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“The Economic Collapse of America”

Below is a two-part series made by Aaron Hawkins. I came across his channel on Youtube because he recently talked about the China, South Korea, and Japan efforts in looking into bypassing the USD in their trilateral trade. It appears he has built a small but steady following. Hawkins believes America will collapse economically when the dollar loses the “petrodollar” status and is a matter of when, not whether. He then imagines what happens next. Please watch the two videos in sequence and then cast your vote on this simple poll. (Click ‘Read more..” to expand the post and the videos will show.)

Do you agree with Hawkins?

View Results

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I will refrain from giving my opinion for now, but will weigh in later. Why did you vote ‘yes?’ What fallacies are in his arguments? Or what makes this question hard to decide? Would love to hear what you have to say.

  1. pug_ster
    May 19th, 2011 at 06:38 | #1

    Gawd, this guy makes Mr. Roubini sound like an optimist. I think most of us agree about the waning influence of the dollar but I it probably won’t be a collapse but more like an economic re-adjustment, like what happened to Great Britain after WWII.

    First of all, the US government has a strategic petroleum reserve, so it will last for 2 months at least. So even if the dollar is worth the paper that is printed on and we will most likely go back to the gold standard. US has the biggest stash of gold reserve compared to other countries. So even if other countries don’t accept US dollar, they will accept gold and US will still come on top.

    My guess what will happen is that the US will no longer dictate in many policies in the global affairs, many foreign bases will be closed down, and US will be forced to face its domestic problems rather than international ones.

  2. May 19th, 2011 at 09:13 | #2

    I disagree because I do not believe the U.S. economy is a tree hanging by a thread. Losing the petrodollar status may eventually lead US.to live within its means and to back up the dollar beyond just word of gov’t. This is good. What we have witnessed the last 2-3 decades is unsustainable.

    This prediction of the fall of the U.S. is outrageous in my opinion. Just look to the UK. It lost its empire over 1/2 century ago, was devastated in WWII – yet remains one of the most powerful, advanced, livable nations in the world. Its economy ranks in the top 5 and even with talks of the fall of the West and rise of BRICs figures to rank in the top 10 even by 2050. Its competitiveness, innovativeness, and gdp/capita all figure to be tops for any foreseeable future.

    And the U.S. will do better than UK – due to its size and diversity and lead in virtually every technology imaginable – even if the U.S. were to lose its “empire” – i.e. its petrostatus, its global military, etc.

    So the U.S. will be fine.

    Of course, if the U.S. continues to engage in fruitless wars and attempt to hold the world hostage to its notion of a world order that is Western centric at the expense of all others, it may in that process bankrupt itself – and put a lot of people around the world in suffering. That would be a terrible world to live in – both for Americans and non-Americans. Hopefully America will be wiser than that – a real symbol of liberty and tolerance, not just a self-righteous Nazi-like regime.

  3. Charles Liu
    May 19th, 2011 at 10:21 | #3

    Didn’t Saddam try to switch out USD? Kadafi said he wanted trade oil on gold dinar instead?

    And the cruise missiles said what?

  4. Charles Liu
    May 19th, 2011 at 10:33 | #4

    I don’t know man, those images of America is completely foreign to me. I’ve never seen an empty isle like that at Whole Foods, only lines of cars filing up at Costco.

    Really wonder if this is what Chinese see when they are confronted with unpleasant images of China.

  5. raventhorn2000
    May 19th, 2011 at 13:45 | #5

    There is a small group of people who believe that we have already passed the “Peak Oil production” time, and oil production will continue to decline, while demand continues to grow.

    I personally believe, inevitably, confrontation over oil will happen, and lead to some nations’ slow decline.

    I believe, 1st world nations, mostly the West will be forced to drop their pretense of “human rights” and reach a new era of imperial exploitation and control of weaker 3rd world nations, out of desperate need to control oil resources.

    Nations which are not aligned with the West, may form other power blocs to stake their own claims for oil.

    Needless to say, it will all be very ugly confrontations. 3rd world nations will be thoroughly played as pawns in the game.

  6. colin
    May 19th, 2011 at 16:22 | #6

    The first video had some credibility. While I do believe the the US is running at a unsustainable level right now, I see no reason why it would collapse into dark age like scenarios. The US will have to adjust to a new lower level of consumption and comfort, but the images in the second video are unlikely.

    I do believe in peak oil: http://www.youtube.com/watch?v=F-QA2rkpBSY . I do believe in climate change.

    But if any nation has the resources and wealth to ride out catastrophes like that, it would be the US. Or at least are in a better position than every other nation.

  7. colin
    May 19th, 2011 at 16:29 | #7

    One more point, any collapse in the US is relative to other nations, particular India and China. Right now, wages, production and consumption for Americans are many unreasonable multiples of their counterparts in those countries. This is unsustainable, as there is no reason Americans are inherently 6-15 times better at doing anything. Chinese and Indians will increase their production and consumption until near parity with Americans, which means Americans will necessarily be producing and consuming much less of world GDP in percentage terms. This very fact might appear apocalyptic for the over-consuming Americans of today, but does not mean people will need to resort to seeds and guns.

  8. kvs
    May 19th, 2011 at 19:49 | #8

    @raventhorn2000

    I’m not quite as pessimistic as this. Yes, I think it will take the US (and probably a few others) longer than it should to adjust to the realities of (much) scarcer oil in relation to energy demands. But I think the adjustment mechanism is there. Oil is something like 6 times the price it was 12 years ago.

    In my opinion, there is a long term trend here which will force people to invest in other energy sources. At $200 a barrel, or $300 a barrel, other investments start to look more attractive. The US, whether reluctantly, belatedly, or otherwise will look elsewhere.

    It’s only anecdotal, but I know of three people that I could name right now who have changed their living circumstances in the last five years because of oil prices. Moving from acreage to be somewhere closer to work, or changing vehicles, or jobs, because of the higher price of commuting. Even if the government is detached from reality, I believe that the consumers and small businesses, that still make up the largest part of the US / global economy, will lead the change.

    Not to dismiss the point that there is going to be a gigantic shift in relative consumption (Americans, *and the Chinese*, I believe, have two of the most conspicuous-consumption oriented societies on the planet), but I think the costs of oil imperialism will eventually make that type of aggression look like a poor investment choice. I’m not saying it will be a smooth transition, but I don’t believe oil will be the same driver of conflict that it seems to be today. One day the middle-eastern oil producing economies may look like Detroit does today!

  9. Mitch
    May 19th, 2011 at 20:14 | #9

    Its only going to ‘collapse’ for the bottom 95% of Americans, the rest will be doing better than ever.

  10. May 19th, 2011 at 22:13 | #10

    Thoughtful and interesting comments, everyone. I voted ‘No’ too. In one of Zhang Monan‘s Op-Eds in the China Daily, she argued that the U.S. by taking money borrowed from China in turn investing in China, actually enjoys a bigger return as compared the interest on T-bills China gets.

    The last time I checked, the U.S. holding of foreign assets stood at about $18 trillion, and given that the developing countries are growing faster than the U.S., some might say that the current ‘debt crisis’ make sense. Remember, the current U.S. debt stood at about $14 trillion and is still well under the $18 trillion.

    I think Hawkins assertion that the U.S. can never pay back her debt is false.

    Besides the above, the U.S. government can always take these some $600+ billion CASH from the pockets of Google, GE, Microsoft, etc..

    China, Japan, Europe, OPEC and other large holders of USD denomiated assets will not want a collapse of the dollar.

    Battery technology is approaching ‘good enough,’ and even if there is only 30-50 years of oil left, enough nuclear power plants could be built to charge the batteries.

    Not to mention the U.S. still have a lot of oil reserves untapped.

    Agreed with the view that the current rate of consumption in America is not sustainable. At the same time I think America is not anywhere near a heart-attack yet.

    High inflation resulting from the Fed printing press will steadily push more wealth into the hands of those arleady rich and the poorer corners of society will be left holding even less.

  11. Charles Liu
    May 19th, 2011 at 23:31 | #11
  12. silentvoice
    May 19th, 2011 at 23:55 | #12

    Mitch :
    Its only going to ‘collapse’ for the bottom 95% of Americans, the rest will be doing better than ever.

    Maybe Marx was right after all.

  13. May 20th, 2011 at 06:44 | #13

    US is not collapsing but is declining. However, most problems are fixable. US is still number one in many areas by many yardsticks. US is still basically abundant in farm land, natural resources per capita. With some diet, it will come back stronger, but not as strong as in the 50s and 60s.

    Many problems are caused by politicians to buy votes and the wealth of the country makes us lazy and permissive. I ask the same question now as I asked in 60s: if the country X is so good, why so many citizens of country X migrate to US legally and illegally.

    ——
    I am worrying about our youths who play games all day long. 40% of black/Hispanic are high school dropouts and they will be the majority. The following is a interesting read:
    http://tonyp4joke.blogspot.com/2011/05/who-owns-future.html

  14. May 20th, 2011 at 11:12 | #14

    @TonyP4
    Thanks for the link. It is an interesting read. Few things come to mind:

    1. Comparing to just Shanghai is skewed, because if the U.S. is only represented by certain cities, the U.S. would be at the top. The whole of China does not equal Shanghai.

    2. It’s an interesting break down of performance along ethnic lines in the U.S.. On Asians performance, I think there is still a big immigrant mentality – that of needing to study hard and often times at the expense of other non-academic activities.

    I wonder how the 2nd, 3rd, or 4th generation Asian kids perform.

  15. May 20th, 2011 at 14:42 | #15

    Hi yinyang,

    The other way to break down is by the history of Chinese immigration to US. Very crude and arbitrary by me:

    1. First wave. About 200 years ago when China was bankrupt after the wars with 8 devilish nations. Semi slaves to dig gold and build the railroad. They’re uneducated labors with not much education. Most did not marry (as the US immigration law against Chinese bringing female in) and few children from this generation (some returned home and got married).

    2. Second wave. The descendants of first wave and some buying false IDs. Worked in restaurants, laundry houses, sweat shops. Uneducated. The second generation is more educated.

    3. Third wave. Hong Kong and Taiwanese students. Most Taiwanese students came for graduate schools.

    4. Fourth Wave. Students from mainland China and were allowed to stay after TSM.

    The children from third wave and fourth wave are highly educated.

    The current wave could be termed as #5 in my classification.

  16. May 22nd, 2011 at 00:58 | #16

    @TonyP4
    Great observation. Makes a lot of sense to me. Therefore, I think the worries in America about education (from the White population’s perspective), especially compared to Asians/Chinese is really wrong-headed. The issue in America with ‘education’ is more about White Americans no longer interested in Engineering and Science – not that they can’t do either. They know there are many other fields of study more lucrative.

    The insanely high living standards as mentioned by others here and maintaining that gap will become exponentially more difficult as poorer people around the globe industrializes. The feelings of ‘decline’ will likely come from the poor rising fast than anything else.

  17. May 22nd, 2011 at 07:48 | #17

    Hopefully the tide of US education is being turned around. In last two decades, we had geeks that had no place in society but crowns and then students heading to MBAs for quick bucks. Now many MBAs cannot find a job and the former geeks like Bill Gates and the social network founders have been the role models with billions.


    Forgot to include that the first Chinese immigrants are native Indians and Eskimos. They have the same genes as Chinese. Both lack a kind of enzyme that allows us to be drunk easier besides same color of the hair, skin, body… They must be some drunk Chinese losing their way to walk across the frozen strait between the two continents. There is a good chance that they escaped from wars.

    There was a Time article about a Chinese expert in old Chinese language. He could read some old text in Columbian artifacts. Did not follow on that article.

  18. May 22nd, 2011 at 10:06 | #18

    @TonyP4,

    On a side note, linguistic studies show that most of SE and Asian Pacific languages to have originated from Taiwan. Genetic studies, however, show that the migration have been more complicated, with the people in those areas mixed from several sources. See, e.g., http://www.sciencedaily.com/releases/2011/02/110203124726.htm.

    In the book Guns, Germs, and Steel: The Fates of Human Societies by Jared Diamonds, he detailed how studies on linguistics (consistent with those of agriculture and other practices) suggest that a dominant trend of migration in the Pacific Islands have people in the Pacific Islands coming from Taiwan, before that, from what we consider to be mainland China. In fact, a couple of sporadic landlocked areas in Mainland China today feature people who speak the same aborigine language as the ones in Taiwan considered the fountain of all Pacific islanders.

    So to make things a little too simplified, here is one theory: there was a first group of Chinese who thrived in what is now mainland China; they were later displaced by a second group of Chinese whom we came to regard as Chinese today. That first group moved on to colonize Taiwan (becoming the aborigines Taiwanese of today), to further move on to populate much of Pacific Islands and many parts of SE Asia.

  19. May 23rd, 2011 at 09:12 | #19

    @Allen
    Hi Allen, interesting stuff. Hope some from the Ivory Tower would shed some light. I guess the natives in Indonesia, Malaysia… could have different genes as their hair is quite curry vs the straight hair of the Hans.

    During 1420s, Cheng Ho went to SE Asia 4 times. Some of his crews may have stayed there. I guess they enjoyed the beautiful weather and easy to make a living (you just need a coconut tree). Or, the ship was just wrecked. The long trip without female companionship and the beautiful tropical ladies could be another reason. The major immigration could be 250 years ago when China was bankrupt and it is closer than USA.

    Chinese prosper in SE Asia and S. America in business via hard works and intelligence. They control the economies there but not politics. That explains the repulsion of Chinese in last 2 decades.

  20. May 23rd, 2011 at 10:13 | #20

    I have curly hair, but I still call myself Han.

    Historically, my family descended from the King of Yue (Spring Autumn period), in Eastern China. According to oral tradition, the Yue Kingdom people were Polynesian in origin. But Yue Kingdom Royal family was descendents of the Yellow Emperor.

    In such cases, in Early Chinese history, there were patterns of Northern Chinese who migrated south and intermixed with the Southern Chinese people who were probably more Polynesian.

  21. Rhan
    May 23rd, 2011 at 17:31 | #21

    I am puzzle with this DNA and genetic talk. We used to believe Polynesian migration is from North (Taiwan) to South (SEA), however the latest research seem to suggest that it is the other way round. Even Chinese were from South.

    http://theonlinecitizen.com/2009/12/dna-suggests-chinese-origin/

  22. May 23rd, 2011 at 17:58 | #22

    @Rhan #21,

    Mysteries abound in the world. In the end we are all connected.

    However, as for your specific questions: nothing is set in stone, but if it’s possible all humans came from Africa, then it’s certainly that Chinese (“sino-tibetan” branch in your article) came from SE Asia, en route from Africa.

    The cultural (linguistic) studies neither refutes nor support this. Cultural movement and people movement need not be one and the same. For example, if you look just at the Muslim population, the spread of Islam and the DNA make up of people need not represent the same movement.

  23. May 25th, 2011 at 11:38 | #23

    @kvs
    One thing on my mind is – that one day when oil does run out – landmass becomes much more important isn’t it? Your square mile of land dictates how much solar energy you can harness. All the weapons of today reliant on oil will change. It would be a big shock to the present day system.

  24. kvs
    May 26th, 2011 at 10:07 | #24

    @YinYang

    Yes, I completely agree. We’ll always have need for resources of some description. They have been coveted, bought, quarrelled over and warred over for millennia. And, yes, the current focus on oil reserves will shift to something else. That “something” could be sunny land masses for capture of solar radiation, predictable weather for wind power, coastline amenable to wave power, chemicals for synthesizing fuel, fissile material for nuclear fuel, or an equatorial location amenable to launching vehicles into space for non-Earth-based resource collection.

    My opinion is that all these resources will be priced into the system somehow – whether that be in US Dollars, SDU’s, Yuan, Gold, Monopoly Money, or whatever. For some reason, governments seem less able to read (less incentivised to react to?) those price signals than small businesses and individuals. Meanwhile, big business seems to have cottoned on to the idea that lobbying governments to support their interests is a better short-term investment strategy than giving into price trends and investing in alternatives. This tends to lead to belligerent and irrational behaviour from those that can do the most damage by throwing their weight around.

    I admit, it’s easier for a tradesman to shift from a 4 litre engine to a 2 litre engine than it is for Exxon Mobil (as an example) to shift its product offering. But I’m guessing that at some point they will decide that oil is not a medium term profitable strategy. Or, maybe they’re rubbing their hands together at the prospect of the markup they can put on $300-a-barrel oil. I don’t know what their logic is. But my point is that I bet they’re looking into their crystal ball and doing their sums. They’ll make a decision based on the incentives in front of them. They’ll just be slower to react to price signals than you or I would be.

    So I am saying that there are mechanisms there to encourage people to shift from one type of consumption to another. It’s just that those most likely to have a tantrum in the process are the ones that do the most damage. So as we reduce our global capacity to consume, it won’t be a smooth transition. It will be made less smooth by a rigidity and lack of responsiveness at the government and big business end of town. There will certainly have to be an adjustment to a new level of consumption and standard of living unless we discover some wonderous new technologies that gives us energy in perpetuity. Incidentally, I am not ruling that out, but I would not plan for it either.

    And yes, the US transition to a future rate of consumption will be one of the hardest because they do consume a disproportionately large measure of global resources. There is a lot that they could do to increase the incentives to innovate and adjust, or rather reduce the disincentives. Right now they seem bent on propping up an unjustified sense of entitlement.

    Does my ideology show through in my reply? :p

  25. May 26th, 2011 at 16:32 | #25

    @kvs

    Well said:

    It will be made less smooth by a rigidity and lack of responsiveness at the government and big business end of town. There will certainly have to be an adjustment to a new level of consumption and standard of living unless we discover some wonderous new technologies that gives us energy in perpetuity. Incidentally, I am not ruling that out, but I would not plan for it either.

    You know Chomsky – probably the biggest critic of the U.S. foreign policy. I once asked him what he thought poses the greatest danger, and I thought he’d say the U.S. doing something. Instead, he said unchecked consumption.

    Yeah, with talks about QE3, it’s not helping.

    But, in a world that is struggling to adjust due to running out of oil, I would argue the U.S. is in the best shape among all nations:

    1. due to military superiority
    2. due to control over oil around the globe
    3. and untapped oil resources at home

  26. May 27th, 2011 at 05:57 | #26

    Oil will not run out at least in our generation. However, peak oil has come and passed. The easy oil (closer to the surface and light) is getting scarce. The heavy oil, oil from ocean and the oil being trapped are more expensive to extract.

    The fair price of oil per barrel is $75 to me and it is currently over-priced with about $100 per barrel. The long-term trend is higher due to more expensive extraction cost and supply/demand (with higher living standard in China and India and larger population). However, when oil is higher than $125 for long, the alternative energies will be more feasible economically and conservation becomes more apparent. If it is run-away to $150, we’ll have another recession. One’s opinion.

    BTW, I recommended to buy oil (OIL as a ETF) in Fool’s Mountain blog when oil was $35 per barrel. If you made a killing, please send me my share of your loot. 🙂

    Some believe all the invasions of the Middle East and the counter attacks are due to oil. Check how we enforced no-fly zone and whether that country has oil.

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