More thoughts on the “dreamland” described by Wolfgang Schivelbusch in The Culture of Defeat. In the concluding chapter he says…
The West’s victory in the Cold War was, however, the first to be achieved explicitly by the economy in its own name. Perhaps it is for this reason that the economy received a new nom de guerre: globalization.
… The growth in the economy’s power and prestige after 1990 was not confined to its functional efficiency but came to touch areas of society previously monopolized by religion and nationalism. If people looked toward anything in the hope of salvation or in fear of damnation, it was increasingly the economy. Having lost faith in God, the nation, and utopian politics, they credited the economy with the power to both create paradise on earth and to destroy life as they knew it. In the West, the threat of collective extinction attached no longer to war — which had in any case become a long-distance media event — but rather to the economy, with its doubt threat of devastating the environment and wiping out jobs
Like Minerva’s owl, our faith in Mammon may have come too late. A grim future of geopolitical and economic problems presses on our imaginations as we see the end of our hegemonic delusions, founded as they were on unlimited borrowing at low interest rates. In response we retreat into comfortable dreams. We can elect leaders with vast ambitions (foreign for McCain, domestic for Obama), but can no longer afford them.
The reason is simple: our imperial economy is metastable. Apparently stable (a pseudo-equilibrium), but vulnerable to a sudden and radical change resulting in a truly stable condition (such as I described here and here). It is like a “hanging rock” — a small push can move it to a firmer foundation. In addition to geopolitical instability, the result of decades of unsound grand strategy, the economic foundation of the American hegemony has large cracks. The cracks might be opening NOW.
At any time we might see currency flight from the US dollar. Not only could this happen at any time, afterwards we must endure economists explaining how inevitable and obvious it was. Every tick down in the dollar’s value makes our foreign bases and adventures more expensive for us.
The rising stress on our financial system (deleveraging in extremis) continues to break links in our economy’s fabric. As each link breaks, the stress rises on the remaining links. If this ripping continues, it will certainly cause serious damage. Consider what we have seen during the past year: collapse of the asset-backed commercial paper market, defaults on subprime mortgages, collapse of the mortgage brokers, alt-A mortgage defaults, collapse of the auction-rate securities market, near-collapse of the monoline insurance companies, rising incidence of voluntary defaults on prime mortgages, rising rates of default on commercial mortgages-auto loans-credit card loans, and today warnings about another cycle of bank failures. What is the next weak link to break? What will stop the tearing?
We have begun a downturn which, due to our high level of household debt, might lead to a long and deep recession (i.e., like that of 1973-75 or 1980-82 — nothing we have not survived before). Our economic stabilizers — fiscal, monetary, and fx policies — are exhausted from decades of foolish overuse. Our leaders have no plans to deal with this, and are doing none of the analytical research that can lead to sound plans. Hence the most likely outcome if things deteriorate is desperate and foolish boldness.
The economy has become globalized. The path taken will depend not just on global economic factors (e.g., selling of the US dollar by private European investors), but also the political decisions of the world’s great powers — both our our friends and enemies.
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For more information about this subject
A brief note on the US Dollar. Is this like August 1914? (8 November 2007) — How the current situation is as unstable financially as was Europe geopolitically in early 1914.
The post-WWII geopolitical regime is dying. Chapter One (21 November 2007) — Why the current geopolitical order is unstable, describing the policy choices that brought us here.
We have been warned. Death of the post-WWII geopolitical regime, Chapter II (28 November 2007) — A long list of the warnings we have ignored, from individual experts and major financial institutions (links included).
Death of the post-WWII geopolitical regime, III – death by debt (8 January 2008) – Origins of the long economic expansion from 1982 to 2006; why the down cycle will be so severe.
Geopolitical implications of the current economic downturn (24 January 2008) – How will this recession end? With re-balancing of the global economy, so that the US goods and services are again competitive. No more trade deficit, and we can pay out debts.
- A happy ending to the current economic recession (12 February 2008) – The political actions which might end this downturn, and their long-term implications.
- What will America look like after this recession? (18 March 208) — More forecasts. The recession might change so many things, from the distribution of wealth within the US to the ranking of global powers.
The most important story in this week’s newspapers (22 May 2008) — How solvent is the US government? They report the facts to us every year.
To see the all posts on this subject, go to the archive for The End of the Post-WWII Geopolitical Regime.