t r u t h o u t | 10.17
Use It or Lose It? How to Manage an Imperial Decline
Thursday 16 October 2008
by: Aziz Huq, TomDispatch.com
Do empires end with a bang, a whimper, or the sibilant hiss of financial deflation?
We may be about to find out. Right now, in the midst of the financial whirlwind, it's been hard in the
So let's start with the economic meltdown at hand -- but not end there -- and try to offer a modest initial assessment of how the crumbling
From its inception, the financial panic stemmed from, and also exposed, a form of imperial overstretch -- that of Wall Street's giant financial firms. For them, it took the form of highly leveraged positions grounded on fragile, poorly assessed collateralized debt. As John Grey recently observed in the British Guardian, however, the panic also uncovered another kind of imperial overstretch -- that of American geostrategic power, raising questions about how the gap between stressed political and military assets and
It's important to clarify what's currently at stake globally. Otherwise, depending on one's druthers, this is a subject that tends to be either overblown or underplayed. Few in the mainstream media even countenance the possibility of catastrophic changes in the
Nonetheless, it's worth trying to grasp just how today's financial crisis is converging with two other trends -- the weakening of American hard and soft power -- to transform the geopolitical landscape.
Start with the financial crisis, which emerged from an industry-wide mismanagement of credit and risk. Sophisticated instruments such as credit-default swaps were intended to cushion institutions from default risk on speculative housing assets by breaking those assets into small bits and spreading them widely among financial institutions. Like any kind of insurance, this was a way of spreading risk around to minimize the consequences of catastrophe.
Instead, of course, those "instruments" seem to have cushioned investors only from a frank assessment of risk. Worse, the very splintering of risk, originally designed to insulate financial merchants from too-hard blows, meant that it would prove exceedingly difficult to assess the soundness of all sorts of other institutions.
Paradoxically, what were fashioned as tools to eliminate risk became tools for risk contagion. As a consequence, it is still unclear whether the tumbling of world markets was a consequence of a confidence-based liquidity crunch, or of a more fundamental problem of worthless assets.
For all but a hardline core of Republicans in the House of Representatives, the ten-pin-style collapse or near-collapse of Lehman Brothers, A.I.G., WaMu, Wachovia, and other outfits signaled the failure of a decades-old deregulatory approach to finance. (The credit-default swap market, in large measure the font of today's crisis, has never been regulated thanks in important part to former Fed chief Alan Greenspan's confidence in them.) The distinctively modern American model of deregulatory fervor reached its fever point in the Bush years, and has now broken. The crisis of finance, however, was also a crisis of national governance, highlighting structural weaknesses in the national political system that render a president a lame-duck months before his term in office ends. The crisis has also highlighted the striking difficulty Congress has in sustaining meaningful legislative inquiry and action on complex issues. Since the panic began, its leaders have proven incapable of imagining alternatives to a deeply regressive and barely re-regulatory response. Not only is the nation's financial framework unsustainable, its political architecture seems seriously flawed.
All of this has an immediate, practical aspect, which has not exactly gone unnoticed in the rest of a panic-stricken world. For decades, the
Even before the mid-September unraveling began, international creditor goodwill toward the "sole superpower" and its fiscal overreach seemed to be evaporating fast. Asian investors, for instance, were quick to evince "unprecedented" skepticism about
Since September, however, the same sovereign wealth funds have proved skittish indeed about helping
American Power on the Wane
At some point, tighter global credit conditions are sure to significantly constrain
Though it may not yet have penetrated American consciousness, a national fiscal crisis is also bound to be a crisis of national security. In the coming years, a new president will have to deal with a growing disparity between the historically hegemonic role of this country on the world stage and its diminishing capacity. Simply put, the
This might not matter so much if it hadn't been for the Bush administration's myopic focus on the Middle East as the sum of all evils and the bind it has put future policymakers in by shredding
Worse, the Bush administration may have been fully complicit in
Nor is the
The mountainous Pashtun border areas in
What, in retrospect, must be termed the Cheney White House has reduced
In addition, the insular parochialism of the country's increasingly conservative judiciary has sliced away at the nation's reputation as a font of constitutionalism. It remains to be seen whether similar judicial parochialism will help undermine the country's attractiveness as an entrep™t for financial deal-making.
Managing Imperial Decline
The United States today stands in a position somewhat reminiscent of imperial Great Britain after the Second World War: its currency no longer the pillar of global financial stability, its armies and navies no longer capable of enforcing its policy desires, and its reputation battered by formally successful but functionally catastrophic military conflicts.
As was true in the
In foreign policy terms, the overextended nature of British imperial power only struck home in 1956, nine years after the world war ended. That was the moment when British Prime Minister Anthony Eden fundamentally miscalculated British power in response to Egyptian President Abdul Nasser's nationalization of the Suez Canal Company. With the French and Israelis at his back,
Eden reckoned, however, without a newly dominant
How, then, will the
The most obvious temptation remains an attack on
In a fast-transforming economic climate, a new president will be faced with a difficult balancing act: exercising flexibility while coming to terms with weakness, compensating for strengths lost during the past eight years while giving up ground in pragmatic ways. If that doesn't happen, then hard questions will linger, even after the last credit-default swaps have been unwound, about
Aziz Huq, author of Unchecked and Unbalanced: Presidential Power in a Time of Terror (The New Press, 2007), directs the liberty and national security project of the
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