Thursday, November 27, 2008

From the Wishful Thinking file

Russian analyst predicts decline and breakup of U.S.

MOSCOW, November 24 (RIA Novosti) - A leading Russian political analyst has said the economic turmoil in the United States has confirmed his long-held view that the country is heading for collapse, and will divide into separate parts.

Professor Igor Panarin said in an interview with the respected daily Izvestia published on Monday: "The dollar is not secured by anything. The country's foreign debt has grown like an avalanche, even though in the early 1980s there was no debt. By 1998, when I first made my prediction, it had exceeded $2 trillion. Now it is more than 11 trillion. This is a pyramid that can only collapse."

The paper said Panarin's dire predictions for the U.S. economy, initially made at an international conference in Australia 10 years ago at a time when the economy appeared strong, have been given more credence by this year's events.

When asked when the U.S. economy would collapse, Panarin said: "It is already collapsing. Due to the financial crisis, three of the largest and oldest five banks on Wall Street have already ceased to exist, and two are barely surviving. Their losses are the biggest in history. Now what we will see is a change in the regulatory system on a global financial scale: America will no longer be the world's financial regulator."

When asked who would replace the U.S. in regulating world markets, he said: "Two countries could assume this role: China, with its vast reserves, and Russia, which could play the role of a regulator in Eurasia."

Asked why he expected the U.S. to break up into separate parts, he said: "A whole range of reasons. Firstly, the financial problems in the U.S. will get worse. Millions of citizens there have lost their savings. Prices and unemployment are on the rise. General Motors and Ford are on the verge of collapse, and this means that whole cities will be left without work. Governors are already insistently demanding money from the federal center. Dissatisfaction is growing, and at the moment it is only being held back by the elections and the hope that Obama can work miracles. But by spring, it will be clear that there are no miracles."

He also cited the "vulnerable political setup", "lack of unified national laws", and "divisions among the elite, which have become clear in these crisis conditions."

He predicted that the U.S. will break up into six parts - the Pacific coast, with its growing Chinese population; the South, with its Hispanics; Texas, where independence movements are on the rise; the Atlantic coast, with its distinct and separate mentality; five of the poorer central states with their large Native American populations; and the northern states, where the influence from Canada is strong.

He even suggested that "we could claim Alaska - it was only granted on lease, after all."

On the fate of the U.S. dollar, he said: "In 2006 a secret agreement was reached between Canada, Mexico and the U.S. on a common Amero currency as a new monetary unit. This could signal preparations to replace the dollar. The one-hundred dollar bills that have flooded the world could be simply frozen. Under the pretext, let's say, that terrorists are forging them and they need to be checked."

When asked how Russia should react to his vision of the future, Panarin said: "Develop the ruble as a regional currency. Create a fully functioning oil exchange, trading in rubles... We must break the strings tying us to the financial Titanic, which in my view will soon sink."

Panarin, 60, is a professor at the Diplomatic Academy of the Russian Ministry of Foreign Affairs, and has authored several books on information warfare.

The fatal flaw in Pnarin's thesis is that nations are held together by prosperity. The same thinking could have been used, wrongly, to predict the breakup of the US during the Great Depression, when the cultural divisions among the various regions of the country were greater than they are today. If anything, I see the nation becoming more united by the current crisis. The incoming president will get the political leeway to inject the federal government into the economic and social life of Americans to a greater degree than any time since World War II. Whether his programs work or not, they will be clung to by a frightened populace as a shared response to a national crisis.

I think that Panarin is looking at the US through glasses tinted by ethnic nationalism. Ethnic nationalists will never get America. They don't understand what keeps the disparate racial, cultural and ethnic groups together under a single shared identity, so it is natural to hold a perpetual prediction of the imminent breakup of the US. It will take some time to recover from the current mess, but I give the US the longterm edge over every other power on the world stage, precisely because we are not ethnic nationalists. I doubt that any major country will be able to replicate what we have accomplished. It is not a short term accomplishment.


Blogger Harry Eagar said...

He's certainly right about the debt. I've encountered an econimist who thinks its endless expansion is sustainable, although they always seem to also think it's nothing serious now.

Of coourse, the ones in the saddle (although few of the outsiders looking in) thought as recently as March or even May that it's nothing serious now.

Whenever I see a story like this, I am reminded of a feature that Le Monde ran 30-some years ago. For weeks, the paper profiled great cities.

For America, it was Chicago, which, according to Le Monde, 'unlike Boston, had never suffered from a terrible fire.'

I wondered then if my understanding of Marseille is as goofy as Le Monde's was of Chicago.

I will, nevertheless, stick to my view that Russia is doomed. It still cannot feed itself, and other than oil, gas and gold produces nothing the world wants.

November 27, 2008 10:18 PM  
Blogger Hey Skipper said...

Now it is more than 11 trillion. This is a pyramid that can only collapse.

He is certainly wrong about the debt.

It is certainly higher than I wish it was, but as a proportion of GDP, it is about in the middle of the range for industrial countries.

I know that analogizing from personal to governmental finance doesn't always work, but my debt to "GDP" ratio is about 2.5 : 1, or about three times greater than the US's.

And I have a perfect credit rating.

Why shouldn't the US?

November 28, 2008 8:31 PM  
Blogger Harry Eagar said...

Because your personal bank account isn't a reserve currency.

November 29, 2008 11:43 AM  
Blogger Hey Skipper said...

I never said it was.

However, no one has ever described just why a debt to GDP ratio of about .8 qualifies as anything close to a crisis.

November 29, 2008 3:58 PM  
Blogger Hey Skipper said...

Correction -- US gross public debt as percentage of GDP is 66%.

Compare with Germany at 64%, France at 65%, Britain at 47% and Japan at 171%.

The US 2008 budget balance is -3.2%. Compare with Japan and France at -3%, Britain at -4.9%, and Germany at about +.5%.

November 29, 2008 6:57 PM  
Blogger Harry Eagar said...

The debt worm can turn pretty fast, as the British discovered in the '20s. Net result: sterling was no longer a world reserve currency.

The US government is already in a position where its freedom of action is limited by the necessity of appeasing anybody who is buying its bonds. Most of the time, this is not a problem, as peace and exchange are beneficial to both buyers and sellers of bonds.

There could arise conditions, though, where something other than peaceful trade was the highest immediate national objective.

November 29, 2008 8:19 PM  

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