When Everything in America Runs Out

Economists, analysts and financial gurus around the world are sounding the alarm. Dollar inflation is not abating, supply chains are breaking down and getting tangled up, energy and food prices are out of control, the labor market is in disarray and there is an unprecedented shortage of consumer goods in the markets of developing countries. It’s gotten to the point that the leader of the free world and his treasury secretary are warning that the dollar could lose its reserve currency status.

Everyone is looking at the center of global capitalism, at the engine of the world economy, at the United States. What will the elite do, the elite who have built and ruled the modern world for at least the past few decades? The American elite seem to be at a loss. Their most hopeful message to the world is that this won’t last long and everything will work out soon.

Of course, this was not what we expected from them. Moreover, just a few months ago, most experts and mainstream Western media praised the new administration, saying the adults had returned to Washington. Now everything is different. Biden and his administration are being blamed for the fact that the world economy is not recovering.

One could say that the current administration has faced a streak of fatal setbacks. This is partly true. Every crisis of 2021 seems to have occurred almost simultaneously, as if the theory of probability had suddenly failed. There are those who will assert, however, the fault lies in excessive self-confidence and, to put it mildly, the dubious competence of the “adults.” This is also true. We also can’t ignore the pandemic. The onset of COVID-19 has undoubtedly had a serious impact on the United States, the West and the entire global financial and economic system. Financial bailouts, the demand for stimulus programs, vaccinations and even treating COVID-19 itself has been expensive. Lockdowns, reorganizing factories, imbalances with regard to demand — all of this has, of course, affected supply chains.

But the point is about more than the consequences of the COVID-19 crisis. For more than a year, unprecedented efforts have been made to remedy the situation, but it only gets worse. At the critical moment in the fall and winter of 2020, things were clearly improving. There was no serious shortage of computer chips, a shortage that in turn affected the shortage of everything else, from gadgets to cars. There was no dollar inflation. There was no worker shortage as there is today. Everyone complains about it, from commercial port authorities to electric vehicle manufacturers. There was no demand as there is today, there was no such need. Noted economist and market observer Derek Thompson published an article on his blog with the telling title, “America Is Running Out of Everything.” The publication became so popular that it was even cited by RealClearPolitics, a national news site and polling data aggregator.

In particular, Thompson writes: “This is the economy now. One-hour errands are now multi-hour odysseys. Next-day deliveries are becoming day-after-next deliveries. That car part you need? It’ll take an extra week, sorry. The book you were looking for? Come back in November. The baby crib you bought? Make it December. Eyeing a new home-improvement job that requires several construction workers? Haha, pray for 2022,” says Thompson.

The author further asserts it will only get worse. “The U.S. economy isn’t yet experiencing a downturn akin to the 1970s period of stagflation. This is something different, and quite strange. Americans are settling into a new phase of the pandemic economy, in which GDP is growing but we’re also suffering from a dearth of a shocking array of things — test kits, car parts, semiconductors, ships, shipping containers, workers. This is the Everything Shortage,” he says.

It is quite significant to compare these events with the situation in the 1970s. At that time, inflation reached double digits and economic growth was almost zero. This type of scenario (simultaneous stagnation and inflation) is called stagflation. America had to take unprecedented action, including a complete rejection of the gold standard. American foreign policy changed. There was détente with the Soviet Union and rapprochement with China. The Celestial Empire became a global factory of things, and dollar inflation even reached the Soviet Union, where the leadership had to raise the price of vodka and other important goods in the 1980s.

There was no global catastrophe, but the world seriously changed. There was a serious crisis accompanied by a shortage of energy resources and galloping prices in the West. Yet the United States remained the unopposed Western leader during the Cold War. The world continued to live with the Bretton Woods financial system, a plan that was only mildly tweaked. China’s inclusion in the international division of labor partially offset the rising costs, the issuance of debt spurred economic growth and Richard Nixon and Henry Kissinger’s peace initiatives ended the conflict between the Persian Gulf oil monarchies and Washington.

Since then, American dominance has been based on three pillars: a strategic umbrella, access to an emission dollar economy and so-called free trade. American allies won all three “prizes” at once, as they say, in one glass. If you were to join in confronting the Soviet Union, you’d get protection, the benefits of the Washington financial system and a rich American market (and often the European one to boot). This is how the American empire, Pax Americana, took shape.

The countries of Southeast Asia, the Asia-Pacific region, the Middle East and other regions became allies of the United States and were rewarded with the “holy grail” of the global economy — access to markets, the demand for which was stimulated by an infusion of funding (and, therefore, increasing the American national debt). The next step in the drama took place in the 1990s, after the end of the Cold War. At first, the American elite chose to curb the budget deficit if not to reduce the national debt altogether. A Republican Congress and a Democratic president, Bill Clinton, worked together to see the story through. The year 1999 formally became the first deficit-free fiscal year in three decades.

At the same time, the global economy was shaky. Many of our readers will most likely remember the 1998 Russian financial crisis. It was preceded by a similar collapse of the South Korean economy and several dozen smaller crises in other countries. In 1999, it was Latin America’s turn. The most famous crisis occurred in Brazil, but the entire Western Hemisphere south of the Mexican-American border was in an uproar. And then trouble arrived in the United States. In 2000, the so-called dot-com crisis erupted, bursting the stock market bubble involving the first large internet companies. Many economists believe that the events of 1998-2001 would have grown more serious if not for two circumstances. First, the negative impact of challenging the U.S. budget deficit was mitigated by the development of new markets in Eastern Europe and the former Soviet Union. Second, in 2001, George W. Bush began to soften fiscal policy as soon as he took office. Bills were passed cutting taxes, which in turn increased the deficit and automatically launched the “printing press” to produce more money.

At the same time, Medicare and Medicaid spending accelerated. Insurance companies, Big Pharma and the medical industry all wanted a piece of the pie. The costs of these programs became so large that even if military spending were reduced, there would still have been a budget deficit.

Allies continued to receive their bonuses, and Europe acquired its own reserve currency, the euro. Among other things, this currency added to the reserves of the world’s economy; those who came to the “banquet” and freely traded with the U.S. and the EU got access to these funds. This model was extremely vulnerable to any serious stress, and especially to a sharp slowdown in growth in every sector of the economy. So the financial catastrophe of 2007-2009 is not so much a consequence of the irresponsibility of investment banks (banks are always irresponsible), as the inability of American financial agencies to respond properly to a sharp decline in the growth of a speculative stock market. In the end, the crisis was averted “correctly.” It was simply flooded with money.

Authorities considered virtually no other options. Anyone who proposed an alternative was immediately declared a dangerous outlier. Global leaders clearly remember the lessons from Clinton’s fiscal discipline. From the very beginning, the U.S. dealt with the COVID-19 crisis by treating it with an infusion of funding, something which reached cosmic proportions. Trillions of dollars were spent, but growth stagnation could not be avoided. Worse, recovery has practically brought more problems than the recession caused by the pandemic.

Inflation, chaotic labor markets and disruption of supply chains are all problems that we experience and can overcome together and separately. Tweak the financial system one more time, launch new investment cycles, rebuild logistic sequences, adjust the demand structure, and everything will work out. But this is only possible if people still trust the system. And it requires that a sufficient number of countries remain in Pax Americana, and that they trust both Washington’s sense of security and its vision (presumably this will also be adjusted) of the international division of labor.

But this is exactly the problem. In fact, based on trust, the dollar economy could disappear in a heartbeat, as soon as doubts about how reliable it is go beyond a critical level. It’s possible that in 2021-2022, we will avoid a complete collapse, but the next crisis will not be far behind. And it would be nice at that point if countries that want to endure have their own economic and financial systems that can survive without the dollar.

The fact that the design of such alternative systems is already in full swing shows once again that the credibility of Pax Americana is nearly exhausted. The only question remaining is how quickly the Washington elite will lose what little of its class remains.