Number 569 January 16, 2015

This Week: Decline of the U.S. Empire

"Quote" of the Week: "A Tilt from a US World to a Chinese World"
The Second Big Theme of the Year 2014: Decline of the US Empire
The U.S. Economic Empire Weakens


This issue is Part II of my multipart series on The Year's Top Stories. There are lots of details here, but don't get bogged down. I'm trying to convey an overall picture, and underline the idea that it is the lack of reporting of the many details in the big stories of our time that results in the amazing ignorance about the important issues of the age. I'm guessing that many of the items I mention this week will be unfamiliar to most readers. They shouldn't be.

Another crowded issue, so another brief editor's note. See you next week!



"Quote" of the Week: "A Tilt from a US World to a Chinese World"

The latest issue (October 2014) of the Dutch publication "GlobalEurope Anticipation Bulletin" is headlined "Global Systemic Crisis – 2015: The World Is Defecting to the East." The analysts claim to "see the beginnings of a major turning point in the unfolding of the global systemic crisis: a tilt from a US world to a Chinese world." Why is this happening? The GEAB says it is due to

"The contrast between the perspectives offered by the alliance with the US (where it is mainly a question of war) and those offered by a strategic rapprochement with Asia (where it is mainly a question of economic recovery)."


The Second Big Theme of the Year 2014: Decline of the US Empire

In Part One of this series I suggested that we judge which are The Year's Top News Stories from the perspective of a historian looking back from 100 years in the future. What were the Big Themes in 2014 that our news helped us—or didn't help us—to understand?

Last week I talked about my first Big Theme of 2014: Inequality and Resource Allocation. This week I'll focus on the Second Big Theme:


Ian Bremmer is president of Eurasia Group, a political-risk consultancy, and is also an editor-at-large of TIME Magazine. In an article in TIME's December 18th issue titled "America's Uneasy Path Abroad in 2015," Bremmer noted that "the U.S. is now less able to build coalitions, forge trade agreements, win support for sanctions, broker international compromise or persuade others to follow its lead into conflict than at any other time since the end of World War II."

Oddly, the opening sentence of Bremmer's article was "America is not in decline." In fact, the decline is well underway, and the evidence can be found everywhere, in so many places that I can't even pick a Top Story to highlight. Let's start by looking at a few stories from the diplomatic realm.

To The South

The Council on Hemispheric Affairs (COHA) noted in 2013 that "three new regional organizations have sprung up over the last decade" in Latin America. They note that "The creation of the Alianza Bolivariana para los Pueblos de Nuestra América (ALBA, 2004), Unión de Naciones Suramericanas (UNASUR, 2008) and Comunidad de Estados Latinoamericanos y Caribeños (CELAC, 2011) triggered a new thought movement over the last decade," inspired in part by "general disillusionment with the neoliberal economic ideology championed by the United States."

ALBA was specifically created "as an alternative to the Free Trade Area of the Americas," the U.S.-dominated project which "aimed to establish a free trade area throughout the Americas." And, COHA notes, "UNASUR and CELAC illustrate the will for a more independent form of regional integration in Latin America." They "constitute a new form of cooperation between Latin American nations, as they purposefully exclude the United States and Canada." Latin America is no longer the "backyard" of the United States.

To The East

The leaders of Russia and China, would-be rivals of the United States, have also recently made clear their interest in a "new world order" that does not accept the idea of the U.S. as The World's Only Superpower. In a major speech in October at the Valdai International Discussion Club, Russian President Vladimir Putin had some very interesting things to say. Put out of your mind, for the moment, the image you may have of Putin as an imperialist reincarnation of Hitler, and see if you don't agree with much of what he says:

"The Cold War ended, but it did not end with the signing of a peace treaty with clear and transparent agreements on respecting existing rules or creating new rules and standards. This created the impression that the so-called 'victors' in the Cold War had decided to pressure events and reshape the world to suit their own needs and interests. If the existing system of international relations, international law and the checks and balances in place got in the way of these aims, this system was declared worthless, outdated and in need of immediate demolition."

Putin continued, asking "What could be the legal, political, and economic basis for a new world order that would allow for stability and security, while encouraging healthy competition, not allowing the formation of new monopolies that hinder development? It is unlikely that someone could provide absolutely exhaustive, ready-made solutions right now. We will need extensive work with participation by a wide range of governments, global businesses, civil society, and such expert platforms as ours [at Valdai]. However, it is obvious that success and real results are only possible if key participants in international affairs can agree on harmonising basic interests, on reasonable self-restraint, and set the example of positive and responsible leadership. We must clearly identify where unilateral actions end and we need to apply multilateral mechanisms, and as part of improving the effectiveness of international law, we must resolve the dilemma between the actions by international community to ensure security and human rights and the principle of national sovereignty and non-interference in the internal affairs of any state."

A month later, speaking on the subject of foreign affairs at a Chinese Communist Party meeting, Chinese President Xi Jinping similarly spoke of the Chines desire that a multi-polar world order replace the U.S.-dominated order of the past couple of decades. Said Xi, "We should be fully mindful of the complexity of the evolving international architecture, and we should also recognize that the growing trend toward a multi-polar world will not change... We have endeavored to build a new model of major-country relations, put forward and practiced a neighborhood policy featuring amity, sincerity, mutual benefit and inclusiveness as well as the guideline on China's relations with Africa featuring sincerity, delivering outcomes, affinity and good faith."

Global systems analyst Immanuel Wallerstein noted in a June 2014 commentary that "On May 16, Russia and China announced that they had signed a 'friendship treaty' that would last 'forever' but was not a military alliance." And the LA Times reported on May 21st that the two nations had signed "a landmark $400-billion natural gas deal, sealing their friendship at a time when both are . . . at odds with the United States."

We can see that the desire for a diplomatic realignment of the global system is being expressed, and acted on, in many ways all over the world. But is it just talk, or are the world's nations willing to put their money where their mouths are? It's not just talk, as the next article will illustrate.


The U.S. Economic Empire Weakens

We've just looked at some of the evidence of shifting alliances and the diplomatic straying of some of the world's nations from the orbit of the United States. And the U.S. is seeing its unquestioned economic dominance begin to falter, as well. The current system of international financial institutions, which was set up after World War II and which has been dominated by the United States (the pillars of which are the International Monetary Fund and the World Bank) has performed so poorly that new international financial institutions are popping up right and left.

Writing in the business magazine Forbes, Cornell political economist Jonathan Kirshner says that what we are seeing since the Global Financial Crisis of 2007-08 "is an environment characterized by the relative erosion of U.S. power and influence, and by the emergence of new and varied thinking about how to best organize the international monetary and financial system." Evidence supporting this point is everywhere, as the following list shows:

* The China Development Bank. Friends of the Earth reports that CDB "is now the world's largest development bank by total assets (almost $1 trillion US) and China's biggest lender, financing cross-border transactions and investment in over 90 countries and regions."

* The Brazilian Development Bank (BNDES) is now bigger than the World Bank, according to economist Joseph Stiglitz, formerly the chief economist of the World Bank. TIME Magazine's Ian Bremmer notes that "In 2013 the World Bank disbursed $52.6 billion. The same year, Brazil's BNDES invested $85 billion, and its Chinese equivalent extended loans valued at $240 billion."

* The Asian Infrastructure Investment Bank (AIIB). According to the Reuters news service, China's proposed $50 billion bank "is seen as a challenge to the World Bank and Asian Development Bank, both multilateral lenders that count Washington and its allies as their biggest financial backers." The Russian news service RT reports that China will be the leading source of capital for the bank, and "India will be the second largest bank shareholder though Kuwait, Qatar, Mongolia, Kazakhstan, Pakistan, Nepal, Oman, and all the countries of the Association of Southeast Asia, except Indonesia are involved." RT adds that "Australia, Indonesia and South Korea did not participate following US claims of 'concerns' about a rival to Western-dominated multilateral lenders."

* The New Development Bank is a $50 billion development bank set up by the so-called BRICS countries: Brazil, Russia, India, China and South Africa. Founded in 2014 at the BRICS summit in Fortaleza, Brazil, the founding represents a "growing impatience within the current western-dominated system," according to a Forbes opinion piece of December 22nd. Earlier, the Voice of America had reported that "The [member] nations have...said that they hope the BRICS development bank will serve as a counterweight to powerful international lenders like the World Bank and the International Monetary Fund." Economist Joseph Stiglitz notes that
"this new institution reflects the disparity and the democratic deficiency in the [current, U.S.-dominated] global governance and [NDB] is trying to restart, to rethink that."

Dollars and Bonds

Bremmer adds that "dollar dominance is on the wane as China, Russia, Brazil and others move to denominate more of their commerce in other currencies. Five years ago, China conducted trade almost entirely in dollars. Nearly a quarter of that trade is now settled in renminbi [the Chinese currency]." This and related developments led the London Telegraph to predict in a July 19th article that "Within a decade or so, a 'reserve currency basket' may emerge, with central banks storing wealth in a mix of dollars, yuan, rupee, reals and roubles, as well as precious metals." The article was headlined "The Dollar's 70-year Dominance Is Coming to an End."

The bond markets serve an important function in the global economy by rating the credit-worthiness of private corporations as well as local and national governments. In the global economy, U.S.-based companies constantly monitor the daily operations and financial health of bond-issuers, publishing ratings ranging from the highest score of "AAA" to the lowest "D" rating. In practice, the difference between an AA and a BB rating may be not only millions of dollars in interest payments; it may actually determine whether or not a corporation—or government—can even issue bonds.

This remarkable rating power has for years been concentrated in the hands of the so-called Big Three ratings agencies—Moody's, Standard & Poor's, and Fitch Group—who control about 96 percent of the global credit rating market. That's why it was a big deal when, in June 2014 the International Business Times reported that "China and Russia are joining hands to pose stiff competition to US-based credit rating agencies Moody's, S&P and Fitch, by setting up the new Universal Credit Rating Group (UCRG)."

A report just this week in the Sputnik News Service cited Russian analyst Alexander Ovchinnikov, who "emphasized that [UCRG] was created as a reaction to the bankruptcy of American investment funds with unreasonably high ratings." Citing Ovchinnikov, Sputnik said that "UCRG satisfies the demand of those investors who have repeatedly criticized the Big Three agencies for standardized approaches that overestimate the opportunities of the developed economies while underestimating those of the developing ones."

Meanwhile, China has now officially become the world's largest economy, and is aggressively developing what is sometimes called "soft power." That is, non-military power, the ability to get what you want without fighting. Most notably, China is creating what they are calling the "New Silk Road," which is a complex network, on land and sea, connecting countries from China to Spain. Commentator Pepe Escobar encourages us to "Imagine [the New Silk Road] as a future branching maze of roads, rail lines, and pipelines. A key stretch is going to run through Central Asia, Iran, and Turkey, with Istanbul as a crossroads site. Iran and Central Asia are already actively promoting their own connections to it. Another key stretch will follow the Trans-Siberian Railway with Moscow as a key node." There's a maritime route planned to connect China to Europe via sea lanes, as well.

Escobar says that "China's New Silk Road [is] conceivably the project of the new century and undoubtedly the greatest trade story in the world for the next decade."

Adds Escobar, "Now, mix the Silk Road strategy with heightened cooperation among the BRICS countries with accelerated cooperation among the members of the Shanghai Cooperation Organization (SCO), with a more influential Chinese role over the 120-member Non-Aligned Movement (NAM)—no wonder there's the perception across the Global South that, while the U.S. remains embroiled in its endless wars, the world is defecting to the East."

Speaking of endless wars, the military realm at first glance appears to be the one area in which the U.S. still reigns supreme, having by far the largest and most global military system in the world. But, in the wake of the ongoing disasters in Afghanistan and Iraq, the U.S. increasingly appears to be a pitiful giant instead of The World's Only Superpower.

In order to be a true Empire, a nation needs to dominate not only in the military sphere, but also in the "softer" economic, diplomatic and, yes, moral realms. It's barely reported in this country, but what the people in most of the world seem to be saying is that they don't want a single nation to dominate, but instead want a regionalized global system, with leadership shared among several nations, only one of which is the United States. The Second Big Theme, or Top Story, of 2014 is thus the demise of The World's Only Superpower. As the U.S. Empire declines, it's time to say Goodbye to the "American Century" and say hello to a new, multipolar world.

In the next Nygaard Notes: The State of U.S. Democracy