Geopolitical tensions

 

Current American foreign policy settings are arguably at the root of our most serious and urgent geopolitical problems. Under the influence of advisors committed to extreme forms of neoconservatism, aspects of policy have become disconnected from reality, even delusional.

In fact, the Cold War period was sane by comparison. Sure, it was a dangerous time but U.S. policies were hard-headed and sometimes intelligent. And, crucially, they were not completely out of kilter with underlying economic realities.

Since the break-up of the Soviet Union, the U.S. and its allies have pursued policies based on what I see as very problematic assumptions (regarding American exceptionalism, for example). These policies often involved regime change and the attempt to establish Western-style democracies in places lacking the cultural prerequisites for such systems to establish themselves.

Unfortunately, past failures are not being fully acknowledged and there are few indications that any serious reassessment of current policy settings is in train. Nor is there sufficient recognition of the irrevocable nature of various changes that have occurred on the geo-economic front.

As I have previously noted, the relative size of the U.S. economy with respect to the rest of the world has declined significantly over the last sixty years. Throw in other factors – like sovereign debt levels and financial and monetary issues – and it becomes clear that the prospects for a continuation of U.S. global hegemony are slim to non-existant.

Fading powers are always particularly dangerous. They see their military dominance as being eroded or as being under threat (ultimately for economic reasons). Time is not on their side, so they are motivated to provoke wars, to fight sooner rather than later in an attempt to turn the tide.

Is this not exactly what we are seeing now in Eastern Europe and the East China Sea? There are irresponsible actors on all sides, I don’t deny it. But America and its closest allies now pose the greatest danger in my opinion.

As individuals our primary duty in respect of these matters is, as I see it, simply not to fall for or contribute to unnecessarily divisive ideas. Ideally we will also assess and either embrace or try to change our own governments’ policies.

I am not interested in demonizing or assigning blame but rather in identifying – and, where possible, promoting – Western policies which will manage in a responsible way the fault lines of a world which is armed to the teeth with increasingly sophisticated weapons.

Military conflicts are occurring and will continue to occur. Foreign policy settings may encourage or discourage such conflicts. But, whatever the situation, whatever specific goals are being pursued, the overriding goal for policy-makers should always be to minimize the chances of conflict between major powers.

And outsiders attempting to engineer regime change in Russia or China in pursuit of a geopolitical strategy based on notions of American exceptionalism is clearly not the way to go.

Death and destruction

My analysis of the Ukraine situation has continued to attract criticism. I have been saying for some time that American and NATO strategies are fatally flawed and extremely dangerous. Responding to the latest episode of my podcast, Culture and Value, which was featured recently at The Electric Agora, Daniel Kaufman commented:

"The idea that somehow Ukraine is at fault for the prolonged death and suffering from the war – or those like the US, UK and others who are helping Ukraine – is not only a poor analysis of the situation, it represents what to my mind are really terrible values. Ukraine does not want to surrender. It does not want to hand over part – or all – of its country to Vlad the Impaler and his armies. It does not accept the rape and torture and mass murder that Russia has been inflicting on it. The idea that it should ... in order to satisfy your conception of proper geopolitical order – or that of Russia or any of the other murderocracies and kleptocracies on the planet – is just so out of whack, I don’t even know how to respond to it."

I question some of Dan's assumptions here and naturally reject any suggestion that my values are flawed or my motives tainted. My brief reply to his comment did not deal with Ukraine so much as with what arguably lies at the root of this and certain other international crises (or potential crises): the failure of those currently in power to see and come to terms with a changed geo-strategic environment.

I wrote as follows:

I am not talking about some desired political order. Rather I am noting, as carefully and accurately as I can, current geopolitical and geo-economic realities. I am making the point that the situation has changed over the last thirty years or so and not in ways which favour an overwhelming level of American dominance (such as applied immediately after WW2, and again after the break up of the Soviet Union) in the future.

For example, the US is no longer as economically dominant as it once was. Its share of the global economy has declined from about 40 percent in 1960 to about 24 percent today. This in itself is not necessarily a bad thing but it does mean that a broader range of countries will have a say in reshaping the financial system than was the case, say, in the immediate post-WW2 period.

This is important because economic factors underpin military power. And though the USD is strong at the moment, the widely-acknowledged fragility of the current debt- and derivative-based financial system – a system which creates demand for (and so guarantees the value of) the dollar – strongly suggests that the United States will not be able to continue to play, at least to the same degree, the dominant global role which it has played over the last three-quarters of a century.

Circles of concern

There is much to be said for seeing life primarily in local terms, for seeing one’s personal situation as dictating to a large extent one’s actual duties and responsibilities, and for resisting temptations to moralize, pontificate or parade one’s opinions in the public sphere. Sadly, the current digital media environment works against such reticence and self-restraint, exacerbating the drift away from real connections and real communities.

The “uncoupling of shared content from physical proximity and ongoing relations” was recently a topic of discussion at The Electric Agora. One participant lamented the current situation, seeing “the constant deluge of information about far-off goings on” as the root cause of the problem.

Apart from the occasional message from family, it’s not natural for people to be concerned about what’s going on more than a few day’s ride or walk away. It makes diffuse the collective ethics of cooperation, and lends itself to costless performative virtue. Easier for a New Yorker to wave a sign on behalf of a Uyghur than knock on doors for the would-be county mayor, or boycott Israel instead of putting a stone through a scab’s windshield. Solidarity and hope are reduced to self-parody.

I'm not sure I see any form of solidarity or hope worth having in picket lines – but let that pass.

We need to rebuild [heal?] social division geographically. People are best at improving things close by, and knowing what needs improving. Unfettered individualism and social division are symptoms of the sickness. Humanity writ large is not a society, let alone a community. Put your neighborhood, family, and city first, and maybe you’ll feel like part of something bigger. The welfare of your locale is part of the world’s welfare, and the part you can do the most about.

Self improvement comes into it too.

You’re part of the community. Improve yourself, and you improve the community. Prowess, beauty, and fitness are all good. A personable friend to shoot hoops with, a scoutmaster teaching kids to camp, or a schoolgirl putting her all into clarinet chasing that scholarship do far more for a neighborhood than a conscientious news-junkie or devout activist for the identitarian cause of the day.

We need to go back, but most won’t. Streaming videos, internet news, and cell phones are popular for a reason. Distraction has its place, but it’s not a legitimate way of life. The EA crowd has a lot of this going on. Buying 20 Malaria nets for strangers a continent away is less virtuous than playing catch with your kids or baking a pie with grandma, and – no matter how they pretend otherwise – they know it too.

I quote these passages in full because they are vividly expressed and because there is significant overlap with my own views. These sorts of topics are never clearcut, however, and caveats and reservations necessarily apply.

One caveat relates to the fact that there are circumstances in which long-distance concerns demand attention: foreign policy questions, for example.

Quite obviously, the interventionist policies currently being pursued by the U.S. and its closest allies sit uneasily with the principles outlined above, and some kind of regionalism or system of geographically-based spheres of influence would be a better fit.

No set of principles is sacrosanct, however, and it may be – I don’t think they can, but it may be – that current policies can be defended or justified on other grounds. I can see that proximity counts for less and less in purely military terms – in terms of weapons technology, for example – just as it does in terms of general communication. But, of course, any strategic analysis needs to be contextualized and supplemented with a wide range of data and information (including cultural information) if it is to be useful in the real world and effective in the long term.

Some believe that only continued American global dominance can save us and deliver a more just, peaceful and prosperous world but I see dangers in the unipolar model and in the very notion of a global elite, however it is constituted and however sensitive this supposed elite might be to the nuances of cultural variation.

The most unhappy country in history

You know how it is. You are tempted to submit another comment in a comment thread discussion but then think better of it. Because you don't want to monopolize the discussion, appear too negative or just because "less is more."

Disagreements are intrinsically more interesting than agreements and I am often drawn to challenge statements either for what is being said, or for how it is being said.

Take this brief extract from a piece by E. John Winner which appeared recently at the Electric Agora:

"And it has been my experience, although widely denied, that Americans, despite wealth and power, remain the most unhappy people in history.  Others suffer greater physical suffering, of course, but none experience angst, dissatisfaction, frustration, hopelessness, depression, disappointment, more deeply than we..."

There is, at least from an outsider's perspective, something darkly comical about these claims. It's not just that they are hyperbolic. It's more that they come across as yet another manifestation (albeit rather strange and perverse) of American exceptionalism. We are not only the most unhappy people in the world, we are the most unhappy people in the entire history of the planet. We suffer angst, dissatisfaction, frustration etc. more deeply than foreigners can even imagine!

There is something to this however, and it relates to imperial decline. The wealth and power is slipping away, just as it did for the British who faced a series of debacles (including Suez) and eventually the humiliation of an IMF bailout. This process is very painful for those who grew up believing that the status quo would continue indefinitely. I understand that.

I was going to make a moral point here, referring to foreign victims of American violence and suggesting that some kind of karma or communal guilt might have been in play also. But this would have been disingenuous. I don't believe in karma; nor, really, in communal guilt. Besides, it would have been a cheap shot. Bad things happened; and pointing the finger at one group or nation necessarily lets other groups or nations off the hook.

Politics and personal values; the Taiwan question

Personal and political values can be intertwined in complicated ways. Even within close families, there are often serious, politically-driven divides. I talk here about the way my own foreign policy views and attitudes developed, referring to the influence of my father and also to bitter, politically-driven personal rifts which existed at one time within my father’s family.

The latter part of this episode of Culture and Value is devoted to a review of a recent discussion about China’s regional ambitions and to the dangerous game (as I see it) that the United States is currently playing in the Western Pacific, especially in relation to Taiwan.

The curious persistence of Cold War thinking

Great powers in decline are often more dangerous than rising powers. The leaders of such countries (today's United States?) may be tempted to take drastic action in an attempt to stem perceived decline and restore the status quo ante or simply to distract from domestic problems.

In the latest episode of my podcast, I argue that, although changes in the geopolitical landscape have taken us well beyond the relatively clear ideological dichotomies of the Cold War era, new and dangerous forms of neoconservatism have arisen which are influencing foreign policy and media reporting and perpetuating the myth of American exceptionalism.

This episode runs for about 13 minutes.

Art Berman's bleak view of the future

Human civilization was built in part on the exploitation of stored energy. Post-World War 2 Western prosperity was built largely on oil, which is a remarkably concentrated energy source. The energy stored in one barrel of oil is said to represent 4.5 man-years of work.

But strange things are happening in the oil market. And, according to Art Berman, they portend drastic and irrevocable social and economic change.

Prices have collapsed and storage is nearly full. The only option for many producers is to shut in their wells. That means no income. Most have considerable debt so bankruptcy is next.

Most people, policy makers and economists are energy blind and cannot, therefore, fully grasp the gravity or the consequences of what is happening.

Energy is the economy and oil is the most important and productive portion of energy. U.S. oil consumption is at its lowest level since 1971 […] As goes oil, so goes the economy: down.

Oil production and price are unlikely to regain late 2018 levels.

So supply will fall; and Berman doubts that there will be a recovery in demand in the third quarter, even if businesses continue to reopen.

That is because we are in a global depression. Unemployment will remain high and consumers will be damaged from lack of income over the months of quarantine. The truth is that I doubt that demand will ever recover.

At best, economies will re-start slowly and fitfully.

Those who see an opportunity for renewable energy in the demise of oil need to think again. The manufacture of solar panels, wind turbines and electric cars depend on diesel all along the supply chain from extraction to distribution of finished products. A world in economic depression will default to the cheapest and most productive fuels. Oil will be cheap and abundant for a long time. There will be little money or appetite for the massive equipment changes that renewable sources require. Climate change will not be high in the consciousness of people struggling to survive.

Berman notes that prominent economist Lawrence Summers has concerns that the U.S. financial system may collapse because of cascading defaults in the real estate and other sectors. (A quarter of renters and mortgage holders failed to make payments in April.)

He also cites Joseph Stiglitz who believes that the current pandemic will affect the developing world more severely than it has developed countries, and that this could lead to mass migrations even more significant than those we have witnessed (out of the Middle East and Africa, for example) in recent years.

But Berman’s area of expertise is the oil market. He is saying that high-cost producers will fail.

Large segments of the U.S. oil industry will have to be nationalized before the year is over. The price of oil is too low to justify the cost of extraction even if storage were available. The value of a barrel of oil, however, is 4.5 man-years of work and that productivity multiplier will be essential if the U.S. economy is to avoid collapse or for it to recover if collapse is unavoidable.

The economy will continue to be dependent on oil. But the game is over for most of the U.S. oil industry. As he puts it, “someone else’s oil will be cheap to buy for years.”

Berman concludes on a philosophical note:

There are few moments when we may truly say that things are different now. This is one of those moments. We do not know what awful form the future may take, what rough beast slouches toward Bethlehem to be born. […]

I hope that we learn to view what is happening as a chance to simplify and to learn to be satisfied with no more than what we need. It is unlikely that we will have much choice.

Endgame

The foreign, defense and trade policies of the United States and the overt and covert operations designed to implement and support them have, over the last 80 years or so, had profound effects on the world. I used to think those effects were positive on the whole. Like so many other foreign consumers of American popular culture, I had absorbed from childhood the usual cinematic clichés concerning the fundamental probity of generations of US leaders and their agents, both civilian and military. Moreover, it was obvious that old empires had failed and it seemed reasonable to see the United States as having taken on the role of de facto imperial power, keeping the sea lanes open and stepping in where necessary to deal with threats to peace and security. The fact that many of us had family who had been saved or protected by US military operations further encouraged and reinforced such views.

What about the deliberate mass killing of civilians by Allied forces during World War 2, the firebombing of cities in Europe and Japan, the Hiroshima and Nagasaki catastrophes? We were inclined to see these as lapses and not representative of the true (and basically benign) nature of US interventions. But such an interpretation has become more and more difficult to sustain.

It is just possible that, for a time, there was some truth to the myth of the essential benignity of US power. But, since the Vietnam War, and certainly since the exposure of the egregious deceptions involved in the lead-up to the invasion of Iraq, that myth has lost all plausibility.

In the course of a recent discussion at The Electric Agora, E.J. Winner claimed that people outside the US often fail to appreciate just how combative ordinary Americans are. Quoting General George S. Patton’s remark that “all real Americans love the sting and clash of battle,” he suggested that, “[d]espite the occasional revulsion against war, Americans are on the whole a violent people.”

On the whole? Violent, compared to which other nationalities? Forgive me for being skeptical. Such generalizations may sometimes be meaningful in respect of countries with relatively homogeneous cultures but not, I think, in respect of countries as large and diverse as today’s United States.

Nonetheless, my interlocutor had two specific, and not implausible, points to make regarding “the nuances of the context” in which American foreign policy develops and is carried out. Many Americans, he claimed, are brought up to believe “that they have a special place on this earth,” this feeling of specialness or exceptionalism being reinforced by the knowledge that “the US has the most powerful military the world has ever seen.”

His second point was that the governing elites have a responsibility to constrain and manage these unfortunate inclinations in the context of foreign affairs.

“[Hillary] Clinton may not have understood that, but her advisors would have. [...] Some of Trump’s original advisors understood that – so he got rid of them and surrounded himself with yes-men.”

There are many ways the facts can be analysed here. I would be more inclined to emphasize the isolationist and anti-imperial strands of American culture and to see particular (usually elite) interest groups as having manipulated public opinion in generally hawkish directions. The neoconservative movement, for example, has a well-documented history. Neoconservatives and others committed to various versions of American exceptionalism have profoundly influenced US foreign policy and encouraged high levels of military spending and extensive covert and direct military interventions under successive administrations.

Due to fiscal constraints such policies are clearly unsustainable however. US military power is inextricably bound up with – and dependent on – economic factors and the dominant role that the US dollar has played in world trade. The dollar-based financial system has been failing for years and now seems to be imploding.

I talked about some of these things on this site in January, as a novel coronavirus was silently spreading in the city of Wuhan and beyond. I discussed quantitative easing and the Fed’s failed attempts to wind this back. In the event of another financial crisis occurring, I wondered, what would happen?

Interest rates are extremely low and central bank options are limited. Defaults and/or falling equity prices would destroy large amounts of paper wealth. In the short term, this could lead to a period of dollar strength but – if the actions of the Federal Reserve in recent times are any guide – the money-printing would be stepped up. This could easily lead to serious inflation and an undermining of international confidence in the dollar. Of course, no one can predict exactly how (or when) the endgame will play out but there is little doubt that the US dollar’s days as world reserve currency are numbered.

That crisis is now upon us. For the time being the dollar is strong and analysts at Goldman Sachs and Bank of America recently predicted that it would strengthen further in the near term against most other currencies.

The larger question relates to the sustainability of the US dollar-based financial system. As this system underpins America’s prosperity as well as its geopolitical status and power, radical changes would have radical implications for America’s place – and role – in the world.


[This is a slightly modified version of an EA piece which was published early this month.]

A voice in the night

From an aesthetic point of view, early television was inferior not only to cinema but also to radio. Image quality issues and low production values give much old television programming a tacky and tawdry feel. In a real sense, radio’s restriction to one sensory modality was a form of freedom. Almost from the outset, radio was a powerful and flexible medium with a remarkable capacity for direct and intimate communication. It engaged the emotions – and the visual imagination.

Because of its presence in the home and capacity for live programming, television posed a threat to radio that cinema had not, gradually replacing it in most of its traditional roles and formats. Cinema and radio, on the other hand, had peacefully coexisted for decades. In fact, the respective golden ages of cinema and radio could be seen to have coincided, or at least overlapped.

Though I have a broad interest in the music and popular culture of the 1940s and 1950s, it is generally serious film dramas which most interest me, especially in so far as they reveal the preoccupations, moods, manners, politics and underlying values of the time.

I want to say a few words here about an unpretentious little movie of the 1950s which was centered around one of the abiding preoccupations of American cinema: organized crime. It stars and is narrated by an actor who made his name in radio in the 1940s. Frank Lovejoy was often (but not always) cast as a reassuring character, an American everyman, encapsulating in his distinctive voice and (later) his screen presence a kind of middle ground of decent normality in a world in which such qualities were seen to be at risk.

On radio, he was the first narrator of the long-running crime drama series (based on stories from the files of the agency), This Is Your FBI. (FBI Director J. Edgar Hoover called it “the finest dramatic program on the air.”) But Lovejoy was probably best known for playing a Chicago crime reporter in another radio series, Nightbeat.

Social and cultural historian (and Jack the Ripper expert) Paul Begg writes:

Broadcast on NBC, Nightbeat … starred Frank Lovejoy as Randy Stone, a tough and streetwise reporter who worked the nightbeat for the Chicago Star, looking for human interest stories. He met an assortment of people, most of them with a problem, many of them scared, and sometimes he was able to help them, sometimes he wasn’t. It is generally regarded as a “quality” show, and it stands up extremely well. Frank Lovejoy (1914–1962) isn’t remembered today, but he was a powerful and believable actor with a strong delivery, and his portrayal of Randy Stone as tough guy with humanity was perfect.

Finger Man is a low budget but well-crafted crime drama in typical film noir style in which Lovejoy plays another “tough guy with humanity.” The film was directed by Harold Schuster. The script is credited to Warren Douglas, “based on a story by Morris Lipsius and John Lardner.” Lardner was a distinguished sports writer and war correspondent, a son of Ring Lardner and brother of Ring Lardner Jr., blacklisted screenwriter and one of the Hollywood Ten. The writing is taut and generally convincing, though very stylized.

A point of interest is that Lipsius, who had co-authored a dictionary of underworld slang, was a former criminal who had been recruited five years before by the Treasury Department’s undercover wing. The plot of Finger Man and many details of the script clearly owe much to Lipsius’s personal experience. Also, John Lardner had known Lipsius at least since 1951, as an article about him by Lardner appeared in the New Yorker in November of that year.

The main character/narrator of the film (played by Lovejoy) introduces the story by saying that these things happened to him, but he can’t give certain details as “there are still people around, people who never forget and I’d like to keep on living… My name? Let’s just say it’s Casey Martin.” Routine stuff, sure. And then there is Casey’s sister who is now a junkie and her cute little daughter. It’s Hollywood, but with an edge.

Martin is picked up on Christmas eve for hijacking a truck, but is promised a clean slate if he puts the finger on a major underworld figure, Dutch Becker. The eventual sting operation involves illicit alcohol.

In real life, Lipsius had facilitated the conviction of a powerful underworld figure, Irving Wexler, aka “Waxey” Gordon, via a plot regarding heroin deals. Undercover Treasury agents had, in December 1950 (was it Christmas eve, as in the film?), recruited Lipsius, an ex-convict, to befriend Wexler and set him up for what would be his final arrest on August 2nd, 1951. Wexler was convicted and died in prison. Wexler was also heavily involved in gambling and prostitution, like the fictional Dutch Becker.

The world of Finger Man (and many other noir dramas) was a Manichean world in which the forces of crime and depravity were in a constant battle with the forces of justice and decency and there was no certainty what the ultimate outcome would be.

This is how the Lovejoy character, as narrator, assesses his situation early in the film: “Well, there it was laid right in my lap. I come out clean or I come out dead. The Treasury Department and the police were on my side. Against me was a big-time hoodlum by the name of Dutch Becker – and the entire underworld from coast to coast. There wasn’t a gambler alive who’d make book with those odds.”

In trying to convince him to cooperate the Treasury Department secret service chief had appealed both to his sense of decency and to patriotism:

“You know the mobs, how they operate. One strong, ruthless man can tie a syndicate together. He pushes the buttons and pulls the strings and all over the nation his vicious rackets are set in motion. He’s a dictator. We’re after one of those dictators… Put the finger on him and you’re a free man… [Y]ou know Dutch Becker as well as I do. He has no conscience. He has no soul. It makes no difference to him if he destroys an individual or a family or a nation. And enough men like Becker could destroy a nation… We know that Becker is operating in at least nine states… He gets his cut out of everything rotten that’s sold. We want him.”

“Let me show you something,” the agent continues, shuffling through a batch of photographs. “Here’s a girl 17, dead before she even started to live. Sixteen. Twenty. There’s a girl 19. They found her in a trunk. She wanted to go home to her family but the boys couldn’t see it her way. The hospitals, jails, asylums and morgues are full of human beings who were destroyed by men like Dutch Becker.”

The narrator gives a few more details about him: “He was one of the biggest gamblers in the country. He was the king pin of an illegal alcohol ring. He employed beautiful girls as escorts, hostesses, shills and b-girls in his clubs and gambling houses. If they crossed him they were not very pretty to look at when he paid them. And he always did.”

The villain is effectively played by Forrest Tucker as a smooth psychopath. And Peggy Castle is believably vulnerable as Lovejoy’s love interest and a woman trying to escape from her past life as one of Becker’s girls. But what ties it all together – holding the line not for idealism but at least for some small measure of hope and decency – is Lovejoy’s voice and presence.


[First published earlier this year at The Electric Agora.]

America in decline

An American friend, who shares my views on global politics, diplomacy and foreign policy but not on economics or fiscal and monetary policy, recently wrote:

“I agree that the US is in decline. In theory I believe it can come back, but it is getting harder all the time (and the recovery process more painful). If Trump or Biden are elected this year I will give up on the US as it will not recover to a meaningful degree (if at all) in my lifetime.”

Here is the substance of my response…

Whoever wins the election, the country will remain divided. To an outsider, at any rate, the national symbols and myths no longer seem to be working to create the sense of cohesion which they once provided. America is not the nation it once was. I wonder if it is still a nation at all. (It remains a very powerful state, of course.)

In terms of comparative economic and military might and the diplomatic leverage associated with this, the decline is (I think) irreversible. This may not be such a bad thing, given the increasingly destructive nature of US foreign interventions.

The projection of US power has, at least since World War 2, been closely associated with, and facilitated by, the global role of the US dollar in trade and its status as a reserve currency. But the current US-based system is breaking down. This has implications for all countries, but especially for the US.

The Federal Reserve responded to the 2008 financial crisis by lowering interest rates and pumping hundreds of billions of dollars into the system. This was supposed to be a short-term emergency operation. But the expansionary policies continued. A precarious economy increasingly dependent on government spending and a financial system increasingly dependent on cheap credit led the Federal Reserve (and other central banks) to suppress interest rates by any means possible, including by injecting money directly into the financial system through the purchase of securities from commercial banks and other financial institutions (i.e. quantitative easing). Such policies have facilitated and encouraged further borrowing and malinvestment on an unprecedented scale. The problems are now systemic.

Price signals, which are key drivers of any functioning market, have become so distorted that they can no longer be trusted. Fixed-interest securities, shares and many other financial instruments appear to be massively overvalued. Government and central bank interventions are largely to blame for this but other factors – such as the rise of index funds and other forms of passive investing – have contributed to the problem.

I see it as extremely significant that attempts made in recent years by the Federal Reserve gradually to raise interest rates towards more normal levels and to wind back quantitative easing have failed. In both cases, the Fed has reversed course.

In the event of another financial crisis occurring, what would happen? Interest rates are extremely low and central bank options are limited. Defaults and/or falling equity prices would destroy large amounts of paper wealth. In the short term, this could lead to a period of dollar strength but – if the actions of the Federal Reserve in recent times are any guide – the money-printing would be stepped up. This could easily lead to serious inflation and an undermining of international confidence in the dollar. Of course, no one can predict exactly how (or when) the endgame will play out but there is little doubt that the US dollar’s days as world reserve currency are numbered.

Before confidence – and properly-functioning markets – can be restored, bad debts need to be recognized as such and written off. Zombie banks and zombie companies must be exposed and either allowed to fail or taken over. But, because of the extent of the problems, the system itself – the entire post-Bretton Woods, USD-based system – is now irredeemably compromised. There is no easy way out.

Though it may appear otherwise, my basic sentiments are not – and never have been – anti-American. I am not a US citizen but I love and value many features of 20th-century American culture. Many of these features are exemplified and live on in individual Americans even if they are no longer reflected in contemporary social structures and institutions.

The old ways are dying, the old institutions are gone or changed beyond recognition. Even so, I hold to a hope similar to one I have expressed regarding older European and British traditions: namely, that what is good in what has been lost will eventually be rediscovered and find new (and perhaps more enduring) forms of expression.

Investment decisions; geopolitics

In a letter to a friend I briefly outlined my current investment situation and strategy. It's important, I think, to maintain a steady and realistic perspective on the general situation in financial markets both for practical, investment-related reasons and also for understanding current affairs. Politics, economics and finance are inextricably intertwined.

It helps me to state my general position explicitly from time to time. Obvious facts can be vitally important yet they are often overlooked...

I am in a position where I am forced to bet on how the future pans out in terms of economies, interest rates and currencies. I find myself (for reasons I won’t go into) almost entirely in AUD cash. This is my starting point, for better or for worse. AUD is weak against the US dollar. So I am waiting for something to happen (stock market crash or bond yields spiking or AUD rising against USD or other assets becoming cheaper in AUD terms) so that I can make a move with some confidence that I am not being suckered by a fake market.

Nobody knows when things will blow up. But blow up they must given the absurdly high debt levels and low or negative interest rates which are causing massive malinvestment, destroying savings and pensions and destroying the faith that people once had that price signals and so on could be trusted to reflect actual economic realities.

Many companies are on credit-fueled life support: no prospect of ever turning a profit. That’s in large part why the powers that be have to keep interest rates low. If they rise the non-viable companies go bust. Many corporate bonds become worthless, etc.. And zombie companies are not a small percentage of the total these days. Banks are especially vulnerable.

The same logic applies to individuals and families with big mortgages or other debts. Rising rates will cripple them financially as residential real estate prices fall.

And, of course, governments are heavily indebted too. If rates go up, more of the budget must go to service that debt.

US authorities apparently want to weaken the dollar to stimulate exports etc.. The danger is that at some point the dollar will just suddenly start to lose purchasing power as other means of international payment come on stream.

Confidence in the system is rapidly eroding. There is a growing general realization that the current monetary and financial system is failing but it is impossible to know what exactly is going to replace it. Or when.

US policy on the Middle East (and the Far East) is driven mainly by economic and financial factors – and always has been. (Oil. The dollar.) As the petrodollar system breaks down, there are clearly increased risks of conflict between major powers.

China's rise and the US dollar

In a recent podcast interview Louis-Vincent Gave talked about the impending showdown between China and the United States, suggesting that China has a better than even chance of success in their attempts to combat the hegemony of the US dollar.

At the heart of China’s strategy is the Belt and Road Initiative (see map below) which Gave presents as a straightforwardly imperial project. The Roman Empire was at its core a road-building exercise, the roads being designed to facilitate trade and tie the regions into a mutual dependency relationship with the imperial hub. In the Eurasia region, increasingly at any rate, all roads lead to Beijing.

Gave also mentions the new Shanghai oil futures contract (which is priced in renmimbi but is also tied to gold). After six months of operation it now accounts for 14% of the global market. It is just one of many instances of international trading structures being set up which bypass the US dollar.

The United States has only been able to sustain its increasingly debt-dependent government spending programs because the current US dollar-centric global financial system created an artificial demand for US Treasury securities. Rising yields, even at a time of turmoil in emerging markets, would appear to indicate that demand is waning. Gave admits that he expected yields to fall as safe-haven assets like US Treasurys were sought. He believes that rising US government deficits have spooked investors to the extent that US government debt is no longer seen as the safe-haven asset it once was.

If these trends continue over the medium term, US standards of living will inevitably fall. They have fallen a lot already, putting stresses on the social fabric and on political institutions.

Many senior politicians and bureaucrats are aware that America’s prosperity has been dependent for decades on the privileged status of the US dollar. There is a real risk that they will seek to defend the monetary and financial status quo by military means.

The concerns of the Chinese leaders are slightly different. They know that time is on their side and so would be less likely to initiate military conflict. They are aware, however, that if their domestic economy falters social cohesion is at risk. They know they are in an economic slowdown at the moment but apparently believe that it will be manageable.

A critique of neoconservatism

Here is an extract from my latest EA piece, on U.S. military adventurism.

"In many cases it’s hard to separate idealism from self-interest. In the case of a number of campaigning journalists and intellectuals with whom I am familiar (and their loyal readers and viewers) the real motivating factors are, I think, both personal and ideological. They see the institutions that reflect and support their personal value systems as being threatened from within their home countries (by the “deplorables” and their like) and also indirectly, by shifts in the geopolitical balance of power. As countries like China increase their economic and military clout, they will become more respected in cultural terms – and increasingly effective in projecting and promoting their value systems. Such qualities as loyalty and patriotism and competitiveness, for example, may be put above the sorts of concerns that usually come under the heading of “social justice.” The perception that the Western progressive agenda (which has been spectacularly successful in shaping social, cultural, legal and educational structures and institutions in North America and Western Europe in recent decades) is under threat seems like a fair reading of the current situation. But starting a world war to defend it is a thoroughly bad idea.

Making reasonable concessions to the independence and perceived security interests of countries like China, Russia and Iran, all of which have suffered from disastrous foreign interventions and invasions in the past, is obviously the right thing to do in the circumstances. But Western powers will not willingly give up the control of the framework of international relations that they currently exercise. As I see it, neoconservative writers and intellectuals are – knowingly or unknowingly – providing justificatory narratives for war-mongering politicians and ultimately serving nefarious purposes by promoting a distorted view of the world based half-truths and discredited myths.

The mainstream media’s fixation on Russia – the old Cold War arch-enemy – is both puzzling and concerning. Likewise, there seems to be very little questioning of the official line that Saudi Arabia is an ally whereas Iran is an implacable foe and fomenter of terrorism. How is it that such stories can go (relatively) unchallenged when Saudi Arabia’s track record on the terror front is so bad and so well-known?

There are certainly a lot of bad things happening in countries like Russia, China and Iran, but not all social evils warrant foreign military intervention."

[The case of North Korea is touched on in the essay. It is hard to see how this situation is going to resolve itself. The latest noises from China suggest that they will not stand for American-initiated regime change; though they can't have much love for the current leader.]

American exceptionalism and foreign policy

[This is a shortened version of my latest Electric Agora essay.]

I have previously drawn attention to the neoconservative elements of Hillary Clinton’s foreign policy orientation and spoken of the dangers (as I see them) of a resurgence of such policies. At the time I wrote my previous piece on this topic (before the first TV debate), the polls were narrowing and the trend favored Trump. Subsequently, things have not gone well for the Republican campaign.

Assuming Clinton does win, I sincerely hope that she changes tack on foreign policy because – given the epochal changes currently underway in the geopolitical and economic spheres – I just don’t see how neoconservative-style policies, based on an essentially imperial vision of America’s role in the world and coupled with a deeply adversarial approach to Russia and China, could possibly play out in a benign way.

There are different views on this, of course, and I am not entirely sure of my position. On NATO, for example, I tend to the view that it should have been gradually scaled back or unwound after the demise of the USSR and that its expansion eastwards (in spite of assurances given to Gorbachev that this would not happen) and current activities have made the likelihood of large-scale war more rather than less likely. Charles Moore, a British neo-conservative who has a very dark view of Putin’s ultimate intentions, has made a case recently for NATO’s continuing importance in constraining Russia. There is no simple answer here. Perceived weakness and confusion on the part of Western powers will no doubt be exploited by hostile forces. But it is also true that alliances which operate as vehicles for hegemonic powers can be very problematic.

The word ‘realism’ can mean many different things, depending on context. Often it is used rhetorically and lacks substantive meaning. In international affairs, however, it has a generally accepted meaning. It comes in different flavors, but its key defining elements are clear enough. Realism in international relations is associated with strong skepticism about all forms of ideological thinking; an acute awareness of the dangers of the unforeseen consequences of military interventions; and generally modest expectations about what can be achieved on the international front.

As I understand it, there are competing factions within the Obama administration, some (like Obama himself, perhaps) not so committed to neocon-style policies and some more committed to hawkish intervention. I think the election of Hillary Clinton will give comfort to the latter group, and there will be a policy shift in that direction.

Someone asked in the course of the discussion of my earlier piece whether I really thought that the Chiefs of Staff would accept a presidential order to do something likely to trigger war with Russia or China.

It would depend on the circumstances. But it seems obvious enough that to the extent that the US follows neocon-like policies, the prerequisites for a big war (as distinct from more limited, regional conflicts) are more likely to be in place. The worst situations arise when countries fall readily into blocs and particularly if the blocs are very large and very few. We know this from the Cold War. At times we were very close to the brink of a global catastrophe. It would be so, so stupid and reckless to return to such a state of affairs. But many of the neocons seem to want just that.

I happen to think our future is bleak, whatever happens with this election and whatever policies the new administration adopts. But a major nuclear war is by no means inevitable and in my opinion is less likely in a multipolar world in which political leaders see their role more in local and regional than in global and ideological terms.

The Cold War was about power blocs, but it was also about ideology. The old Marxist-Leninist, Maoist and related ideologies have faded from the scene. I say it’s time for all of these overarching narratives to be dropped, including the idea that America has some kind of imperial destiny (or responsibility) to fulfil.

For years I bought into this narrative to some extent. But for a state to fulfil this kind of imperial role effectively, its strength and dominance and underlying economic health must be unquestioned. The state in question must also be widely trusted and respected. Arguably these conditions applied to the United States in the not-too-distant past. But today?

In America – and even to some extent in Britain – both neoconservatism and liberal interventionism are associated with the idea of American exceptionalism: that the United States has a special status amongst the nations, moral as well as military, and that from this status flow certain unique rights and responsibilities relating to global order and governance. In the past this myth has facilitated some very unfortunate actions – and maybe some good ones as well. But in current circumstances it can only be extremely dangerous.

The US presidential contest; Brexit

[This is the latest post in my Google+ Collection, Social and Political Reflections.]



A couple of things I am following at the moment are the US presidential election process, and the UK referendum on membership of the EU.

I see Hillary Clinton as morally compromised and dangerous both to America and the world. I tend to agree with something Marc Faber said some months ago: Trump may destroy America, but Clinton will destroy the world. Actually, I think you could say America is already well past the point of no return. I am thinking of debt (especially sovereign debt but also consumer debt), the precariousness of the dollar, and demographic and cultural changes. Certainly the old Protestant values of thrift, hard work and self-reliance on which the country was built are rapidly disappearing.

My analysis of Donald Trump is very much in line with Scott Adams' analysis: Trump is a master communicator and he will probably win the presidential election.

I'm am also watching the UK referendum closely. When Boris Johnson first announced his decision to support the Leave campaign, I thought it would be enough to swing it. As I said then, it has been clear for a long time (if not from the very beginning) that the EU was all about a federal Europe. People were deliberately misled on this, but now there is no excuse: anyone with half a brain knows that continuing membership would entail a progressive loss of national sovereignty. Some, wary of nationalism, think this is a good thing. But I would say nationalism can be a positive force, and that it has a role to play in maintaining social cohesion within (if not between) the countries of Europe. God knows, most of the other cultural (especially religious) traditions which tied people together in benign and productive ways are dead or fading fast.

To my mind NATO (and American interventionism generally) is a far greater danger to peace than patriotic feelings.

Obama's warning

US President Barack Obama has responded to Boris Johnson's journalistic musings concerning the President's personal feelings about Britain. Johnson had been angered by, and was responding to, the President's strong endorsement of the campaign to keep Britain in the EU.

In his article, Johnson suggested that President Obama, on account of his family background, and specifically his Kenyan heritage, may well have less than positive feelings about the UK and its imperial past. He referred to a story that a bust of Winston Churchill had been removed from the Oval Office at the beginning of Obama's tenure.

The mainstream media came out strongly against Johnson, with accusations of racism, and various sources claiming that the removal of the bust was not Obama's decision at all.

Obama's subsequent comments confirm however that it was his decision.

"When I was elected as President of the United States my predecessor had kept a Churchill bust on the Oval Office. There are only so many tables where you can put busts otherwise it starts looking a little cluttered," he said.

“I thought it was appropriate and I suspect most people here in the UK might agree, that as the first African American president it might be appropriate to have a bust of Martin Luther King in my office to remind me of all the hard work of a lot of people who had somehow allowed me to have the privilege of holding this office.”

He claims to have warm feelings about Winston Churchill. "I love the guy," he said.

But his remarks also contained a warning about trade links with the US should Britons vote to leave the EU.

The Independent reports:

He said the US would rather the UK remained in the bloc, and said a unilateral free-trade deal between the two countries would not be a high priority for America.

He added that he was merely offering advice to a “friend” and that it was up to the British public which way they voted. [Britain votes on 23 June on whether to stay or leave the bloc.]

Sounds like a threat to me; and a curious one, given that the Obama administration will no longer be in place when decisions about a bilateral deal with a post-Brexit Britain would need to be made. [In the event of a vote to leave the EU, there would be an extended transition period during which Britain would remain within the trading bloc.]

In a piece written immediately after Boris Johnson's initial announcement of his support for the leave campaign, I suggested that his popularity and mainstream credentials could possibly swing the balance of probabilities towards Brexit. But the polls seem to indicate that a majority of Britons still favour remaining in the EU.

Stagflation on the way?

Whilst not necessarily endorsing Ambrose Evans-Pritchard's general approach to economics (too Keynesian for me), I always find his analyses worth reading. In a recent article he sounds a warning about equities and a stalling US economy, addressing the big question about how long disinflationary forces will persist.

What is clear is that the Fed and fellow central banks can do precious little to reverse a chronic decline in productivity. In this respect, we have reached the limits of central bank action.

Fed chief Janet Yellen is in a horrible predicament. She can keep running the economy 'hot' - and by her own admission real rates are 1.25pc below their 'neutral' or Wicksellian level - in a bid to build up momentum.

But in doing this she risks falling behind the curve on inflation, or more accurately 'stagflation', since that is where the US seems headed. She can pick her poison from one side or the other of the 1970s Phillips Curve - jobs or prices - but pick she must. “The longer the Fed dithers, the higher rates are eventually going,” said Paul Ashworth from Capital Economics.

Yellen has a revolt on her hands in any case. The heads of the Atlanta, St Louis, and San Francisco Feds have all been talking up the inflation threat. Even the ultra-dovish Boston chief has gently cautioned markets to expect more than the one solitary rate rise priced in by futures contracts for this year.

The Fed may succeed in stretching this cycle until 2017. But sooner or later it will have to grasp the nettle, and then we will discover how much monetary pain can be taken by a dollarized global economy with post-QE pathologies and total debt ratios some 36pc of GDP higher than in 2008...

There has been a lot of talk about stagflation recently. It seems like it may indeed be coming.

The scariest statement here is the remark by Paul Ashworth: "The longer the Fed dithers, the higher rates are eventually going."

And dithering they have been for years now.

For a slightly different perspective, emphasizing the current global deflationary situation and competitive currency devaluations (but equally critical of the role of central banks), note the latest – very bearish – views of Bob Janjuah of Nomura.

Some thoughts on political idealism and America's role in the world

From time to time I will be posting either here or at Language, Life and Logic (as appropriate) essays or extracts from my essays or selected comments from The Electric Agora. My latest piece, Science and Disenchantment, was published there a day or so ago. I may repost it here after the comments have closed in a couple of weeks.

For now, here is something based on an exchange that took place earlier this month...

Commenting recently at The Electric Agora, David Ottlinger accused me of "defeatism" because I expressed reservations about his optimistic and idealistic ideas about the possibility and scope of democratic debate and public advocacy.

Here is a (slightly revised) extract from my response:

... The thing is, you seem to want to speak for 'reason' or some such, to rise above the fray. But my gut feeling, at any rate, is that in the end one has to bite the ideological bullet and – well, join the fray (if one wants to be an activist, that is). But then, unfortunately, you leave the high ground of reason behind for something like rhetoric. (Like that opinion piece [an article by Conor Friedersdorf criticizing outspoken conservatives] you referred me to: it was nicely done, but quite polemical and tendentious.*)

I am not a natural activist. That may be why you see me as defeatist, but I've got nothing against activists – at least not against those who are not engaged (as many of them are, as it happens) in trying to undermine the things I hold most dear.

You obviously hold certain things dear, not just abstract ideals but some good things about the culture you grew up in and are committed to. I too can see some good in American culture, but simply don't share your belief that the political structures can be made to work again as they once did. The economy, as I see it, is also a problem.

Regarding the New Republic article [a piece by Heather Hurlburt defending military humanitarian interventionism]: the issues are difficult, and have (as the author suggests) been made more difficult by previous flawed interventions. Part of the tragedy is that the US, by over-reaching and over-promising and by its perceived hidden agendas and very mixed motives, is rapidly losing respect in the world. Not so long ago you could still see it (or at least I could) as the cavalry riding to the rescue. Not any more. That myth has soured.

What I see now is a rapidly fading superpower with looming budgetary and social problems trying to maintain its geopolitical sway in a changing world and, to that end, involving itself in various far-away regions like Ukraine, for example, and the South China Sea (as well of course as the Middle East). NATO expansion (was it really necessary?) has arguably exacerbated tensions in Eastern Europe and pushed Russia in an unfortunate direction. American activities in the Western Pacific/South China Sea could be seen as an attempt to retain a role the U.S. once had and which China is now seeking to take up. These are dangerous times.

Which brings me back to that article. Was the author suggesting that the US should send troops into Burma?!

I don't deny that there have been effective humanitarian military interventions in the past and that there will be more in the future. But one important determinant of success is that the flag of the intervening power should inspire respect and trust.


* For example, you can't just dismiss the notion (as Friedersdorf appears to do) that immigration alters the ethnic balance of a country and that these changes (in America and most other Western countries) have generally been encouraged by and worked to the benefit of the left.

And this is an earlier comment of mine on that thread (which prompted David Ottlinger's reference to the article by Heather Hurlburt):

[Quoting him] "... I believe you severely underestimate the extent to which we are dependent on experts to make determinations about serious issues."

My views on expertise probably differ from yours more on the issue of 'moral expertise' than in other areas.

"The question of whether economic history since 1960 is more consistent with monetarism or Keynsianism or whether the history of various military interventions is more consistent with limited interventionism or isolationism is just going to be too complicated, way too complicated, for voters to make determinations on without experts."

Or even with the assistance of 'experts': because in a sense there are no experts here. Let me explain.

Macroeconomic theory is a contested area, and moral and ideological commitments clearly come into it. I think it was Wilhelm Röpke who said that inflation is a 'moral problem'. And this goes to the heart of my response. In decisions concerning choices between various economic approaches or frameworks both factual (relating to whether descriptions and predictions map onto the real world) and moral/ideological factors come into play.

Similar factors apply to judgments about military interventions. There are practical questions about consequences, and then the moral dimension. To a large extent the question of whether to launch a military attack on Iraq and kill its leader (or do the same in Libya) could be seen as a moral problem. And moral problems simply cannot be dealt with in an objective or fine-grained sort of way like we deal with technical or scientific problems. I must confess that before the Iraq war, I was undecided about it: it was only after the event that it became clear to me that it had been a mistake. The predictions of the advocates of intervention were all proven to be wrong. And I think most people don't need the help of experts to see this. There were no WMD. Iraqis did not embrace democracy and live together in prosperity and harmony. Likewise the disastrous intervention in Libya.

Other 'interventions' in the past have been arguably even more clearly morally flawed. Take the Allied bombing campaigns in Europe towards the end of World War 2 directed at civilian targets (e.g. Dresden) or the bombing of Hiroshima and Nagasaki. I don't think we need to call in the experts here. I know where I stand.

I also know where I stand on economic questions (though I am not an economist). It may be that I have chosen to believe the wrong set of experts. Time may tell. General predictions have been made (you can never give precisely timed predictions in this area). How it finally plays out will not necessarily clearly validate or vindicate (or invalidate) any particular framework, but some predictions will be shown to have been more accurate than others.

The personal and the political

Just over a week ago The Electric Agora published a piece of mine (entitled Passionate Thinking) on social and political convictions. In the course of the article, I sketched out how my personal perspectives have changed over the years, especially in terms of my view of America's role in the world. I could no longer, I explained, accept the standard, more-or-less conservative myth of the US and its close allies being basically a force for good.

I also referred to the ideas of Isaiah Berlin, linking to an essay about Berlin's politics by Christopher Hitchens.

The reaction was interesting. Virtually no one seemed interested in looking at the broader political and geopolitical questions which were my focus. The bulk of the comments related instead to an almost parenthetical comment about – feminism!

Of all the '—isms' one might conceivably want to question or dismiss (in the context, at any rate, of certain intellectual circles) this one is the most awkward to deal with. Militarism and pacifism, socialism and capitalism and anarchism, pragmatism and Platonism, modernism and postmodernism: all are fair game. Even perhaps Darwinism. But feminism, it seems, is in a special category. Certain strands of feminism may be criticized or dismissed – but not feminism per se.

A commenter suggested that I was driven by resentment in suggesting that much feminism was mean-spirited and driven by resentment. I don't think I was (or am), as it happens. And the brief remark on which he was basing his suggestion or its context certainly did not reveal any as far as I can see. [See the extract quoted below.]

Given the relatively provocative nature of some of my claims, I was expecting some criticism, and was pleased in fact that various commenters showed a degree support for my views.

The latter part of the comment thread developed into an intense discussion of Joan Didion's take on the women's movement of the early 1970s – she talked of resentment also, by the way – and the surprising relevance of some of her ideas to recent social and cultural phenomena. The thread is well worth a read.


Here is the section from the essay in which I try to sum up my general outlook:

I don’t know that I can satisfactorily describe the social vision or ideal that drives me. It’s a personal thing and I would probably need to draw on certain literary or cinematic sources to make it plain, books and films* which others may not have read or seen. Unfortunately (from my perspective), it just happens to be an ideal which is not celebrated in contemporary Western culture.

I value self-control, a balance between asceticism and sensuality, a non-religious (or anti-religious) stance, good manners, self-reliance, intellectual curiosity, passion – and compassion (and practical help) for those who cannot cope.

I am generally repelled by contemporary progressive thought, by feminism (which all too often is mean-spirited and driven by resentment), and by the current obsession with ‘rights’. The dominant strand of organized secular humanism strikes me as a pale religion-substitute; a watered-down and sentimentalized version of Kantianism or Christianity; a front for progressive politics; a pretext for tedious and superficial moralizing.

These attitudes of mine are largely, no doubt, a function of biological predispositions and a particular upbringing. But the same applies to everyone. The trick is to take one’s deep feelings and intuitions seriously, but not too seriously; to maintain a critical distance. (My dislike of feminism, for example, does not entail a reactionary position or a belief that girls should be discriminated against in terms of education or anything else).

* Someone asked about films in a comment. My response:

I wouldn’t really know where to start (or stop) listing [the films] that were important for me. Old films, focussed on the small-scale and the personal mainly.

Three at random: Victoria in Dover (1954, German-language); A Kid for Two Farthings (1955, Jewish-themed, written by Wolf Mankowitz, dir. by Carol Reed); La nuit de Varennes (1982, includes some marvellous bits, including a scene involving the king's ceremonial cape: it is the symbolism that counts, not the man).

[...] [M]y strongest values are more personal than political – but the personal projects to the political of course.

Is the global financial system at risk of collapsing?

Many Western countries may well be facing a relatively bleak economic future, but I doubt that we are headed for anything like a global financial cataclysm.

Though I am no expert, it is important for me to have a considered view on these sorts of matters both for general and more practical reasons: general, because I'm curious about how our economic and political realities evolve; and practical, because of the impact impending events may have on personal investments etc..

I have been devoting serious attention to investing for almost twenty years now, and during this time my fortunes have fluctuated more or less in sync with global equity markets. My intention at the moment is to shift to a more conservative strategy (if only I could figure out what a conservative strategy might be in the current situation, when bond yields are so eerily low...).

Precious metals? I did hold some gold bullion years ago but don't currently own any. So-called gold or silver 'stackers' are often very naive and uncritical in certain respects but at least they perceive that something is seriously wrong with the current financial and monetary system and are seeking to take control of their own destinies.

In fact, some fairly mainstream commentators agree with their logic to a point. James Rickards thinks one should have about 10% of one's savings or investments allocated to physical gold; and Marc Faber and Jim Rogers both maintain a considerable proportion of their wealth in physical gold, held in an Asian country, not the US. (It is commonly thought that, in the event of a sovereign debt or currency crisis, Western governments would force private holders of gold to sell up at a low price, as happened in 1930s America.)

But moving and storing the stuff is always a bother (and an expense), and bullion pays no interest or dividend. More importantly, I don't see a collapse of the global financial system as being a necessary consequence of a loss of confidence in the US dollar. Why would a new system not evolve based (perhaps) around IMF 'special drawing rights' and the Chinese and certain other currencies not associated with over-indebted sovereigns? The Chinese are rapidly moving towards full convertibility for their currency and are already having considerable success in promoting use of the yuan in international trade. (It will almost certainly be incorporated into the IMF's SDR formula before the end of the year.)

More generally, what we are witnessing is a major wealth shift away from the U.S. and most of Europe and towards Asia (and specifically China).

Sovereign debt is a crucial issue here. Sure, there have been times in the post-WWII period when previously-prosperous countries have suffered from sovereign debt crises -- and have recovered. But, in the current situation, with sovereign debt at record levels in most of the major Western economies (as well as Japan) we have arguably passed a point of no return. Only extremely low interest rates are allowing this situation to persist without major financial, economic and political upheavals.

The fact is that major economies such as the U.S., Japan, the U.K., Italy and France are in decline and, given the state of their public finances coupled with low productivity growth, probably in terminal decline.

We are seeing a US-centred world financial system slowly being replaced by a multilateral system which -- increasingly -- will reflect the significance of the Chinese economy and the Chinese currency.

The Obama adminstration is hastening this process not only by sanctioning reckless monetary policies and virtually ignoring the looming crisis of US sovereign debt and entitlements but also by a series of geo-political and diplomatic blunders. One of the most cack-handed and significant of these was its recent -- and largely failed -- attempt to dissuade its major Western allies from joining (as founding members) the China-sponsored Asian Infrastructure Investment Bank.