Friday Finance – what happens when empires crumble?

Some assume that a retracting Global American Empire will cause economic chaos.

On the face of it, this makes sense. The US controls Middle East oil and the global currency (those two go together like electromagnetism), shipping lanes to Asia, plus it has massive sway in global bodies like the IMF, World Bank and so on.

Countries that attempt to break out of the GAE system tend to be destroyed or isolated and impoverished.

However, all of these are now under threat. Some countries are starting to use alternative currencies, including oil producers. China is asserting control over the South China Sea and is either taking over or creating alternatives to international organisations.

Small countries are not yet able to blatantly defy America and get away with it but China, Russia and India can do as they please. Much of the non-Western world is on the cusp of slipping the collar:

How the world voted on the territorial integrity of Ukraine movement, UN General Assembly. Any country not green is disobeying the Emperor. Source

In addition, there are some who advocate for a Little America; one with a limited global military footprint, more modest ambitions and a greater focus on pressing issues at home.

Both situations have parallels in the unravelling of the British Empire, which was superseded by the United States and also began to wind back its foreign involvement as this became too expensive in the face of multiple independence movements.

If the end of that empire foreshadows what may happen to the GAE, what can Americans and adjacent peoples expect?

Stock market

Let’s go straight to the money. It’s hard to say exactly when the British Empire ended, but we can agree that it was between the independence of India in 1947 and the handover of Hong Kong in 1997, happening mostly over the first half of that period.

Or if you like, around when keyboards stopped having a Pound Sterling key.

There’s no perfect index going far back enough to help here (the FTSE starts in 1984), but this paper has combined a few indexes to follow the biggest stocks on the British stock market since 1829 (the year the future Queen Victoria turned 10):

Monthly blue-chip capital gains index, 1829-2018

Seems like the Empire’s fortune and British stocks went in opposite directions.

European powers originally sought colonies for raw materials, but from the 1960s Britain developed closer trade links with what would become the EU and former colonies were locked out.

Average incomes
Life expectancy
Source
Final thoughts

Britain is proof that it is possible in some cases to wind up an empire and not suffer too much for it. If done deliberately, I’m sure America could follow this path.

Britain has gone downhill in other respects, but most of these changes set in well after the end of the empire. I don’t see any problem Britain has today that was caused by having or losing an empire.

Of course, some nations do suffer terribly at the end of an empire. This is usually because the decline is caused by, or itself causes, other problems. Things weren’t great in Italy at the fall of Rome. Turkey was in turmoil when the Ottoman Empire breathed its last.

However, these problems can be avoided if an empire is carefully disbanded before disaster strikes.

If the GAE falls into chaos, it will not be because it loses its military base in Okinawa or its access to the European energy market. These things are survivable. Also, unlike Turkey and Italy, America does not suffer external threats.

The only threats are internal. If these issues are resolved somewhat peacefully, including the uneasy stalemate that no one is happy with as at the moment, then a complete collapse is unlikely and the S&P 500 is likely to keep chugging along.

In any case, I don’t see the GAE ending soon. It is becoming something new, perhaps completing its transition from republic to empire, and will be a major world power throughout this century and longer.

Probably.

Quality of life will likely decline for average people in several different ways but here we’re talking purely about investment returns, which is a very different thing.

I won’t be making any changes to my investments that assume a Mad Max scenario in the Imperial Capital.

  • This article provides general information. It does not take into account your personal circumstances and is not intended to influence readers’ financial decisions. Get your own, professional advice.

3 comments

  1. luisman · July 29

    First:
    Bismarck in the 1890s agreed to a general pension plan, which was adjusted to the age of 65, as at that time it was expected, that men die on average a few years after retirement. Life was a lot more physical then as it is now. All these “life expectancy” numbers include deaths in infancy, which were quite high 100+ years ago, as well as deaths of pregnant women, becuase medicine was still kind of voodoo.

    Second:
    North America has basically all the resources it needs for its economy, with very few exceptions. Europe doesn’t. Most of the rest of the world doesn’t. I agree that, financially, N.A. is the best bet, as long as it doesn’t self-implode due to ignoramuses. In this regard it is very much different to the UK, which always was dependent on imports.

    So, I will remain to have all hands in the US, but a big thumb in China.

    Liked by 2 people

  2. lemmiwinks · July 30

    IMO the collapse is quite far along at this point. If you consider confidence in institutions, banks, the political system, and the judicial system, most are on varying degrees of shaky ground, at least for anyone paying attention. Social cohesion is surely, (after much hard work) at an all time low.

    The rest of the West isn’t doing that great either by the same measures. China and Russia have seen this coming from afar* and have been preparing appropriately. How it plays out I can’t really speculate, but once it goes, a return to US hegemony seems as likely as the British Empire rising from the ashes under the next monarch (cue a few bars of Rule Britannia).

    I could see a situation where “the enemy of my enemy is my friend” ceases to be the case and things get interesting between Russia and China, but most likely everything is already neatly divided up and there’s just the details to decide. I would say Oceania is going to be speaking Mandarin, however if the Chinese have learned from the mistakes of empires past, they’ll continue to allow the illusion of autonomy while stripping resources as fast as possible.

    Financially there’s nothing really to be done. If you cash out your investments and stuff the mattress you just actualise the losses. Best bet is to ride it out and if you survive the famines and political purges, grin and bear it as your dollars are converted to renminbi or roubles at a huge loss.

    *Neither would be above giving it a nudge along.

    Like

  3. Kentucky Gent · July 31

    “Or if you like, around when keyboards stopped having a Pound Sterling key.”

    Heh. That was before my time, although I remember when keyboards had a cents key. Nowadays we have to press the option and the 4 key at the same time to get ¢

    I’ve contemplated US collapse scenarios and came to the same conclusion as you regarding my investments – stay the course.

    Like

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