Has the American Empire of Debt Entered Terminal Decline?

By Nick Adama

Despite all of the trite messages of hope and change, the current state of the American economy points to a short term slowdown, at the very least. With the fraud perpetrated on the people through the subprime mortgage market, and the fallout from its inevitable meltdown, solutions have been offered that have done little to bring confidence back to the markets. Even the central bank of the country, despite repeated injections of inflated money and drastic interest rate manipulations, has failed to stimulate the economy to any lasting degree.

But the contagion in the mortgage and housing markets has not even been contained. Both mortgage lenders and homeowners are facing financial failure in record numbers, and bankruptcies are expected to increase. Over 220 lenders have now gone out of business, reduced their lending, or severely tightened up loan guidelines.

Homeowners, as well, are facing the consequences of a nearly decade-long bubble in the housing market, as property values have already fallen by 30-40% in some areas of the country. With increasing foreclosure rates, property values will have to fall even further to entice purchase offers and loan qualifications. But homeowners in trouble will be unable to sell their properties, as they received mortgages during higher points in the bubble.

Thus, even more homeowners are having to file bankruptcy to get out from under these crushing debt burdens on properties worth far less than the loans on them. Disturbing, although not surprising, is the fact that few homeowners seem to care much about these overpriced homes any longer. It is a good question why they should care about them, as they represent an era of excess spending and living beyond one’s means that has now ended.

The local governments that benefited so much from the run-up in home values are also the facing financial consequences of trusting in a financially unsustainable system. Cities and counties, unable to collect as much through property taxes as they were used to during the boom, are facing possible bankruptcy. Contributing to the problem is the fact that some public servants are taking retirement early so that they can be assured of a pension paycheck as the local governments are coming closer to the point of insolvency and being unable to fund their payrolls.

Reducing spending and shrinking government is not an action that most governments could conceive of, so that option will not be considered. More likely, taxes will be raised, or the governments will beg for a federal bailout in the form of low-interest rate loans of new money from the Federal Reserve. Again, government will rely on its tool to steal money from the people through inflation in order to keep itself out of bankruptcy, while their theft directly contributes to the problem of people not having enough money.

Inflation caused the problem, and more inflation is, logically enough, causing more problems. Oil is over $3.00 per gallon and a barrel is now just over $100.00. Not even counting resource depletion and a shrinking supply of oil, these numbers reflect a dollar that is quickly falling in value. Homeowners, rather than pointing to Arab countries, should look to their own excesses and their government when seeking to place the blame for the faltering economy.

But the issue remains to be resolved if this is just another recession, or if it is the begin of the end stages of the decline of the American empire. Built on a dollar as the reserve currency of the world and oil being priced in dollars, a movement away from either of these conditions could cause a much quicker collapse. Many OPEC countries have publicly considered pricing oil in Euros and Iran has already begun this. As well, other countries have quietly begun dumping their dollars and diversifying their currency holdings.

These two trends leave the country with only its military superiority to encourage a strong economy, a military bogged down in its own unwinnable wars in foreign nations, stretched thin across nearly 140 countries in over 700 bases. Faced with a loss of confidence in the dollar and a loss of confidence of the general benevolence of the country throughout the world, there may be little reason to expect that this current recession does not signal the final days of an empire of debt.