Sunday, July 25, 2010

Financial Sense Newshour Discusses The Weather

There wasn't much on gold in this week's Financial Sense Newshour podcast; instead, other topics like energy, a possible double-dip, and weather events were discussed. Mentioned in passing was Niall Ferguson's continued warnings about the state of America's government finances and the suddenness of a crisis.

What if the crisis that Prof. Ferguson and other have been warning about comes to pass? What if America is visited by imperial decline, which is covered up by some quick fiscal fix that seems to restore the good old days? What if the climactic blow is covered over by the assertion that the crisis is over and things will be getting only better, once [say] 401Ks have been commandered to force American savers to act more like Japanese savers?

The final tip-over for the U.K. was World War 2. Although it's common for Americans to claim that America won World War 2, the United States didn't enter the war until more than two years after Great Britain did. On the eve of Pearl Harbor, there were lots of British soldiers who had already served more than a two-year hitch. The Battle of Britain, with the U.K. serving as the last rampart of civilization in Europe, was more than a year in the past. It's true the the Roosevelt Administration provided aid to the U.K. in the form of Lend-Lease, but the British boys were doing the fighting and dying. The later Vietnam War can serve as evidence that money and materiel alone does not win a war.

The same point applies to members of the Commonwealth like Australia and Canada. The U.K. Parliament declared war on Sept. 1st, 1939. The Canadian Parliament declared war two days later. On the eve of Pearl Harbour, it wasn't that hard to find the Canadian equivalent of "Gold Star Moms."

Revisionist historians have said that America was dragged into war because of blandishments from the U.K. government, which President Roosevelt looked favourably upon. He wanted war, and Churchill wanted him in. They have a point, in that the U.K. was glad to have help from anywhere in the English-speaking world. (Yes, it was that bad in 1940 after France fell.) The ultimate price was the loss of the British Empire in part because of a precedent set after World War 1. Although the beginnings of Britain's welfare state were inched into earlier, with the People's Budget of 1909, it got its real start after 1918 by flying under the colours "A Nation Fit For Heroes To Live In." Temporarily pushed back by the Geddes Axe, it reached full fruition with the new Labour government of 1945. In a very real sense, the British welfare state was a G.I. Bill writ large.

Of course, the foundation of the welfare state - social insurance - was first introduced in the German Empire. Thus, the Tory quip after the 1945 election: "After the Beveridge Plan, it is clear that the man who won was Bismarck."

The fiscal trick that the Labour government used was a 30% devaluation of the pound in 1949. Although the U.K. had already lost India, and the Empire was effectively through, it had the temporary effect of convincing many in the U.K. that Britain would carry on. The return of confidence was such that an early BBC miniseries called The Quatermass Experiment took it for granted that the first manned flight into orbit would be British.

On the ground, something else was apparent. Young men and boys in gangs were sporting garb that came from Edwardian times; hence, they were called the "Teddy Boys." During King Edward VII's time, the British Empire had hit its height. Youngsters appearing in the garb of the time reflected a kind of A-OK confidence in the future of Britain, which dovetailed with the devaluation that was supposed to solve the U.K.'s fiscal problems.

If the United States gets scathed by a crisis and emerges through some kind of quick fix, like the commandeering of 401Ks for forced investment in U.S. Treasuries, we might well see the American equivalent of the Teddy Boys: young toughs dressed up like they stepped off the set of Mad Men - right to the nines. Full grey flannel suits with three buttons, narrow silk ties, leather wingtip shoes: the kind of garb worn by movers and shakers at the time America had hit its height. The female garb would be pillbox-hat glamour. Tail-finned Cadillacs, authentic classic models, would likely be the preferred mode of transport.

It'll last as long as the United States isn't humbled on the world stage, like the U.K. was during the Suez Crisis. Being left in the lurch by the United States, and unable to fight the battle alone, exposed the remnants of the U.K. empire as not worth belonging to anymore. It was the spark for the final devolution of the former British Empire: decolonization.

The American equivalent would be the unravelling of NATO, which would not happen unless the U.S. lost a major war affecting its traditional territorial claims after being humbled by the more quotidian means of excessive debt. An example of a major war in this context would be, say, a foreign power backing a successful insurgency in Hawai'i that led to its independence. If such should happen, NATO would appear to be a millstone...just like membership in the British Empire appeared after Suez.

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