What if, Part 2

This article is the second of the series (What if, Part 1, Part 2, Part 3) covering the Author’s understanding of the outlook of great powers relations in the next ten years period. The approach is based on certain scenarios, which in turn are based on confirmed or estimated trajectories in the real world.

In this article, the focus is on the one hand key internal and external collapse-drivers of the US position and on the other hand summarizing some relevant recent development processes in military, economy and politics.

The position and background of present great powers, in the context of “collapse experience”

China’s history of the last 150 years has been turbulent, even traumatic. Behind thousands of years as a large dynastic empire and civilized society, Western powers (mainly Great Britain and France) with new superior military technology, defeated the traditional Chinese army and crossed the whole Chinese empire and their way of life in late 19th century. Long period of turbulence continued until the victory of Mao’s communists in 1940s. Internal chaos burst again in 1960s, in the form of Mao’s cultural revolution and not until Deng Xiaoping made the final turn to real growth and development in 1970s.

Russia’s history is at least as turbulent than that of China. Russia’s empire collapsed dramatically in the context of WWI and the communists came to power in 1920s and turned the old empire to Soviet Union, which under Stalin’s supervision became another superpower in the world, after WWII. A dramatic collapse of Soviet Union in 1989-90, turned the wheel of history again to Russian Federation. This means the Russian nation has experienced two major collapses in one century.

The US is much younger nation than the two others, so its history is quite different. After its war of independence in late 1700s, the newly born nation faced a bloody civil war in mid-1800s but has since then grown as a superpower both economically, politically and militarily. The two world wars have been crucial in this development. Especially, after WWII, the position of the US as one or sole great power has been indisputable. The collapse of Soviet Union in 1990 created the US-lead unipolarity in the world. As always, in every success there is a seed of downfall sown inside. The trajectory of the US has been down nearly the whole beginning of the new millennium or during last twenty years.

Quo Vadis, America?

Bubble, Super bubble, Everything bubble – Mega collapse 2022?

The US stock market, significantly overvalued. The S&P 500, the broad market index, is a good place to start just hitting a new record high (scored nearly 4800). The S&P 500’s current valuation, when compared to its historical valuations going back hundred years, reveals a stock market with significant overvalue and risks. Various other metrics, like CAPE ratio and Buffett indicator, show that overall stock market is significantly overvalued. Moreover, it continues to be propelled dangerously upward by central bank credit pumping, real tightening will be occurring later this year. Thus, the major US stock market indexes are at risk of a manic blow off top followed by a spectacular crash. 

Everything Bubble – The Great Illusion – Phantom Wealth, which is “speculative wealth”, a flickering illusion of prosperity. All speculative bubbles pop and all speculative bubbles inflated by borrowed money and central bank manipulation pop even more ferociously than bubbles funded by actual savings. By incentivizing speculation and corruption, reducing the rewards for productive work and sucking wages dry with inflation, America has greased the skids to collapse. As with all mass delusions, the incentives to continue believing are immense and the incentives to reconnect with reality are few.

With “Bidenflation” raging out of control, cash is trash and bonds are trash too. Some of the unintended consequences that Biden administration’s interventions have directly manifested: price inflation, supply chain disruptions, labor shortages, energy shortages, food and fertilizer scarcity, extreme wealth disparity, stock, bond and real estate bubbles, mob violence and lootings etc. For these reasons and many others, 2022 seems to become the year of the mega collapse. 

Dollar’s year 2022 in dangerous waiting

The greenback is heading into a precarious year 2022 of uncertainty, volatility and moments of existential dread. Central banks and other monetary authorities recalibrate foreign-exchange reserve holdings around the globe and the US dollar seems to be on the losing end of these shifts and this trend could become a systemic problem.

The dollar’s value versus gold has been falling for more than a decade now. That’s a product of ultraloose Federal Reserve policies flooding the globe with record liquidity. Now, as the Fed moves to tighten the credit spigot a bit, other monetary powers are pivoting to gold. The reason is growing concerns that the dollar’s reserve-currency days are over or at best numbered.

Most analysts agree the next couple of months could be kind to the dollar. The Fed’s shift toward tighter policy coincides with the People’s Bank of China pivoting toward monetary loosening.

Stephen Roach, the former chairman of Morgan Stanley Asia, believes there are at least five headwinds facing the dollar in 2022. “Why in the world would you own dollar debt?” asks Roach, adding “All hell might break for the dollar in 2022”. Some reasons to worry about with the US dollar might be summarized the following way.

Debts run amok and the US inflation is skyrocketing. That is putting upward pressure on US Treasury yields. As concerns about Washington’s runaway debt collide with surging inflation and a Covid-19 explosion sure to slam the economy, that moment could be soon.

Stock market bubble is getting irrational, after trillions of dollars of cash from the Fed, European Central Bank and Bank of Japan made it happen. Even with the US facing stagflation and the specter of fresh lockdowns, economists calculate the S&P500 (equity index) is trading 22% above future earnings, truly irrational indeed.

The Chinese yuan is getting the momentum. Since June 2020, the yuan has risen more than 10% versus the dollar. Yet the move by central banks to pivot away from the dollar comes just as President Xi Jinping’s effort to internationalize the yuan gains traction. As Ray Dalio, the hedge fund Bridgewater Associates founder, has said the yuan will replace the dollar sooner than conventional market wisdom believes.

The digital currency future is now. As the Fed is mucking about with tapering and rate hikes, PBOC Governor Yi Gang’s team is about to roll out a digital currency, the first by a major monetary authority. China’s first-mover advantage matters when it comes to rewriting the future of money. By February, when Beijing hosts the Winter Olympics, the PBOC hopes to have an “e-yuan” ready for circulation. The more a digital yuan gains global acceptance, the more Xi’s ambitions to increase China’s role in global finance and trade comes to fruition. The US, Europe and Japan are lagging far behind.

Key holders of America’s debt call their loans. The key holders of Washington’s massive debt are mainly in Asia (Japan and China are the biggest, then Taiwan, Hong Kong, India, Singapore and Korea). Asia’s top 10 holders are sitting on about $3.5 trillion of US Treasury debt just as inflation surges the most in decades.

Countries accelerate shift away from US dollar. The holdings of gold in the foreign exchange reserves of the central banks have been growing worldwide, hitting a 31-year high this year. At the same time, US dollar holdings have been dropping. According to the World Gold Council, the banks have built up their stockpile by more than 4.500 tons over the past decade. As of September 2021, the reserves totaled some 36.000 tons – the largest haul since 1990. Countries with the largest gold reserves in the world, as of June 2021: (1) The US 8133.5 tn, (2) Germany 3362.4 tn, (3) Italy 2451.8 tn, (4) France 2436.2 tn, (5) Russia 2295.4 tn.

At the same time, the presence of the dollar in foreign exchange reserves has dropped sharply over the past decade. In 2020, the currency-by-currency ratio of the greenback plunged to the lowest level in a quarter of a century. De-dollarization process, led by China and Russia, has been studied in details on this website here and here.

The Great Realignment, more Americans moving from Blue States to Red States in 2022

America is rapidly becoming two very different nations with two very different cultures.  Decades ago, the US were truly the “United” States of America but now the US have been split into two opposing camps that deeply hate one another.  As a result, in recent years millions of Americans have relocated for ideological reasons.  This has caused “red states” (Rep.) to become even redder and “blue states” (Dem.) to become even bluer.  The mass exodus from blue states to red states is actually going to accelerate in 2022.

Right now, there is no issue in the United States that is more divisive than the COVID vaccine. Most conservatives want to be able to have the freedom to choose whether to take the injections or not, while many on the left want to use the power of government to compel people to get injected. In many “blue states” the rule is strict: “jab or job” and today thousands upon thousands of displaced workers are seeking to “red states” like the “free state” of Florida. When considering the incidence of Covid pandemic, the US is globally number one in total cases (54 million) and in total deaths (850 thousand) at the end of 2021.

The Great Resignation, an exceptional avalanche of resigned American people

The year 2021 is eye-witnessing a mass resignation of Americans leaving the “normal work life”, well over 20 million so far this year, in July 4,9 million and in August – September also over 4 million per a month. Covid pandemic time may be one reason, when people used to remote work/ work-from-home and the return to “normal work” may turn out to be a harder task.

California dreams

Where California goes today, the rest of the United States and much of the Western world goes tomorrow. For well over a hundred years, California, the self-styled “Golden State” has trailblazed the future of America especially through the two famously American industries of aerospace and motion pictures. Telecommunications, computers and Artificial Intelligence are now led from Silicon Valley and the state has dominated the national politics of the United States too.

California rapidly grew into the wealthiest and largest population US state and politically California has remained rock solid liberal. It has not elected a single Republican to national or statewide office since Governor Arnold Schwarzenegger in 2006 and California also holds an iron grip on the national Democratic leadership in Congress.

But what is now coming in sight is nearly complete internal collapse of the entire liberal progressive civilization and the society. California was also ravaged last year by the worst wild fires in its history, while green environmental policies have turned out into “green nightmares”, e.g. numerous collapses of the electric grid. California is in political and financial crisis. Los Angeles, the state’s largest city and arguably the most populous now in the United States, has become a byword for violent crime and especially the stronghold of criminal gangs. San Francisco – America’s “anything goes” city – is now in even worse shape.

Even the most liberal suburban classes, who have relentlessly voted for and imposed these catastrophic polices over the past 40 years are now fleeing California as property values crash and taxes become too crushing even for them.

If California continues to trailblaze the future for the rest of the United States, that future is now clear: It is a high taxation society with a huge, impoverished and unemployed destitute class, where the middle class is annihilated, organized gangs and general chaotic street crime metastasize in all major urban areas. California’s future now seems to be such that it has no future – what future can the rest of America look forward to?

Lone Star State and others in energy crisis

The Texas energy crisis, in February 2021, has again shown how America is both unable and unprepared to protect its own people. The US’ poor national infrastructure has been highlighted again with shocking blackouts in Texas.

After an unexpected big freeze, Texas was facing an unprecedented crisis with no electric power and water for several days and food supply chains were placed under severe strain. Footage of long lines and empty shelves in grocery stores resembled scenes from countries against which America has issued sanctions or long mocked for being socialist.

The federal government and Congress were unable to do anything. Amid the backdrop of the Covid-19 pandemic, which had claimed nearly half a million lives (at that time), the US seemed almost incapable of adequately responding to natural and environmental disasters on its own territory. This ultimately means America’s own infrastructure is poorly organized and so it’s not surprising that, when confronted with exceptional events, it lacks the will or capacity to cope.

Is the US falling apart as many Americans think so?

The US is falling apart – this is the opinion of a majority of the Americans. According to an Axios-Ipsos Survey released a week after the Capitol riots (on January 6, 2021), around four in every five Americans, both Democrats and Republicans, believe that the US is falling apart. 

Behind this is their declining confidence in the country. The country that they used to believe was omnipotent has in fact made them fall into distress, fear and horror. The US has failed to curb the Covid-19 epidemic. The rampaging virus has killed so far nearly 850,000 Americans and infected cases over 55 million. President Biden will face utmost difficulties in beating this challenge.

Majority of Trump voters and 41% of Biden fans want to secede from the Union. According to the Survey by the Center for Politics at the University of Virginia (in late September) some 52% of Trump voters believe the country would be better off if Republican-voting (‘red’) states seceded from the union to form their own nation. It was not only Trump voters who thought it was time for the United States to disunite. Some 41% of Biden voters also approved of the idea.

The US youth lack faith in their model of democracy

The recent Harvard Youth Poll, a national poll by the Institute of Politics at Harvard Kennedy School, said that a majority of young people in the US believe that their country’s political system is “in trouble” or “failing”. In the survey, 2109 US citizens between the ages of 18 and 29 were interviewed. 39% view the US as a “democracy in trouble”, while another 13 percent described the nation as a “failed democracy”. Only 7 percent believe that the US is a “healthy democracy”, and 27 percent called it a “somewhat functioning democracy”. The poll results suggest young people in the US are disappointed with the nation’s political leaders and concerned about the future of the country.

A CNN survey in September revealed similar findings among US citizens of all age groups as the Harvard Youth Poll, with a considerable proportion of people in the US lacking confidence in the country’s political system. 56 percent of citizens said that the country’s political system was under attack and 51 percent said that elected officials were likely to overturn the results of a future election if their party did not win it. Only 6 percent said that “democracy” in the US was in no danger.

The American male disappearing from universities and the workplace?

The plummeting male enrollment in US universities is a symptom of deeper underlying factors conveniently ignored by American society. According to the recent articles of WSJ, the male is disappearing on America’s campuses. The statistics told that “At the close of the 2020-21 academic year, women made up 59.5% of college students, an all-time high, and men 40.5%, according to enrollment data from the National Student Clearinghouse.” Yet this trend has been apparent for several years, as US higher education institutions have witnessed a decline of 1.5 million students over the preceding five years—with men accounting for 71 percent of this decline.

Researchers have found a number of factors and reasons behind this growing problem, many of them difficultly or non-manageable. Nicholas Eberstadt, at the American Enterprise Institute, has identified a serious, growing issue with American prime-age men who are “not in labor force” (NILF) in their peak employment years and who are neither working nor looking for work. Says Eberstadt:

Just before the pandemic hit, almost 7 million civilian men between the ages of 25 and 54 were out of the workforce altogether. These men already draw on resources sufficient to afford a work-free existence.

What are these men doing with their “work free existence?” According to the US Bureau of Labor Statistics’ American Time Use Survey, what is categorized as “socializing, relaxing and leisure” activities.

How important is the role of the father in the structure of the American family? According to the nonprofit National Fatherhood Initiative (NFI), 18.3 million children (under eighteen years old), or one-in-four children, live without a biological, step or adoptive father. These fatherless children have a four times greater risk of living in poverty, are more likely to have behavioral problems, are more likely to abuse drugs and alcohol, are more likely to commit crimes and be incarcerated, are twice as likely to suffer from obesity, are twice as likely to drop out of high school and teenage girls are seven times more likely to become pregnant. The nation’s future social stability and economic competitiveness are at risk, if the present trends continue unabated.

America lost its religion; Church membership plunges below 50% for first time 

Americans’ faith in organized religion continues to trend down at an accelerated pace. A new poll from Gallup shows for the first time since the public opinion polling company began asking questions in 1937, the number of Americans who view themselves as members of a church has plunged below 50%. America is losing its religion and this trend of a more secular state has been accelerating since the early 2000s.

The shift away from organized religion is correlations with age, with older Americans more likely to attend church than younger generations. As America’s youth slips away from organized religion and past traditions, this may be a symptom of a degenerating country. What might be the social ramifications of this strong loss of religion for the USfuture as a pure secular state could be in the making. 

One curious example of today’s perverse situation is the official training manual of Department of Defense (DOD), which identifies Catholics and evangelical Christians as “religious extremists,” along with members of the Ku Klux Klan, al-Qaeda and Hamas, according to a Marine Corps officer, who has warned the US Congress against classifying Christians in military as “religious extremists”.

Mass shootings and gun violence

Gun ownership in the US is the highest in the world and constitutionally protected by the Second Amendment to the United States Constitution. Firearms are widely used for self-defense, hunting and recreational uses, such as target shooting. It can be considered unique among developed countries in terms of the large number of firearms owned by civilians, generally permissive regulations and high levels of gun violence.

Americans made up 4 percent of the world’s population but owned about 46 percent of the entire global stock of 857 million civilian firearms. US civilians own 393 million guns (2019). American civilians own nearly 100 times as many firearms as the US military and nearly 400 times as many as law enforcement (police, national guard). The statistics of gun violence in the US is quite staggering (source: GVA):

  • total number of gun violence deaths 44.500 people in 2021
  • total number of injuries 40.000 people in 2021
  • Mass shootings, number of incidents yearly

2014    2015     2016    2017    2018    2019    2020    2021

 269      335        382      346      336      417      611      687

Fentanyl and other drugs are flooding the US through Mexican border

The United States is sadly losing the battle against drug addiction.According to statistics published by the Centers for Disease Control and Prevention(CDC), the US recorded its highest number of drug overdose deaths in a 12-month period up to April 2021, passing 100,000 for the first time – a 29% year-on-year rise.The drug overdose it is the leading cause of death among Americans 18-to-45-years old.

Fentanyl is a powerful opioid used as a pain medication. It is also used as a recreational drug, sometimes mixed with heroin or cocaine. The US Drug Enforcement Agency sounded the alarm on fentanyl-laced products plaguing the nation. DEA said Chinese actors are sending chemicals to Mexican drug cartels to make the synthetic drug and the cartels are mass producing fentanyl-laced products as well as trafficking them into the US.

American (and Western) society and culture are descending into hysterical self-hatred

The Western world as a whole is today “the American empire”, which has undergone drastic cultural changes in recent years, changes which appear to be escalating in speed and drama. This new Western “woke” culture seems to despise all boundaries and constraints, which may somehow limit human desires and addictions. These pressures manifest as a cultural self-hate which amazingly enjoys unanimous support from the American state, the education system, the main stream media and global big business.

Not satisfied with just that, there is now critical race theory (CRT) being implemented in many American schools, where it seems to raise the children to celebrate an endemic, incurable guilt. Educating on a basis of blame or penance cannot be a good thing for anyone. Yet, of all the hard social pressures, there is an extremely acute and aggressive agenda from the LGBTQ movement, BLM and Antifa, militant feminist movement, various militant environmental groups, animal protection groups etc. Much of these agendas are aimed directly at children.

These cultural transformations remove the traditional family as its cornerstone, replacing it by such subjects and values which cannot support a stable society. This attitude is synonymous with the endless inventions of gender theory, collapsing fertility and the destruction of the middle class. Now even the question, if this is a good thing has become provocative. Allowable opinions are not diversifying, American society is not opening up, it is closing in, selective intolerance has become a key value of modern Western societies.

The principle of freedom of expression, encapsulated in the First Amendment of the US Constitution, that is being trampled down now and despite the absence of such a legal text in the UK or elsewhere in Western world, freedom of expression remains a cornerstone of any modern democracy. Any opinions that are out of step with “woke orthodoxy”, should not be heard. The social media has become the new guardian of morality, which has been put in totally new context.

Enormous shifts in ethics and law seem to occur virtually overnight, too fast for anyone to reflect upon and impermissible to doubt, even if they could. The American media (and social media) machine appears to be oblivious to, uncaring of, or encouraging these rapid changes and their implications upon the innocent people, especially children. In the space of a few short years, they have transitioned from proudly self-styled “guardians of free speech” to perhaps the world’s strictest authoritarian censors. Globally there is shocked concern at the willingness of this machine to silence its perceived political adversaries and critics.

The Orwellian society is emerging back in its full strength and glory, this time in the United States of America

The Biden Administration is calling on Americans to spy on friends, neighbors and family and reporting any “extremist” views to the authorities. President Biden’s administration announced, in June 2021, their plans to create ways for Americans to report radicalized friends and families to the government, in an effort to fight domestic terrorism.

“We will work to improve public awareness of federal resources to address concerning or threatening behavior before violence occurs,” the official said. Biden began his presidency with a stark warning in his inauguration speech about the “rise in political extremism, white supremacy, domestic terrorism that we must confront and we will defeat.” On June 1, Biden described the threat from “white supremacy” as the “most lethal threat to the homeland today.” The Biden administration said it would also work with large technology companies on “increased information sharing” to help combat radicalization.

Summary of the internal collapse-drivers of the US position

  • the astronomical indebtedness of the US at all levels and sectors (federal, state, municipal, governmental agencies, students, households, credit cards, business), according to Wall Street Report in 2019 the US total debt-ratio to GDP was nearly 2000%
  • the present federal budget deficit exceeds 1 trillion this year and the deficit will explode in the near future
  • the present Covid-19 pandemic, which is just the external shock agent, will skyrocket the federal debt at least by 10 trillion dollars up to 33 trillion dollars in next two years; by the same it has disclosed the fragility of the American economy, which cannot be cured with limitless money printing by Fed finally ending in “hyperinflation of Weimar America”
  • due to this enormous debt burden, it will be highly likely that foreign investors begin eschew the US federal bonds, thus the US Federal Reserve being the only main lender to the US federal system
  • the US industrial base has eroded remarkably during last fifty years, as well as the US deteriorating infrastructure, nowadays the dependence on foreign raw materials and intermediate products is very high; the service sector and private consumption form about 70% of the total GDP; the finance sector being in a superior position compared with real economy; all these features mean that drastic falls and ups are possible in the US economy and society within a short time period
  • in addition, both in the US and globally, the trade of derivatives in the finance sector amounting up to $ 1.500 trillion dollars (global summary of real GDP is about $ 80 trillion in 2018) is so enormous that any fault / mistake in the stock market causes global domino-effect and total collapse of the global finance sector and finally the whole world economy; especially all the deeply indebted countries are in the frontline of collapsing
  • the wealth distribution in the American society has become extremely uneven, the backbone of the society, the middle class, sees its relative position deteriorating continuously getting more in debt and having less of wealth assets, the US statistics tells “cold facts” on this disastrous trend during last twenty-five years
  • the US shale oil business needs high oil price level (about 50 dollars per barrel) for profitable production weakening further the industrial base of the whole nation and especially its strategic assets
  • high burden of continuous wars and other armed crisis with the US engagement, total costs of the US wars during last 20 years exceed 5 trillion dollars
  • total burden of all military related expenditures has been heavy, at 6% level from GDP, during last ten years. In addition, the impacts of several prolonged wars (Afghanistan, Iraq, Syria) to the American society and politics, the growing number of war victims (Americans and others), veterans and their healthcare costs, unfunded liabilities of veteran pensions and other military related issues, they all are causing growing stress to the American society.

Summary of the external collapse-drivers of the US position

  • China-Russia political-military partnership has formed a peer competitor to the US unipole, thus decreasing relatively its position, which finally transformed the polarity from unipolarity towards more polycentric direction, in 2014-2017
  • dramatic changes in power balance regarding new state-of-the-art weapons development for the benefit of Russia-China partnership (in ASAT, EW, hypersonics, air defense), in 2015-2020
  • geopolitical imbalances have caused that large range of hard balancing states (China, Russia, North Korea, Iran, Cuba, Venezuela, Turkey etc.) have been emerged on the international scene, in 2014-2020
  • geopolitics has moved from a slow-moving, relatively predictable chess match (Cold War era and first 15 years of the US unipolarity) to rapidly evolving multidimensional chess in which the rules keep changing in unpredictable ways
  • the wrong grand strategy of the US vs. great powers and other major powers since 2010
  • large scale sanction policy of the US has declined and eroded the prestige and position both among adversaries and allies (now the US being at odds with the majority of humankind)
  • severe military failures of the US (e.g. in Afghanistan, Iraq, Iran, Syria) as well as unsuccessful regime change operations and other coupes efforts have all eaten away the image of American military might
  • the Sino-Russian joint scheme of de-dollarization has eroded the position of the US dollar as a reserve currency and this trend is now accelerating and strengthening covering more and more states and international trade volumes; as examined before, the dollar’s reserve currency status has been the most important factor behind the unlimited indebtedness of the US and its military power
  • China’s rise as a peer competitor to the US in economy and trade worldwide

The interactions and dynamic of the collapsing process, an interesting and “twin-amplifying” phenomenon is the collapse of the dollar from its reserve currency status. The increasing US debt burden presses the dollar down and the de-dollarization process, managed by China and Russia, undermines it at the same time, creating a combined double – weakening.

When the US debt burden gets too heavy becoming unbearable and de-dollarization process has reached a critical level as well as Everything Bubble is bursting, the dollar’s reserve status disappears, foreign credit taps go off and this collapses the US economy and military power and the great power status causing gigantic transformation process in the international politics and system.