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RGE - The Decline of the American Empire
Recent economic, financial and geopolitical events suggest that the decline of the American Empire has started. After the collapse of the Soviet Union there was a brief period where the world switched from a bipolar balance of two superpowers to a unipolar world with one economic, financial, geostrategic superpower, or better, hyperpower, i.e the United States. But by now three factors suggest that the US has squandered its unipolar moment and that the decline of the American Empire - as the US was in effect a global empire - has started.

Let us explain how and why...First, the US squandered its power by relying excessively on its hard military power in the wars of Iraq and Afghanistan and in its unilateralist foreign policy - including economic issues such as global warming - rather than relying more on its soft power of diplomacy and multilateralist approaches to global policy issues.

Second, regardless of mistaken US policies the rise of other economic and financial powers - the rise of China, the recent resurgence of Russia, the process of economic and political integration in the European Union, the emergence of India, and the rise of other regional powers such as Brazil, South Africa and Iran - implies that the relative economic, financial and geopolitical power of the US will be reduced over time. We are indeed slowly moving towards a multipolar world where there will be a balance of Great Powers rather than the hegemony of a single hyperpower.

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Third, and more important, the US squandered its economic and financial power by running reckless economic policies, especially its twin fiscal and current account deficits.

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And while the weak dollar is now inducing a modest improvement of the external deficit the looming sharp increase in fiscal deficits - that the current recession and financial crisis is inducing - will cause a return of twin deficits in the coming years. By now the US is the biggest net borrower in the world - running current account deficits still in the 700 billion dollars range - and the biggest net debtor in the world with its foreign liabilities now over 2.5 trillion dollars.

The trouble with these twin deficits is multi-fold. First, superpowers and empires - like the British Empire at its peak - tend to be net lenders - i.e run current account surpluses - and be net creditors, not net debtors; The decline of the British Empire started in World War II when the British fiscal deficits in the war and the current account deficits turned that empire into a net borrower and a net debtor both in its public debt and external debt. That financial switch into an external debtor and borrower position was also the reason for the decline of the British pound as the leading reserve currency.

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Second... the economic powers financing the US twin deficits are the strategic rivals of the US - China and Russia - and unstable petro-states

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Third,... the foreign financing of the US current account deficits has also become more risky: less FDI and equity, more debt, more short term debt, more debt held by official political actors - central banks and sovereign wealth funds - , less debt held by foreign private investors, and more debt held by politicals rivals rather than allies of the US.

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Fourth, the foreign creditors of the US are getting tired of financing the US in the form of low-yielding US Treasuries. Thus the switch of such reserve holdings to SWFs that are planning to make large equity investments possibly with actual control of corporate firms and financial institutions that are desperate for capital to recapitalize themselves.

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The ensuing decline of the US dollar as the main reserve currency will take time and will not occur overnight; but it is inexorable given the relative fall in US economic, financial and geopolitical power.

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But the trend is clear: the brief period of unipolar power of the American hyperpower is now over and a new age of balance of great powers is starting in the world. Also, the rise of non governmental actors - multinational corporations, NGOs, terrorist groups, non-nation state powers, failed and unstable states, non-traditional global players - will radically change the traditional balance of power as the power of nation states will shrink relative to that of other global players.

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But it is certain that the decline of the American Empire has started.

And because NATO has mainly become a tool for maintaining Europe under US control, I think the decline of NATO has started, too...

"Dieu se rit des hommes qui se plaignent des conséquences alors qu'ils en chérissent les causes" Jacques-Bénigne Bossuet

by Melanchthon on Fri Aug 15th, 2008 at 10:27:38 AM EST
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