Written by John Michael Greer, via UnHerd.com
The dollar has finally been dethroned...
Let's begin with the basics. About 5% of humanity lives in the United States of America.
This very small fraction of mankind, until recently, benefited from about a third the world's manufactured products, and a quarter its raw materials.
It wasn't because no one else wanted them, or that the US produced and sold something so appealing that the rest gave up their wealth to exchange. As the dominant nation, it imposed unbalanced exchange patterns on the rest the world. These led to a disproportionate amount of wealth being funneled towards the US.
This type of arrangement is not new.
The British Empire dominated the world's wealth in its heyday, but the Spanish Empire was not far behind. There were empires before, but their reach was limited by the limitations of transport technology. By the way, none of these things were invented by people with lighter skin. When the people of Europe were living in mud huts with thatched roofs, mighty empires flourished across Asia and Africa. Empires are created when a nation is powerful enough to control other nations, draining them of their wealth. As far as the records are concerned, they have thrived and will continue to thrive as long as there is human civilisation.
The American empire was born in the aftermath of the British Empire's collapse, and during the brutal European Wars of the early twentieth century. In those bitter years the global hegemonship was up for grabs. By 1930, it was clear that either the US, Germany or the Soviet Union would win. In the normal way, the two main contenders would join forces to eliminate the third. Then, the winners would go at it, carving out rival spheres until one of them collapsed. The US was the last empire to remain after the Soviet Union collapsed in 1991.
Francis Fukuyama argued in a
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The US had won the number one spot and was bound to remain there for ever.
He was wrong but he couldn't stop being a Hegelian. If a Hegelist tells you that the sky is blue then go and look. Ascendancy of an empire will lead to other aspirants to the same status sharpening their blades. Empires are always doomed to failure: the economic and social effects of empires destroy the conditions which make them possible. It can be a slow or rapid process, depending on how each empire extracts wealth from its subjects.
The US's mechanism for this second purpose was not only ingenious, but also more short-term.
The US, in simple terms, imposed a number of agreements on the majority of other nations, which guaranteed that the US dollar would be the currency of choice for the lion's portion of international trade, and ensured that an ever-growing share of the world's economic activity was dependent upon international trade. In practice, this is what the 'globalisation bluster' was all about. The US government was able to create dollars by running huge budget deficits. This enabled US interests to use the dollars to purchase vast amounts of wealth around the world. The excess dollars were taken up by foreign central banks and businesses, who needed them to conduct their own international trade. This kept inflation under control, while the US wealthy classes profited greatly.
This scheme has the same problem as all Ponzi schemes.
You will eventually run out of suckers.
It happened shortly after the turn-of-the millennium and, along with other factors – notably the peak in global conventional oil production – it contributed to the financial crises of 2008-2010. The US has been going from crisis to crisis since 2010. This is not an accident. The wealth pump which kept the US on top of the global ladder has sputtered as more and more nations find ways to increase their share of wealth through expanding their domestic markets, while raising trade barriers similar to those used by the US before 1945 in order to build their own economy.
One question that remains is when the pump will completely fail.
The US and its allies did not respond with military force when Russia invaded Ukraine in February 2022. Instead, they imposed punitive sanctions on the Russian economy, with the intention of crippling the Russian economy. Washington didn't seem to consider that other countries with an interest in undermining the US empire could have something else to say. That's exactly what happened. China, the world's largest economy in terms of purchasing power, raised a middle finger at Washington by increasing its imports of Russian grain, oil, and gas. India, the world's third largest economy in terms of purchasing power, did the same. So did over 100 other countries.
Iran is another country that most Americans know nothing about. Iran is the 17th-largest nation in the entire world. It's more than twice as big as Texas, and it has more oil and gas. Iran is also a growing industrial power. The country has a flourishing automobile industry and also builds and launches orbital satellites. Since the Shah's fall in 1978, Iran has been subject to severe US sanctions. It is safe to say that its government and industry know all the tricks possible for getting around these sanctions.
Russia and Iran began signing trade agreements to the great benefit of Iran immediately after the beginning of the Ukraine War. The Iranians were clearly rewarded for sharing their knowledge of how to avoid sanctions with Russian officials. The sanctions were quickly defeated with the help of China, India, and the majority of the world. Today,
The US has backed itself into a corner from which they can't retreat. It may explain why Russia's campaign in Ukraine is so slow. They have no reason for hurrying. The US has no time to waste.
Since many decades, Washington has used the threat to cut off international trade due to US sanctions as a way of threatening unruly countries that were not small enough for a US invasion or fragile enough for a CIA supported regime change operation.
Joe Biden snapped the stick in his hand last year. It turned out that it was made of balsa. In the end, countries that used to rely on dollars for their international trade have switched to their own currencies or the currencies of emerging powers. As a result, the US dollar is no longer the world's currency.
It has been fascinating to see how economic pundits have responded to this. Many of them deny it, claiming that the economic statistics for previous years do not show this. Others have said that other currencies aren't ready to replace the dollar. This is true but irrelevant. No other currency was prepared to replace the British pound when it lost its position in the Great Depression. The US dollar didn't become the global currency until around 1970. International trade was a mess during this time, using whatever currencies and commodity swaps trading partners could agree on. This is the same situation we are seeing today in the global free-for-all that will define the Post-dollar Era.
One of the most interesting effects of the current shift is the return to the average of global wealth distribution. East and south Asia was the global economic center until the European empire. India and China were two of the world's richest nations, with a dazzling necklace of other wealthy countries from Iran to Japan. To this day, the majority of humanity is located in the same region of the globe. The European conquest of the world temporarily diverted a large portion of this wealth to Europe and Asia, impoverishing them in the process. The collapse of European colonies in the decade after the Second World War began to dismantle this condition, but the US continued to support some of these arrangements. Asia is now rising as these empires crumble. By the end of next year, the purchasing power parity of four of the top five economies will be Asian. The US is fifth, but it may not remain on the list for long.
The United States is insolvent.
The federal government, big corporations, and a large number of well-off Americans have accumulated enormous debts that can only be paid off if the US has direct or indirect access the unearned wealth it extracted from other countries. These debts can never be repaid, and some of them cannot even be serviced. In either case, the arrangements that were based on familiar expenditure levels will no longer work. The arrangements include the majority of the items that constitute a typical American lifestyle, so their collapse will have a severe impact.
The 5% who live in this country will have to return to the lifestyle we had before 1945. It would have been difficult but not disastrous if we still had the same factories, trained workers, abundant natural resources, and thrifty habits as we did back then. It's true that these things are no longer available. In the Seventies, the factories were closed down as the empire's economy went into overdrive. The trained workers were then left to be neglected.
The natural resources we have today are not the same as they were in the past. What about the thrifty habits? They've been blown away by the wind for a very long time. It is more profitable to exploit unearned wealth abroad in the later stages of an empire than it is to try and produce wealth domestically. Most people follow this strategy. The typical late-imperial economic system is characterized by a governing elite that boasts of a fantastic level of paper wealth and a parasite group of hangers on that are able to survive off of catering to the rich and staffing the bureaucratic systems permeating public and private lives. Meanwhile, the majority of people live in poverty and are unwilling to do anything to improve their situation.
Betters themselves from the consequences of own actions.
There is a solution for all of this. It will take several decades of turmoil before we can achieve this.
The US economy must retool to produce real goods and services that are not financial. This will happen as unearned wealth flows decline, foreign goods are no longer affordable to the majority of Americans and the US becomes a profitable place to manufacture. It's difficult to undo a century worth of political and economic choices that were made to support the former imperial project.
What is the most obvious example? The enlargement of managerial positions in government, corporations and non-profits.
In an age of imperialism, this is a smart move, because it channels money into the consumer sector, which creates the few jobs that are left for the poor. Offices in both the public and private sectors are crowded with office workers, whose work does not contribute to national prosperity. However, their pay cheques support the consumer sector. This bubble is already losing its air. Elon Musk's takeover of Twitter led to him firing 80% of the staff. Other internet giants are also reducing their workforce, but not as much.
The recent hype about artificial intelligence has helped to amplify the same trend. The chatbots use programs called large-language models (LLMs) that are excellent at mimicking the predictable ways in which humans speak. Many office workers spend their days producing texts in this category, such as contracts, legal briefs and press releases. These jobs are disappearing. You can also say goodbye to many software jobs, as computer coding is more conducive to LLM production. The same problem affects any other economic activity that requires assembling predictable sequences. Goldman Sachs estimated in a recent paper that the cost of assembling symbols is about
300 million jobs
In the near future, LLMs will replace many of the existing industrial processes in the world.
CGI image creation is another technology that can produce similar results. Levi's has announced that it will be using CGI images in its advertising and catalogues instead of expensive models and photographers. The same will happen to the general public. Hollywood is next. It's not far away that a computer program will be able to harvest all of the Marilyn Monroe footage from her films and use it to create new Marilyn Monroe films for a fraction of the cost of hiring living actors, cameramen and other crew members. This will lead to a dramatic drop in the number of high-paying positions across many sectors.
What will be the outcome? One group of pundits may insist that nothing will ever change, while another will proclaim that the end of the world is near.
These are the two only options that our collective imagination is capable of processing these days. Of course, none of these things will ever happen.
The middle- and upper-middle class in the US and many other countries will instead be wiped out.