DEATH of the AMERICAN EMPIRE...
originally published September 24th, 2009
The general public, who never understood the global financial crisis in the first place, have been hoodwinked into
thinking it’s over. It’s not. None of the underlying structural abnormalities, distortions and excesses within the
global financial system have been addressed and rectified, because to do so in a meaningful way would involve
allowing a constructive depression to purge the system of dross and parasitic elements (like much of government
itself) in what would amount to a teardown and rebuild. Instead, the same crew who got us into this mess are still in
charge, and their “solution” to the global financial crisis has been even more extravagant helpings of what cre-
ated the mess in the first place - namely money and credit creation. This shameless procrastination has not and
will not fix anything - all it has done is postpone the day of reckoning and guaranteed an even worse crisis later.
Recession, depression and deflation have their rightful place in the scheme of things, which is to straighten the
system out after a prolonged period of profligacy. The willful obstruction of these forces is ulti-
mately counterproductive and futile. Almost all of you will be aware of the longstanding inflation versus deflation
arguments, which still rage. What happened last year is that the deflationary forces that had built up to explosive
proportions suddenly burst into the open. However, instead of allowing these cleansing forces to do their grim work,
The US Fed and government and then Central Banks worldwide decided to beat them back with a massive infla-
tionary frontal assault of money and credit creation. There should by rights have been many more bloated car-
casses like Lehman Brothers floating down the river, but instead we have the legacy of an army of zombie corpora-
tions, hopelessly corrupt and mismanaged, lurching towards us like the figures in the The Night of the Living Dead
<http://en.wikipedia.org/wiki/Night_of_the_Living_Dead> . The same rotten management with their
crony connections in government, the same leeching off shareholders and the public purse, and the same soaking
of gullible foreigners with share and bond issues. However, there is a limit to everything, and as made clear by Karl
Denninger in his recent article “WARNING: Deflationary Collapse Dead Ahead“, the US debt is continuing to accel-
erate into the stratosphere, racing way ahead of GDP so that it is effectively unserviceable already. Any significant
increase in interest rates would make it blatantly obvious that it is unserviceable and lead to default - this is why
interest rates have been held at such an artificially low level for so long, but this itself is creating massive problems.
For a start it is undermining the dollar which is threatened with collapse, and extremely low rates and inflation of
the money supply are also encouraging another carry trade boom in commodities and other assets. Another big
danger is that the US can no longer count on dull witted foreigners to keep buying increasingly large tranches of
Treasuries to keep the party going. Foreigners are slowly wising up and refusing to fall for it, which means that in
order to meet its funding requirements the US Fed and government are having to buy their own garbage, which
is of course hugely inflationary. So what we have is a bizarre stagflationary situation, where an attempt is being
made to beat back massive deflationary forces by means of further money and credit creation. This continues to
ramp up the national debt to astronomic levels requiring a continuance of zero interest rates to avoid default. The
zero interest rates and continued expansion of the money supply threaten to destroy the dollar, but if rates are
raised significantly default will rapidly ensue. This is a classic Catch 22 situation and it is quite clear that the United
States is on its way to being a third world country. If default occurs and the banks in the US close their doors things
could get ugly really fast, with the prospect of 100 million people with guns going on the rampage looking for food
and essentials - and someone to blame. Martial Law and a curfew with a “shoot to kill” policy would have to be
declared instantly - fortunately this has been catered for by the provisions of the Patriot Acts. There is however
one escape route that might enable the US to avoid the indignity of ending up like Zimbabwe, and that is for it to
“surrender” to its creditors and submit to being economically carved up by them. In effect sovereignty would be
lost, but face-saving measures might be permitted such as allowing the inhabitants to continue to cele-
brate Independence Day, and to fantasize that the Constitution of the US still applies and to plaster flags every-
where etc. On the plus side the paranoid nonsense at airports will probably be curbed and meals may even be
reintroduced on flights, with curries and sushi as an option.. The creditors will call the shots and the US military
machine will be neutered, so that there will be no more military adventures on the other side of the planet to secure
geopolitical objectives. US military bases will all be closed down or maybe refurbished as schools. Israel could find
itself with a sudden severe funding crisis. Major US corporations will effectively be run by foreigners who will re-
structure them as they see fit - which could be good news for US waistlines as workers start their day with Tai Chi
and a session on the treadmill.. Large tracts of Real Estate and other assets will be taken over in lieu of
debt repayment. The Hamptons may be largely peopled by Asian entrepreneurs. There will be work for Americans
in their own country, however, with plenty of vacancies bagging groceries and stacking shelves in supermarkets at
decidedly modest rates of pay and plenty of other service opportunities for their new masters such as gardening
and window cleaning. “Green cards” may even be permitted for the lucky few - not to enter the country but to
leave. Since those in control of the US have demonstrated their unwillingness to allow recessionary forces to do
their necessary work of correcting the extreme imbalances within the economy, there are only two options left -
default and deflationary implosion - ruin, or a comprehensive takeover of the country by its creditors, both of which
options probably occurring after a period of runaway inflation as the Fed and government desperately try to stop
the inevitable. If the former occurs the shockwaves will reverberate around the world, like last year, and we
can expect a collapse in commodity and stock markets. Until that happens it will be case of inflate and inflate, to
forestall rising rates and liquidity problems, which will make gold and silver probably the best investments around,
but you sure don’t want to be around once the music stops. It is therefore to be hoped for the common good that
the US authorities make the right decision and surrender to the mercy of their creditors before it’s too late. Either
way the American Empire is finished. Please note that this article may appear on some public websites.
Clive Maund