Downfall of the US Empire

The fall of an empire is usually caused by war. Just like the wars of ancient history, the wars of modern history have caused empires to go bankrupt and lose their superpower status. One only has to look back to World War 2 to see how war bankrupted the British empire. Britain was once the superpower of the free world but the war placed an enormous economic toll on Britain from which it never recovered and led to the isolationist US usurping Britain as the world superpower.

Once again we witness the fall of one empire (the US) and the rise of another (China). There is no doubt that the US stock market bubble of 2001 and the 911 terrorist attacks were massive shocks to the economy and confidence. The US Federal Reserve (Fed) then lowered rates to 1% and kept them there, for some time, to guarantee a recovery. What central banks fail to realise is that economic activity caused by lowering interest rates is an artificial boost to the economy. Money becomes cheap and the market reacts by borrowing more and accumulating more debt. Is this really economic growth? Was the NASDAQ bubble valuing companies accurately? In 2005, were US houses valued correctly? No and No. Central bank fuelled debt and the old cliché of "irrational exuberance" are to blame for the bubbles.

The great idea to invade Afghanistan and Iraq added more debt onto the US empire. Funding unwinnable wars with debt is how empires go into decline. The US government is now forced to use "quantitative easing" or printing money to fund their government expenditure. Imagine how much money would have been saved if Iraq had not been invaded or more importantly the thousands of lives that would have been saved on both sides of the conflict. These costs are now placing a huge strain on the US economy and will severely delay its recovery.

The government funded its wars with paper dollars. You can see that debt levels increased rapidly after Nixon closed the gold window. This is what happens when governments fund wars with debt. Eventually an economic crisis will hit government tax revenues hard and if the government had already been running a deficit then the deficit will become larger and eventually governments will print money to fund the war and to stimulate the economy.

Clearly after 2001, the price of gold accelerated upwards from $200/oz and has been growing exponentially since then.

The only way wars of aggression can be beneficial is if the resources that are captured are greater than the resources expended in fighting the war. Since Afghanistan had little economic importance and more strategic importance, we can say that this war had a purpose with no expected economic gain. On the other hand Iraq has major economic significance as an major oil supplier and posed little threat to global security (WMDs did not exist and the intelligence community knew this). We can therefore say that Iraq was war based on economics which secured future oil supply for the US.

Despite this gain, the war has no end in sight and every day the US military operated in Iraq is another US$ 150 million gone. Perhaps the strategists have worked out the future cost of oil being so expensive that the cost of the Iraq war is worth the gain in oil supplies secured. This is the only economic justification for the war and whether it is true will only be known years from now.

The only other economic justification for war is in self-defence, which should be self-explanatory.

We have looked at how the events of 9/11 set the US on a warpath that has bankrupted the nation. Osama Bin Laden's goal was to inflict terror on the US and send a message to the world. But he may have contributed to the downfall of the US.