are right. Most countries do, but when things go down, those great people will still be great and they’ll be alo better off overseas. Ever noticed how most of the great people go work for the countries where they have better opportunities? For example all the skilled people from the 3rd world countries, and crumbling empires had been going to the US uptil now?
Most of the comments have been about whether or not the situation is so bad. The real issue is how to moderate the effects.
While many economists think that the 1940’s war was the thing that pulled the world out of the 30’s depression, another school of thought is pointing to the effect of new ideas and new ways of operating. If we look at how Germany recovered from the effects of the war or how the former Soviet Union recovered from the collapse, we see that it was through the efforts of people who used the freedom to make new ways of operating. There were many who thought that Germany needed a planned economy after the war. Yet, things improved when government regulation of the economy was reduced.
That said, economies that are more rigid will have a harder time recovering from this depression while those that are more flexible will have an easier time. The question for you in Europe is: are your countries flexible enough to recover from this?
The problems with corporatism are not new, but the system is designed with an ability to create new financial products to give the illusion of continued growth. For example, hedge funds – massively popular now, contributing to debt and profits, yet unheard of a short time ago.
Economics, (Friedman style) is deeply flawed for it’s inability to account for externalities and the depletion of natural resources.
As the home of the modern megacorporation, the US has been the primary beneficiary of this system and the few thousand rich people that have most of the money are likely to do everything that they can think of to avert the crisis you are drawing attention to.
I suggest their gameplan will involve more wars, longer mortgages, and a Nixon-like executive order changing the rules of Global Economics. Then again, it could be something completely new – for instance there may be a new global building boom when all of our cities move inland as sea levels rise (This may be in 20 or 120 years), more industry, more debt – and also a chance to change our system.
Hopefully, the spread of information through the web, the increase in communication between people, as opposed to the dissemination of news via media corporations, and the priority of human goodness and justice over corporate greed will lead to a new post capitalist system where all children are born with equal opportunities.
The shocks of economic collapse or climate change provide an opportunity for a new status quo. Will it be the dystopic vision of a 1984 society or something more equitable? We decide – and how you act will influence the world. What kind of world do you want? Yes, you – everyone that is reading this has the power to act.
Will you choose to spend time with people you love or money on the things that you don’t need?
edanto
I appreciate the outsider’s view of the US economy and the possible (likely?) effects of our persistent twin deficits. Some of your gloomy predictions about the US economy seem reasonable. And a lot of Americans are unhappy with the recent trend in the US to trade civil liberties for promises of improved security.
That said, it’s self-serving to conflate poor US macroeconomic policies with an argument that you should be allowed to steal other people’s (intellectual) property. The US has largely shifted away from a manufacturing economy to one driven by intellectual property, so it’s hardly surprising that the US wants to protect the property generated by its companies (movies, music, new drugs, software, …). I doubt many Swedes would appreciate it if a US carrier task force pulled up in Stockholm harbor and left with the queen’s jewels and the Vasa, all the while talking about freeing Swedes from the oppression of the oligarchy. The RIAA may be a bunch of idiots, but that does not mean people should be allowed to steal innovations and property generated by US companies.
cz4ever Please, look at this video, it explains a lot. This is not about to be allowed to infringe copyright, and the Pirate party do not want to take away the copyright law. This is about much more serious things. It is about you, me, our democracy, our right to form our identity, our right to private communication, the human right to recieve and impart information, the 2000 year old common carrier principle and so on..
It has never been about theft, since copyright do not give authors any property. It is about justice. When using “theft” to describe infringiment of someones copyright, you ask us to treat the legal system as an authority in etics, since theft is percieved as wrong no matter what the law says. But even the law rejects the idea that copyright infringement is theft. So, do not appeal to authority at the same time as you misinterpret what the authority says. The law do not decide ringt from wrong. Laws are, at their best, an attempt by politicians to achieve justice; to say that laws define justice or ethical conduct is turning things upside down.
Immaterial intellectual works is something we cannot see or touch. The phrase “intellectual property” is thus a direct contradiction since property is about tangible things that we can see and touch. You own tangible things. Belive me, you own the books in your bookshelf, even if you have not written them, the same can be said about your CDs or DVDs, it is your property. No one owns the immaterial since it cannot be a property, netither for you, me or the author/inventor. Authors or inventors are granted an exclusive right to their works or inventions by the law, not a property.
The Pirate party wants to rebalance the exclusive rights given to authors, against all those much more important values mentioned above. Copyright do not belong in private communication, since “private” is not “public”. The Pirate party do not want to take away the authors exclusive right to decide about commercial publication, and defenitley not the right to attribution. Now go and look at that video.
//steelneck
(In Swedish, sorry)
Rick, du kan vilja läsa
http://kmr.nada.kth.se/papers/SemanticInteroperability/DenNeurotiskaEkonomin.pdf
Från 1995, och med en annan vinkel, men tänkvärt.
An extremely interesting post you had here, it was really easy to read an understand. It really gave me a better understanding over the underlying mechanisms of economics as a whole and cleared some of the uncertanties that I have had on the subject. Your article was even a bit entertaining if I may add, though it’s quite obviously supposed to be dead serious, as is the matter that it discusses about.
I am a completely rookie what comes to economics, but I have been monitoring changes in the global economics daily for a few years now. I have had very similar thoughts about US’s capability of holding such consume frenzy there has been for a long time now. Guess it really is all going down now, though I must admit that some of the other scenarios than yours Rick, may be more likely to happen.
Especially I fear for a global crash that will hit EU almost as hard if US falls, and according to some of the figures it seems even quite likely to happen if dollar keeps it’s current rate of inflation.
This leads to my one question that needs clarification. There was some other good thoughts about the subject also, but I’m now going to focus on this one single question concerning one of the links you gave as a reference: https://www.cia.gov/library/publications/the-world-factbook/rankorder/2187rank.html
I calculated the sum for the current account ballance of EU and received a result of -165,397 millions, which makes EU the second worst of all of the included countries. How should this information be interpreted? Doesn’t it quite clearly state that the EU walks on a thin red line almost as thin as the US?
Thanks for the article and for the discussion it has risen. I think you really hit a spot here.
The EU at least dips into the positive occasionally:http://www.eubusiness.com/Factsfig/060821101859.r7yvkrw9/
The GDPs of the US and EU are comparable, making their deficit about 6 times smaller in absolute and relative terms.
Having a trade deficit for a little while isn’t so bad. Consistently having a large trade deficit is. The US has had a trade deficit since ~1970 (when we left the gold standard), and it’s been growing all that time.
About my confidence in the EU vs. the US: I agree that the EU isn’t all rosy either. When adding up the EU’s deficit like Pekka did, apparently one arrives at a 165B deficit.
However, out of those, 126B come from Spain. Spain is currently investing absurd amounts of money into high-speed train connections between its major cities – strategic investments, unlike consumer throwaway TV sets.
A good chunk of the deficit comes from the UK, which has a significantly more shitty economy when compared to how the euro is faring. I suspect this is due to the close ties with the US, but I can’t be sure.
In any case, the EU has a deficit limit of… don’t recall if it was 3 or 4 per cent of the national fiscal budgets, exceptions granted on a case-by-case basis (I suspect Spain got such an exception for building its high-speed rail network). The US has no such limit.
In any case, you need only remove Spain – which has a decent explaination for its current deficit – from the equation to arrive at a more sensible number for the EU.
But I agree that all isn’t roses for Europe, either. I end my post by saying that the EU risks a similar fate.
“US sucking at economy doesn’t justify stealing”: First, the US didn’t classify intellectual property infringement as stealing until it served their own purposes to do so. The US didn’t sign the Berne Convention until 1989, for heaven’s sake! And only then because it justified their crusade of enforcing US monopolies across the world. The US’ industry was practically built on patent infringements. Industrial spies were folk heroes. The movie industry is in Los Angeles and not New York because Los Angeles was far enough from New York to elude the patent lawyers there demanding patent royalties.
Second, monopoly infringement is not stealing by definition. It is monopoly infringement. Calling it “stealing” is just rhetoric to imply it is wrong by the law, when the whole debate is about determining IF that monopoly infringement should be legal or illegal, and if so, why.
This article didn’t go into detail of exactly why there are very strong reasons to cut back copyright immediately, but rather, gave a macropolitical background as to why the US is currently pursuing a relentless strategy of intellectual monopoly strengthening and enforcement.
I just found this very relevant post, written six months ago, that adds more context to my pieces.
Read it all here
Extract:
The Bush administration’s solution was different. They made the decision to base the economy on the real estate market. Record low interest rates flooded money into the mortgage market and the housing market boomed. The Treasury department structured its bonds to encourage money to flow into the housing market. (By dropping the 30 year bond, and by flipping most of their debt into short duration bonds Treasury helped make the mortgage market about the only place people who required longer term income could go to get it.)
Money flowed into the housing market not only from the US but from overseas in huge floods. But it wasn’t enough. Housing wasn’t nearly as enticing as the possibility of buying the next Microsoft, Amazon or EBay while they were cheap. Tech stocks had always had the possibility of explosive growth; mortgage-backed bonds were much more limited and with the possibility of currency devaluation, more risky than they appeared on the surface.
The solution to that was typical Bush. The administration played a game of chicken. They made a bet that the major exporting economies of the far east would simply lend the US the money, even knowing that it would most likely be repaid at cents on the dollar. They were correct: Japan, South Korea and China ponied up and bought enough dollars to keep the US dollar from collapsing. All three are export-driven mercantilist economies, and China in particular, using the mercantilist route to industrialize, was willing to pay the price later for the jobs, technology transfer and production facility transfer now.
You left out two important points, both of them wild cards.
Militarily, the United States is all but unchallengeable by any SINGLE country. Those watching their power slip through their fingers are perfectly aware of that fact. While they’d be unable to win a war with the entire world without destroying it, they could give a serious thumping to the first country who tries to collect on those bad debts. To those who’d use Iraq as an argument otherwise, try to see the big picture. Americans see that as a SPORT, not a war. America has the military capacity to carpet bomb the entire country. But that just wouldn’t be any fun.
The second point you missed is the growing unrest among the American people. We ALL know something big is about to happen, and there are surprising numbers on the verge of revolting. What I see as a realistic possibility in the United States breaking up from completely internal forces, with each new country declaring themselves not responsible for the old debt. And each of those new countries would end up with very formidable militaries, plus fierce, fresh patriotism.
Here’s question: who do you think will buy all that aqua vit, caviar, chocolate, and furniture that your country produces if the American economy were to collapse?
The terrible truth is that American consumerism is the fuel that runs the world economy, too. If the single biggest importer of goods in the world goes away, it won’t be only Americans that are crying. Until the EU, or China, or India start actually importing a reasonable amount of goods, all the world economies are going to be tightly linked with the US economy.
That may change over time, but it will take a lot longer than 15 years.
I am looking forward to being able to export products and services. With the dollar so cheap, suddenly we all work for half as much as we once were, and all our exports are now half as expensive as they once were. And, since we still have most of the programmers and an awful lot of manufacturing capability, I’d say we’re about to start to export lots of stuff to other countries and beat down that largely insurmountable trade deficit. We won’t export a whole lot to mainland China because their currency is welded to ours, but maybe we’ll work something out with them.
The black eye in all this is that we’re going to have to use US Dollars to buy crude oil. Having the dollar drop is one reason why the cost of oil in US Dollars has gone so high. Most likely, we’ll continue to buy brobdignagian quantities of crude, and that will be an economic mistake. Somewhat likely, many, many US citizens finally do the numbers and forcibly drive down their fossil fuel usage with a vengance. The price of fuels is the key to confidence in the US economy, and confidence is what keeps the 12 trillion dollar economy going.
I remember 4 years ago (Spring 2004) when I was on a sports travel to Sweden when I had a good long discussion over dinner with a lawyer who also held a MBA. We exchanged views and he had a view that the US enforcing of “intellectual property” exists because it’s the only area in trade they still rule. Now pulling the current administration in to the picture is a long reach IMHO since the whole process started way earlier. I think the current administration has found out a great loophole they can use for their advantage:
1) Own military related industry
2) Get into the administration
3) Start a war
4) Take huge loans for the government, use it to buy military equipment
5) PROFIT
No need to figure out any ???s this time. The government is entangled by heavy loans and your company loaded with money.
falkvinge, you are godlike! i like your texts.
A few comments about post-WW2 Germany on here, but something I don’t see a lot of people talking about is post WW1 Germany. After the armistice and subsequent Treaty of Versailles, Germany was forced to pay impossible amounts of money to France and Britain (this is a rather general and extremely summarized account of the actual events). Though the US isn’t necessarily on the losing side of any war in this case, we’re in much the same bind as Germany was back then. The German government’s response? Print lots of money until the debts could be paid off; as you said, this of course deflated their currency’s value and led to economic conditions which one Adolf Hitler used and twisted to his advantage during his rise to power.
People talk about how the US would be so fractured if the economy cracked, but we need to ask, could the same thing happen here? The majority of the American public is so malleable and willing to listen to what anybody tells them, it’s not too farfetched to conceive of a dictatorship or true fascist regime taking root here, especially if that person were to garner military support (or stage a coup as Hitler did).
I am an American. I don’t see any conspiracy theories in this article. It is all the plain unvarnished truth. If anyone thinks what this person has written is a conspiracy theory, they need to either crack open a history book, or up their meds.
As far as spirit somehow warding off an economic collapse. No. Not going to delay it a single day or recover us a single day faster no matter how many bouncy happy people you have. People were a lot more positive about everything back in 1929 than they are now. Did not stop the great depression. The biggest tragedy of the great depression were all the capable people who could not work and all the work that needed to be done but could not be done because there was no capital to pay anyone. And unless you had money all your time was spent looking for food.
A collapse is coming. Many people predicted the great depression. They pointed out all the bad fiscal policies the government had and the irrational exuberance of the market preceding the crash. Everyone called them kooky as well. Until the American economy crashed and stayed down for almost a full decade. Many areas didn’t come back out of the crash until WWII started and put everyone back to work.
Many laws were also put into place after the great depression began, laws that have been dismantled in the past 30 years. A lot of these laws would have protected us against Enron and their ilk. Things like the Federal Reserve acting as an investment banker for 30 billion in risky, fraudulent loans and investments. Or loaning money directly to investment banks. Or having a wall between investment banks and real banks. You know, all the things that only an economy in free fall would allow.
You don’t have to sell everything and buy a hut and live in the middle of nowhere. But be smart. Diversify your portfolios. At the very least buy some actual real things that you can touch and hold and use. Land. Gold. Silver. Toilet paper. Don’t laugh, when it all hits the fan you will need a lot of toilet paper to clean it up. Plus in bad times toilet paper is worth it’s weight in gold.
Buy a little land and pay it off so it is 100% yours. Use the land as a summer cottage and get it set up and provisioned for a good long stay, just in case you ever need it. If not, it is a great place to go for the weekend or a week or two in the summertime. You can even loan/rent it out to friends and family so they can enjoy it too.
If nothing else we are going to mess with China one too many times and they are going to dump their 500 billion dollar trade surplus dollars onto the world market, destroying the value of a dollar and just crush us instantly without ever firing a shot. Wow, that sure is a smart way to expose ourselves to our biggest enemy. Smooth move there.
The front page was shot, this is just a dummy comment to force Blogger to republish it.
@chemical j:
how did we get out of the depression the last time?
Couldnt we do something similar, but start doing it already now?
Don’t ask me how I know, but I know that Columbian ‘Cocainistas’ have switched their pallets, upon pallets, upon, pallets of FRN’s to Euro’s and metals.
@mansen66:
Last time we inadvertently got out of the depression basically because we got sucked (suckered?) into World War II.
This time I don’t think we’ll be so lucky, unless Saddam’s mysterious missing gold finds its way into US coffers, and soon.
Beyond that, or some radical moves on the part of the government, I think we’ll eventually collapse under the weight of our own debt, unless of course the chinese buy us out. Falkvinge references some work by Dmitry Orlov, who talks about closing the collapse gap. http://www.energybulletin.net/23259.html
It’s definitely a thought-provoking read, discussing the similarities and differences between the Soviet Union and the US that show who’s more prepared for a societal breakdown.
Unfortunately, there doesn’t seem to be much we can do as a nation, but definitely some things that the individual or family could do to prepare. Orlov talks about one thing that I agree with for sure, which is pulling our military back from obscure bases around the world and repatriating them. The military is such a budget headache that we might be better off dissolving it on a national level and making it work as coordinated state defense units or something along those lines, plus this would (ostensibly) help keep some kind of order if a collapse did occur.
But Rick,
If american economy collapses, obviously we in Europe will feel the effects as well, right?
Its not like america can crash but european economy will just become stronger – in the global economy we are all in the boat together.
If that is the case, with the global/western economy at stake, is this not an argument to protect american monopolies?
If your article is true, then this is no longer a fight against corrupt record companies, its a fight to make sure our children have food, medicine and housing – and we should support the monopolies and fascist governments, not fight them.
Sorry if i misunderstand..
Because we can’t continue doing what we’ve been doing indefinately. Sooner or later it will come crashing down and if it happens sooner it will probably not be as bad. The only way other way is if we accept what will happen when it finally crashes and actually try and mitigate the effects.
Hi,
the effects of what is happening, if Ricks analysis is true are profound- and what we are morally obliged to do is quite different in this scenario than the old pirate scenario (unjust monopoly influence etc.)
What Rick descibes here is a empire that goes under, and the effects of that are enormous.
IF we belive this is true, and we belive some of the people that are describing the effects, this is nothing that we just can scoff at and say – might as well happen now/ the americans had it coming/ too bad – this could very well be the end of western dominance in the world.
in such a situation, humane morality here doing anything possible to avoid and mitigate the plight of the coming starving/homeless/sick people that will be the conclusion of this process?
And by pushing for resonable laws we are actually increasing the speed and power of what is happening?
But the thing is that by pushing the timeline forward the power is actually decreased.
There are two ways we can decrease the power of what will happen:
a) by pushing the timeline forward we stop the US in getting it self into even worse shape before collapsing. If it’s even deeper in the muck the effects will be worse.
b) by postposting the collapse while at the same time implementing measures that will dampen the effect when it happens.
The problem here is that for option b) to be viable we (en masse) actually have to acknowledge that this will happen and think up a way of dapening the effects that will actaully work. As seen by many of the comments here the first part is very difficult and to tell the truth I’m not sure the second part is doable.
What is to stop the US from just declaring a New Dollar that will be traded at 1 new dollar for 1000 old dollars and reduce the money supply that way? and stop taking old dollars?
Sarf: Nothing can stop the US from declaring “new dollars” which are valued at 1/1000th of old. That’s the problem. That’s the textbook definition of hyper-inflation. People’s savings would be wiped out, and in the years it took for businesses to catch up to that inflation, there would be massive starvation and homelessness. These were the conditions in the Weimer republic after WWI that led to Hitler.
Besides, the main problem with the US is simply this: We consume more than we produce. By a longshot. That condition can only be transient, it can’t last forever.
3 words:
Learn Chinese. Now.
Interesting post. It’s the same talk that Johan Galtung has been saying for a few years now. http://sydsvenskan.se/lund/article145423.ece (sorry, swedish article). He predicted the fall of the soviet union in a speach 1980 (and everybody laughed at him). He predicts that the US will collapse 2020. Like you he says that spending more than you produce will inevitably lead to your doom.
The film “Money as debt” (I had seen it before) is not so good though. It makes you think that the problem is the way modern banking is built (by liquidating assets into cash) which is not the problem. On the contrary, that is a very good thing (but that is another story). The problem for the US is that they consume more than they produce which you, and Johan Galtung, point out very good.
And from one European to all reading Americans, I belive you are our friends. I’m just scared shitless of your foreign policies.
Thank you, FUCK I have hard nipples right now. I am gonna masturbate with my biggest vibrator, DAYMN that was an arousing story.
About the Great Depression. Lack of money and food was rampant. That’s a given. But back then, there was little to no infrastructure within the country to help prevent such a thing. Think the dust bowl. Farms and ranches back then didn’t have the man made lakes, resevoirs, canals, etc that there are now. Things dried up. Had there been that infrastructure there, farms and ranches would have flourished more and people could have worked those jobs for money.
That was part of fuel for the fire. People traveled east lookign for work, perhaps on farms. but since there were little to none able to produce ample crops, there was no work to be had.
It can be surmised that a fwe factors helped Americans come out of the depression. Mostly WW1 and WW2. Not only did it bring forth a great industrial need to build planes, tanks, vehicles for war, it also forced the American people to ration all of their commodities.
Perhaps this is something that needs to be enforced today. We Americans live in excess when we don’t need to. But when we’re raised to believe we are “free” and a powerful nation in the world, we feel as though we can do what we want.
Win at all costs.
I noticed in the essay the tangential reference to the relaxation of rules – Nixon and brent wood etc.
It is interesting that the majority of relaxation of rules in the financial and industrial arena usually take place when politically conservative forces take power. These forces believe that the rules should apply in general, but remove them because they cannot find a way of legally excluding themselves from compliance.
The best recent example of this was the “deregulation” of the markets and privatization frenzy that took place during the Reagan/Thatcher period. The results of this can be seen in affairs such as Enron et al.
The trickle down effects of this money grab can be seen in shoddy goods, loss of worker protection and so on. At the time, most of the middle class were not concerned by this, since it affected only the lower echelons of society – cleaners and the like.
With the coming into power of rapacious bastards like Bush and Cheney, the middle class is beginning to be affected. It is amazing how easy it is to make otherwise intelligent people myopic when the see the prospect of a fast buck. It seems like we are all sucker for a con-man, especially one that has been “legally” elected.
Here in Denmark things are tightly regulated so that things like the land switch scam is impossible because the state or the municipality decides the value of a piece of land. The interesting thing is that I whinge constantly about the taxes we pay, but I would rather have that than free for all – together with its concomitant social effects – that they have in the US.
It is interesting that the majority of relaxation of rules in the financial and industrial arena usually take place when politically conservative forces take power. These forces believe that the rules should apply in general, but remove them because they cannot find a way of legally excluding themselves from compliance.
The best recent example of this was the “deregulation” of the markets and privatization frenzy that took place during the Reagan/Thatcher period. The results of this can be seen in affairs such as Enron et al.
The trickle down effects of this money grab can be seen in shoddy goods, loss of worker protection and so on. At the time, most of the middle class were not concerned by this, since it affected only the lower echelons of society – cleaners and the like.
With the coming into power of rapacious bastards like Bush and Cheney, the middle class is beginning to be affected.
Here in Denmark things are tightly regulated so that things like the land switch scam is impossible because the state or the municipality decides the value of a piece of land. The interesting thing is that I whinge constantly about the taxes we pay, but I would rather have that than free for all – together with its concomitant social effects – that they have in the US.
Awesome article, Rick.
I read your article and already spread the word. I want to ask you about Zeit Geist, the movie (www.zeitgeistmovie.com), specifically about the first part of it (although all parts might be connected), because the explanation there for the same subject is a little different than yours, but still makes sense. Could be both be combined or do you find something wrong that? Thank you.
“However, out of those, 126B come from Spain. Spain is currently investing absurd amounts of money into high-speed train connections”
Spain has the highest (%) current account deficit in the developed world, and trains are not the problem.
It imports more than it exports.
Lack of competitiveness, a strong currency, Euro, that favors the importation and difficult exportation, and a cheap credit that facilitates debt.
In that situation the country would devaluate currency and rise credits,
but this is not possible with the Euro, which is governed largely by the German economy.
Implications: Spain too Collapsing?
The houses are among the most expensive in the world, the youth cannot independence from fathers house, birth rate very low, wages half that in Europe, the basic products (food, housing) are cheaper in Germany than in Spain, which is a expensive country.
And for some years until now millions of inmmigrants have arrived to Spain (Eastern Europe, America, Africa) to do work hard and improve competitiveness. Possibly Spain beats the United States in the coming debacle.
Liken
———-
well put and writ….perhaps you might look into the machine built by Royal Rife whose machine enabled 100 percent cure rates of cancer and many other diseases and whose rights of use of his machine and medical practices and life were ruined when he refused to sell them and its patents AND PROFITS to one of the founding directors of the AMA WHO TODAY CONTROL ALL MEDICINAL PRACTICES
This is a very interesting post for me and a bit threatening too. I have created a translation of it in my blog (in Spanish), this is the address ¿Porque EEUU se colapsa?.
Hi, awesome article.
By now my incomes come monthly from U.S. (I rent apartments), I change them to € and buy things here. And it’s true all I’ve read. I remenber the days when the dollar worth more than an euro. I was hoping this will happen again someday, but now I think I’ll never see it again, and sign the actual exchange of 1 euro = 1,60 dollars.
Furthermore I’m Spaniard, so I don’t get much profit of this situation as here the economy is starting to fall down (I live/rely on the two worst countries economically speaking :D).
It was a pleasure read your whole article and the posts. I usually travel Norköping, next time I’ll try to meet you and have one of those 30SEK beers.
Continue providing reads like this.
Rick,
You are a bastard. A Giant, Swedish, probably blonde bastard.
I hate blogs. I hate hearing about the intricacies of modern economics. But what I hate more than the two of them combined is that your blog was so damn captivating that I have spent the last hour and a half of my Thursday night reading it and all of its respective comments.
I’ve been under the impression for quite some time that my nation’s economic system is going to collapse. I can’t say that I’ve helped the cause, because I am currently a college student who has been sent to collections for small claims five times by the age of twenty.
The real fact here is that our system of credit- a system where money is created from nothing- is a system that dictates that you are not considered a human being until you are indebted to someone. If you are tight with your finances and you make sure to never owe anybody anything, you are not able to buy a house or car or anything else that you can’t find in a supermarket. But getting into that debt becomes a fine line too. Borrow too much, and you are again stripped of your ability to consider yourself alive in the financial world.
Perhaps it is time for this system to collapse. People need to wake up. Become people again. I personally would love it if America collapsed in some sort of Fight-Club-esque credit collapse. Then I could roam the streets and make fun of everyone else as they struggle to adjust to the way of life I’m now accustomed to.
Chinese exporters shun flagging US dollar in favour of stronger rivals
Yet another data point.
Sooo, at this point, should I be pulling what money I have out of the bank? Yikes.
I’m not usually one for politics, economy, or reminders that the world is going to shit… but I AM a fan of pirates, and, as an American now residing in Canada, I have to say that this article was captivating. I especially enjoy the fact that the comments (most of them, anyway) are extremely well-written and grammatically acceptable. Oh, and citing sources = awesome.
However.
If all you say is true.. which I believe it is… then what do you propose for those of us who are uncomfortably close to the origin of the problem? Is there anywhere we can go to escape this impending collapse?
The idea that the American economy is going to fall so flat on its face that its ass grows eyes is appealing from a philosophical standpoint… but the reality of it will be quite deplorable for the millions of people it affects. Once we’ve accepted the truths… the next step is to plan for the future. So I’d like to see a post similar to this one, as well-thought-out and as informative, outlining a few possible plans as to how to avoid the worst of it.
Otherwise, I’m tempted to just say “to hell with this” and run off to the foothills of Brasil, where they have excellent food, enjoyable music, and all their crooks wear name-tags.
You are and idiot. Just like half the people on the Internet.
Quite an interesting read. However, your blog, or at least this post since I can’t say that I’ve read much more of what you’ve published, suffers from the same problem as almost any blog. That is the fact that there aren’t enough sources to back your claims. You do provide some sources and, as I understand it, most of them covers most of what you say. But this kind of text requires a reference source for and at each number and each fact. Just something I think you should consider.
There’s another reason the US is collapsing (although that repo man comes a bit later, in my not-very-expert judgment) and that’s its internal obligations in medicare and such.
Actually, this was the source of the number that the federal spending must be cut by 134% immediately that I claimed… and I remembered wrong, I swapped two digits, it was 143%. Not that it matters in the slightest.
These radical reforms are necessary because the future gap between what the government owes and what it stands to receive in revenues is already monstrously large, and it’s growing by the minute. This gap, called the Gokhale and Smetters measure, currently stands at an astonishing $65.9 trillion. (Yes, with a “T”.) As Kotlikoff explains, “This figure is more than five times U.S. GDP and almost twice the size of national wealth. One way to wrap one’s head around $65.9 trillion is to ask what fiscal adjustments are needed to eliminate this red hole. The answers are terrifying. One solution is an immediate and permanent doubling of personal and corporate income taxes. Another is an immediate and permanent two-thirds cut in Social Security and Medicare benefits. A third alternative, were it feasible, would be to immediately and permanently cut all federal discretionary spending by 143 percent.”
The coming financial collapse of the US Government
You really believes in that the US will collapse?
Pleas, not even all commies believes in that.
I think the attitude of “There’s no way the US could collapse” is what is currently keeping the country afloat. Foreign creditors may share this feeling, thus the reason they lend to us.
In 1928, nobody thought the US could collapse. The level of destruction many people are talking about (complete dissolution of government, all companies wiped out) is much larger than occurred in the Great Depression, and I’d be surprised if such a supreme level happened. But another Great Depression style melt-down, involving a stock market collapse and massive unemployment, isn’t that unreasonable. It happened once, there’s no real reason it couldn’t happen again.
Someone was asking what to do, if mr. Falkwinge’s theory is true. AS an american ou should invest in things that are not bond to the dollar, such as real estate, gold, diamonds and such. By this you have so called “hard currencies”, which you can trade when US collapses.
If this shouldn’t be true, well then you have helped to create the result mr. Falkvinge is writing about (not the cause). In other words, it’s like the game peace/war – choose war and both looses, or choose peace and only you loose…
For the sake of argument lets assume that your analysis is correct.
(Note: I have confidence that some of your assumptions are sensable and concur with my own observations, but that doesn’t constitute confirmation 🙂
The United States has to possible alternatives:
1:) Force the rest of the (at least the free world) to balance the budgit by essentially demanding protection money as, especially the EU has failed to maintain a real defence budgit. The Saudi’s had to do this to prevent Sadam from overthrowing them, for instance.
At this time for short term considerations the US military is invinsible in practical terms w/o Eastern block WWIII intervention.
2:) Use the remaining US economy to maintain its internal structure and basically default declaring the International Global finance systems defunct. Again the rest of the world, at least the West, in the short term will have no immediate recourse.
Let me see if I get this right.
America is worth 100 trillion roughly. It has an outstanding debt of 2.5 trillion.
Explain again how this is a problem.
China depends on USA consumers to prevent a revolution in China caused by poverty.
It has zero interest in destroying one of its best customers. Because if Chinese growth falters there are going to be a lot of pissed Chinamen. There is no profit in that.
Suppose the USA succeeds with this:
WB-7 First Plasma
Cutting the cost of electricity in 1/2 or less. Then what?
Suppose you have to buy them from USA companies or become uncompetitive. Then what.
Not all USA capital is physical assets. Of course you can always steal ideas. Which puts you years behind. The Soviets stole all kinds of US technology. It didn’t help them.
I’m not sure where you got the $100 trillion figure for what the US is worth. The $2.5 trillion is debt held by foreign governments, total debt is $9 trillion.
The problem is that the US consumes more than it produces by a longshot. That is all that’s needed to drive an entity bankrupt. The GDP is $14 trillion, government budget about $1.4 trillion, estimated budget shortfall for the next 50 years or so $65 trillion. Selling off the countries assets to pay the debt would basically be a collapse. It might not appear so, but it would be the removal of economic infrastructure (capital) and would destroy the productive ability of the country. In short, it wouldn’t be good for us.
I don’t necessarily agree with the 15 year timeframe Rick proposed, nor do I agree that a collapse is inevitable. What is true is that if the country continues to consume more than it produces, a decline of the economy is inevitable. The only way to rectify the situation is to reduce consumption, or increase production, or both.
I’d like to see the US evolve into a group of independent mid-sized countries. Imagine if North America were split apart into a group of independent countries about the size of France. The continental US could consist of maybe 8 different countries – all independent, but allied and operating under a unified international organization (like the European Union).
It’ll likely never happen – at least in that way – but it would be beautiful. Imagine New England all as one nation, then perhaps Texas, Nevada, Oklahoma, the north central states, the midwest, the pacific northwest, California, and the SE states, etc… It would rock indeed – rail lines throughout. A North America that more closely resembles Europe. (only in a video game…)
Re:
“fascism n. a merging of the interests of big corporations and government, adjoined with a systematic curtailment of civil liberties”
Expanding on that definition: We are in the Roman system under the Pontifex Maximus of the Holy Roman Empire, and as far as England and former colonies, since 1213 AD.
The Roman system is based upon all human institutions being incorporations – make believe ships at sea. And, with corporations owing sub-corporations. To ‘govern’ means to administer a ship at sea.
All bodies politic and incorporated States are sub-corporations of the Vatican. In the symbol of fascism, the fasces, the Vatican represents the controlling axe of the bundle of sticks.
The whole system is ‘collectivist’, with the ‘ship’ being primary, and the human crew merely body parts – members of the ship, and they are viewed as a fictional body called ‘a crew’. That is well explained in this 5 part video: http://www.youtube.com/watch?v=qXOrJtn1h2M&feature=related
Adult humans are deceived into the slave status of a medieval ship’s crewmember by the ‘name game’.
The State takes the name from the birth registration of a child, and converts the family name into a primary name – surname. The State then claims ownership of that name as intellectual property. The child becomes an adult, and has been ‘educated’ into believing that the State owned name is ‘one and the same’ as him/herself. By having attached oneself to the property of another, one becomes the property of that ‘other’ (legal maxim).
An ‘owned’ adult human’ is a slave. A slave has no unalienable rights, but, the slave owner has the unalienable property right of ‘own, use, sell, gift and bequeath’ property.
A slave pledged to obedience and the payment of the demanded share of the slave’s labour (taxes) is called a ‘citizen, subject or freeman’ with granted privileges, falsely called rights. A disobedient slave is stripped of granted privileges, including ‘due process of law’.
Now, read the original blog, and see where you are in this slave world.
For those people remembering Hitler
one should keep in mind that during the 1920’s Germany was in a very bad
depression and U.S ambassador sent a
letter asking: WHY DO THESE NAZIS HAVE AMERICAN WEAPONS?
After the war several influencial businessmen in america were prosecuted according to “Tradeing
with the enemy act” and they sure as hell did not start during the war.
Hitler’s early years were backed up by Dollars. So 1. We have a terrible depression in Germany.
2. There comes a guy, who say he’s got the answers AND HE HAS FOREIGN CURRENCY to make his organization function more effectively than local gowernment. Whom is in financial chaos. Stamp costs 1000000 deutchmarks…
3. American and British corporations make good business deals with Hitler administration.
So, for all I know you Americans did not only help us to get rid of the maniac, but he would not become the man he was, without financial backing from U.S.
One of the prosecuted persons, was
the grandfather of current President Bush…
Great article man, fantastic work. I am a freshmen at Providence College in Rhode Island, United States. I plan on moving to Canada after I graduate before the shit really hits the fan.
You start with a false (and decidedly convenient) definition of fascism not found in any dictionary or encyclopedia – and proceed to go downhill from there.
Instead of salivating over the prospect of doom and gloom and “death to the USA”, you might want to consider the state of the “garden” in your own back yard: i.e, a 50 % tax rate, and sinking into the mire of true social and cultural death because the population of Sweden (and all of Europe for that matter) is going negative and being replaced by Muslim immigration.
Sour grapes from yet another uppity socialist country whose “sky is falling” effete intellectual snobs can not see past the elevation of their own nose !
You *have* perfected the art of melancholy, however, so their is some distinction and consolation in your portfolio somewhere.
Interesting that Ron Paul talks about the same merging together of the interests of business and government:
http://www.youtube.com/watch?v=Jbi-0Tg1b_g
here is another source of this kinf of information:
http://www.larouchepub.com/
and
http://fourwinds10.com/
Jag kan bara buga och ta av hatten Rick. En mycket bra artikel.
Piratpartiets grundpelare är de enda vettiga enligt min åsikt jämfört med andra partier. Nu känns det som att piratrörelsen är på väg åt ett ytterst intressant och fruktansvärt viktigt håll. Vad som kommer är att mota Olle i grind på allvar. Film och musik har länge varit ett alltför starkt argument för att ändra på nationers lagar och inskränka vår frihet. Det är dags att vi tar tillbaka delar av vår frihet som gått förlorad innan varenda land har förvandlats till en polisstat.
/Stolt pirat från dag ett och kommer så att förbli
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Obama might turn it around. But then he has to get that Rottweiler Joe ‘Il Duce’ Biden off the file sharers.
HALÄRM! Den tunga tankesmedjan CER (med många tunga namn som t ex. vår egen CB) verkar förorda överhuvudet för WTO som EUs president när Lissabon träder i kraft. De tom. utnämner WTO som “opolitiskt”..
http://projects.hepforge.org/rapgap/trac/ticket/13 zootube 365 , cqws,
Suverän post Rick. Jag står bakom 100% att Piratpartiet skall verkar mot korruption och mot att människliga rättigheter kränks..
After this much much much too long tirade against USA, one can asume 1. Tjhat Falkvinge will never become Swedens Secretary of State and 2. Rick probably doesn’t understand that the ultimate corruption is taking stuff without permission just because its easy. Yes piracy is corruption and pirates are corrupt people who breaks laws and the human rights of the creators..
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