Decline and Fall

Last week ended on a grim note.

The US’s disposable income dropped by more than US$1 trillion. This was the second largest drop since the Great Depression. And the ‘inflation tax’ paid so far by American families during the Biden years, totals US$7,400 per household.

That is bad news. But who cares? You destroy a nation, first with inflation…then with war. The US elite is working both angles. Last week, it pledged to send 100 US tanks to Ukraine…prolonging the war…and getting itself in deeper.

This was heralded as a ‘game changer’ for Ukrainian forces. We know nothing about military matters. Still, we can’t help but notice a familiar pattern. Just as a summer leaf dries up in the autumn…and the old duffer forgets where he left his car keys…so does a great power become a not-so-great power.

Fraud and force

Our beat here is money. But money woes often come in a ‘cluster’ of other troubles. In our opinion, the introduction of the fake US dollar — in 1971 — was really the beginning of the US’s great decline (probably between #5 and #6 below). Fish gotta swim, birds gotta fly…and great empires gotta decline somehow. Typically, they do it with a combination of fraud (inflation) and force (war).

As for war…the elite is doing its best to keep the war in Ukraine going as long as possible…and to prepare the public for war with China.

Meanwhile, back on the inflation front, as we saw last week, the Fed is in a rare phase of returning to ‘normal’. Higher rates are squeezing the extravagance out of the financial markets…forcing the middle class to pay more for mortgages…and generally making the rich less rich.

If this correction is allowed to continue, we can expect asset prices to fall further and interest rates to rise. This is what we call the ‘Primary Trend’. After four decades of boom, we expect at least a couple decades of bust. This would be a good thing for the middle class because it would stop inflation from stealing its wealth. Ordinary people benefit from ordinary, honest money, not from the Fed’s tricked-up currency.

But…don’t hold your breath.

In the first place, ‘The People’ don’t control the Fed. The elite do. And while the economy of the last four decades wasn’t very pleasant for the middle class, it was a charm for the elite.

And the more the Fed helps Mr Market to ‘correct’ the excesses of the past — that is, cause the rich to lose money — the more the elite are going to want a ‘pivot’.

This inevitably sets up a showdown. Between the feds and Mr Market…and between what is good for The People (the middle class) and what is going for the elite. It’s going to get confusing…muddled…contradictory. Prices will go up…but what will they mean? Will inflation erase the gains? Will we be making money or losing it?

For today, let’s stick with the ‘Decline and Fall’…

Seven stages of decline

The process is well documented by the connoisseurs of decline — such as Gibbon, Tainter, Spengler, and Sir John Glubb. It was Glubb who calculated the average lifespan of an empire; from ashes to ashes, he figured, it was about 250 years.

Glubb, known as Glubb Pasha, outlined the stages of an empire as follows:

  1. The age of outburst (or pioneers).
  2. The age of conquests.
  3. The age of commerce.
  4. The age of affluence.
  5. The age of intellect.
  6. The age of decadence.
  7. The age of decline and collapse.

Which, of course, raises the question: where are we?

Typically, an empire aids in its own destruction…with excess expenses, complications, and corruptions…weakening its economy internally as other countries rise.

Since 1945, for example, the US has spent trillions of dollars on ‘defence’. But its safety was never in danger. Instead, it involved itself in ‘wars of choice’…standard practice for empires that are peaking out. There is nothing really at stake. So, the idea is to spend money, not to win wars.   

On Abrams tanks, for example. The Abrams is a huge, sophisticated machine. It was built to protect the profits of Chrysler Defense, not to defend the US. It would only make sense as a defensive weapon if we believed a foreign army could attack us on land…as in, Chinese hoards bursting across the 49th parallel…or the Iranian Guards suddenly crossing the Rio Grande and advancing on Dallas. Neither of those things are plausible.

Iron and brass

Instead, the tank is sent far away, into one foreign quagmire after another. There, it serves its real purpose well. It inevitably breaks down and needs careful maintenance and high-tech repair…involving huge additional expense. Weighing 68 tonnes, it’s a monster headache for road repairs.  

Money is often a hindrance in warfare, not a help. It tends to buy weapons systems that are too complex…and command structures with too many overpaid consultants and too much top brass. Here’s a smallish description from the National Defense University Press:

There are approximately 900 Active-duty general/flag officers (GO/FOs) today of 1.3 million troops. This is a ratio of 1 GO/FO for every 1,400 troops. During World War II, an admittedly different era, there were more than 2,000 GO/FOs for a little more than 12 million Active troops (1:6,000). This development represents “rank creep” that does not enhance mission success but clutters the chain of command, adds bureaucratic layers to decisions, and costs taxpayers additional money from funding higher paygrades to fill positions.

Yes, the leaf turns brown…and the empire prepares for its defeat!

Regards,

Dan Denning Signature

Bill Bonner,
For The Daily Reckoning Australia
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