Debt and the Rise and Fall of Empires

Posted on Tuesday, 23rd August 2011 @ 01:59 AM by Text Size A | A | A

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As I have repeatedly pointed out, the American military and
intelligence leaders say that debt is the main national security threat
to the U.S.

As I noted in February 2009 and again last December, a number of high-level officials
and experts are warning of financial crisis-induced violence … even in
developed countries such as the U.S.

And as I pointed out in February of this year, the
U.S. runs the risk of going the way of the Habsburg, British or French


Leading economic historian Niall Ferguson recently wrote
in Newsweek:


Call the United States what you like—superpower, hegemon, or
empire—but its ability to manage its finances is closely tied to its
ability to remain the predominant global military power…

is how empires decline. It begins with a debt explosion. It ends with an
inexorable reduction in the resources available for the Army, Navy, and
Air Force…

If the United States doesn’t come up soon with a
credible plan to restore the federal budget to balance over the next
five to 10 years, the danger is very real that a debt crisis could lead
to a major weakening of American power.The precedents are certainly there. Habsburg Spain defaulted on all
or part of its debt 14 times between 1557 and 1696 and also succumbed to
inflation due to a surfeit of New World silver. Prerevolutionary France was spending
62 percent of royal revenue on debt service by 1788. The Ottoman Empire
went the same way: interest payments and amortization rose from 15
percent of the budget in 1860 to 50 percent in 1875. And don’t forget
the last great English-speaking empire. By the interwar years, interest payments were consuming 44 percent
of the British budget, making it intensely difficult to rearm in the
face of a new German threat.

Call it the fatal arithmetic of imperial decline. Without radical
fiscal reform, it could apply to America next.

And William R. Hawkins (formerly an economics
professor at Appalachian State University, the University of North
Carolina-Asheville, and Radford University) fills in some details on the fall of the Hapsburg empire:

Spain was the first global Superpower…With Spain as its
political base, and gold and silver flowing in from its American
colonies, the Hapsburg dynasty became the dominant power in Europe. It
controlled rich parts of Italy through Naples and Milan, and Central
Europe from the Netherlands through the Holy Roman Empire to Austria. In
the 16th century it added the far distant Philippine islands to its
empire. The Hapsburgs held off the Ottoman Turks, whose resurgent wave
of Islamic conquest in the 16th century swept across the Balkans and
nearly captured Vienna.

The Hapsburgs went into decline in the
17th century, and while any such momentous event has many causes, for
our purposes the focus will be on the economic collapse of Spain, which
not only sapped the empire of strength but served to build up the power
of its rivals.

The demands of empire required a strong and
growing economy, but Spain did not keep up with the economic expansion
that was taking place in other parts of Europe. Madrid’s financial base
fell out from under its empire. Spain could continue to consume in the
short term because of the flow of precious metals from American mines,
but it could not produce the goods it needed at home, which in the
long-run proved fatal to its standing as a Great Power and as an
advanced society.

Spanish imports were double exports and the
precious metals became scarce within weeks of the arrival of the
American treasure fleets as the money flowed to Spain’s many creditors.
What industry there was, along with banking and shipping, was in the
hands of foreign owners. As a modern historian, Jaime Vicens Vives, has
concluded, “This was one of the fundamental causes of the Spanish
economy’s profound decline in the seventeenth century, maritime trade
had fallen into the hands of foreigners.” This, plus the “opening of the
internal market to foreign goods,” produced a “fatal result.” Spain’s
exports were at the same time under heavy pressure by competitors in
third country markets. A nation that cannot control its domestic market
will seldom be able to sustain itself in foreign markets, which are
inherently less accessible and more unstable.

Yet, Spanish leaders were deluded by a sense
of false prosperity. This is testified by the statement of a prominent
official, Alfonso Nunez de Castro in 1675: “Let London manufacture those
fine fabrics of hers to her heart’s content; let Holland her chambrays;
Florence her cloth; the Indies their beaver and vicuna; Milan her
brocade, Italy and Flanders their linens…so long as our capital can
enjoy them; the only thing it proves is that all nations train their
journeymen for Madrid, and that Madrid is the queen of Parliaments, for
all the world serves her and she serves nobody.” A few years later, the
Madrid government was bankrupt. The Spanish nobleman had foolishly
elevated consumption, a use for wealth, above production, the creation
of wealth.

Historians have traced the flow of Spanish gold
and silver across the markets of Europe. Those who “served” Spain by
establishing industries to manufacture goods for the Spanish market
gained the money. Spain’s rivals, France, Holland (which started a
successful revolt in 1568) and England, prospered by their trade
surpluses, and reinvested the money to expand their own capabilities.
Another modern expert on Hapsburg history, Henry Kamen, has cited
contemporary sources who referred to 17th century Spain as “the Indies
for the foreigner.” The military empire of the Hapsburgs became the
economic colony of other powers, or, to use a current phrase, Spain was
the “engine of growth” for the rest of the continent.

Where there
were jobs and prosperity, there was also rapid population growth, and
rising tax revenue. Rival powers were able to field and finance military
forces that could defeat the once superior Spanish forces both on land
and at sea. The irony of this is that Spain was ruled by a warrior
aristocracy tempered by centuries of constant warfare against Islamic
hordes and Christian heretics. These nobles looked down on merchants and
manufacturers and disparaged their mundane professions only to find
that without a strong domestic business class they could not afford the
fleets and armies that guarded the empire they had built.

Today, the American “empire” is also trying
to consume more than it produces. The U.S. trade deficit is nearing
Spain’s nadir of imports being double exports. Both government spending
and private consumption are financed heavily by debt. Washington is
printing money, the modern equivalent of digging gold out of the ground,
rather than earning the means to pay its bills. And the political and
military elites are apparently indifferent to the fate of domestic
business and industry. Americans must learn … from the Spanish
experience … and take corrective action while they still can.

The United States Joint Forces Command – which oversees
military operations in the North Atlantic geographic area and supports
the other commanders-in-chief in their geographic regions around the
– is now echoing all of these themes.

As World Net Daily reported


The Joint Operating Environment 2010 report,
or JOE 2010, released March 15 by the United States Joint Forces
Command, or USJFCOM, warned that “even the most optimistic economic
projections suggest that the U.S. will add $9 trillion to the [national]
debt over the next decade, outstripping even the most optimistic
predictions for economic growth upon which the federal government relies
for increased tax revenue.”

The USJFCOM expressed concerns that the burgeoning U.S. national debt
represented a threat to U.S. national security.

“Rising debt and deficit financing of government operations will
require ever-larger portions of government outlays for interest payments
to service the debt,” the JOE 2010 cautioned. “Indeed, if current
trends continue, the U.S. will be transferring approximately 7 percent
of its total economic output abroad simply to service its foreign debt.”

To underscore its concern, the USJFCOM cited an alarming litany of
historic examples, including the following:

  • Habsburg Spain defaulted on its debt 14 times in 150 years and was
    staggered by high inflation until its overseas empire collapsed;
  • Bourbon France became so beset by debt due to its many wars and
    extravagances that by 1788 the contributing social stresses resulted in
    its overthrow by revolution;
  • Interest ate up 44 percent of the British government budget
    during the interwar years 1919-1930, inhibiting its ability to rearm
    against Germany.

“Unless current trends are reversed, the U.S. will face similar
challenges, anticipating an ever-growing percentage of the U.S.
government budget going to pay interest on the money borrowed to finance
our deficit spending,” the JOE 2010 concluded.

course, debt is not the only threat to empire … or the only indicator
of a nation’s economic malaise. In that regard, the crash in Italy in the 1340s and the
hyperinflation in Hungary in 1946are instructive.

Washington’s Blog  is a frequent contributor to Global Research.
Research Articles by   Washington’s Blog

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