I just finished reading a bit of a “futurist” prediction from Alfred McCoy, a professor at the University of Wisconsin-Madison.
“How America will collapse by 2025“
In it he proposes a series of scenarios under which the “US century” will come to a crashing end, as, he states, has occurred to the UK, France, USSR and countless other empires of bygone years. The scenarios are as follows:
- General Economic Decline: Dollar loses its status as a reserve currency, deficits can no longer be funded, US military overseas cut down, soaring prices, rising unemployment, general unrest, cyber warfare and at the end the election of a far right candidate to push US power worldwide, but by this point it is too late.
- Oil Shock: Oil no longer traded in dollars, but in a “basket” of competing currencies or even in a new reserve currency not attached to any single country, US can no longer patrol the Gulf region and has to abandon the entire Indian Ocean, prices skyrocket and an economy that has done nothing to prepare itself for an alternative energy source spirals out of control.
- Military Misadventures: Pretty self-explanatory. Iraq, Afghanistan…Iran? Never-ending need to satiate the military-industrial complex eventually leads to huge deficit and overreach, leading eventually to a US “Suez Canal” moment like that which quickly spelled the end of the UK and French colonial eras.
- World War III: The author predicts rising tensions with China, especially through cyber attacks and competition in the Western Pacific in waters that China increasingly considers to be Chinese. No casualties are predicted though, since Chinese military technology will simply outclass the US and hackers will be able to deactivate US drones, equipment and so on within a matter of hours- Equipment whose components likely came from China.
- New World Order: The US, Europe and Japan shed their relative power to the BRIC countries faster than ever before. What comes out of the ashes of the great unknown could rival anything from powerful regional blocs to a comprehensive Westphalian system as existed in the wake of the Napoleonic wars in Europe whereby a “Balance of Power” is rigourously enforced and no one country is allowed to dominate.
See also the following articles:
- Is America’s Age of Discovery Over?
- The Folly of a Chinese Trade War
- America’s Lost Economic Decade
- The End of the Dollar Standard
- Once a Leader, U.S. Lags behind in College Degrees
What do you think? Will there be a specific “scenario” or “trigger” that signals a quick exit of the US as the premier hegemon? Or maybe you already believe that it has already lost the claim to being the only hegemonic power? What would the post-US world look like in your opinion?
The accuracy of “Futurism” is obviously difficult to measure and is grounded on assumptions. Events can change, often at a blinding speed. War with Iran is now a possibility. The Eurozone has deteriorated greatly since the article was written (notice that his “basket” of alternative Oil currencies includes Euros in the 2025 scenario). I personally doubt the possibility of the World War III scenario since China and the US are too intertwined economically for this to make sense. Instead, I think that a realisation that the US can no longer finance foreign wars and 100+ military bases will catch up with US politicians too late and that this, combined with general economic decline and an over-dependence on oil, really could signal a major problem for the US in 10 years’ time. Even if all of these scenarios don’t come to pass, the US certainly isn’t realistically tackling its ballooning trade deficits. FATCA and citizenship-based taxation certainly do not help either to make the US an attractive investment location or exporter of goods.
@ij
Rapid US currency devaluation will be a disaster for US expats. The first to be affected would be the Foreign Income Exemption, which is already very low when you consider some of us working in countries with very high costs of living.
As the dollar gets weaker each year, more people will fall into the FBAR trap: 10,000 dollars was a lot of money in 1970 when this law was created, but nowadays is a joke threshold to tackle tax evasion. Even a student might have this amount in their bank account. It should be something like 200,000 dollars at least. If the dollar continues to depreciate, then more people who knew nothing about FBAR requirements who might have still been ok will now be hit hard, especially those who neglect to file form 8938 “Report of Foreign Financial Accounts” in the coming years.
More people will also become “covered expatriates” when they renounce and have assets of more than 2 million dollars. If the US were to experience rapid hyperinflation under a doomsday scenario as Germany did in the 1920s then everyone could easily be a “covered expat”.
There is also a problem with “phantom capital gains” taxes or something that has affected some in the past decade as the dollar decpreciates. I don’t fully understand this though and hopefully someone who has more experience with this can comment on that.
But yes, a weak dollar is not at all welcome. It will only be positive for foreign tourists and ex-US citizens travelling to the US for a day to do some bulk shopping!
@Don, good points. I totally forgot expats tied with IRS. I was comparing myself 13 years ago (I was not an US expat).
The key trouble for US expats is indeed tax on citizenship instead of residency. I would have to renounce my Canadian citizenship if CRA wants me to fill any form.
@Don, I completely agree. With hyperinflation, many many more expats would become ‘covered’.
Our personal allowances before US taxation would also drastically drop in real terms as the dollar falls in relation to our respective home currencies.
I wasted no time when I learned about the HEART Act, to get my Canadian citizenship and relinquish my citizenship. One year later, I became a Canadian citizen and went into the consulate a month later.
Obama has released draft plans for his budget which raising taxes on those making more than 1 million or more and allowing the Bush era tax cuts to expire. Even with these plans in place, the yearly deficit will be huge at 500 billion in 2018. Check out this key quote below:
“”I think there is pretty broad agreement that the time for austerity is not today,” new White House chief of staff Jack Lew told NBC’s Meet the Press on Sunday. ”
http://www.bbc.co.uk/news/world-us-canada-17014744
I don’t think that the US will ever view austerity as being for “today”. I really think it will take the US to be at the point of absolute desperation that the Greeks (or Greek politicians and banker friends) are now: completely subject to the whims of foreign creditors and bail out from the Chinese before they will EVER institute any serious austerity measures. Meanwhile half of the members of the US senate are probably busy stashing away their money in safe havens for when doomsday arrives…
Some may choose to disagree with me on this, but I think a lot of it is cultural. Brazil HAD super hyper-inflation some years back. So the average Brazilian doesn’t care about 15%/year like we have now. If there is no inflation, the government will MAKE IT by increasing the minimum wage. The Presidenta says that the the minimum wage must go up because prices go up. Actually, it’s the minimum wage that drives price increases here.
The US on the other hand, has had relatively low inflation for last couple of decades. (I think the 70s-early 80s was the only time where interest rates were “high”). So I think hyperinflation COULD happen, but it would squeeze people so much that they would change.
By the way, can’t you guys see the parallels with Japan that are going on nowadays? Bernake seems to be playing the same interest rate “card” that Japan is STILL playing.
Last but not least, guns are ILLEGAL to have in Brazil unless someone has a permit and the gun is registered, and few people have this. Same as Europe, right? Guess what! The crime rate here in large cities is REALLY high, on the opposite end of the sprectrum from Europe. Why? Because all the criminals have guns, but innocent people don’t. This is why a lot of these issues are “cultural” and have too many nuanced variabled to be predicted.
@geeeez
Where are the criminals getting the guns from then? Are they legal in a border country?
From my very personal experience, I would say that only the UK really has a crime problem. There its mostly knive crime. I hope that Greece and others don’t become a lot worse in the coming years. It could happen I suppose. Guns are generally only legal in most countries for hunting reasons, and I think that that is even being cracked down on a bit in some countries.
I don’t personally know anyone who owns a gun. In my head all the gun owners are aristocrats who go to their hunting lodges on the weekends with their troupe of blood hounds. Totally opposite than the culture in the US or Brazil it would seem 🙂
@ Mr. President Obama,
Our family 2011 taxable income is $37262 (include my global wealth) — that is for a family of 5. I do not want you to spread wealth to me — no need. But I want you to forgive me on my past FBAR sin ?
Would you, Mr. President ? I will give my vote for exchange -:)
@Don, I made that comparison because many people blame violence in America on guns, but it’s much “deeper” than that. More kids in America are actually killed by swimming pools every year than guns. More people die from heart problems than violence in America. The media always spins everything.
Whereas in Brazil, guns are illegal, and it’s difficult and expensive to get a permit. Where do the guns come from? Lots of places – the army, the police, from thefts, and I wouldn’t doubt if people get them from neighboring countries.
I’m just trying to say that “culture” plays a lot into economic (and military) policy. I don’t think anybody can deny that the US has an “aggressive make war” culture.
@ij: “Our family 2011 taxable income is $37262 (include my global wealth) — that is for a family of 5. I do not want you to spread wealth to me — no need. But I want you to forgive me on my past FBAR sin ? Would you, Mr. President ? I will give my vote for exchange -:)”
Denial, anger, *bargaining*, depression, acceptance?
@Watcher,
Denial — I do not deny my fault — ready to take responsibility by jumping into OVDI
Anger, yes, when RRSP becomes tax evasion vehicle inside OVDI
*bargaining* — no it is begging, I am on my knees to beg for spare my RRSP
depression — yes, It has been like a hell
acceptance — yes — I accept it , and what else can I do ? Do I stand a chance to fight those cold blood — in the name of crack down tax cheats
That is why “Bill Gates” is also leaving US. He is working at a local Apple Store in Japan now -:)
http://htcian.blogspot.com/2012/02/bill-gates-working-in-apple-store-osaka.html
I am not sure if this “Bill Gates” has been filing US return and FBAR.
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