It’s the end of another empire. The US government, once the most trusted creditor in the world, is nearing a ‘government shutdown’. Zero hour is supposedly tomorrow US time, so tonight our time. The media is having a field day with this one.
But what’s going on? Well, the heartless Republicans want to de-fund the brainless Democrat’s Obamacare, and are holding the rest of the government budget process hostage on that demand.
Of course, if there’s a government ‘shutdown’, the government isn’t really going to shut down. America’s military bases around the world will carry on their day to day business of bombing Afghanis, Pakistanis and anyone else they can find who doesn’t have enough sympathisers in Europe, America’s key ally. The American government will still pay its interest bill on the trillions of dollars it owes the Chinese, Saudis, Russians and whoever owns all the bonds parked around the Caribbean for tax purposes. We’re guessing the politicians will still be paid too.
In fact, the vast majority of the American government’s bills will still be paid in a shut down. That’s because the government’s version of a ‘shut down’ really means living within your means. Running a balanced budget might be something you do every day, but to politicians and economists it’s a devastating concept. One that could reduce American economic growth by a whopping 1.4% in the fourth quarter. Golly gumdrops, 1.4%! The Americans, being American, annualise their GDP growth figures. So 1.4% in the fourth quarter is really just 0.35% to the rest of the world.
But why gloat about America’s demise? Our boss is American. The founder of our publishing company and the Daily Reckoning is American. Australia’s defence force, is in effect, American too.
The government shutdown story is largely symbolic. That might seem boring, but it’s a kind of signal that investment trends will change. To find out how, let’s take a look at ancient Rome. Rome’s financial structure was based on exploitation. Loot, slavery, taxes and all sorts of other ways of extracting wealth funded an impressive army and civic system. But eventually that system’s cost outpaced its financial backing and the empire crumbled.
Today, America’s empire is beginning to stumble for the same reasons. Its military is even more dominant than Rome’s was. It borrows money from overseas instead of looting it. And it uses cheap labour to pay for its consumption goods. But now expenses are outpacing its financial capacity. Debt limit battles, economic crises and a backdown on Syria are all symptoms of a declining empire.
But declining empires, whether they’re Australian housing or the world’s superpower, aren’t necessarily bad. They create the incentive for people to be independent instead of reliant on the state. The process of creative destruction is on the move on that front already in the world of technology.
As we discovered in an interview for The Money for Life Letter last week, in a few years’ time you’ll be generating your own electricity within your own home. No more incompetent power utility companies, ugly and dangerous power lines or surging network costs. Complete independence.
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