Is This The End of the American Century?

This site features updates, analysis, discussion and comments related to the theme of my book published by Rowman & Littlefield in 2008 (hardbound) and 2009 (paperbound).

The Book

The End of the American Century documents the interrelated dimensions of American social, economic, political and international decline, marking the end of a period of economic affluence and world dominance that began with World War II. The war on terror and the Iraq War exacerbated American domestic weakness and malaise, and its image and stature in the world community. Dynamic economic and political powers like China and the European Union are steadily challenging and eroding US global influence. This global shift will require substantial adjustments for U.S. citizens and leaders alike.

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Wednesday, September 17, 2008

The Unraveling of the U.S. Economy

Since I posted “Bankrupt America” here ten days ago, major pillars of America’s financial edifice have come crashing down. First, the federal government had to take control of Fannie Mae and Freddie Mac, the nation’s two largest mortgage finance companies. Then the prominent securities firm Lehman Brothers declared bankruptcy, and the even more venerable Wall Street firm, Merrill Lynch avoided the same by selling itself to Bank of America. Today the Federal Reserve announced that it was taking over the insurance giant, A.I.G., in a bailout that will cost taxpayers $85 billion.

These are all huge companies—mainstays of the U.S. economy. It is difficult to make much sense of Senator John McCain’s assertion that “the fundamentals of our economy are strong.” These companies were the fundamentals, and they are all bankrupt. Most people, even most financial analysts, I think, do not quite grasp how elemental these developments are. They signal a shift that is as fundamental for the United States as global warming is for the planet.

The collapse of these financial institutions are part of the bigger picture of economic weakness that I describe in The End of the American Century. The United States has been overspending and under saving for a generation or more, and this has led to borrowing, deficit spending, and debt inside and outside the government. As I write near the end of Chapter One of the book, “where the U.S. once drove the world economy through economic growth, invention, and productivity, now it is doing so almost entirely by consumption but at levels it cannot pay for.”

The consumer spending and borrowing binge has been fueled by the growth of the financial services industry, which has increasingly replaced manufacturing as the mainstay of the U.S. economy. The shrinking manufacturing sector now accounts for only about 10 percent of corporate profits in the U.S., compared to 44% of such profits from the financial sector. Banks, mortgage companies, loan agencies and credit card companies make their money by making loans, and they are constantly seeking new customers and encouraging existing ones to borrow more.

It is this symbiotic relationship between binging consumers and profit seeking financial companies that has created the piles of consumer debt—the largest in U.S. history. All of this is starting to unravel now. People borrowed more than they could afford; the mortgage crisis undercut their ability to repay loans and mortgages; the banks and loan agencies faced mounting defaults and declining profits and stock prices. And as goes the financial sector, so goes the rest of the economy.

This is not some episodic financial downturn. The chickens are coming home to roost, and they have nowhere to land. The U.S. government has record budget deficits and is deeply in debt; Social Security is unfunded; households have zero savings (literally); the dollar is at record lows; energy at record highs; and now the stock market is taking a bashing. Former Fed chief Alan Greenspan told ABC that this is a “once-in-a-century type of event.” And former Commerce Secretary Peter Peterson, who I invoke in my “Bankrupt America” post, admitted that “these are the most extraordinary events I’ve ever seen.” (NYT 9/15/08).

In The End of the American Century, first written a year ago, and appearing next month, I wrote this at the conclusion of my Chapter One on “Imperial Overstretch and Economic Decline”:

A serious recession, perhaps even a depression, is the probable outcome. Such a recession will actually be necessary, however, for the long-term viability of the American economy. It will cause unemployment in the short run and declining wages and incomes in the long run, but this is inevitable if balance is to be restored. The U.S. economy will shrink, as will the country’s standard of living. This will simply reflect the actual economic situation in the U.S., which for so many years has been obscured by mortgaging the future with deficits and debt. The U.S. will no longer be the dominant economic power in the world, and with economic decline will come military, diplomatic, and political decline.”

What does all this mean for us? Stay tuned. (And your comments and thoughts are welcomed).

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3 comments:

ken said...

Your riding in a bus. On the left is the Democratic side, on the right is the Republicans, but it's the driver who decides where we are headed...

"The real menace of our Republic is the invisible government which like a giant octopus sprawls its slimy
legs over our cities, states and nation. At the head is a small group of banking houses. This little
coterie runs our government for their own selfish ends. It operates under cover of a self-created screen,
seizes our executive officers, legislative bodies, schools, courts, newspapers and every agency created for the public protection.” -N.Y. Mayor, John Hylan, 1922

"[The New World Order] cannot happen without U.S. participation, as we are the most significant single
component. Yes, there will be a New World Order, and it will force the United States to change its
perceptions." -Henry Kissinger, World Affairs Council Press Conference, Regent Beverly Wilshire Hotel,
April 19th 1994

"I sincerely believe that banking establishments are more dangerous than standing armies ... If the
American people ever allow the private banks to control the issue of their currency, first by inflation,
then by deflation, the banks and the corporations that grow up around them will deprive the people of all
property until their children wake up homeless on the continent their fathers conquered.”-Thomas Jefferson

"The issuing power should be taken from the banks and restored to the people, to whom it properly
belongs."
-Thomas Jefferson

"It was not my intention to doubt that the doctrines of the Illuminati had not spread in the United
States. On the contrary, no one is more fully satisfied of this fact than I am." -George Washington, 1782

Ray said...

The US economy may be overreported on by big media, little media, HD TV, Bloggers, aggregators and all the rest. I look at all the $150K jobs posted on employment sites and say...there are jobs out there.

http://www.linkedin.com (networking site)
http://www.indeed.com (aggregated listings)
http://www.realmatch.com (matches you to the perect job)

See what I mean?

DSM said...

The quotations Ken cites are interesting but I don't agree that there are conspiracies involved in this financial turmoil, or that it is a function of anyone deliberately trying to re-order the world.

A new global order is indeed emerging, but the U.S. will have a much smaller role in it, and this shift is due in large part to the WEAKNESS of the U.S. economy and its financial institutions.