The article was published on www.ir.lv on July 21
Russia has not yet lost the war in Ukraine, and that is not ideal. But—since we’re on this side of the fence—what matters more is that the Americans haven’t won yet.
What’s more, with each passing month of the past year, it seems that the number of professors at top American universities, billionaires, ordinary finance professionals, and expert analysts who hold critical views on the state of their country is only growing.
Leading politicians of the U.S. Republican Party are attacking Democrats, President Biden, and his family members for obvious pre-election political reasons, presenting “horror stories” that are hard to believe. Non-partisan analysts, on the other hand, point to risks that are too serious to ignore in the near future and urge us to try to understand the speed at which our hegemon is seemingly plunging into the depths of crisis, as well as the necessary actions our country must take.
The sum of negative impact factors
First, the U.S. has too much debt. This, of course, is nothing new—and it wasn’t a problem as long as two conditions were met. As long as servicing the debt didn’t cost the government or private creditors anything (or much)—that is, until a year and a half ago, when borrowing began to get more expensive.
Now the U.S. government needs hundreds of billions of dollars a year just to service its debt (there’s no question of actually paying it off). The government could borrow this money from the Federal Reserve System (FRS)—but then inflation would rise even further, and there would be a risk that the Democrats would not win the election next year. Moreover, with the cost of money rising, additional debt would require even more resources to service—it would be necessary to borrow again, and so on in a spiral for which no positive solution is currently in sight.
There is another factor complicating the problem—of course, the government can issue new bonds and borrow even more. However, this is only possible as long as someone is buying these bonds and they can be sold on the global market. The situation began to change radically about a year ago, when not only the Federal Reserve began raising interest rates. In addition, the Americans and the British “froze” the financial assets of several countries (Russia, Afghanistan, Venezuela). At that moment, “everyone” got the hint—keeping money in dollars isn’t safe, because it can be seized or frozen.
In the past, the Americans attracted capital from abroad and thereby maintained tight control over other countries, including by exporting inflation to their satellite states—those commonly referred to as both democratic and authoritarian. That was the world order after World War II.
Now, doubts are being raised as to whether this will continue to work in the future. It is already evident that “authoritarian” countries are no longer merely skeptical about holding their reserves in dollars but are actively developing alternatives. There are a number of reasons for this, including the grim experiences of Russia and other countries. China—one of the largest holders of U.S. Treasury bonds—is not currently reducing the amount of dollars in its reserves, but has rapidly begun to expand the use of its own currency in trade.
Some forecasters therefore predict a decline in the value of the dollar and a reduction in American influence. The Federal Reserve’s decision to raise interest rates has also led to a banking crisis—several medium-sized banks have failed, and the market capitalization of many others has fallen significantly. It is therefore difficult to believe that the banking crisis is already over.
There have been financial and banking crises before, and it’s possible that “the devil isn’t all that black.” The American elite, however, has an unimaginably wide range of tools at its disposal, and this will allow them to find an elegant solution in the interests of the dollar and its holders once again. However, it has been a long time since several such powerful negative factors have coincided.
Second—the decline in the use of the dollar, or de-dollarization. This, too, is nothing new—the dollar’s share in other countries’ reserve currency baskets has been falling steadily. Over the past twenty years or so—from 73% to 58%, an average decline of about one percentage point per year.
However, the pace of this decline has accelerated dramatically over the past year and a half, during which time it has fallen by 8%. This year’s events suggest that the pace is set to accelerate and that the Americans’ growing debt could become a problem, especially if it becomes increasingly difficult to sell, but the tried-and-true solution of cutting social spending for low-income residents may prove to be far from sufficient.
The seriousness of the situation is evident from the persistence with which members of the U.S. government are trying to secure a meeting with Chinese leaders. It can be assumed that their main goal is to obtain assurances that the Chinese will continue to use and buy dollars.
First, Secretary of State Blinken waited a long time for the Chinese to agree to meet with him. The Chinese have still not agreed to U.S. requests to resume direct military-to-military contacts between the two countries. In early July, Treasury Secretary Yellen was forced to travel to China herself to try to persuade the Chinese to cooperate “in the areas of climate and global debt,” arguing that “there is enough room in the world for both countries.” The director of the Central Intelligence Agency also recently arrived in China on a visit. So there are many visits, and the Americans are intensively courting the Chinese. For now, it is still difficult to assess whether an agreement can be reached with the Chinese on the division of power and the preservation of American hegemony.
The use of other currencies is growing in areas where it was previously unthinkable—especially in the oil trade. More and more countries are abandoning the dollar in their foreign trade—even those that were once considered to be entirely under American influence. The number of such countries is already in the tens—ranging from Arab and Latin American nations to India, Argentina, Iraq, Egypt, and Indonesia, not to mention Russia.
What’s more, the leaders of these countries are not afraid to publicly announce their abandonment of the dollar, and so far, they have faced no consequences for doing so. In quantitative terms, for example, transactions conducted in the Chinese currency are still a long way from the volumes of the dollar, but in terms of political signals and trends, the risk currently appears dramatic.
This dramatic turn of events is best illustrated by Saudi Arabia. Both when, on a symbolic level, television broadcasts publicly showed how this country hosted the Russian president with exaggerated pomp during an official visit, and how, in contrast, it received President Biden with such disrespect—as if he were some poor relative—and blatantly ignored American requests to increase oil production. Not only have the Saudis failed to increase production, but they have actually reduced it several times already and—even worse—are doing so in coordination with Russia. This is happening even as they seek to purchase not only American but also Russian weapons. And when they are restoring bilateral relations with Iran, thanks not to American mediation, but to that of the Chinese and Russians. Such behavior can be criticized as “flip-flopping,” but in politics, changing one’s political and military hegemon in a timely manner demonstrates foresight.
Then, after President Biden was elected, he vowed to expel Saudi Arabia from the community of normal nations, but less than two years later, in November, he was forced not only to grant the country’s new leader the highest level of immunity, but, unable to reach the Saudi Arabian leader by phone, to travel to that country himself to ask for a meeting.
Africans Demand Equality
Similarly, this year we have regularly seen on television the publicly expressed views of several—and indeed, many—African leaders against the United States and the West as a whole. Rwandan President Kagame delivers speeches worthy of a renegade and demands equal treatment from the West. Namibia’s president berates the respected former German Parliament Speaker Lammert as if he were a schoolboy—the German politician had come to express Germany’s concern that there are too many Chinese in Namibia and that Germany, you see, is therefore very concerned.
Chad expels the German ambassador for excessive interference and frequent lecturing. Members of the South African Parliament are positioning themselves as leaders who are steering Africans away from the dollar. Kenyan President Ruto, speaking at the recent global financial summit in Paris, called for nothing more and nothing less than replacing the existing global financial system with one that is fairer and more equitable, and emphasized that he no longer wants handouts from the West.
Sitting next to French President Macron, he had to listen to such remarks—it’s hard to imagine what his reasoning was when he organized this presidential-level conference, but the impression was nothing short of disastrous.
Third—the deep and irreconcilable conflict within the United States itself. You can read about it every day in endless articles across a wide variety of media outlets—from those that are completely dependent on the government to those that are completely independent. It seems that describing America’s divisions has even become a trend among Americans themselves. As with all trends, one must try to distinguish between enduring truths and situational exaggerations.
For a century, the Council on Foreign Relations has been one of the cornerstones among U.S. policy analysis and advocacy institutions. Its president, Richard Haass, a longtime representative of the elite, described the situation in an interview with the leading newspaper The New York Times in early July as follows: it is no longer clear what is the norm and what is the exception. “Is the Biden administration a return to the America I took for granted, and will Trump be a historical mistake? Or is Biden the exception, and are Trump and Trumpism the new America?”
Hass has reached a nontrivial conclusion. The most serious threat to global security at present is the United States itself, and the collapse of the American political system means that the U.S. has become a source of instability and an ambiguous model of democracy, which has turned into a national security issue.
Peter Thiel, a billionaire who previously sponsored the Republican Party, acknowledged as early as 2016 that “fake culture wars only distract us from the economic downturn. No one is talking about this honestly, except Donald Trump.” He believes that instead of these fake culture wars, national leaders should be planning how to counter China and drive innovation.
Although the division is often reduced to a confrontation between the two parties, that is only a small part of the problem. If only because a large portion of the most important voters—or donors—for both parties are one and the same. The elite clans currently cannot reach an agreement on fundamental issues—namely, how to divide power and, consequently, the scope of influence tomorrow.
Fourth—until very recently, there was no country that directly or indirectly challenged American hegemony. Now China is considered such a country. In some respects, so is Russia.
How to Make the Most of a Crisis
This combination of factors has given rise to “grand” conclusions that, lo and behold, the American century is coming to an end. One such conclusion was expressed about two years ago by a columnist for the British The Telegraph, who wrote that “decadence and arrogance have finally brought down the American empire” (Allistair Heath). Even if there is some truth to such “sensational” conclusions, it will only become apparent with the passage of time; moreover, there is currently no reason to believe that the Americans will not fight to maintain their hegemony or that they will be unable to find those willing to share the burden.
Changes are occurring at an impressive pace; that much is obvious. It is no longer the supplicants who travel to America as usual, but the Americans who are forced to tour other countries, trying to convince them of their righteousness. It is also evident that at least some Americans are achieving at least some of their goals, essentially ignoring the conclusions about all sorts of global crises. If there is to be a major crisis, it will certainly not affect everyone. Others must begin to accustom themselves to new hardships and a sustained decline in prosperity. This is explained clearly and unambiguously to their public, for example, by German government officials—who understand that Germans are the ones who are paying and will pay even more. It seems that we, too, will follow in Germany’s footsteps.