11/07/2010

The Empire's Decline — Where Do We Stand?

This is a good time to reassess how the Empire is faring. This blog's premise is that the United States is in permanent decline. Where do we stand? Is there a single shred of evidence that our premise is incorrect?

Try as you might, you will not be able to point to a single achievement or turn-around indicating that America is on the rebound. Our politics is still dysfunctional and corrupt. The too-big-to-fail banks are still too big to fail, except now there are fewer of them. The Financial Reform package did not reform finance, putting most of the crucial decisions into the hands of malleable regulators at the Fed and elsewhere. The steep cost curve for health care entitlements (Medicare) got worse, not better, as a result of health care reform. And so on.

What about the economy? GDP and jobs are the standard ways to measure our success. Despite a somewhat encouraging October jobs report, those counted in the Labor Force remains at a very depressed level. U5 unemployment stands at 11.1% (includes the "officially" unemployed, plus discouraged workers, plus all other persons marginally attached to the labor force, etc.).

And GDP? Since the low point in the 2nd quarter of 2009, 450.7 billion (chained, 2005) dollars have been added to real GDP. (The 2010:Q3 number has not been revised downward yet.) That may sound like a lot, but there has been about $900 billion of fiscal stimulus since the low point, and the Federal Reserve printed another $1.5 trillion, most of which they used to buy government-backed (agency) mortgage-backed securities (MBS). Needless to say, the Housing Market has yet to find the bottom.

Now the Fed is going to create another $600 billion out of thin air which is meant to further stimulate the economy (and will re-invest payments on the MBS purchases). All told, over $3,000,000,000,000 (trillions) will have been printed or borrowed to achieve $516 billion in GDP growth through the 2nd quarter of 2011 if Jan Hatzius' forecast is accurate, which is about 17% of the total investment.

Would you call that a success? Of course not. We don't have a recovery, but we are debasing the world's reserve currency and increasing the public debt to very dangerous levels. We have managed to stabilize the economy at a level which doesn't create jobs and increase final demand. We've barely made a dent in household debt. Manufacturing jobs continue to flee the country. The trade deficit has widened again. And the banks-housing nexus threatens once again to blow the financial system up. Fannie and Freddie will lose an estimated $800 billion when it's all over (another bank bailout).

I have only touched on a few of the signs of our decline here. If you're paying attention, you already know that nothing has changed in other areas of concern (income inequality, distribution of the wealth, crumbling infrastructure, dependence on imported oil, global competitiveness & education, and so on). Even as Americans still struggle to comprehend just how bad things really are, those overseas have no trouble understanding what is happening to America. Spiegel Online recently published A Superpower In Decline: Is The American Dream Over? Here's the view from Germany—

The United States is a confused and fearful country in 2010. American companies are still world-class, but today Apple and Coca-Cola, Google and Microsoft are investing in Asia, where labor is cheap and markets are growing, and hardly at all in the United States. Some 47 percent of Americans don't believe that the America Dream is still realistic.

The Desperate States of America are loud and distressed. The country has always been a little paranoid, but now it's also despondent, hopeless and pessimistic. Americans have always believed in the country's capacity for regeneration, that a new awakening is possible at any time. Now, 63 percent of Americans don't believe that they will be able to maintain their current standard of living.

And if America is indeed on the downward slope, it will have consequences for the global economy and the political world order.

The fall of America doesn't have to be a complete collapse — it is, after all, a country that has managed to reinvent itself many times before. But today it's no longer certain — or even likely — that everything will turn out fine in the end. The United States of 2010 is dysfunctional, but in new ways. The entire interplay of taxes and investments is out of joint because a 16,000-page tax code allows for far too many loopholes and because solidarity is no longer part of the way Americans think. The political system, plagued by lobbyism and stark hatred, is incapable of reaching consistent or even quick decisions.

The country is reacting strangely irrationally to the loss of its importance — it is a reaction characterized primarily by rage. Significant portions of America simply want to return to a supposedly idyllic past. They devote almost no effort to reflection, and they condemn cleverness and intellect as elitist and un-American, as if people who hunt bears could seriously be expected to lead a world power. Demagogues stir up hatred and rage on television stations like Fox News. These parts of America, majorities in many states, ignorant of globalization and the international labor market, can do nothing but shout. They hate everything that is new and foreign to them.

But will the US wake up? Or is it already much too late?

There is much, much more where this came from.

From my post The Wheel Of Suffering http://peakwatch.typepad.com/decline_of ... ering.html

Is it much too late? Or will Americans wake up?

In answering these questions, let's take a straightforward, empirical approach.

Are there any concrete signs that Americans are waking up?
No. The recent mid-term election proved beyond any doubt that as far as politics is concerned, it's still business-as-usual in America. The recent Fed QE2 initiative proved beyond any doubt that new strategies for fixing the economy are largely the same as the old ones—chase investors into "risky" assets to artificially inflate values and blow some new bubbles.

Is it much too late to stem our decline?

As of right now, apparently so.

http://www.declineoftheempire.com/2010/ ... stand.html