Mark Twain is reputed to have said “History doesn’t repeat itself, but it often rhymes”. It is a reassuring line until you spend some time considering the world’s current superpower, then it becomes a little too easy a rhyme to take comfort from. It’s a very old scenario, one that feels like it’s playing out all over again, because the interminable treadmill of Washington and the tacit rumblings of worry among America’s oldest allies are stirring a familiar unease. So, this is not the first time we’ve seen it. It was just that we didn’t expect to see it again!
Rewind to 1914. Britain was the ruler of about a quarter of the planet. London was not only a city, but the world’s largest financial hub, a place where money went to be safe. The pound was the currency that everyone trusted; that’s how the world works today in terms of dollar. It was all too easy to have faith in British strength. No one in London that year knew that their empire will come to an end in the span of few decades.
That’s usually the course of history. The fall of an empire is a gradual process, and it is unlikely for any empire to foresee its own end. In retrospect, they declare it.
Britain was not defeated in the battle however; it was defeated by its very own balance sheet. Over the course of the 30 years, London has been forced to borrow a lot of money due to two massive world wars, particularly from a growing and wealthy United States.
In the Second World War, Britain paid for its survival with other nations, such as the Americans through schemes like Lend-Lease; by the end of 1945, Britain had more debts to call in than it could pay. The crown was not conquered rather it had been refinanced and the debt collector took over the throne.
That debt collector was the United States, and for the next several decades it built the very system Britain once ran. With the fall of the Soviet Union in 1991, the United States had come to the zenith of its power: a single, unmatched superpower with its reserve currency and arms spreading throughout the oceans and continents. Much like the London of 1914, it seemed immutable. But history’s second verse tends to rhyme like the first.
Consider what’s happening now. The national debt of America nears $40 trillion. Thirty-year U.S. bond yields have fallen back to their post-2007 crisis lows, making it a much greater bargain for Washington to keep borrowing. Even Japan, America’s biggest single foreign creditor, has been offloading the US Treasury bonds along with big global investors have begun taking their feet off the US Treasury bond market and putting them on a different footing instead – Australian, British and Chinese debt.
The endless drain on the treasury from unnecessary and expensive military entanglements overseas continues just like Britain’s Imperial overstretch of the past.
And, of course, the petrodollar – the decades-old agreement that the world’s oil trade is largely priced and settled in dollars, which gives Washington enormous power in the global marketplace. This system is slowly deteriorating.
One of the dollar’s strongest pillars of dominance is being undermined as countries settle oil and commodity trades in yuan, rupees and roubles instead. If the pound has been tested on war debt, the dollar may be tested on a less overt, but more insidious, manner, which is the withdrawal of global trust in its system.
None of this guarantees a coming collapse of America, however – it took decades, not years, for Britain to fall. But the trend is not hard to miss: growing debt, costly wars, a pressurised currency and old allies starting to hedge their bets elsewhere.
“It’s the economy, stupid!” Empires rarely collapse by the enemies outside. It’s always their own financial books inside. Famously, the sun had never set on British power for centuries! Today, for the first time in generations, it seems to be dipping – slowly, almost imperceptibly – over the United States too. Mark Twain was somehow right. It seems history has started to rhyme.
