The Sunset of the Pax Americana

It started after World War II, as Britain, broken and bleeding red ink from two world wars, in full imperial overstretch, gave up its colonies one by one and likewise gave up the job both of keeping the world's sea lanes open, and of slapping around minor powers who bucked the system. The formal birth of the Pax Americana and the final grave of the old regime, was the Suez canal, when the US told Britain and France in no uncertain terms to withdraw from the Suez and threatened to cause a financial crisis for England by selling off the US's pound reserves. Britain and France were forced to withdraw and it was clear that the days of British supremacy (and French free action in the Med) were over.

History is indeed odd. When Bretton Woods was set up there were two competing plans - one British, one US. The British plan had mechanisms which considered a trade deficit a problem of both the country with the deficit, and the one with a trade surplus with that country. The US plan didn't - the US had such a huge trade surplus with the rest of the world that the US simply could not imagine that it would ever have the problem of a trade deficit. And the early years of the post war period had the US central bank holding large amounts of other people's currency. Now Bretton Woods is long gone, but what we find today is a situation where the US has both a trade deficit and a current account defict. And other countries, most especially Korea, Japan and China have large US reserves (although even countries we don't think of having large reserves, like the Europeans, have a lot. It's all relative.)

The Europeans are not happy with how the mess in the Levant is playing out. Bush, and now Congress, have basically told Israel "go to it, kill as many of them as you like, we aren't going to intervene." So France, Italy and Germany are openly discussing creating their own large peacekeeping force and sending it down to Lebanon to push the two sides apart.

It's really hard to state how unprecedented this is. Europeans taking group military action outside their borders without US approval - probably without UN approval or NATO approval either (since the US will veto those.) (Correction: I had originally said a force of over a 100K, I can't find my cite for that, the indication I'm seeing is only 10K. Apparently I'm going senile early. My apologies for the error.)

Even a couple years ago that simply wouldn't have happened. The whole Kosovo mess is instructive in this regard. The Kosovo civil war, and the disintegration of Yugoslavia as a whole, was causing waves of refugees and varioius other problems for Europe for years before military force was ever applied. And it wasn't because the Europeans, especially the Germans, didn't want force applied, it was because they kept asking the US and the US didn't want to be involved. From the European point of view the final military action, while welcome, too too long to happen. The US essentially brushed them off for most of the 90's. And the end state hasn't solved a lot of the problems either. (Look into who runs the forced prostitution rings in Europe to see what I mean.)

Then there was the early 2000's from 2001 through 2004. The Euro soared against the dollar. The European stock exchanges had excellent years after the initial crash. But looked at more careful what is striking is this - the Europeans didn't get most of the benefit of having a high Euro. Because the US was in such bad debt - both fiscally and in terms of balances of payments, and were on such a borrow and spend binge, about 95% of all the savings in the world had to go to the US. So even though the European central bank had higher interest rates, they didn't get the usual benefit - more money. The US did. (For those wondering how this can be - the major buying and selling decisions for currency during this period were not free market decisions, they were made by a few central banks - notably in Japan, China and Korea.)

So they didn't get most of the benefits of running higher interest rates than the US (nor did the Euro go up nearly as much as it would have in an actually free currency market).

Worse, the amount they sell to the US has been going down. The US may be buying more, but it isn't buying more from Europe. It's buying more from China and other Pac Rim countries who chose to try and keep their currencies fixed to the US dollar.

And the expansionary monetary policy flooded the world with dollars, as Stirling notes. That meant that all sorts of unsavory people (yeah, most of the oilarchies are run by unsavory people. So is Russia) had their hands on a lot of what is still hard currency. Hard currency that can be used to buy missiles and bombs or the parts and expertise necessary to make missiles and bombs.

Then the US invaded Iraq. Most of Europe opposed the war vehemently, but the US paid them no mind, and in fact spent a great deal of time insulting them for being cowards. That helped drive up oil prices. Most of Europe is oil poor. The import. They now had to pay more money for the oil they simply must import. More unhappiness.

Even worse, the combination of instability and an expansionary monetary policy drove people to park their money in commodities. That drove commodity prices higher. The ur-commodity in our world is oil. And as Stirling notes:

Currency which can be used to fund violence. Or, as Stirling puts it:

The most simplistic way of putting it is that at $55/barrel, the Arab world can afford to wage one guerilla war against the US, and at $75/barrel, they can afford to wage two.

Unfortunately that second guerilla war isn't directly against the US, it's against Israel. Which, as many Muslims would tell you is the same difference. What Israel does, the US wears.

And George Bush washed his hands of it. Congress is saying to Israel "kill as many Lebanese as you feel like. we think it's great!"

And so the Europeans have had enough. They're seriously considering a massive troop deployment without the approval of the US on Israel's border for the first time since the Suez Crisis.

And if the US doesn't like it, it isn't going to be an Eisenhower moment where the US makes Europe back down. The US has no leverage of the Europeans. None. Certainly the Europeans hold more US bank notes than vice versa, and while dumping them won't dump the dollar if China, Kore and Japan are just willing to buy them back up, it certainly won't be pleasant.

So the first decision has been made to end the Pax Americana. And the reason it has ended is a combination of irresponsible fiscal and monetary policies and the doctrine of unilteralism.

Here's the deal - how the Pax Americana worked till Bush was this. The US had the hard tip of the military spear. The troops designed to fight open field warfare. The troops capable of crushing almost any conventional army in the world. They had the navy - as large as the rest of the world's navy combined. But they did not use it in any significant fashion outside of their own backyard (sorry Latin America, you're on your own) without the approval of their allies. The one time they did, in Vietnam, the world largely abandoned them, and the US dollar crashed and the Bretton Woods agreement was destroyed. The Europeans didn't quite cut the US loose that time, but they came close.

When Bush came to power he decided he had the right to do whatever he wanted militarily and economically without considering the European's interests (not even really Britain's. Britain went along because they felt they needed to maintain the special relationship with the US.) But, they put up with it. Until now. Because now the US has broken the implicit contract. The Israelis and Hezbollah clearly need to be seperated, as far as the Europeans are concerned, and not only won't the US do it, but it is pouring fuel on the fire. US policies added to the likelihood of this fire breaking out, and now they won't help put it out.

And it looks like European patience has finally broken. At this early stage that may not seem like a big deal, but over time it may. In principle there is nothing the US can sell anyone that the Europeans can't. Oh, the Americans have slightly better military technology, but for most nations the difference isn't all that meaningful.

People sell oil in dollars because dollars are the universal hard currency. You can get anything for enough dollars. Well, there's pretty much nothing you can't get for a Euro either. So the Europeans may be wondering why they aren't just using Euros. Expect the move for oil to be sold in Euros to take a huge uptick over the next year.

But oil does remaing the key and Europe needs to secure a supply. They also need to convince the US's last loyal satraps, Korea and Japan, to cut the US loose on the monetary front. If those two things happen, then the Pax Americana will truly end and the world's poles will shift.

And the tipping point that everyone will look back to (though it wasn't the core cause) will be the US's decision to not only let Lebanon burn, but to tell Israel "throw some gasoline on that baby, we've got your back."

Ian Welsh July 19, 2006 - 2:24pm

Ian Welsh's diary | printer friendly version |

( categories: Analysis )

Naah. Never in a million

Naah. Never in a million years would a left wing Italian PM send troops into harm's way (although I am surprised that this one hasn't immediately pulled out the troops in Iraq). And Merkel loves Bush.

You understand that these Italian troops would have to implement SC1559 don't you? That means DISARMING Hezbollah. It wouldn't be just a matter of getting troops between the beligerents. Don't think that Prodi will PROTECT Hezbollah with Italian troops by saying that Hezbollah can keep its weapons. Remember, as well, that half of Italians are conservative and that includes most of the military. The Italian troops themselves will be wanting to gun for Hezbollah because they know the difference between bad guys and good guys.

After another week of killing Hezbollah (20 dead Hezzies for every dead civilian), Israel will probably WANT a serious military force to do the occupying. And 120,000 French and Italian troops would be wonderful compared to the palty 2000 UNIFIL soldiers that have been there until now.

But that is only a wet dream. Neither France or Italy would send troops to Lebanon until after enough Hezzies were dead. They wouldn't want to be actually shot at by anyone. And the number of troops would never go beyond 4000 for each country. Count Germany and Spain AWOL no matter how much the USA or the UN begs.

Meanwhile, remember that the Sunni Arabs are against Iran and its bid to make the Middle East a Shiite dominated region.

Which the Iraq War was mostly all about besides. The #1 reason for the Iraq War was to start a Sunni-Shiite battle for control of the Middle East that would take the pressure off the USA in terms of violence directed at the homeland (the #2 reason was to take oil out of enemy hands so Sunnis couldn't fund nuke programs like the one in Libya and so they could no longer fund the Palestinian terror groups).

I live in Europe and the consensus is that, if they think Bush made a mistake starting the civil war in Iraq by toppling Saddam, they still see the US military as needed to keep the peace in Iraq now (even if you and I would rather see the Iraqis take care of themselves now).

Plenty of Europeans, including Merkel of Germany, believe that the biggest mistake of the Iraq War is that it wasn't immediately followed by an Iran War. Everyone knows that Iran is now the main force behind the Iraqi civil war and has been behind the killing of US soldiers for God knows how long now.

What makes Bush look so stupid is that he has allowed Iran to make him and Operation Iraqi Freedom look bad for years...when Iran has clearly been waging direct war against the USA and the Iraqi people in that time period. All the deaths you hear about in Iraq need to be pointed at the Iranian leadership's evil...not against a simple liberation of 80% of Mesopotamia's population three years ago.

People sense that Bush is incompetent. That doesn't take away from the majority of educated people understanding that the world's economies are DEPENDENT on Pax Americana.

By default, Pax Americana, is seen as the best thing for the world. What would you have replace the Pax: Pax Russiana? Pax China? No peace at all but Permawar between Oceania and Euroasia??

Bush's biggest mistake was signing the IMBRA law making it a privilege and not a right to meet foreigners. Bush is a danger to the world because he's embraced a virulent strain of conservative "Security Mom" feminism. Already in Japan, a conservative feminism has caused all sorts of businesses including restaurants and grocery stores to go "women only".

The social agenda of the Bush White House is weird to say the least.

If you want to talk about issues that need close attention and Multipolarism to stop American cultural imperialism, you'd be better off mentioning real ways that America threatens the world...rather than the no-brainer that the world needs to stop Iran and its proxies (Syria, Hezbollah and Hamas) by military force sooner rather than later.

If you want a multipolar world (which I do want)...than you shouldn't want that to include an Iranian superpower with nukes.

The "Tipping Point" of World War Four might be this Lebanon Battle, where the Sunni Arab nations are practically on Israel's side (not taking into account some uneducated Sunni street people). A democratic Iran may happen soon and that will would be an even better tipping point for world peace.

GermanBusiness July 19, 2006 - 4:49pm

Disarming means what you

Disarming means what you want it to mean. Hezbollah gives up their larger weapons, the guns go in caches and the second the UN leaves Iran and Syria send them the arms they need. Meanwhile the Europeans effectively cut a sub rosa deal with Hezbollah that Hezbollah acts as government in their area and the Europeans don't crush them. 120,000 troops is as much as Bush has in Iraq, in a much smaller area. And the French are very very good at anti-insurgency warfare. And very ruthless. Done properly, Hezbollah will play though, and there won't be a lot of shooting.

I am not aware of polls showing that a majority of Europeans support a continued US presence in Iraq, let alone want the US to invade Iran.

Merkel and Prodi both need to prove they have balls. Both understand that this uncertainty is going to shove oil prices higher, and both would probably like to have a second term. Since both countries are net oil consumers high oil prices hurt the economy a lot, and they get blamed for it one way or the other. Sending troops to, er, spread oil on the waters, is cheap if it reduces the price of oil by even $5.

The vast majority of Germans and French were against the war. Those poll numbers are very easy for anyone to dig up who wants to.

The Iraqi insurrection, while fueled by Iran in parts is clearly not caused by Iran alone. Unless you think the most active parts of the insurrection, who are Sunnis, are getitng large amounts of support from Iran?

Iran actually helped the US in Afghanistan at one point, and at one point also offered the US everythign the US wanted except regime change, including a complete freeze on all nuclear activities. The US refused. When you tell a nation you intend to destroy it, don't be surprised if they start undermining you. Iran is the US's enemy because the US chose it as an enemy, primarily.

Have no idea what you mean by Conservative Feminism.

Doesn't matter whether there is anything better to replace Pax Americana. This isn't a "ought to" article, this is a "this is happening article". Irrespective of whether the Europeans are able to put together a peacekeeping force by themselves, the days of the Pax Americana are likely over, as a perusal of the US's balance sheet will quickly tell you. Pax's are expensive and the US can't afford theirs anymore, and as soon as various international parties decide they don't see enough benefit in funding it anymore, it'll end. And that day is a lot closer than many think.

How others choose to deal with it when it ends is their problem, and perhaps a subject for a post another day.

Ian Welsh July 19, 2006 - 5:03pm

Angela Merkel was very much

Angela Merkel was very much in favor of the Iraq War and now she is chancellor of Germany (sure she doesn't loudly announce her views). It shows that much of the anti-war opinion just wasn't strong enough to keep liberals in power. Ditto for Canada, which elected a PM who was also for the Iraq War. Ditto for the UK where anti-war sentiment wasn't enough to topple the #2 "warmonger". The sentiment may run deep for 25% for each population, but the rest of the anti-war crowd is more open-minded.

I noticed that you didn't comment on the 2 compelling reasons why the Iraq War was fought:

1) It was SUPPOSED to start a Sunni-Shiite rivalry where the Sunnis had previously been sitting pretty in control of all Arabs, albeit it was expected that the Sunnis wouldn't get so bloody about having lost Mesopotamia where they only had 20% of the population. History may show that the Sunnis got so violent in Iraq because of Howard Dean giving them the idea that they really could get the USA out of Iraq BEFORE the Shiites could be trained and armed by the US and its allies. But you can also say that the Sunni insurgent leaders were simply in shock and lashing out at the loss of power to Shiites would would soon, as it has turned out, lead to Shiites getting revenge against them for past deeds.

Meanwhile, yes, it was in Iran's interest to temporarily help the SUNNI insurgency so that it would get itself largely killed off by the Americans and the Americans would suffer casualties. Of course, Iran is now funding death squads seemingly to finish off these same Sunni insuregents (whom they can identify because they helped them 2 years ago)...which is why the new Dawra Accords have the Sunni Iraqis actually BEGGING the USA to stay in Iraq.

This war is as complicated as WW2 and has as many wild twists and turns to it.

You and I could discuss the way the Vichy French behaved in WW2 and have a great time doing it. The intrigue was not black and white and much of what happened was counter-intuitive. Same with this war.

2) The second reason for the Iraq War was taking oil revenues away from the Sunni enemy. That is War 101. It should have been practiced on Iran's hardliners years ago...but its possible that we've left Iran's hardliners in power based on the principle that being left to face a rising Shiite superpower would actually help ally the Sunni Muslims with the Americans. Theoretically, as Iran threatens the world, the Sunni Al Qaeda would ally itself with the USA to stop them. This would be similar to the former German Nazis allying themselves with the USA against the Soviet Union around the time of the Berlin Airlift in 1948.

Things are more complicated than that, but the overall effect is that the focus is off our enemies hijacking American domestic flights.

Iran can still surprise us and nuke an American city as well. Maybe Iran has had a nuke in New York City since before 9-11 and Bush knows it. We just don't know what the intel briefings are at the White House every morning, even if we think the Pres himself is dumb.

Anyway, I don't see the Hezbollah "Dead Child Photo" propaganda causing "the world" to be disgusted with Pax Americana. Israelis are not holding up their dead kids like tuna or swordfish...and the educated people of the world are noticing this.

It is very clear to educated people and their governments, that Syria and Iran are responsible for all the death and destruction and those regimes may not be long for this world.

The USA, if Sunni Iraqis want them to stay in Iraq (to keep the peace = Pax Americana), no longer has a reason to keep a non-Sunni regime in power in Syria.

The Boy Assad is no longer of value to the USA. If he is toppled in the current battle, Iran will no longer have an ally in a Sunni dominated Syria.

Most of the world knows that things are really complicated in the Middle East. It is a giant chessboard, but Russia and China are not going to meddle too much and there really isn't much gas in any world left wing or progressive movement, especially if you see countries like Germany and Canada elect pro-Bush leaders and guys like Blair retain power.

It would be another thread to discuss what the world will be like if the UK replaces Blair with a hectoring jackass. Since Suez and long before, some male Brits as well as some Frenchmen have long wanted to propagandize the world not to look up to America.

And that can be a good thing when it comes to ugly social trends like the one IMBRA represents.

About conservative feminism: Please do a Google search on the IMBRA law, which states that, for American men, it is now a privilege to meet foreign women online and not a "right of association". A Democrat federal judge in Georgia has put a retraining order on the new law but a Republican federal judge in Ohio stated "The Supreme Court has never explicitly recognized a fundamental liberty interest in Americans meeting foreigners."

Plenty more of this type of legislation is coming down the pike if we continue with jackasses like we have in the Bush Administration (Democrat Maria Cantwell wrote the law, however).

So what I am saying is that good liberals need to fight the real dangers of the new Republicans.

Not argue with the likes of Hillary Clinton who is totally behind Israel at the moment. I'm in Germany and I see no open resentment of Israel here. The leftist German magazine "Spiegel" is more fair than CNN on this issue, clearly stating that Syria and Iran are behind this.

GermanBusiness July 19, 2006 - 5:30pm

I didn't talk about your oil

I didn't talk about your oil theories because they're irrelevant. Taking out Iraq didn't take money out of the hands of some amorphous bunch of Sunnis, it took it out of the hands of Saddamn Hussein and the Iraqi Sunni community. And the combination of uncertainty and restricted oil supply has actually driven oil prices higher, which has put more money in the hands of Sunnis and Shia all over the place. Why is Lebanon happening - because the oilarchies are afloat with money. Tons of it. And the Iraq war didn't dry money up for them, it made there be more money, not less.

If the war was meant to cause Sunni Shia wars then it was certainly a success. I don't, however, see how that helps anyone, nor do I see that it is relevant. In Iraq the Sunnis were in charge of a Shia majority. In Syria the reverse is true. Your point about Dean is likewise bizarre, one could as easily say that Bush caused the insurgency when he won because the Sunnis realized that Bush would never leave unless forced to.

What is clear to me is that you favor the US policy in the mideast. Since that policy is a manifest failure on every metric, including the bottom line metric of oil prices, prices which are screwing Germany over in a huge way, I don't see your point. It's nice that the war was intended to do all sorts of great things. But as a practical matter it has actually strengthened Iran and Iran's clerical leaders, not weakened them. It has also strengthened Saudi Arabia, which is a prime funder of terrorism, for all their mealy mouthed pieties. It has raised the price of oil massively, causing an inflation shock which is moving through the US economy and causing all sorts of other unpleasant effects, economic and geopolitical. It has proved that the US army can be defeated. It has emboldened nuclear proliferators.

And now you want to invade Iran? Sure, go for it. Unfortunately the US army won't be participating in any significant way - they're kind of busy, but if Merkel thinks it's so important, and so do you, feel free to send the German army in.

Oh, that isn't happening, is it?

The US is at the end of its fiscal rope. It is at the end of its monetary rope and about to experience a very nasty case of very clear inflation. It is militarily in overstretch. And its policies are screwing Europe good and hard. If Merkel wants more of this, I'm sure George Bush will be happy to oblige.

But I think that Merkel is capable of looking at oil prices and balance of payments figures and understanding that even if she likes Bush, being his best buddy in Europe isn't going to get her a damn thing - and it especially isn't going to get her a second term.

As for anti-Israeli sentiment in Germany? How is that relevant? Going into Southern Lebanon to stop Hezbollah shooting missiles isn't going to be presented as something that's anti-Israeli. And of course Germans aren't anti-Israeli. Given the mutual history they are hardly in a position to be anti-Israeli.

In any case, if this happens it will be driven not by Germany, and not by Italy, but by France. Lebanon is their baby, and they are very good at anti-insurgency operations

We'll see how this plays out, but the larger point is simply this, as the title says - the Pax Americana is ending. Even if Europe doesn't step up to the plate this time that is still the case. And eventually Europe will have a choice of stepping up to the plate, being dragged up to the plate, or letting someone else make the decisions. And most of the other candidates won't pay any more attention to Europe's opinions on anything than Bush did when he made the original decision to invade Iraq.

Ian Welsh July 19, 2006 - 6:20pm

Being German ...

... I am happy to see that you do not find resentment towards Israel in Germany. Given our special relationship with this country Germans should very much want Israel to be a success. But I don't know many who honestly believe that this war is helping Israel nor how you could possibly know Merkel's innermost thoughts since clearly she has not spoken in favor of a war with Iran.

You may live in Germany but you may want to get out more and broaden your social circles.

I think Ian is overly optimistic in his assumption that Europe emancipates itself from the US but I dare say your read on the sentiment of Europeans is also way off. Having suffered through so many wars in our history most Europeans very much despise war. I do not know a single European who cheerleads war the way you do. Unfortunately in the states this attitude is quite common. The only explanation I have for this is that there is no critical mass of collective memory of what terrible suffering war inflicts.

quax July 19, 2006 - 6:50pm

Apparently, thousands of

Apparently, thousands of anti-Hezbollah Lebanese are organizing to fight alongside Israel, but the Hezzies need to be weakened some more before that happens. This is, of course, what we need to have happen and why the European powers are holding off until "conditions" are right. European newspapers will report about the anti-terror resistance movement in Lebanon in a few days hopefully.

Check out this fascinating website:

http://free-lebanon.com

I found it interesting to just read the anti-Hezzie account of how the 200 Hezzies surrounded the huge Iranian missile that flew into downtown Beirut after a direct hit by the Israelis on its carrier. They didn't want the Lebanese population to see what failures they were in not even getting to launch the monster at Israel but have it crash into Beirut instead.

They know that they are on thin ice with the Lebanese Christians.

And wait until the Beirut Christians learn the true story of why so many civilians were killed as human shields in the past week.

Remember: Only 15 years ago there were Lebanese Christians with balls who fought a long civil war with the Shiites.

That civil war is about to begin all over, and this time it will bring down the regime in Syria. France would only help, not hinder, such an outcome.

GermanBusiness July 19, 2006 - 6:04pm

Oh wonderful, now you're

Oh wonderful, now you're cheer leading for a new Lebanese civil war.

Ian Welsh July 19, 2006 - 6:21pm

Yeah, 'cause I'm sure that a website...

...dedicated to Gemayel represents a movement that all Lebanese can rally around. I'm not real big on people who have long history of trying to get other people to fight their wars for them.

"We declared war on terror, it's not even a noun, so, good luck. After we defeat it, I'm sure we'll take on that bastard ennui." - Jon Stewart.

JustPlainDave July 19, 2006 - 7:16pm

I tend to have serious

I tend to have serious reservations about the things I find at free-lebanon.com, if only because of Nagi Najjar's connections to the CIA and Mossad. Of course, his nomination of Sharon for sainthood was a little hard to swallow, but I'm sure that he is really sincere. The president of the Lebanese Foundation for Peace, Ziad Abdel Nour, was telling us last November that the U. S. and Isreal would be taking over Lebanon and Syria in just a few months. He was really excited about that, but I suspect that this will work out as well as Iraq. If Isreal's long occupation and the civil war produced Hizballah, what is this new occupation and civil war going to produce?

pihwht July 19, 2006 - 7:38pm

I think it is possible that

I think it is possible that some of the leading people in America believe that they have a divine mission to destroy the Arabs. Simple and powerful.These people in the White House are really that crazy.
A lot of people will follow them too. Economics be damned

allieboy July 19, 2006 - 10:06pm

i used this piece in something i wrote

here, which is much less of the detail-discussion type but for which you may take some credit, ian.

chicago dyke July 22, 2006 - 12:28pm

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The Sunset of the Pax Americana

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