The Summer of 2011 is likely to be a long and hot one even for many developed countries. I am not referring to the weather although as always Mother Nature does NOT grant variances. NO! I am referring to the tough choices facing governments and these range from democracy to authoritarian rule or even full-fledged dictators. The Nation-State system largely created after the Peace of Westphalia in 1648 is endangered. An almost thoughtless expansion of predatory financial sector from the USA throughout the world has led to this summer’s crisis atmosphere and in fact the necessity for some fundamental choices to be made by governments.
First, the USA debt crisis including both monetary and fiscal policy is at a crucial cross roads. The highly leveraged USA consumer that drove the US and world economy from 1945 on is now ended permanently IMO [In my opinion]! Credit is not just short but unavailable even for the most worthy purposes. Small and mid-cap business cannot borrow even to finance their floor plans or other crucial business activity. Essentially the banking sector cannot survive without frequent M&A involving larger banks. The banks are desperately defending their fee system not just against consumers but even against business.
What is clear is that this summer not only will not only create more stress and strain on the nation-state system but some crucial crossing points will be reached, passed, and hard decisions will have to be made. Oddly partial demobilization of the Armed Forces may be necessary as the paradigm accurately described by Paul Kennedy in his wonderful analysis of “The Rise and Fall of Great Powers” is realized. How will this necessary demobilization impact a USA economy largely driven by the military/industrial complex despite disavowals even by academics. Writings of Chalmers Johnson (deceased) and Andrew Bachevich are of interest.
The new warfare is not likely to be physical interventions in the form of mechanized warfare but more likely to be driven by demographics, refugee issues, forced and voluntary migrations, and other signs of global stress even as crop failures due to heat and drought occur and conversion of food stocks to energy, much of this conversion subsidized in the US, raises global food prices to an all time high. The Chinese experiment with a managed economy may fall this summer due to the most serious drought in 50 years in China and expected problems environmentally from the Three-Gorges dam start appearing.
Thus, the strength of the world’s nation-states look like few will involve their military–these often will be directed against their own peoples including highly militarized police forces–and their long term success or failure will involve other factors. There is no one set formula for success.
It does interest me that countries that have chosen a huge educational investment and even nation-wide free broadband seem to be doing the best in this competitive world, conceding their relatively small populations. But the governing leadership of those countries have at least some vision of how to succeed in the rest of this century as a nation-state. The fact that many are already in the orbit of China should be of interest. If the Taiwan issue is settled peaceably then the de facto merger of those countries will lead to a boom in my estimate. And always remember since the Nixon Presidency US foreign policy has held there is just one China.
But the summer crisis in the EUwill be huge and while I am predicting a bankruptcy and debt repudiation for the PIIG’s it may yet be avoided. The decision is exclusively with the German’s not the rest of the EU despite propaganda otherwise from the EU and European Central Bankers.
By Labor Day the picture in the MENA will be clearer but not promising as I have already discussed in this blog.
Much more discussion to follow but some will become highly technical to those not conversant with US budget issues at the federal, State, and local level.
By Labor Day we will have a substantial ability to have insights into the rest of this decade for the USA and the rest of the world. I am not optimistic.