"American Hegemon"
War, inflation and other familiar signs on the road to ruin...
By Bill Bonner and Joel Bowman
Buenos Aires, Argentina - "For the past 30 years, the American hegemonic project has proved both unsustainably expensive and strategically illusory." ~ The 2018 "National Defense Strategy: Continuity and Competition"
"We arrived in Buenos Aires this morning. Population: 3 million. Temperature: about 75 degrees. Inflation rate: 99%/yr. How can you live well when prices double every 12 months? We’re going to find out.
Meanwhile, we’re working our way through recent headlines, trying to see where we might be headed. We believe they point to a ‘cluster’ of catastrophes… financial, economic, political and social. The money disaster is obvious. Americans owe too much money, in debts contracted at very low interest rates. As rates rise – which they must, both in response to and opposition to inflation – trillions of dollars’ worth of debt will have to be written off or inflated away. The other disasters are less obvious. It’s one of those that we look at today.
Top Dogs: Empires don’t act like normal countries. They are the alpha male of nations. Or, as Madeleine Albright put it, they are the “indispensable nation.” Like the lead dog on a sled team, they dominate other dogs – by force – and fight off rivals. But as they age, they become vulnerable. It is just a matter of time before the pack turns on them.
Empires age too. They ‘over-stretch.’ They get involved in too many battles...and spend too much money. Then, war and inflation, like age and infirmity, do their work…As reported yesterday, the best recent advice on the war in the Ukraine came from an unlikely source: Mr. Donald Trump. It was he who proposed (before the Deep State insiders got him back on the leash) that the US leave NATO…and it was he who just followed up by suggesting that we should say ‘no’ to requests for more military aid to the Ukraine.
Alas, Mr. Trump is as unreliable to his friends as to his enemies. Now, he claims he saved NATO: “I hope everyone is able to remember that it was me, as President of the United States, that got delinquent NATO members to start paying their dues, which amounted to hundreds of billions of dollars,” Trump wrote in a statement released Monday. “There would be no NATO if I didn’t act strongly and swiftly.”
So, let us leave Mr. Trump and turn to more constant sources. George Washington in his 1796 farewell address warned against ‘foreign entanglements:” "Against the insidious wiles of foreign influence... the jealousy of a free people ought to be constantly awake, since history and experience prove that foreign influence is one of the most baneful foes of republican government."
Words of Warning: But an empire needs to act like an empire. After conquering its own Southern States, it took on Spain…and then Germany…and then Japan…and then the Soviet Union…and then…and then… In his farewell address, in 1961, Dwight Eisenhower warned against where this would lead: "We must guard against the acquisition of unwarranted influence, whether sought or unsought, by the military-industrial complex. The potential for the disastrous rise of misplaced power exists and will persist.
We must never let the weight of this combination endanger our liberties or democratic processes. We should take nothing for granted. Only an alert and knowledgeable citizenry can compel the proper meshing of the huge industrial and military machinery of defense with our peaceful methods and goals, so that security and liberty may prosper together."
Taking their wealth and liberties for granted, Americans fell asleep…and the Deep State (along with the entire class of elite…which Antonio Gramsci called the ‘hegemon’) grew. Now it is unstoppable.
Meanwhile, since the time of Peter the Great, in the 17th century, Russia has periodically tried to join the family of European nations. By most accounts, this is what Vladimir Putin desired as well.
Know Thy Enemy’s Enemy: But the hegemon had other ideas. The US/EU/NATO party was already underway in Europe, and the Russians weren’t invited. Instead of leaving NATO, the US strengthened it. And when war broke out, NATO formed up on the side of The Ukraine (though the Ukraine was not a treaty member). This left Russia to seek allies elsewhere. It is finding them, in Africa…and in Latin America. Most ominously, it is creating a potent new coalition…with the natural resources of Russia and Iran, the human resources of India, and the financial and technical resources of China. They are already sharing energy and raw materials, a rival currency and a new financial clearing system.
What will the future bring? We’ve read no more of tomorrow’s headlines than you have. But it looks like America’s wars and sanctions may be breeding the next lead dog. Empires have to die somehow. Inflation and war are time-tested ways to kill them."
Joel’s Note: "If you want to know how the world ends, with a whimper or a bang, you can do worse than examine the situation on the ground here, down at the “fin del mundo.” As Bill mentioned above, inflation is running at a red-hot 99% in Argentina. Here’s the chart, from Bloomberg:
Citizens of orderly, developed nations – with “puny” inflation rates of, say, 6... 8... or even 10%... – want to know: what does 99% inflation mean, practically? How does one run a business... save for retirement... protect one’s wealth from the ravages of money printing?Answer: With great difficulty... stealth... cunning... and a well-honed sense of humor.
First, every business owner keeps (at least) two sets of books: one for the government’s eyes, one for the actual accounts. A friend went through the corporate tax laws here some years ago; if a company was to pay all it owed, officially, its tax bill would amount to something like 120% of earnings. Not even the Argentine government itself expects its citizens to pay that much.
Second, folks get out of the peso, any way they can. The government is strict about capital controls, allowing Argentines only a small allowance (about US$200) of foreign currency purchases per month. So people exchange on the widely-used black market, where, because of the premium on highly sought-after dollars, the unofficial rate is about double what the official rate is. (The official rate this morning was 191 pesos to US$1; unofficially, it’s 374:1) From a local site, DolarHoy.com…
Money exchanging “cuevas” (literally “caves”) are dotted all over the city. They’re “illegal,” but nobody pays attention to the laws anyway. It’s not uncommon to see police officers moonlighting, in uniform, as security guards out front of the exchange houses. (The cuevas pay them in USD, while the government only pays in pesos, so it’s really a no-brainer.)
Third, when and where they can, locals buy real assets. For some, that means farm land. For others, it’s gold or apartments in the city or even building materials. (A pallet of bricks will still be a pallet of bricks a year from now... while a thousand pesos will only be worth five-hundred, at most.) In recent years, younger people have sought refuge in cryptos, with widely varying degrees of success.
And finally, the porteños have a sense of humor and perspective as to what’s really important in life... The subject of inflation came up over dinner last night, at a packed restaurant (Lo de Jesus is a neighborhood favorite, frequented by locals and gringos alike). We were entertaining an old friend, visiting from California. “You wouldn’t think the economy was in the tank,” he remarked. “This place is packed!” “That’s because everyone is getting rid of their pesos as quickly as possible.” “What, by eating them?” “And drinking them, too.” We pointed to the table next to us... and the half a dozen dead malbec soldiers in front of a jovial group of about the same size. “Better six bottles today than three in a year’s time.”
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