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Guest Post: How The End Of Empire Comes, Not With A Bang, But With A Whimper

Tyler Durden's picture




 

Submitted by Tim Price of Sovereign Man blog,

When Moody's downgraded the UK's sovereign credit rating last week it was something of an anti-climax.

The ratings agencies long ago lost what little credibility they ever had. Being downgraded by Moody's is like being called a moron by a moron; ask anyone who has ever set foot in a bond dealing room - the ratings agencies are always behind the curve.

The UK has been on the skids, credit-wise, for years. Britain's debt to GDP has gone through the roof. We, and generations to come, will be left with the reckoning.

We've seen this before in history. British debt to GDP peaked in the immediate aftermath of the Napoleonic Wars, the cost of which also brought in the 'temporary' measure known as the income tax. It wasn't so temporary.

But as the peace dividend and Britain's sole status as superpower flourished, debt/GDP ratio fell. With the outbreak of World War I, it began to rise again, peaking unsustainably as the Second World War ended.

By July 1956, British sovereign finances were in a dismal state. At the time, Egypt's President nationalized the Suez Canal, putting British oil supplies at risk. Joining the fray, Saudi Arabia began an oil embargo against Britain and France.

Britain wanted to take action and went to the IMF for support. But sensing an opportunity to increase its influence in the Middle East at the expense of its faltering old ally, the US said NO and threatened to dump some of its massive holdings of UK government debt.

Britain's foreign exchange reserves were running out, and the country would soon be unable to supply itself. Britain blinked first and bowed out. Our days of Empire were over. It came not with a bang, but with a whimper.

It is not unreasonable to believe that the exact same life cycle relates to the United States. Further, it is not unreasonable to think that the US' day in the sun has already been and gone.

If its own high water mark was the fall of the Berlin Wall, at which point the world recognized the primacy of the free market model versus the failure of Communism, America's 'end of Empire' moment has already passed.

Of course, like the UK, the US has already been downgraded (by Standard & Poor's in 2011). This only confirmed what we already knew: given the absolute level of its indebtedness, the off balance sheet debts, and its broken political system, the US hasn't been a genuine AAA credit for quite some time.

Yet even though its risk is obviously more than zero, US Treasuries remain the credit market's 'risk free rate'. This is because bond fund managers operate dysfunctionally, favoring the debts of the world's most heavily indebted countries.

Consequently, EVERYTHING is benchmarked to US Treasuries simply because the US is the world's largest debtor.

In this context, the US downgrade was an act of spectacular significance. It punctured (or should have punctured) a bubble of suspended disbelief that just about every investor on the planet had been inflating for years: that the US was a riskless credit.

Or, even more ludicrously, that there was such a thing as a riskless investment in the first case.

And yet, government bonds become even MORE attractive after the downgrade. We may see the same in the UK.

Nobody believes that bonds are an objective reflection of economic reality. The game is rigged, and everybody knows it. But the Moody's downgrade should serve as a piercing smoke alarm to anybody still naive enough to be holding these instruments of value destruction. Get out now while the going is good.

 

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Mon, 02/25/2013 - 14:00 | 3274426 TruthInSunshine
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Bernanke & Modern Money Mechanics.

"Full Faith & Credit" In Action
Mon, 02/25/2013 - 14:01 | 3274443 BKbroiler
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"Being downgraded by Moody's is like being called a moron by a moron"

+1000

Mon, 02/25/2013 - 14:10 | 3274466 pndr4495
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Scale of feeblemindedness in descending order :  MORON - IMBECILE - IDIOT - so , in a warped way , someone is being paid a compliment.

Mon, 02/25/2013 - 14:12 | 3274471 AssFire
AssFire's picture
Not With A Bang, But With A Whimper.....

Probably ends more like a bunch of sheeple blowing their whistles and pissing themselves.

Mon, 02/25/2013 - 14:19 | 3274484 idea_hamster
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Not With A Bang, But With A Whimper

Actually, it ends with both -- it all depends on whether you're a "top" or a "bottom."

(Hint:  If you don't know which one you are in the global financial food chain, you're a bottom.  Get ready to whimper....)

Mon, 02/25/2013 - 14:25 | 3274489 hedgeless_horseman
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The Emperor Comes, Not With A Bang, But With A Whimper

Ironic, considering his massive stimulus package.

Mon, 02/25/2013 - 14:39 | 3274533 Cognitive Dissonance
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The King reins for only as long as his court supports him. This is why Obama quickly embraced the banks after his initial election. And why the banks bankrolled both his initial election and his re-election.

Mon, 02/25/2013 - 15:58 | 3274774 Overfed
Overfed's picture

He's no king, he's an emperor.

Mon, 02/25/2013 - 15:01 | 3274536 TruthInSunshine
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INAUGURATION DAY

[Scene:  Obama rides down the spectator-lined boulevard in "The Beast" limousine with a flock of Drones in perfect Fat Middle Finger formation directly overhead]

 

Skeptical Independent:

"He enters the pool of sepsis that is Washington D.C. like a conquering hero. But what has he conquered?"

Jamie Diamond/Chuck "Fuck Flyover Country" Schumer/The Hon. Jon S. Corzine/Defense Contractors/BigPharma&HealthInsurers/WarrenBuffett&Charlie "Let Us Fuck The Taxpayers Harder" Munger:

"Give him time. He's young, he may do very well."

Skeptical Independent:

"For the nation? Or for you?"

Mon, 02/25/2013 - 19:13 | 3275634 falak pema
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Bokassa'ed...

Mon, 02/25/2013 - 14:55 | 3274578 Solon the Destroyer
Solon the Destroyer's picture

That's a great line, but unfortunately the author is wrong...  Bonds are exactly the place to be while one's hedge fund, I mean bank, can still front run the Central Banks and flip their bonds right back to them.  Guaranteed profits means guaranteed buyers in the primary market.

I mean who gives a rat's ass about the capital destruction being wrought on the real economy by perpetually decreasing interest rates while there's still FiatBux to be made?

Mon, 02/25/2013 - 13:55 | 3274427 buzzsaw99
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Moody's is the squid's lap dog. They are there to influence policy and help skim prices.

Mon, 02/25/2013 - 13:55 | 3274428 Mr. Hudson
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It will be a whimper, a bang; a big whimper, then a bang-bang; a real big whimper, and then one gigantic big-bang!

Mon, 02/25/2013 - 13:56 | 3274431 Super Broccoli
Super Broccoli's picture

get out and ? buy dollars ? lol

Mon, 02/25/2013 - 13:56 | 3274433 SheepDog-One
SheepDog-One's picture

'Any chance a girl like me and a guy like you could get together'?

'Well Loydd...I'd say about 1 in a million...'

'So you're telling me there's a CHANCE!!'

Mon, 02/25/2013 - 15:22 | 3274654 resurger
resurger's picture

hhh :)

Mon, 02/25/2013 - 13:58 | 3274436 ebworthen
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As soon as military funding and equipment is eclipsed the gig will really be up.

Like any technology, it moves fast and does not take long.

Mon, 02/25/2013 - 16:27 | 3274893 player333
player333's picture

Correct EBW

 

"Consequently, EVERYTHING is benchmarked to US Treasuries simply because the US is the world's largest debtor."

 

UST's are backed up by the US Military let that wane and the gig is up-and it will. When the choice are Beans and bullets vs EBT cards-the domestic burden will prevail. Pull your socks up and buckle your chin strap the bumpy ride begins soon. 

 


Mon, 02/25/2013 - 13:58 | 3274439 Jugdish
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Greg Marmalarde is God. Fuck Eric Stratton.

Mon, 02/25/2013 - 15:06 | 3274602 Bam_Man
Bam_Man's picture

Better, more apropos line from the same flick:

"You fucked up. You trusted us."

Mon, 02/25/2013 - 15:31 | 3274693 sunnyside
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That saying should now go on all fiat currency

Mon, 02/25/2013 - 14:01 | 3274441 falak pema
falak pema's picture

When the king's buffoon now shouts : the king is THE true buffoon, all that the king can then say is :

...Are you going to believe me or my buffoon?

Only to have thrown in his face that  : you Sire have always told us your court Jester was the cleverest man at your court, and you even called him your most irreverent and prescient shadow; one who bowed to no one EXCEPT to the truth in his inimitable and insolent fashion. 

So now you would burn him at the stake 'cos he has come the full circle and includes you amongst the devious clowns?

Good people, I am still your king and what I say is as good as gold!... 

We are now in this perennial tragicomedy, up to our ears! 

 

Mon, 02/25/2013 - 14:01 | 3274445 the not so migh...
the not so mighty maximiza's picture

It ends in a big moan, if done right

Mon, 02/25/2013 - 14:02 | 3274446 tony bonn
tony bonn's picture

"Or, even more ludicrously, that there was such a thing as a riskless investment in the first case."

that is the point....and why mark to market is the only way to honestly book value.

Mon, 02/25/2013 - 14:10 | 3274453 El Hosel
El Hosel's picture

"Who you calling moron, moron?"...... CLASSIC, and fitting, The New Normal Mo Mo Markets.

                        N2 M3 to infinity.

Mon, 02/25/2013 - 14:10 | 3274449 Edward Fiatski
Edward Fiatski's picture

Good article.

Britain had been used as a dirty whore and discarded, it's U.S.'s turn right now; whether China is next puppet is a function of the world peasants' acceptance of the New World Order, which presumably, will eliminate the need for such mechanisms of control.

But then again, China is too homogeneous, although, I suppose certain sections of the undesired population could be eliminated to instutute a decent new currency standard in place.

Still, I don't see China with its Yuan anywhere on the world stage at this moment, perhaps after a world war. :)

On topic: Argh! It's so tricky trading the Cable at the moment, with 200 DMA being all the way up at 1.6, have to use 3-5 year charts to make sense of this printing action. LOL

Mon, 02/25/2013 - 14:51 | 3274564 NuYawkFrankie
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Re Still, I don't see China with its Yuan anywhere on the world stage at this moment...

It'll happen (strike-up the orchestra..) -  "Yuan Sunny Day...."

Mon, 02/25/2013 - 14:54 | 3274575 Edward Fiatski
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Not before the EUR steps in to contend for the same Crown - Just you wait!! :)

Mon, 02/25/2013 - 14:05 | 3274454 tickhound
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The "economic reality" is to never "economize" anything... except waste, destruction, and the practice of scalping thy neighbor.

"Economy" is starting to taste like "Growth"     

Mon, 02/25/2013 - 14:06 | 3274457 LawsofPhysics
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Bullshit.  It's a global eCONomy now.  When the supply lines break, there will several "bangs". Perhaps small at first...

Mon, 02/25/2013 - 14:13 | 3274477 knukles
knukles's picture

To wit: IKEA horse-meat balls.
The neigh sayers must be silenced to preserve the system.

Next'll be sold under the Gelding brand name.

Mon, 02/25/2013 - 14:30 | 3274515 ParkAveFlasher
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If there is an iceberg approaching, the tip that we see is made out of horsemeat.

Mon, 02/25/2013 - 15:04 | 3274594 DaveyJones
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I vote for this version. The modern economy, in every aspect, relies on immediate real time delivery. We are rapidly using the real stuff that makes this happen. All the talk of energy and other resources we could find and mine and steal have nothing to do with real time delivery.We have delayed building the structures and things and systems that will replace them. There will be a huge gap in this transfer. And it will be ugly

Mon, 02/25/2013 - 14:08 | 3274463 Roandavid
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Being downgraded by Moody's is like being called a moron by a moron

I like it.  I'm taking it.

Mon, 02/25/2013 - 14:33 | 3274523 Unprepared
Unprepared's picture

Being downgraded by Moody's is like being told by your super-hot date that she was just faking it AFTER you break up with her.

Mon, 02/25/2013 - 14:34 | 3274527 Cognitive Dissonance
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Faking what?  :)

Mon, 02/25/2013 - 15:33 | 3274704 sunnyside
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Her trust fund.

Mon, 02/25/2013 - 21:03 | 3276020 BigJim
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Q: Why do women fake orgasms?

A: Because they think men care.

Mon, 02/25/2013 - 14:12 | 3274465 JustObserving
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The end of empire comes when homeland security buys 1.5 billion hollow point bullets and 30,000 drones to spy on its own people - when your home base is in rebellion.

Luckily, we are decades away.

 

Mon, 02/25/2013 - 14:11 | 3274470 knukles
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Gota tell ya' a real life perfect example of Empire's squeamish whimpering ends was demonstrated first hand to me when I landed in London in the early '60s
The folks there by and large still made believe that they were a world class military, economic, technological and political power.  That in some true effective ways the Empire was still a bright influence of altruistic effect upon humanity.
Was far from the truth.  Empire had been lost long before.  Just a Pax Americana appears to be sliding away with time....
I expect no "revolution" precipice, dramatic fall, but a long, prolonged painful, decline into oblivion while we as a country remain halfheartedly singing God Bless America, the last fighter jet flies over the ball park trailing noxious black smoke, a tattered flag is raised, crime spreads, civility is lost, educational standards decline further, the Free Shit Army continues to blackmail the politicians, the politicians continue to rob the workers and throw us into greater debt and financial un-certitude, the essential substitute of corporate Soylent Green is everyday fare, medical care is nonexistent but for the uber-wealthy, eugenics and murder are acceptable state policies, the lies become even bigger and obviously untrue but ignored for the pure sense of sanity.

Mon, 02/25/2013 - 14:53 | 3274569 Meat Hammer
Meat Hammer's picture

medical care is nonexistent but for the uber-wealthy

I keep telling the Mrs. the very same thing.  Medical care for the non-wealthy will be the Obama pain pill to make death a little less excruciating.  If you want that chemo, you'll have to be wealthy and pay the oncologist in Au. 

Mon, 02/25/2013 - 15:33 | 3274705 Acidtest Dummy
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You'll pay the dentist Au, the oncologist will want Pt.

Mon, 02/25/2013 - 15:38 | 3274719 tbone654
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I wasn't so long ago, (50 years or so) when everyone in my neighborhood's dad aspired to own a little piece of land in the woods up north to build a cabin on that they could move to upon retirement.  Maybe hunt and fish for a while and then peacefully (hopefully) expire some day quitely after one last good season...  That dream seems to be making somewhat of a comeback...

It's lower cost, lower impact, and more reasonable than having to take a pill either way...  (chemo or kevorkian)  As long as your expectations are not too high...  I think everyone is spoiled into thinking they all have to live forever...  But it's a relatively recent phenomena, all this healthcare anyway...  Happy hunting...

 

Mon, 02/25/2013 - 19:52 | 3275778 Diogenes
Diogenes's picture

30  years ago I read an investment book that said the reason you should  start invesingt when you are young, is so that you don't have to spend your retirement years in a trailer in Florida when you are old.

It didn't seem funny back then.

Mon, 02/25/2013 - 21:20 | 3276057 tbone654
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Just so I don't have to shit in a 5 gallon bucket when I'm 80 wherever I am... (25 years to go)

I'll consider that a victory the way it's going...

Mon, 02/25/2013 - 21:28 | 3276085 tbone654
tbone654's picture

8 Hit by NYC subways - in 5 days (drudge)

http://www.nydailynews.com/new-york/suicide-big-e-train-article-1.1272613

no kidding... why normal suicide, when you can get er done and help your family to a lawsuit...

Mon, 02/25/2013 - 14:18 | 3274485 Cognitive Dissonance
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A two part article of mine from way back in August of 2010.

What If “It” Doesn’t End With a Bang But With a Whimper? Mind Games

Mon, 02/25/2013 - 14:34 | 3274529 Dagny Taggart
Dagny Taggart's picture

The ego considers itself to be a separate and sovereign entity, not a part of “us”. Thus the ego is not bound by any moral, emotional or social boundaries nor does “it” feel constrained from lying, cheating or using subterfuge to get what it wants. Since our ego doesn’t physically control our bodies, it must use manipulative methods (essentially self psyops or self propaganda) to achieve its goals.

In a remarkable example of how the fabric and structure of our society and social order mimics our internal disorder, the control system (the Ponzi, the banking cabal aka the Federal Reserve and other central/commercial banks, the political and justice systems, the so called free press aka main stream media, religions, corporations, academia and the education system etc) does exactly the same thing to us externally as our ego does internally. And for the most part we fully participate in this.

Great article but it's such serious stuff. Dude, things ARE looking up. The NFL draft is only two months from today.

Mon, 02/25/2013 - 14:43 | 3274548 Cognitive Dissonance
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Will someone please tell me if Ray Lewis finally retired? I ain't coming out until he does.

Mon, 02/25/2013 - 14:25 | 3274505 Sandmann
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The British destroyed themselves by joining the Franco-Prussian-Russian War in 1914 and suspending the Gold Standard by issuing Bradbury paper money. They borrowed from JP Morgan and extended loans to Russia and France which were never repaid but which Britain still owed to JP Morgan. Not content with spending 40% Government Expenditure on Debt Interest in 1922 they decided to take another swing at a war with Germany and Italy by joining up with France and Russia all over again leaving them borrowing 50% GDP in 1947 in the form of Marshall Aid and food and clothes and furniture rationing until 1951.

 

This brilliance was as the author notes extended by a decision to join France (who else could it possibly be ?) and Israel in a tilt at Egypt where Hitler had been reincarnated as an Egyptian........thoughtfully Eisenhower and Dulles decided Britain should get humiliated and be sent back to kennels.

The British went from being the world's largest creditor nation in 1913 to being a basket case by 1921 and then capped it off by making itself as destitute as defeated Germany by 1948.The US has gone from being the world's largest creditor to largest debtor in 30 years. If it plays its cards right and keeps going it can live like Mexico

Mon, 02/25/2013 - 16:08 | 3274814 DaveyJones
DaveyJones's picture

wars and bankers, bankers and wars

two very destructive forces

Mon, 02/25/2013 - 14:34 | 3274526 venturen
venturen's picture

What the idiot bankers don't realize is they are killing the host beast. Implosion one was a warmup for the next credit debalce...and no one is going to want printed dollar in the next one.

Mon, 02/25/2013 - 19:55 | 3275791 Diogenes
Diogenes's picture

Well kill it dammit. As long as you can make a profit, what do you care if someone else's country dies? There are plenty more where this one came from.

Mon, 02/25/2013 - 15:07 | 3274606 SDRII
SDRII's picture

Sov man skipped over that little war during Suez and the Hungarian situation not to mention nassar and the USSR. Bit more complicated than the US dumping UK bonds. one would think that might be a key point what with that is going on IMF/Egypt and the secularists vs. Islamist. Rinse ...

Mon, 02/25/2013 - 15:17 | 3274641 shovelhead
shovelhead's picture

You guys are no fun.

A spectacular apocalypse would be far more exciting than a slow shuffle to FEMA Camp-Land.

Mon, 02/25/2013 - 15:17 | 3274642 No Euros please...
No Euros please we're British's picture

*Yawn* 100's of years late with this one, rewind to 1967 anyone? We have "form" for this sort of thing, I'd be more worried about the US if I were you. You wonder why Obummer is after your guns?!!!

Mon, 02/25/2013 - 15:40 | 3274722 Aegelis
Aegelis's picture

The dollar will always have value as long as it's made of that special linen cotton blend as toilet paper.  Dreaded will be the day if they change the banknote to polymer.

Mon, 02/25/2013 - 15:48 | 3274742 stant
stant's picture

it sounds like a short shot gun blast big flash of light then rolling thunder and wind.if your far away enough to live. a recording of atomic blasts was classified for decades because its so anti climatic. the movies just used mixed sounds of regular bombs, that how it goes out

Mon, 02/25/2013 - 17:11 | 3275110 rich_wicks
rich_wicks's picture

I am tired of hearing about debt to GDP ratios.  They mean nothing.

If you want to see the state of the economy, do a debt versus income revenue ratio.  We sit at below 15% today.  In other words, if the interest on the national debt were 15% today, every single dollar from tax revenue would be spent on interest for the national debt every year.

We were at 18% under Paul Volker for 6 months, plus we got OPEC to agree to only sell oil in US dollars and no other currencies, and at the same time the USSR was actually a threat to the world and there was a very real incentive for the rest of the planet to keep the United States from going bankrupt.

Today, an interest rate of only 4.9% for 6 months would be as burdensome as 18% was in 1980.

But we talk about numbers like the fictional GDP.  If the government borrowed 10 trillion dollars to build a toilet, that would increase the GDP by 10 trillion dollars.  It's a stupid number to even bring up.

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