AL JAZEERA COLUMN: Tied to a Drowning Man

The interconnectedness of the world economy means that US economic woes will have severe effects on others.

During the Tajik Civil War of the late 1990s soldiers loyal to the central government found an ingeniously simple way to conserve bullets while massacring members of the Taliban-trained opposition movement. They tied their victims together with rope and chucked them into the Pyanj, the river that marks the border with Afghanistan. “As long as one of them couldn’t swim,” explained a survivor of that forgotten hangover of the Soviet collapse as he walked me to one of the promontories used for this act of genocide, “they all died.”

Such is the state of today’s integrated global economy.

Interdependence, liberal economists believe, furthers peace—a sort of economic mutual assured destruction. If China or the United States were to attack the other, the attacker would suffer grave consequences. But as the U.S. economy deteriorates from the Lost Decade of the 2000s through the post-2008 meltdown into what is increasingly looking like Marx’s classic crisis of late-stage capitalism, internationalization looks more like a suicide pact.

Like those Tajiks whose fates were linked by tightly-tied lengths of cheap rope, Europe, China and most of the rest of the world are bound to the United States—a nation that seems both unable to swim and unwilling to learn.

The collapse of the Soviet Union, a process that began in the 1970s and culminated with dissolution in 1991, had wide-ranging international implications. Russia became a mafia-run narco-state; millions perished of famine. Weakened Russian control of Central Asia, especially Afghanistan, set the stage for an emboldened and highly organized radical Islamist movement. Not least, it left the United States as the world’s last remaining superpower.

From an economic perspective, however, the effects were basically neutral. Coupled with its reliance on state-owned manufacturing industries to minimize dependence upon foreign trade, the USSR’s use of a closed currency ensured that other countries were not significantly impacted when the ruble went into a tailspin.

Partly due to its wild deficit spending on the gigantic military infrastructure it claimed was necessary to fight the Cold War—and then, after brief talk of a “peace dividend” during the 1990s, even more profligacy on the Global War on Terror—now the United States is, like the Soviet Union before it, staring down the barrel of economic apocalypse.

Read the full article at Al Jazeera English.

7 thoughts on “AL JAZEERA COLUMN: Tied to a Drowning Man

  1. In 1945, the Great Powers were destroyed, the USSR was Communist, and the US dollar could be redeemed for 1/35 oz of gold by anyone not a US citizen or permanent resident. Since it could be so freely exchanged, it was better to keep the dollar than exchange it, since gold must be assayed, and is far less convenient than paper.

    In 1971, Nixon defaulted on US debt. A debt of a dollar would not be redeemed in gold, but only in paper. But the world was stuck: the dollar was the key currency.

    Other nations have complained about that since ’71: why should one nation with a purely fiat currency have the world’s key currency by the short hairs?

    But they have no place to go, so they’re all stuck.

    ***

    Once, International Trade was a small part of global GDP. Now it’s a major part.

    And if the US collapses, if the dollar ceases to be the key currency with no replacement in sight, the entire world economy will be severely disrupted, and many will starve, and more will die from pestilence and war. The Four Horsemen will be very busy.

  2. @Ted: There are some interesting things in this article, but I also strongly disagree with a lot of it.

    Yes the American economy is in a tailspin, but the dollar is actually doing really well. In fact, if current trends continue the American economy can basically finish crashing and begin to burn as rubble on the ground before the dollar really starts to become toxic…and then worthless. There are probably a number of reasons for this which are well beyond my fairly limited knowledge of macroeconomics on an international scale, but surely one part is the flip side to what you are talking about. Everyone uses the dollar, and so it has become an international currency and as such it has become surprisingly decoupled from being dependent solely on the US economy.

    If we are to use your “drowning man” metaphor, then the bloated corpse that is the US economy is actually tied to so many other people that those who are still alive are actually collectively doing a good job in keeping the whole bundle afloat. At least they are for now, they will tire out eventually but maybe not as quickly as you might expect.

    This isn’t to say that the economic collapse of the US won’t drown everyone. It will, but it probably won’t be via the destruction of the dollar, at least not at first. Instead the initial critical wound will be inflicted from various trade agreements and outsourced jobs and such disappearing and collapsing as well as the collapse of investments that rest on portions of the US economy.

    As for China’s thoughts on US debt and dollar values. BOO HISS!!! I expect better from you Ted. China buys dollar reserves and US treasury bonds not primarily because they are a source of stability, though they are certainly that as well giving them bonus value to China, but because China’s purchasing of US money and Treasuries keeps the US currency expensive relative to China’s. As long as China can do things like this to keep its money artificially weak and the dollar artificially strong by comparison, then the jobs and wealth of America flow out to China. If the US manages to break this, then some of the jobs and the wealth formerly lost to China start to flow back to the US.

    Now China stands to loose double. It has spent so long buying US treasuries and currency to maintain the outflow of wealth and jobs in its favor, that it has massive reserves of these, as you point out. Thus, if the US manages to print enough money to break the back of this Chinese strangle hold on the US economy China stands to loose not just jobs and wealth back to the US, but also suffer a loss in hundreds of billions of dollars worth of investment as its US currency and treasury reserves evaporate in the healthy rush of overdo US inflation. (NOTE: the metric of “real inflation” that you use in the article is an important measure for the health and well being of citizens and it is very high right now, but the form of inflation that would be healthy for the US right now is actually very low currently.)

    Thus whenever China goes out and says things like “The US must learn to live within its means.” and “The US cannot just print its way out of all its problems.” What China is actually saying is “We stole all this fair and square so please don’t try to take any of it back.” It doesn’t actually have any baring on the reality of the standing and future of US currency. It is propaganda pure and simple.

    Long run, like say 2025+, the US will have a debt crisis, mostly due to healthcare costs and a bit due to lack of revenue. But in the short run, the US both can and should print and borrow its way out of its current situation. Have you seen the 10-year treasury yield recently? Its negative in spite of high unemployment! That is free money, the market is practically willing to pay the US to print and borrow more money in the short to short medium term.

    The dollar is fine Ted, it everything else that sucks.

  3. Here is the best way to use your, now overextended, drowning man metaphor. If the bundle represents the dollar and the people of the bundle represent the various national economies that use it, then what will likely kill these people is not drowning (i.e. the collapse of the dollar). Instead, while the individuals swim hard enough to keep the bundle afloat in-spite of the US’s bloated rotting corpse, various predatory creatures, attracted by the bleeding and decaying US corpse, come to eat the rest of the people.

    Or perhaps even more accurately: diseases from the festering of the US corpse causes the rest of them to become deathly ill, and the bundle finally drowns after they are all to weak to keep it afloat because they are all already dying from the plague.

  4. Thanks for the exposure to the English edition of Al Jazeera.

    It is nice to see an outlet for people looking out side the American Journalistic Main Stream Media Cabal (a wholly owned subsidiary of News Corporation.)

  5. @Ted, certainly but even after its issuer tanks the dollar will still be a surprisingly stable and valuable currency (relatively speaking) because it is being held up by so many other countries via its standard international use. This can hold up the dollar even though these other countries are not the dollar’s issuer. If the US finishes economically collapsing, the last thing to go will be the dollar. The countries using the dollar will suffer more from the economic collapse of the US then dollar which should remain fairly robust right until the end, and possibly a little beyond. The dollar will start collapsing once these other countries also catch the economic diseases from a collapsing US, but should be able to still rely on dollar until after they too start to rot.

    Its like how even after a person dies there are little pockets of cells that continue to live some times for days afterwards. But yes you are right, in the end even these will fall eventually because the body supporting them has gone.

    In conclusion the dollar is the least craptacular thing about the US economy right now, and is so by a lot. The dollar is the last thing the US and the World has to worry about relative to the many things the world and the US have to worry in relation to the current state of the US economy and its future outlook and impact. Also, even if you disagree with me that doesn’t mean the flagrantly wrong Chinese propaganda you used in your article is suddenly correct or worthy of use for making a valid economic point. You might as well be using quotes issued from the propaganda campaigns of Joseph Goebbels as evidence. I don’t think so… homey don’t play that.

  6. A suicide pact is a striking metaphor, but such arrangements do seem to be the only reliable way to keep the peace. Mutually assured destruction anyone? We’ve probably gone longer without a war between major powers than at any time since the Pax Romana. That is because the leaders who would order said war know they would be as likely as anyone else to be killed. By keeping the peace through globalization, were just talking about the elites going broke instead of getting nuked.

    Marx’s late stage capitalism is one way to look at our depression and kleptocratic bailouts. Another way to look at it is just as the late stage of a business cycle. Our politicians keep trying to roll back the business cycle from bust back to boom since the big players finally lose in the bust. This is unsustainable, since the bust will always be ahead if they do succeed in rewinding the business cycle by months or even years. Incompetent management needs to be booted out and companies with failed business models need to be liquidated to provide space for true economic growth. The little guy already lost a long time ago but our leaders still don’t care. The government can promote the general welfare without corporate welfare if it was genuinely inclined to solve social problems like unemployment and lack of heathcare. Linking corporate welfare to relief for the average citizen and saying we can’t have one without the other is a logical fallacy promoted by the Obama democrats who love to play good cop bad cop with the Teabaggers.

    Ultimately late stage capitalism and late stage of a business cycle may differ only in the prescribed treatment. Do we want to recover as a market economy or a Marxist one?