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.”
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