The Spring of Discontentment

The paths of politics and economics are so intertwined in this post-Industrial revolution world of ours that failing economics can easily harbinger coming political change with or without the manifest appearance of the biggest factor of political change: War that is. Since the end of the First World War, when Britain, France, Germany and the U.S. (the descendants of Charlemagne and Franks and Angles and Saxons and Allemanis and Goths and Lombards and Frisians and Nordics that crossed Rhine and Danube and inhabited the Roman Empire and then later conquered the world for themselves) fought between themselves a Peloponnesian conflict that was essentially nothing more than a European civil war and strictly speaking an exercise in the biggest fratricide that the world had ever witnessed, (and that was to be eclipsed by a more sanguine conflict twenty odd years later) the Occidental civilisation is in the state of a perpetual decline, spurred perhaps only by the inertia of post-Industrial revolution enlightenment and the riches amassed after centuries of colonial plunder.

Britain ruined itself in its obsession to beat Germany in the First World War, emptied its coffers on the war effort and went heavily into debt. As a consequence one of the very keynote steps (and by the way one of the least talked about as well, prefect example of head in the sand philosophy) towards eternal decline was taken in 1931. Britain went off the gold standard because the state did not have enough gold to cover the circulating treasury notes, alternatively known as obligations. Gold, although unproductive by nature and having very few industrial uses, had hitherto done what it was meant to do: Rein in the money supply of a nation, that despotic rulers (Kings as well as elected) try to inflate in order to cover the ever-bulging state-expenses. With the removal of the Gold barrier, that imposed a physical limit on money supply, British leadership was now free to inflate by printing. The best way to pay the debts hence was devised: Payment by printing or inflating through the debt.

This unique method of replacing Gold, a physical limit, by bureaucracy whims, paper money supply that is, was a ticket to heaven for governments all around the world. U.S. followed suit with Roosevelt not only switching to paper standard but also confiscating all the gold holdings of U.S. citizens. After the 2nd World War, the U.S. emerged as the final victors, Europe was ruined and Britain, France, Germany and Italy as a consequence had to accept their new fates as U.S. satellites. This U.S. victory ushered in a new era in Economics. Rapidly all of the countries of the world shunned the gold standard and switched to, you guessed it right, the new de-facto world currency the U.S. dollar, the Greenback or the proverbial Buck that never stopped.

Since Gold is a natural resource, it is found everywhere in the world and hence is free from national hegemony. Like every natural source it is distributed over the surface of the Earth. Federal Reserve Dollars (FED USD) on the other hand represent political money as opposed to natural money. They can only be produced with the political consent of the U.S. and within the political jurisdiction of the U.S. For sixty years now the FED has been printing money and the U. S. disbursing this money to attain political motives and goals while on the other hand increasing the inflation. The U.S. money supply, the much talked about M-3, has now exceeded 18 Trillion dollars. This inflation (read: Overprinting) of U.S. money has exponentially decreased its purchasing power which has triggered a new panic wave in the countries holding dollar reserves.

This free banquet of infinite money-supply offered to the naïve generation of baby-boomers is over since there is a physical limit on the natural resources of the planet. Excessive money supply would only result in one thing: Inflation. The rise in cost of living and basic necessities since everyone would have more of U.S. dollars but the number of fried eggs available for breakfast would remain more or less the same: Ditto for the petrol, water, wheat and every commodity and not to mention the precious metals. But this runaway inflation caused by U.S. has other repercussions as well. With a rapid decline in the U.S. Dollar purchasing power, countries holding U.S. dollar reserves would seek to either buy commodities (which would drive the prices of these commodities even higher) or would try to dump these dollars by establishing reserves in any other currency or GOLD.

Gold, hence is back but it’s such an irony of fate that U.S. does not have it anymore. Yes, people, after the 2nd World War when U.S. decided to leave the gold standard, Gold was deemed a useless commodity or in the famous and much publicised words of John Maynard Keyenes, ‘A Barbaric Relic’. This so-called barbaric relic was then sold in enormous quantities to obtain FED issued dollars that have lost 95% of their purchasing power since 1950. One ounce of gold however buys the same quantity of Oil today as it did in 1950; you see it’s naturally inflation-proof. This inflationary streak of FED has brought diverse drastic consequence for the U.S. Commodity prices all over the world have gone up while at the same time dollar purchasing power has gone down hence pushing more and more of Americans below the poverty line. Energy prices have sky-rocketed threatening the “American Way of Life� (which means using petrol guzzling SUVs 24/7 by the way). The U.S. Federal debt has ballooned to 48 Trillion dollars while the U.S. GDP is only 12 Trillion dollars hence making it one of the most indebted of the nations on the Earth. Simply put, for one dollar earned the U.S. has to pay a debt of 4 dollars. Not the ideal situation to be in exactly.

But there remains one factor that is more hazardous than anything else: The “Sovereign Wealth Funds�. The wealth funds created by countries that hold enormous amounts of Dollar reserves such as China, Singapore, Hong Kong, Qatar, U.A.E., Saudi Arabia etc. With the rapidly decreasing purchasing power of the Dollar, these countries are looking to convert their dollars into assets, and have started buying assets (such as banks, ports, industries etc.) in the U.S. hence exerting a sort of political influence using these inflated dollars. The ground situation is somewhat like this now: The U.S. has an enormous debt, the value of dollar is tanking, ‘Sovereign Wealth Funds’ are moving in for the kill, high food, energy and commodity prices are pushing U.S. middle classes into poverty, the runaway inflation is eroding people’s savings, the production and manufacturing jobs have already gone off-shore hence there is no apparent wealth-creation source left, the subprime mortgage crisis is shaking the foundations of the economic system, the debt-based consumer economy is about to default because credit-card obligations have passed 21 trillion dollar limit last year, the U.S. relies heavily on its neighbours and middle eastern Arabian Kingdoms for its energy needs which are less and less willing to sell to U.S. plus the U.S. has started two wars in two different regions of the world, far from the base of the Empire, Iraq and Afghanistan that is.

And this hence brings us to the crux of the matter. To finance its wars, once again U.S. prints, yes simply prints money. It really made me laugh when President Bush said on TV that he is going to double the aid for Africa from 50 billion USD to 100 billion USD per year. What he was implying that the US FED printed 50 Billion USD for Africa each year, now they would print 50 billion more each year. This dollar does not represent wealth or work or productivity hence exponential decline in its purchasing power. In fact they have even stopped printing them; it is now a matter of a few keystrokes. The U.S. dollar is a pixelated entity produced on IBM machines and the world is becoming fast aware of the fact that it values less and less with each passing instant and nations like Russia and China are trying to diversify their reserves into Gold which has driven the gold prices to a record level. China by the way holds 1.5 Trillion dollars in reserves. If it decides to diversify only 10% of this into lets say Oil, the Oil price would soar to unimaginable highs and poorer countries like Pakistan and India would automatically be outbid from the energy market. The fake pseudo-western social fabrics of our sub-continental societies would auto-destruct. The mortgage crisis hasn’t even touched its peak plus we are going to witness the unfurling of the credit card default crisis this April. Combined with this, Iran, Russia and Venezuela are forwarding a proposal to trade oil in either Gold or Roubles. The final cherry on the cake or perhaps the proverbial straw that broke the camel’s back would be the much-dreaded Taliban Spring offensive. The Taliban intend to take Kabul by this summer using a three-pronged attack. NATO has refused to increase personnel; Pakistani troops are barely holding their own home-grown species of Taliban in the north-western Pakistan and U.S. is bogged down in Iraq: Quite a recipe for disaster in the making.

This story that started with Germanic tribes who crossed the Rhine and the World Wars and the gold standard and the FED and the inflation and the Dollars is now hinged on Credit Card crisis, Mortgage crisis, Sovereign Wealth Funds, Oil and Taliban. This would be a Spring of discontentment for the U.S. with their natural resources dwindling, their economy crumbling, their industrial base vanishing and there political influence rapidly diminishing. Such social unrest is only prescient of War. We don’t know however yet who would be at the receiving end of the desperate fury unleashed by this bleeding, crumbling and dying former Super Power. It sure would be a poor (in monetary as well as the sentimental sense) Third World country (Iran, Pakistan, Afghanistan, Iraq, Venezuela?) that wouldn’t even have the ability to respond to U.S. because just like the USSR of twenty years ago, that bled to death and did not start a war with U.S. only because it knew that it would never be a match to U.S’ prowess, this U.S. also knows that it’s no good apart from printing Western-movie style Osama Ben Laden posters and bullying third world nations.

The so-called “Barbaric Relic� has started shining again and once again like every paper and/or political money ever circulated in known Human history the Dollar is fading.