“Does the US matter any more?” The question comes to us from the head of research at Societe Generale. Looking at the data from the International Energy Agency in Paris, reported in this space yesterday, he noticed that now China, Russia, India and the Mideast use more oil than the USA. What’s more, energy use in America is going down…while it is skyrocketing in those other countries. Thanks largely to growing demand in the emerging markets…and the falling value of the U.S. currency…the price of oil hit a new record yesterday – at $118.
The United States matters less and less to the oil market – but is still very important, of course.
We have guessed that the United States of America is a sell. Its money, its paper, its property, its labor, its stocks, its industries, its debt – sell them all.
We don’t mind saying so…still, we don’t like to hear the foreigners say it. A man may have noticed the swelling with his own eyes; still he doesn’t like to hear a stranger say his wife is getting fat. So when the Financial Times comes out with an article saying the same thing, it sticks in our craw.
At least the FT is nice enough to use a euphemism. Instead of seeing the United States on its knees, it sees the “end of unipolarity.” As we all know, when the Soviet Union threw in the towel in 1989, the US was the world’s undisputed hegemon. America was on top of the world – with no real competition. It was a “unipolar” world, as the FT would put it. The stock market boomed. The dollar rose. America’s chest swelled with homegrown pride and the entire world’s credit. And by the late ’90s, President Clinton summed it up: “things couldn’t get better,” he said.
He was right. They couldn’t. So, they got worse.
No nation can stay on top of the world forever. But when you have no competition, you can’t rely on others to bring you down; you have to find ways to destroy yourself. For that job, America found just the men it needed just when it needed them most – Alan Greenspan and George W. Bush. What these two men accomplished is probably one of the greatest feats in human history. They took the richest, most powerful country the world has ever seen and, in the space of only five years, practically ruined it.
First, says the FT article, the soaring price of oil had the effect of transferring trillions of dollars from the biggest oil user – the United States – to the oil producers, notably the Arab states and its former enemy, Russia.
Second, the federal government went from a budget surplus over $100 billion in 2000 to some of the largest government deficits ever recorded. Those, along with huge current account deficits equal to 6% of GDP, changed the United States from a chooser into a beggar – heavily reliant on foreign money.
The FT doesn’t mention it, but America’s spending spree had another important effect – it lit a fire under its new commercial rivals. Americans spent absurdly – which caused the Chinese to build factories, learn skills, and pile up a mountain of U.S. dollars.
Professor Paul Kennedy practically foretold all this when he noted that super-powers tended to “over-reach.” But even he couldn’t imagine how much of this over-reach would be caused by so few people in such a short period of time. Alan Greenspan reached for the stars in the early 2000s. His emergency-level Fed rates triggered an explosion of spending, borrowing and leveraging…which has now blown up in our faces.
And the Bush Administration took on a war that has proved to be costly beyond anyone’s imagination. The total price of the war may come to $1 trillion or more – at a time when the United States already needs to borrow $2 billion per day.
Obviously, more prudent, more cautious leaders would have prevented these catastrophes. They would have read history…reduced expenses…raised interest rates…pulled back the troops…and saved money. But sensible leaders do not make history. Fools do. People reach for glory. Then, they over-reach.
“Oh, look,” said Elizabeth on yesterday’s walk about. “This Piazza Navona is built around what used to be Emperor Diocletian’s stadium. I don’t know anything about Diocletian…”
“The only thing I know,” we replied, “was that Diocletian prefigured Richard Nixon by about 19 centuries.”
“What do you mean?”
“Diocletian was faced with high rates of inflation. He imposed price controls as a way of trying to control prices. Of course, they didn’t work. They never do. But Richard Nixon probably never read the history of Diocletian’s price controls. Otherwise, he wouldn’t have done such a stupid thing.”
George W. Bush and Alan Greenspan, too, may have long arms…but they are short on history. Still, the pair seems to have worked a turnaround that history will record as one of the greatest ever.
After being on top of the world so recently, now…the United States slips and slides. The banks are in trouble…homeowners are in trouble…and the economy is in such trouble that the feds are now considering new emergency measures to rescue it.
From California comes word that foreclosures are running 327% ahead of last year. Drivers are cutting back on gasoline use – for the first time in U.S. history they have to compete with the Chinese for every gallon. They’re “feeling squeezed,” says an AP report.
Americans now earn less than the French. How long will it be before they earn less than the Chinese? How long before Washington melts into the Potomac?
Markets and Money