Cracks in the Empire
I agree with this article. The United States has been engaged in empire-building, a project which cannot be sustained indefinitely. History proves it and it is irritating and frustrating to see this history being repeated by our own nation. Anyway, this article is well-written, makes some excellent points, and I wanted to share. Below is just an excerpt and the entire piece can be seen at Cracks in the Empire by Michael S. Rozeff
Quote:
Cracks in the Empire
by Michael S. Rozeff
Building an empire is one thing. Preserving it is quite another.
"If the U.S. government allows Fannie and Freddie to fail and international investors are not compensated adequately, the consequences will be catastrophic. If it is not the end of the world, it is the end of the current international financial system. The seriousness of such failures could be beyond the stretch of people's imagination." These are the words of Yu Yongding, who is a Professor in Beijing and a former advisor to China’s central bank (August 22, 2008, in Bloomberg news).
We should listen to Prof. Yongding. The Bloomberg article reports: "Yu is ‘influential’ among government officials and investors and has discussed economic issues with Premier Wen Jiabao this year, said Shen Minggao, a former Citigroup Inc. economist in Beijing, now an economist at business magazine Caijing."
China has loaned Fannie Mae and Freddie Mac huge amounts of money: "China's $376 billion of long-term U.S. agency debt is mostly in Fannie and Freddie assets, according to James McCormack, head of Asian sovereign ratings at Fitch Ratings Ltd. in Hong Kong. The Chinese government probably holds the bulk of that amount, according to McCormack."
Fannie Mae and Freddie Mac, the two government-sponsored enterprises (GSEs) that have invested in and supported the U.S. housing market these many years, have essentially already failed. The equity of stockholders is 95 percent gone, due to the bad loans these companies made and the prospects of further losses.
Professor Yongding is notifying everyone that China has first priority at the "bankruptcy" table. Even if there is no formal bankruptcy procedure, China, as the foremost creditor, does not want to absorb default losses on its loans to Fannie and Freddie. China is pressuring the U.S. to make good on its implicit guarantee to support the GSEs.
The U.S. taxpayer is the ultimate bagholder in this process. U.S. citizens borrowed heavily from the GSEs and thus from China to build and buy houses. They are being asked to pay off these loans and not stiff their creditors. If they do not pay, China will hasten to wind down its loans to U.S. institutions, and that includes the U.S. government. This process has already begun.
To have reached this phase in which creditors line up to see who is first means that the GSEs have already failed. This is not surprising. The entire enterprise of Government, in the bloated and intrusive form we know it as, is destined to fail. The failure of any and every coercive monopoly Government is assured by its own dynamics. Unaccountable monopolies blunder, fragment, lose direction, lose momentum, and fail. It is only a matter of time.
Government is like a great glacier. At first, the glacier grows and builds up, drawing mass from the cold and snow and strength from the compressed ice. These lead to movement of the river of ice. It slowly flows, grinding everything in its path. The old landscape gives way and a new one appears. But the motion creates fissures and crevasses. The glacier reaches lower and warmer climes and begins melting away. Cracks in the ice field appear. Huge chunks break off as icebergs form and float away. The glacier dissipates.
Fannie and Freddie have broken off. Their values have melted away. The Government is trying to hold them in place. The more that it tries, the more that these GSEs will dislodge further pieces of the Government and weaken it.
The current international financial system is already at an ending phase, if by that is meant the dominance of the U.S. The signs of this are plain. The Fed has a weak balance sheet that is growing weaker as the U.S. government is forced to take on such obligations as Fannie and Freddie. These chew up taxes while adding nothing to the country’s productive potential.
A second sign is that the U.S. people have built a mountain of debt. A third sign is that the era of U.S. world control using financial institutions like IMF and World Bank has passed its prime. A fourth sign is the bubble in central banks, which are instruments of monetary repression. There are 159 central banks in the world (including such notable places as Tonga and the Solomon Islands), each in place to control a country’s money and support the government’s policies of control over the people. Root and branch, central banks are anti-liberty and anti-monetary freedom. This bubble is bound to burst, as the negatives of central banks become recognized.
Central banks are well-paid homes and sinecures for intelligent men and women who have gotten doctorates and other advanced degrees and who in comfort imagine themselves as building up the financial system of their nation. For example, the Central Bank of Sudan sounds like our Federal Reserve. It has four "pillars." These are monetary and financial policy, foreign exchange, currency, and bank supervision, with other mentions of price stability and the bank’s titular independence. In time, the world will recognize that central banks are the antithesis of basic human rights and that they cannot help but fail at their publicly announced goals.
When will this worldwide phase of monetary suppression, now led by the U.S., climax and begin to reverse? Is it now? No one knows. Maybe it will take years more, maybe decades, maybe centuries. The Roman Empire went on in altered form for a very long time. No one knows how long this will go on. Adam Smith is supposed to have said "There’s a lot of ruin in a country." There is a lot of ruin in the world.
But when a great country like the U.S. finds itself in hock to another nation and being warned that it must pay up or else, then the game has already been lost. The handwriting is on the wall. The chickens have come home to roost. Choose the cliché you prefer.
What game? The game of empire is the game that is being lost, and that is a game that it is good to lose. Great Britain survived the loss of its empire. So did Spain, Germany, Russia, and countless others. So will we. Let us make the best of it.
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Walter Mondale: "George Bush doesn't have the manhood to apologize." George Bush: "Well, on the manhood thing, I'll put mine up against his any time." 
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09-01-2008, 10:27 PM
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