Step # 11 : Modern Age. Pax Americana. Cold War and Oil Age

Franklin Roosevelt died before he would see his life's work come to final completion. He had begun the US implication in WW2 with his famous speech after Pearl Harbour : "A day in Infamy..."
He would lead it to victory both in the Pacific, in the fight against Axis aligned Japan, as in Nazi Europe from his bases in Free French Algeria and Britain; used to launch the Normandy invasion that liberated Western Europe in May 1945. The age of Pax Americana would impose its imperium written in blood, but with the co-victors of WW2, the communist USSR, as partner and rival at the world governance table. Organised  around the United Nations, FDR's parting gift to humanity to avoid Armageddon from repeating, and to the more skeptical, his tentative attempt to create and control a body of world government.

His tenure as President abruptly ended after his ambiguous conference partitioning Europe with Stalin at Yalta. It sealed the old continent's destiny for fifty years, divided into two blocks; virtually making Stalin and his Politburo successors masters of the Eurasian continent up to Berlin East. The Iron Curtain would be its inevitable outcome. As Stalin, at Potsdam Conference five months later made it very clear to FDR's successor Truman, after Hitler's Germany had surrendered; his fascist regime irredeemably destroyed, his Panzers gutted, his Reichstag in flames  : "The Vatican how many divisions?"

Truman knew then that winning in Japan would not solve the problem as Soviet USSR had an irreconcilable ideology that knew no compromise with democracy and free enterprise. The Cold War race was on as the USA showed its military and technological might at Hiroshima and Nagasaki, unleashing the nuclear age, Oppenheimer's toys, in their genocidal deflagrations to end the war quickly by punishing Japan so uniquely. The nuclear fusion technology, E.Teller and A. Sakharov's respective contributions to the terror impetus in its wake, achieved by both sides would make Armageddon spell its lethal legacy in megatons of destruction carried by its new heavy capacity vectors, the intercontinental ballistic missiles; Von Braun's gift to the USA as successors to his previous invention the V-2 of Nazi Germany matched by his counterpart in the USSR, S. Korolev.

The missile crisis of Cuba would end that dangerous Mutually Assured Destruction (MAD) escalation, so characteristic of  a new militarist mindset in the US/USSR administrations. Through a negotiated stalemate, making the hot nuclear war option recognised as unfeasible by all major nations of the UN. It would displace the military contest to the terrain of Third world fledgling nations by trying to capture the hearts and minds of the rest of the world now freed from European colonialist rule, but by other means whose message became terribly sinister. JF Kennedy's attempt to unwind the Cold War militarist stand-off would end in tragedy for his nation, by his assassination in Dallas on November 23 1963; a psychological turning point in American politics.

It would immediately lead to reinforcing the US militarist option in Third world, the legacy of the Dulles "roll back" doctrine, in the ancient French colonies of Indochina. With as casus belli a unilateral military initiative taken by the American President based on a trumped up alleged provocation.

Pax Americana had already started to impose by rule of force its will on the Third world. It all began when Maoist China emerged. The trauma of the Kuomintang defeat in 1949, allies to US, made Truman say "We've lost China..." It would see the emergence of a Military Industrial Complex (MIC) spearheaded by the CIA and Pentagon whose avowed aims would be to nip in the bud any tendency amongst emerging nations to join the Soviet bloc.

Their first concerted expression of this strategy :  iconic attendees of the Bandung Conference of Non-aligned nations in 1955 would be targeted by the US administration under John Foster Dulles at State to eliminate all Third world trend to socialism. Notably as colonial France had lost Indochina, now heightening the communist influence in the region after the partition of Korea. The creation of NATO would provide a nuclear umbrella to Western Europe, stopping Soviet militarist pretensions from encroaching beyond the Yalta divide. Especially into the Near Eastern region where Turkey became the West's frontier outpost looking onto the Soviet continent, and most importantly controlling the waters of the Tigris and Euphrates valleys, the first lessons of ancient history.

Where civilization began, and where it would reflourish to nourish the new world in novel ways : black gold of unimagined oil wealth.

Pax Americana, or the American vision of world hegemony had started with its "good neighbour" policy under the FDR administration. It would soon morph in the trauma of the Cold War race into arm twisting and nation building enterprise as first shown in Guatemala and Iran in 1953. It would then continue to encourage interventionist military involvement as during the Vietnam War; where it would suffer its first major setback by losing that war to Viet Cong ground based guerilla resistance.

To understand the modern age from 1945 to present times it is primordial to understand the Pax Americana construct, as perceived by its inventors and its evolution under successive US administrations. As the dominant power with the most innovative technological base and all the bountiful  resources of a continent, the USA had a head start on the whole world, either recovering from the rubble of Armageddon or still entrapped in the dark ages of backward Third world mindsets; without technological infrastructure and trained human resources.

In hindsight, using the time-old measures of assessing a civilization's power construct, like for Imperial Rome of old, five criteria determine the power of a civilization to hold together its Empire :

1° Military supremacy. The USA had it in conventional arms as the victors of WW2 and as well its unmatched nuclear arsenal, as Hiroshima and the 1962 Cuban crisis had proven.
2° The money line supremacy. Bretton Woods and the USD-gold standard as world monetary system, had established that; as had the Marshal Plan and the USA's massively positive trade balance making the $ the defacto reserve currency of the world to feed the needs of all, friend and foe.
3° The independent food pipeline. The enormous wheat, corn and soya bean surpluses of the US made it the granary of the world. US aid proved vital to many struggling poor world economies.
4° The control of primary energy sources. The Oil monopoly of the Seven Sisters and the hegemony of Ford and GM motor companies made the US economic model unsurpassable, as did its chemical, electronic, motion picture, TV and consumer goods industries.
This highly concentrated liquid energy fountain of fossil origin replaced old, dirty and less efficient coal at the beginning of the 20th century,  thus becoming the true black gold for modern man. It  was the most vital component of the new industrial construct that would mark the supremacy of the Western model over all previous civilizations; launched on this unending adventure by Christopher Columbus in 1492. Making it the most wealthy and dynamic global, socio-cultural family the world had seen, of which the USA was uncontested leader; "Primus inter pares" amongst the community of sovereign nation-states.
5° The admission by the dominated nations that the dominant power symbolised universal progress and justice. The American dream undoubtedly did exert that fascination on the rest of the world, as iconised by the Hollywood and TV dissemination of its culture worldwide; in spite of its deeper brutal, historic traditions  exemplified by its treatment of indigenous Amerindian populations and black minority citizenry, extracts of its slave and segregationist past .

Cheap energy, cheap, productive labour, capitalist technology and finance, had forged the destiny of the modern world. This complex, interconnected balance of power and its evolution would determine its fate from now on. Amongst nation-states, continents and Empires of first world construct whose three pillars were the USA, the rejuvenated European continent and industrious, inventive Japan.

In the early 1960s, at the time JF Kennedy died, the USA was the only superpower in terms of economic output. The USSR matched it in armaments but in no other domain. This alone would sound the death knell of its subsequent political demise. Europe was in the throes of reconstruction and dependent on US nuclear umbrella; two of its main economies, Germany and Italy, were vanquished domains under US military surveillance, just like Japan, now diligently involved in rebuilding its nation.

So when the Vietnam war began in 1964 under President Johnson's aegis the US reigned supreme. It would constitute a turning point in this first phase of Pax Americana. Where the Welfare state of Keynesian economics inspiration, based on consumer demand fueled by the salaries of an egalitarian middle class construct, was the world model bequeathed to Europe and Japan. To the free world as a whole, by magnanimous and expansionist America; of FDR's legacy. The US nation had been forged under FDR in a horizontal construct whose beliefs were in common man's material progress. With a political class that defended those values in a democratic framework inherited from Lincoln and Jefferson; with a republican minded legislative elected elite that upheld the rule of egalitarian laws, in a two party political system.

What the MIC and Johnson had not foreseen was that Vietnamese communist controlled guerilla resistance to their massive military invasion would prove very efficient in winning the agrarian population to their patriotic cause. In Ho Chi Minh and General Giap they had worthy military opponents of Saladin's and Mamluk calibre, like the Crusading Templars of old. And they would lose their war just like the original Templars did.

The more US colonial military might expressed itself in expeditious, desperate death squad executions of recalcitrant locals, as the infamous Operation Phoenix proved, the more the Vietcong won support to their cause. Sadly, the execution squad tactics of the CIA special forces would become a recurrent covert tactic in subsequent actions in South America under Operation Condor and later on in Iraq subsequent to operation Iraqi Freedom of 2003 war; now executed in association with privately subcontracted militia like Blackwater. It would change the perception of the heroic and selfless Soldier Ryan image of the US GI, in its militarist adventures abroad, making him a despised icon of imperialist bend. The bitter lesson of the US's hegemonial strategy over thirty years of worldwide intervention would be that Third world wars were at best pyrrhic victories and cost enormous amounts in resources to launch and sustain, resulting in small gains in terms of geopolitical governance and conquest. Napoleon's lessons were being repeated and its legacy to home nation would be as corruptive.

Not only did the Vietnam War expenditure in men and materials destroy US public morale, belief in its administration, it also destroyed the US economic preeminence in the world, concomitant with the deficit spendings of the Great Society social entitlement program unleashed by Johnson to appease the black population minority at home.

The relative decline of US power would be highlighted by its economic plight resulting in the unilateral abrogation of the Bretton Woods protocol by President Nixon in 1971, unpegging the USD convertibility from the gold exchange standard. "Our money, your problem" was the cynical summary of that monetary dictat, provoked in knee jerked fear by France's call to have converted its accumulated USD reserves, generated by a burgeoning export surplus economy, into gold denominated reserves. De Gaulle's 1965 warning of USD's "exorbitant privilege" had now come home to roost.

It would start the rush into the fiat dominated age of globalisation, whereby inflation became a redoubtable weapon to protect accumulated debt denominated in a USD currency, operating world wide transactions on a floating rate relative to all other currencies. The private US banks were now mandated to generate USD denominated fiat currency using fractional reserve banking techniques. Whereby their debt/equity ratio was not controlled as before by the FED, based on its gold exchange reserves; but was regulated by the banks themselves, on a discretionary basis, relative to their own balance sheet equity ratios. The unregulated Euro-dollar market, based in London City, exploded into a fiat money creation machine fueling world wide inflation. In all developed economies, as salaries were indexed on inflation, it created a run-away monetary spiral where more fiat denominated debt chased consumption in a booming consumerist age, fed on cheap energy imported principally from oil rich Arabia. The giant Ghawar oil field discovery had made the Saudi kingdom linchpin to world energy domination, now preeminent in proven reserves significantly surpassing those its neighbours, notably Iran.

In the context of political and ideological stalemate during the Cold War, the Marxian analysis of industrial capitalism's contradictions were becoming all the more etched out as a paradox of modern times : Marx was capitalism's best critic as Big capital's hold on the economy dominated the world political scene, all the while his philosophy proposed a solution which was worse than the evil capitalism incarnated to his eyes; the USSR was losing the Cold war precisely on the economic front. Whereas American capitalism was morphing into an imperial power all the while its economy dominated the world, making it less a solution to worldwide progress and more its dominant problem, as imposer of forced solutions against the will of the local populations. America desperately needed to come out of the Keynesian age where its imperial play fed its consumerist model at home based on deficit spending in welfare expenditure, making it more and more a slothful, inefficient, corrupt empire.

It resulted in changing the basic rules of the world industrial construct. The oil rich nations of the Middle East, concerned at seeing inflation eating into their revenues, formed an energy producer cartel called OPEC and unilaterally increased the price of liquid oil three fold during the Israel-Eygpt war of 1973. From then on the West had lost its access to cheap oil, and globalisation acquired a new sense for the developed first world. To make matters worse, the US, biggest world oil producer of those times had reached a plateau in terms of indigenous production. Peak US Oil in the mid sixties made it into a substantial net importer of crude oil by the early 1970s. All from the greatest reservoir of black gold : the Saudi/Iran/Iraq/Kuwait/UAE complex of the Middle East. Arab oil was now the key to western industrial survival, as Europe and Japan also imported all their oil requirements from the same source. The 1973 oil crisis would make that brutally clear. Arab wealth would now pave the rich capitals of first world with their gaudy riches, from Marbella to Manhattan and Belgravia, London.

Managing the Oil export relationship to Arabian sources became a vital component of Pax Americana. Nixon's parting legacy to his country, in the midst of the Watergate turmoil, would be to guaranty Saudi national sovereignty under the US's nuclear umbrella against all possible enemies; notably the USSR. In exchange for OPEC making the USD its exclusive legal tender for all oil exports to the world. The petrodollar market was born and would from then on reinsure the USD's hegemony as continued world  reserve currency. Such was the inordinate wealth now generated in Oil rich Arabia that recycling petrodollars into the western economy or into fledging developing economies became an absolute necessity. The oil producers had no local economies to invest their surplus wealth in. US banks thus became the main depositories of this petrodollar wealth. Their immense financial power would create a monetary bubble and result in substantial mal-investments notably in Brazil and Mexico, provoking a huge inflation bubble that would plunge the world into financial crisis in 1979; precisely when the second oil price hike occurred, driving a nail into the weaker economies of the European world.

This crisis would provoke profound changes in the mindset of the ruling political class both in the US as in Britain; now become second home to the international financial community managing the offshore petrodolar USD and foreign currency markets.

The new ruling mantra developed in the power circles of the West was that the welfare state had to be slimmed down considerably, and power transferred to the Entrepreneurial classes of the West. Margaret Thatcher and Ronald Reagan would ensure this major transformation of western economies over the decade of the 80s. The big bang deregulation of financial markets, in both Wall Street and City, would create the post-industrial revolution of the F.I.R.E economy. The supply side model of Friedman monetarism, with Alan Greenspan's initiative at the FED to make ZIRP his iconic easy money policy, to feed the investments in risk assets of stocks and bonds on WS, would be the hallmark of "Reaganomics". As it would be emulated worldwide by the integrated banking electronic networks.

The Bush Administration would push it one step further as the basis for exerting its newborn hegemony in the footsteps of its 1991 Iraqi war victory : by encouraging the outsourced model of capitalism to flower in the developing world ; hailed as the NWO of Pax Americana after the collapse of the USSR, now a bankrupt empire in ruins. All industry and intendant services were shipped abroad to docile third world partners like India and China, making international cheap labour arbitrage, rubber stamped as the new benchmark under the ground rules of globalisation, through the WTO and IMF/WB institutions.

The USA towered over the world like a colossus in this second age of Pax Americana. In the words of its official US administration ideologue, Paul Wolfowitz, harbinger of the New World Order and inquisitorial chastiser, Torquemada of this new age : all "Rogue states" that did not fall into step with US's vision of global order were the new enemy, replacing the USSR as symbols of "the Evil Axis".

The hedge funds, the junk bonds and their financial derivative successors like the CDS/CDO concoctions, as well the SPVs, would give inordinate power to the financial community world wide, now interconnected thanks to Internet, America's newly created spider's web of world wide information. Clinton's subsequent abrogation of the Glass-Steagall act allowing Citicorp to become the universal bank, now considered TBTF institution, sealed the fate of modern  capitalism. Under the hubristic belief that the USA had invented the perpetual capitalistic machine, unfettered financialised capitalism would move away from the prudential, ethical, entrepreneurial business cycle model to the unabashed "greed is good" version of "bubblenomics" capitalism, all covered in purple in the belief that perpetual innovation would allow WS assets to achieve unforeseen heights in terms of monetary value, in a self fulfilling splurge of irrational exuberance.

It led first to the dot.com bubble of 2001 and later on to the greater destruction of capital formation in 2008; where the capitalist world lost its ethical compass and become land of centrally planned fiat generation to the point where it shamelessly transferred private debt to public balance sheets on a massive scale, protecting its crony capitalist class to continue their mad paper money creation binge, all concocted in a closed Oligarchy loop of opaque private OTC deals, negotiated in totally unregulated fashion, parked in off balance sheet financial vehicles; often located for hiding ill gained profits in off-shore, non fiscalised bank accounts.

The derivative markets bubble was now the pandora's box of capitalism, with central bank fed monetary inflation its bad genie; as hyperdeflation would be one day its inevitable Nemesis. In the space of thirty years Reaganomics had dug its own grave in the false belief that a fiat pumped debtor economy was sustainable in a country that held the big nuclear stick over the heads of a cowered world. Vain illusion of all Empires. Now that Chindia challenged it for preeminence, and the world's resources could not feed all their collective requirements, the writing was on the wall. The hyperconsumer model had to be abandoned as there were insurmountable resource limitations in the Earth's crust and the resultant collateral damage to ecosystems and human environment from such initiatives were incommensurable.

The world had reached a watershed in industrial development. The USA as prime world mover and initiator of global trend is now increasingly in the eye of the cyclone. Like Gulliver it is strapped down by its own mountain of debt. Something has to give as more debt could not sustain either growth or payback of previous debt all spent in a binge of cheap imports over twenty years.

We are now there today.  In this first world conundrum, as not only the USA but Eurozone and Japan are totally inundated with financial debt and an industrial model which carries it own seeds of destruction as the Fukushima disaster has amply shown.

We need a new energy and industrial paradigm urgently. One that is environmentally compatible with global warming. And as a human community of over 7 billion people we don't have much time.

http://harpers.org/archive/2008/02/0081908
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