America stands like a colossus on an increasingly slippery world. Earlier this month, more grease was added. The US’s landmark pact with Saudi Arabia expired. It was the deal made in the 1970s by Wall Street bond dealer extraordinaire, William Simon. In essence, it solved two problems at once – one for the US, the other for the Saudis.
The US needed to export dollars. The Saudis needed to export oil. The agreement said that, henceforth, if you wanted Saudi oil, you’d have to pay in dollars. Then, the Saudis could exchange them for US Treasury bonds. The US would also provide “security” for the Saudi government. Presto! A “foreign entanglement” of the sort the founding fathers warned against.
The deal was kept secret. The Saudis did not want the rest of the Arab world to know how closely they were working with Israel’s ally, the US. Even today, the “fact checkers” say that all this is “fake news” – that nothing formal ever existed that mandated the Saudis would sell oil only in dollars.
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Formal or informal, the actual terms of the relationship have been away from the public eye for more than 40 years. But that the deal expired on 9 June is a sign of the continuing decline of the West, which began around the end of the 1990s. In 1999, you could have sold the 30 stocks in the Dow index and got enough money to buy 41 ounces of gold. Today, you’ll get only 17 ounces.
In other words, the real value (measured in gold) of America’s leading businesses has been more than cut in half. That’s a sign of decline. Not definitive, but suggestive. In 1999, the US and its allies were on top of the world. The US was the richest country in the world, the most admired, with the best technology and coolest culture. It had a balanced budget. And except for bombing the hell out of Serbia, it was more or less at peace. The Soviet Union had recently given up, leaving the West without a rival.
It was at that unlikely moment that the US lost its footing. Elite firepower lobbyists took control of Congress. Balanced budgets and peace were soon things of the past. In 1999, the US owed $5.6 trillion. A lot of money, but still manageable. Now it owes $35 trillion. Much of this debt cannot be repaid. Instead, it and the fictitious wealth it represents will disappear as the credit cycle runs its course.
Once astride the world, a hegemon must find the hapless, hopeless leaders who will help it slide off. The US has found them. Neither Joe Biden nor Donald Trump will cut spending. Neither will withdraw from the role of global Alpha Nation. Neither wants to restrain the firepower industry or break the war-mongers’ grip on Congress.
What will this mean for the US?
How significant the end of the Saudi deal will be, in the near-term, we don’t know. As a practical matter, the world’s oil markets function in dollars. Both buyers and sellers have dollars and know that dollars are easily converted to any other asset they want. But the slippage is underway.
The popular image of the US abroad has also been in decline over the past year, according to a new poll of opinion in 34 countries by the Pew Research Center. International confidence in US democracy has fallen too.
When you’ve got the gun in your hand, you don’t necessarily care what others think of you. But if the top gun, butt-kicking nation could remain in charge forever, we’d now be part of the Roman empire, not the US empire.
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