Archive for January, 2018

TrumpLand

I have predicted, of late, that we are watching the decline of the American Empire. I say ’empire’ but, like the British empire, America’s empire is  not a legal entity in the sense of actually having an emperor  like Julius Caesar, Suleiman the magnificent or Napoleon. But in the modern context I refer to empire in the sense of dominating global currencies. By that criteria, America ascended the imperial throne at the end of World War 2. England was poking its military nose around the world back in the 17th century and by the late 18th and 19th centuries their manufacturing technology and their formidable navy led to domination of global trade, through India, Africa, Hong Kong, the South Pacific and the Americas.

All was going well for the Brits during the 19th century but by the early 20th century America was starting to get the better of their balance of trade. The USA now had their own cotton gins. However Britain still remained the centre of world commerce and much of the global trade was conducted in British pounds and all major currencies were pegged to gold bars.

Then came World War 1. It was such an expensive war that many countries, Germany in particular, had to abandon the gold standard to pay military expenses; those currencies devalued rapidly. Three years into the war and even Britain needed to borrow money to keep going and the Yanks were there to help out. Britain was forced to abandon the gold standard and the British international merchants who traded in pounds found their bank accounts severely depleted. The greenback $US was now the leading reserve currency.

When World War 2 broke out the US stayed out of the conflict for a long time but nonetheless profited greatly from the war as the main merchant of weapons, ammunition and supplies to the allied forces. They required payment for most of it in gold and by the end of the war they held most of the gold on earth in Fort Knox.

The Americans only entered the war after they were personally attacked at Pearl Harbour by Japan which was an ally of Germany. Playing a major role in ending the war in Europe gave them the opportunity to claim top of the table seat on the global international stage. In 1944, delegates from forty four Allied countries met in Bretton Wood, New Hampshire, to come up with a system to manage foreign exchange that would not put any country at a disadvantage. It was decided that the world’s currencies couldn’t be linked to gold, but they could be linked to the U.S. dollar, which was linked to gold. The agreement was that the central banks would maintain fixed exchange rates between their currencies and the U.S. dollar. The United States would then guarantee to redeem U.S. dollars for gold on demand.

So now, instead of gold reserves, other countries accumulated reserves of U.S. dollars. Needing a place to store their dollars, countries began buying U.S. Treasury securities, which they considered to be a safe store of money. Now one country’s currency virtually replaced the international currency of gold. How would that work out? Well all went jolly well during the relatively peaceful decade of the 1950’s. America was Camelot. Truman, Eisenhower and Kennedy were the three great emperors of America. I say peaceful, but WW2 had actually delivered two contenders for world domination, the USA and the USSR. The allies tried to buy a compromise, splitting both Germany and Korea into Russian/American zones of control. Russia tagged China to support the North Korean communists in their war against the south and USA and that war ground to an unresolved stalemate. And then came Vietnam. Russia had shown no interest in Vietnam until USA decided to throw bags full of money to support the French to suppress communism in North Vietnam. That is when Russia began to get interested and in 1954, the kitchen got too hot and the French pulled out. The start of a very expensive war that, in my opinion, started the collapse of the American empire. Lyndon Johnson, who succeeded Kennedy launched an ambitious and expensive “Great Society” social programme intended to end poverty and racial discrimination in America. Or effectively to try to prevent what was now becoming a very nervous cultural divide in America. Much of the proposed funding however went into an increasingly expensive war in Vietnam and the late 60’s exploded in violent cultural riots.

The collapse started, as the creation had started, with the greenback. The war had became so expensive, in addition to the “Great Society” domestic programme, that in 1971 Richard Nixon had to abandon the gold standard and flood the banks with paper money. This created the floating exchange rates that we have today. However despite large deficit spending, trillions of dollars in foreign debt and unlimited printing of US Dollars (the last incidence was the Global Financial Crisis of 2007-8) the U.S. Treasury remains the world’s reserve currency because the world trusts that the US will always remain solvent. The US gross domestic product is way ahead of anyone else at $US18.5 trillion. That is bigger than the whole BRICS (China, Russia, India, Brazil and South Africa) trading bloc combined.

But everything balances tentatively on trust and confidence. The trust and confidence that the US is politically stable enough to maintain its economy. What could possibly shake that trust and confidence?

His name is Donald Trump. He did not cause a cultural divide in the USA, but he is the highest profile manifestation of it. There is a cultural chasm in America that the rest of the civilised world did not really understand. Not until the good old boys motivated themselves to get sufficient numbers to the polls to elect Donald Trump and he has shown us all very clearly what a problem it is for them. It appears that the Civil War never ended because although militarily defeated, and laws forced upon them, the hearts and minds of the South were never changed. The cultural difference is as entrenched as any tribal conflict in the middle east. It may have been suppressed by the force of law, but mainly it was suppressed through lack of leadership from the south to stand up and raise the Confederate flag once again. Donald Trump was seen as that man. He talked the Confederate talk. He promised brick walls against the Mexicans, the gates closed to Muslims.

The original English migrants in the early 17th century were the Puritans escaping religious persecution in their home county of East Anglia. They settled in Massachusetts and brought their distinctive East Anglia twang with them which was the basis of the general American accent, albeit modified by other European groups that migrated to America, especially New York.

But it was the Royalists (Cavaliers) who left south and southwest England in the mid seventeenth century to the safety of America when the civil war in England broke out. They left because they opposed the “Parliamentarians” wanting more power over governance. They brought a completely different culture of royalist aristocracy opposing ‘government by the people’ to America and with it they brought the distinctive South England drawl. They settled further south in Virginia and the Carolinas. They bought vast tracts of land and grew tobacco and cotton crops. They imported slaves on British slave boats and exported their cotton and tobacco to England. They established a social hierarchy where even the serfs were happy for their aristocracy to run the politics and businesses and for the slaves to be lower on the social structure than them. And that formed the basis of the southern lifestyle that the Confederates went to civil war to protect. Charlottesville August 2017 demonstrated that the surrender in 1865 was only a cease fire, not a capitulation. The month after Trump was sworn in the Charlottesville Council voted 3-2 to remove the statue of Confederate General Robert E Lee. In August a riot broke out as white supremacists marched opposing the removal. The confederates had declared war. General Robert E Lee had his army in support once more. The Liberals also turned up ready for the fight. A white supremacist drove a car into a crowd; a woman was killed and 19 people injured. Trump appeared unconcerned. White nationalists and neo-Nazis celebrated US President Donald Trump’s remarks about the protests when, after being pushed persistently to make a stance, he denounced violence “on all sides” rather than explicitly condemning white supremacism. After two days, following massive pressure from his own camp, Trump added “including KKK, neo Nazis and white supremacists.” No one believed him. Racism is alive and strong in the USA, has Trump as a sympathiser and is the basis of the great cultural divide.

Washington DC is making life very difficult for Trump. Even Trump would agree that being president with so many enemies is no fun. He knows who likes him, those good old boys down south and the mid western solid rural folk. Significantly, after Charlottesville, polls showed Alabama, Alaska, Arkansas, Dakota: North and South, Idaho, Indiana, Kansas, Kentucky, Louisiana, Mississippi, Missouri, Nebraska, Oklahoma, South Carolina, Texas, Tennessee, Utah, Wyoming, West Virginia  are all in the 50-60% Trump approval rating in Sept 2017. Florida and Georgia are close at 48%. Suddenly the states don’t look quite so united.

 

Would Trump be the sort of guy that would see himself as general Robert E Lee reincarnated? Would he like a general’s uniform with medals and would he like to establish a royal, ruling Trump family dynasty?  Yes I do think he might like all thatWould he relitigate the South’s old claims? Would they follow him? Especially the strategically vital and lucrative marginal state of Florida? 

If he declared Florida as the capital of a new country his Mar a Lago home becoming the presidential palace then I think Florida would lap that up with Georgia following like a lamb. Finally has the Mid-West/ South got enough money to fight a war with the Yankees? Did you think they were just chicken farmers and moonshine bootleggers after the civil war?

Donald Trump’s ‘Mar a Lago’

Actually, very wrong. Texas is the second largest economy after California. Apart from the bigger than anywhere farms bringing in huge agricultural revenues and ten billion barrels of oil, they have NASA there and all the spinoff aero-tech businesses that brings. North Dakota is the next largest oil producer with a very respectable 5.7 billion barrels of oil. Mississippi is full of huge hi-tech, high wage factories including the $1,4 billion Russian owned Severstal steel mill producing steel for cars. the Yokohama tyre factory, Nissan factory at Jackson, GE Aviation at Hattiesburg, Hybrid Plastics, one of the top ten nanotechnology producers in the US. They have a Rolls Royce engine building plant, a navy shipbuilding plant and a plant building unmanned helicopters for the navy. Mississippi is a busy little state. Tennessee has GM and Nissan car plants, 142 solar power companies, manufacturing plants for Whirlpool and Electrolux, Eastern Chemical and Delta faucet companies. Tennessee has won economic “State of the Year” award in 2009, 2013 and 2014. And Florida does more than a bit of orange juice too. It has the fourth largest economy in the US behind California, Texas and New York. Florida produces over $100 billion worth of food;  70% of the country’s citrus and in the winter months supplying 80% of the country’s fresh fruit and veg. It’s aerospace and aviation businesses contribute over $140 billion. The Florida tourism industry employs a million people, 10% of the workforce, and earns $US54 billion pa. Allied to tourism is that Florida is also full of wealthy retirees and the flow on bio-tech research and Life Sciences industry is substantial. If the secret to eternal youth is going to be discovered, it will probably happen in Florida. Bundle up the smaller states rural economies with these and you have a combined GDP of $US 6-7 Trillion. It would be the third biggest GDP in the world. It would be bigger than Japan and Germany and bigger than the UK and Russia combined. It would not be an insignificant little country for Trump to preside over.

But this would not be a war with swords and cannons; the weapon of choice would be currency. The first battle would be to destabilise the US dollar, shake the trust and confidence of the world in retaining the $US as the global currency standard. It need not even involve printing confederate banknotes; imagine the effect on the value of, and confidence in, the $US if Trump went to Bitcoin or ZCash or one of the others and said “I want a $US trillion worth of your finest crypto currency my good man.” I am no currency trader but I understand basic supply and demand and so I know the effect of someone selling off a trillion of the USA’s most important asset. Adopting a crypto currency for the Confederate States of America, or Trumpland as he would refer to it in his tweets, might just create the critical mass to allow a crypto currency to takeover from the $US as the international currency standard.

When the American civil war broke out to preserve their “unique culture”, the Union only had this domestic war to concern itself with. If they had a problem with the Southern/Mid Western states today, that has to be balanced with its Homeland Security priorities and its military roles in Syria, Iraq, Afghanistan and Korea. Trump could just walk away from all that. If the US Dollar gets undermined then: ‘New York, you have a problem’. The east coast wold be completely cut off from the west coast so maybe California will expand its borders to include Colorado, Arizona, New Mexico, Nevada, Idaho, Oregon, Washington State and Hawaii and declare itself the  independent country of OprahLand? Montana becomes an isolated state so may choose to just get right out and join Canada? Maybe the remaining 19 states of the USA: Connecticut, Delaware, Illinois, Iowa, Maine, Maryland, Massachusetts, Michigan, Minnesota, New Hampshire, New Jersey, New York, North Carolina, Ohio,  Pennsylvania, Rhode Island, Vermont, Virginia and Wisconsin, will just then rename itself New York the country or Washington or whatever? Who knows? It happened in the USSR.

 

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