The incoherent blathering and deranged rantings of the self-styled Guru Bob...

Friday, August 13, 2010

With a whimper

A couple of weeks ago there was a lot of coverage in the Australian media of a talk given by a guy called Niall Ferguson at some 'thinktank' event in Sydney. Apparently he made a lot of connections between the decline of US Power and several other past empires and how their decline was linked to out of control fiscal debt with statements like this:

The fiscal position of the US is worse than that of Greece. But Greece is not a global power. In historical perspective, unless something radical is done soon, the US is heading into into Bourbon France territory. It is heading into Ottoman Turkey territory. It is heading into postwar Britain territory...

Quietly, discreetly, the Chinese are reducing their exposure to US Treasury bonds. Perhaps they have noticed what the rest of the world's investors pretend not to see - that the US is on an unsustainable fiscal course, with no apparent political means of self-correcting...
I think that the comment about no apparent means of self-correcting is the key which has everyone outside the USA running scared - while the American political 'system'  usually appears completely insane to anyone viewing it from outside it does seem a little bit more nutty at present then ever before with tea parties, Sarah Palin and everyone else banging on about socialism and pointing their fingers at Obama while the actual system seems to be inherently ineffectual at changing anything...

Of course I wasn't there for the lecture - but I did wonder who is this person who has really thrown the cat amongst the pigeons and it turns out that he is someone who really does know stuff - according to his own personal website: Niall Ferguson, MA, D.Phil., is the Laurence A. Tisch Professor of History at Harvard University and William Ziegler Professor at Harvard Business School. He is a resident faculty member of the Minda de Gunzburg Center for European Studies. He is also a Senior Research Fellow of Jesus College, Oxford University, and a Senior Fellow of the Hoover Institution, Stanford University.

Anyway so I think I found the basis for his paper here  and this version concludes with this statement:
This is how empires decline. It begins with a debt explosion. It ends with an inexorable reduction in the resources available for the Army, Navy, and Air Force. Which is why voters are right to worry about America's debt crisis. According to a recent Rasmussen report, 42 percent of Americans now say that cutting the deficit in half by the end of the president's first term should be the administration's most important task—significantly more than the 24 percent who see health-care reform as the No. 1 priority. But cutting the deficit in half is simply not enough. If the United States doesn't come up soon with a credible plan to restore the federal budget to balance over the next five to 10 years, the danger is very real that a debt crisis could lead to a major weakening of American power.



The precedents are certainly there. Habsburg Spain defaulted on all or part of its debt 14 times between 1557 and 1696 and also succumbed to inflation due to a surfeit of New World silver. Prerevolutionary France was spending 62 percent of royal revenue on debt service by 1788. The Ottoman Empire went the same way: interest payments and amortization rose from 15 percent of the budget in 1860 to 50 percent in 1875. And don't forget the last great English-speaking empire. By the interwar years, interest payments were consuming 44 percent of the British budget, making it intensely difficult to rearm in the face of a new German threat.


Call it the fatal arithmetic of imperial decline. Without radical fiscal reform, it could apply to America next.

Let me know what you think...

5 comments:

  1. Was reading an article yesterday that bascially said that the US has to raise taxes or go broke, and the sooner it happens the lower the taxes will have to be.

    I still think that we're due for a tax rise here if we're to start big infrastructure projects and move to more sustainable living we're ging to have to start spending money properly and the best way is through taxes.

    Trouble is a lack of backbone in either of the two main parties to do so. Days of milk and honey are over and with no proper future fund (thanks kevin) taxes must rise a bit.

    ReplyDelete
  2. Well that is the gist of it really - apparently the USA already has a ridiculously low tax rate compared to the rest of the developed world and anytime a 'leader' tries to even suggest raising it they get howled down in outrage.

    Add to that the bottomless holes created by some of Bush's policies and it would take a very brave leader to make the types of changes really needed and no US politician could survive the backlash...

    ReplyDelete
  3. "Let me know what you think...

    don't think it can happen,

    at least not while the US has thousands of Nukes.

    ReplyDelete
  4. Why is this news?

    I live in a strange world. People keep getting remarkably excited about stuff that was obvious five to ten years ago to anybody who really cared to look. I don't understand that.

    Theoretically, I should be able to make a stinking pile of money by noisily restating the obvious about four years after it becomes obvious. The problem is that I never realise that the rest of the world hasn't seen the obvious until someone like Niall Ferguson makes a lecture tour out of things like "wet paint is sticky" or "some dogs will bite if you poke them with sticks".

    I think I'll just stick with investing in yuan/yen/renminbi.

    ReplyDelete
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