Published on www.ir.lv, July 21
Russia has not yet lost in the war in Ukraine, and that is not optimal. But, since we are on this side of the fence, it is more important that the Americans have not yet won.
Moreover, with each passing month of the last year, it seems that the number of the best American university professors, billionaires, ordinary financial practitioners, and expert analysts with critical views on the condition of their country is only increasing.
Leaders of the US Republican Party attack Democrats, President Biden, and his family members for understandable pre-election reasons, presenting difficult-to-believe "horror stories." Non-political analysts, on the other hand, point to too serious risks that should be paid attention to in the near future and try to understand the speed with which our hegemon seems to be plunging into the depths of crisis and the necessary actions in our country.
Sum of Negative Impact Factors:
Firstly, America has too much debt. This, of course, is not new, and it wasn't a problem with two conditions. As long as the debt service for the government and private debtors didn't cost much—namely, until the money started to become more expensive one and a half years ago.
Now the US government needs hundreds of billions of dollars a year to service its debt (there is no talk of repaying it). The government could borrow this money from the Federal Reserve System (FRS), but then inflation would rise even more, and there would be a risk for Democrats not to win the elections next year. In addition, with rising prices, additional debt would require even more resources for servicing it—meaning that they would have to borrow again, and so on in a spiral, for which there is currently no positive solution.
Another problem is that the government can issue new debt and borrow even more. However, only until someone buys these securities and can realize them in the world. The situation began to radically change about a year ago when not only the FRS started raising the price of money. In addition to this, Americans and the British "froze" the money resources of several countries (Russia, Afghanistan, Venezuela). At that moment, "everyone" understood the hint: keeping money in dollars is not safe because they can be seized, frozen.
Previously, Americans attracted money from abroad and thus kept other countries under their control, including exporting inflation to satellite states – those which were accustomed to being called both democratic and authoritarian. That was the world order after World War II.
Now doubts are being heard whether it will work in the future as well. It is already evident that "authoritarian" states are no longer just skeptically looking at placing their resources in dollars but are actively creating alternatives. There are many reasons for this, including the sad experiences of Russia and other countries. China, one of the largest holders of American debt, currently does not reduce the volume of dollars in its reserves but has rapidly started to expand the use of its currency in trade.
Some of the predictors also mention the decrease in the value of the dollar and the reduction of American influence. The Federal Reserve's decision to increase the price of money also leads to phenomena of the banking sector crisis – several medium-sized banks have failed, and the market capitalization of others has significantly decreased. Therefore, it is difficult to believe that the banking crisis is already over.
Financial and banking crises have occurred before, and it is possible that "the devil is not so black." However, the American elite has an unimaginably wide range of instruments of influence, and this time too, it will allow them to find an elegant solution in the interests of the dollar and its owners. However, several such powerful negative impact factors have not been present simultaneously for a long time.
Secondly, the decline in the use of the dollar or dedollarisation. This is not new either—the share of the dollar in the reserve currency basket of other countries has been decreasing steadily. Over the last twenty years, it has decreased from 73% to 58%, on average, by about one percentage point per year.
However, this rate of decline has significantly increased over the last year and a half when it decreased by 8%. The events of this year indicate that the speed should increase even more, and America's growing debt could become a problem, especially if it becomes increasingly difficult to sell it, and the tried and tested solution of cutting social budget expenses for the less privileged residents may turn out to be "too short."
The seriousness of the situation is evidenced by the persistence of American government officials in trying to engage with the Chinese leadership. It can be assumed that the main desire is to get guarantees that the Chinese will continue to use and buy dollars.
First, Secretary of State Blinken waited long for the Chinese to agree to meet him. The Chinese have still not agreed to restore direct military contacts between the two countries. In early July, President Biden's Finance Secretary, Jellena, was forced to go to China herself and try to persuade the Chinese to cooperate in "climate and global debt areas," arguing that "there is enough space in the world and enough for both countries." The head of the Central Intelligence Agency also recently arrived in China. So, there have been many visits, and the Americans are intensely seeking contact with the Chinese. For now, it is difficult to assess whether they will succeed in reaching an agreement with the Chinese on power-sharing and maintaining American hegemony.
The increase in the use of other currencies in areas where it was previously unthinkable, especially in oil trading, is even more apparent. More and more countries are refusing to use the dollar in their foreign trade, even countries that were previously thought to be completely under American influence. The number of such countries amounts to dozens – from Arab to Latin American states and India, not to mention Argentina, Iraq, Egypt, and Indonesia, let alone Russia.
Furthermore, the leaders of these countries openly declare their refusal to use the dollar, and so far, they have faced no consequences. Quantitatively, transactions made in China's currency are still far from reaching the volumes of the dollar. However, in terms of the political signal and the trend, the risk appears to be dramatic.
Saudi Arabia best demonstrates this full turn. Even at the symbolic level, it publicly welcomed the President of Russia in an excessively pompous manner during his official visit and, in turn, treated President Biden as a poor relative, outright ignoring American requests to increase oil production. The Saudis have not only not increased this volume but have even reduced it several times and – even worse – do so in coordination with Russia. They also want to buy not only American but also Russian weapons, and they have renewed interstate relations with the Iranians, thanks not to American intermediaries but to the Chinese and Russians. Such behavior can be criticized as "throwing the coat," but the ability to timely change their political and military hegemon indicates foresight.
When President Biden was elected, he promised to expel Saudi Arabia from the community of normal states, but not even two years have passed, and in November, he was forced not only to grant the new leader of this country the highest immunity but, unable to reach the Saudi Arabian leader by phone, he himself went to this country to beg for an audience.
Africans demand equality:
We can also regularly watch on television this year the publicly expressed opinions of leaders of several African countries against America and the West as a whole. Rwandan President Kagame speaks with speeches worthy of a renegade, demanding equal treatment from the West. Namibia's president chastises the respected former German parliament president Lammert as if he were a young student – a German politician who came to express Germany's concern that there are too many Chinese in Namibia, causing great distress to Germany.
Chad expels the German ambassador for excessive interference and frequent admonitions. South African parliamentarians present themselves as leaders taking Africans away from the dollar. Kenyan President Ruto, at the recent global financial summit in Paris, demands nothing less than a replacement of the current world financial system with one that is fairer and more equitable, stating that he no longer wants handouts from the West.
Sitting beside French President Macron, he had to listen to such speeches – it's hard to imagine what his considerations were when organizing this high-level conference, but the impression was quite catastrophic.
The third issue is the deep and irreconcilable conflict within the United States. You can read about it every day in endless publications in various media – from entirely dependent media to completely independent ones. It seems that describing America's division has become a fashionable trend even among Americans. Like all fashionable trends, one must distinguish between long-term truths and situational exaggerations.
One of the cornerstones of the analysis of US politics and influence by think tanks has been the Foreign Policy Council for centuries. Its president, Richard Haass, a longtime representative of the elites, described the situation in the New York Times in early July as follows: it is no longer known what is normal and what is an exception. "Is the Biden administration a return to the America I considered to be self-evident, and will Trump be a historical error? Or is Biden the exception, and Trump and Trumpism the new America?"
Haass has come to a non-trivial conclusion. The most serious threat to global security is currently the United States itself, and the collapse of America's political system means that the US has become a source of instability and an uncertain model of democracy, posing a national security question.
Billionaire Peter Thiel, who used to sponsor the Republican Party, admitted in 2016 that "the fake culture war only distracts us from the economic decline. No one talks about it honestly except Donald Trump." He believes that leaders should plan how to fight China and introduce innovation instead of engaging in the fake culture war.
Although division is often reduced to a simple two-party opposition, it is actually only a small part of the problem. This is simply because a large portion of the most important voters or sponsors for both parties are the same. Currently, elite clans cannot agree on fundamental issues – how to divide power and thus the extent of influence tomorrow.
Fourthly, until very recently, there was no country directly or indirectly challenging American hegemony. Now, China is considered to be such a challenger. In some aspects, Russia is also seen as one.
How to use the crisis
This set of influencing factors has led to "grandiose" conclusions that the American century is finally ending. One of them was expressed by the British author of The Telegraph about two years ago, stating that "decadence and arrogance have finally toppled the American empire" (Allistair Heath). Even if there is some truth to these "loud" conclusions, it will be visible only with time, and at present, there is no reason to believe that Americans will not fight to preserve their hegemony and find those who will help cover the costs.
Changes are happening at an impressive pace, that much is obvious. It's not just admirers who travel to America as usual, but Americans are now forced to travel to other countries to try and convince them of their righteousness. It is also evident that at least some Americans are achieving at least some of their goals, essentially ignoring conclusions about various global crises. Even if there is a major crisis, it will certainly not affect everyone. Others will have to get used to new hardships and a sustained decline in prosperity. This has been made clear and unambiguous to their society, for example, by German government politicians – understanding that the Germans are the ones who pay and will pay even more. It seems that we will follow in Germany's footsteps as well.