CHAPTER 19

DIARY ENTRY: November 8, 2046 – The New Lender and the Wretched Terms

What were the IMF’s conditions that Uncle Sam had to accept?

The IMF imposed three conditions, all of which had very strange effects and made the twenty-first century a colorful one. The bailout ensured that all Americans on public benefits had food, so Billie and Ralph plugged in their refrigerator again and li’l Ralphy got his formula. Mr. MacEwen would have to cover his shortage with the remaining principal of his nest egg, which was now more of a chick dropping. Cheryl would have to downsize into a smaller residence. The US resumed making interest payments on its external Treasury notes, so that member nations got their money. Now the three conditions.

First condition: the US had to reduce defense spending more than just for research and development. That meant the navy. Through 2025, the US military was powerful mainly because of its navy. In 2015, that maritime force had 20 aircraft carriers, whereas the rest of the world had a total of 21. The handful of other nations possessing them usually had one only.[1] Also, the US carriers were larger and equipped with better technology.

Throughout world history, shipping goods by sea has frequently been cheaper. Wooden sailing vessels could carry more than horses. As a result in 2015, many goods entered the US and left it on ships, which used both the Atlantic and Pacific Oceans. Trade across the North Atlantic had dominated for five hundred years, ever since it had begun in 1492 with Columbus’ voyage. But by 1990, trade across the North Pacific became 24 percent more than the Atlantic.[2] The European age ended. It had begun that same half millennium earlier when Spain, France, and Britain had begun growing empires. In 1991 the last European empire collapsed: the Soviet empire of Eastern Europe. At the end of that age, the sun was over North America, having left Europe in its shadow. But the sun was heading west, as it does. By 2025 the US could feel the chill of the same shadow, while China enjoyed the warm, glorious rays.

In antiquity, Athens prospered over Sparta, which was landlocked. Athens possessed a port, trade ships, and a navy to protect those ships. In the 1700s, Spain prospered over Switzerland for the same reason. Spain owned colonies whereas Switzerland did not. Similarly in the 1980s, the American economy blossomed while the USSR wilted. Although the Soviets were not entirely landlocked, America enjoyed far more access to major oceans and the trade across them. Maritime nations were usually wealthier.

Before 2025, the US Navy had three roles. The first was defense of America’s coastline. But ever since WWII ended in 1945, the main value of the US Navy was its second role. It protected US maritime trade routes. The Navy protected imports from developing nations, such as from Vietnam through the South China Sea and from Brazil up the Pacific Ocean. The Navy also protected our exports to developed nations: for example, to the UK across the Atlantic Ocean and to Italy through the Mediterranean Sea.

After the US defaulted in 2025 and after sizeable budget cuts to defense, the third role of the US Navy ended. It had protected sea borders of foreign nations in exchange for deals. Because America had ships spread across the globe, amphibious assaults by one foreign country on another were previously possible only if the US Navy allowed it. America didn’t care if the British attacked the Falkland Islands in 1982. Those islands were in the South Atlantic Ocean off the coast of Argentina. The navies of the UK and Argentina engaged over which country possessed these islands.

However, America did care that Iraq attacked Kuwait in 1990. Travelling through the Persian Gulf, boats from Iraq carried commandos to invade Kuwait City. Shortly afterwards, the battleships Missouri and Wisconsin of the US Navy showed up and fired their 16-inch guns at the commandos. The Iraqis ultimately withdrew.[3]

In 2026 with the cutbacks to the US Navy, it now only guarded American seaboards from invasion, and secured the ocean highways used by commercial ships bound for America, its other two roles. Actually, the latter role shrank too.

Since at least the early 2000s, the South China Sea has been vital for Chinese imports and exports.

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Ships carrying oil would leave the Persian Gulf, cross under India, and cut through the South China Sea for China. Raw materials needed by China would follow the same route. China would then ship the finished consumer goods back through the same Sea for Europe.[4]

During the same period, China claimed disputed islands in the South China Sea. It actually built them up with landfill and installed airstrips and missile batteries on them. Other countries which surrounded that sea and needed the same shipping lanes called upon Uncle Sam to keep the lanes open. In 2016, an American missile destroyer—the USS Curtis Wilbur—sailed near one of China’s claimed islands in that sea.[5] A few weeks later, China responded by launching surface-to-air missiles from another disputed island, demonstrating its military capabilities.[6]

Another sea highway for China was across the Pacific to Canada, Mexico, and the US. Since the US Navy controlled the Pacific and South China Sea, the US had leverage to ruin China’s economy by interfering with shipments. China could change this leverage by building a huge navy and confronting our military ships. But this standoff might lead to war. Or China could bankrupt America and cause the US Navy to shrink dramatically. They chose the latter. With Congress really short on funds, the US Navy receded in the Pacific to protecting only the sea highways along the eastern side of it, the coastlines of the Americas. Bankrupting the US gave China a great deal of economic security regarding its mandatory imports and exports.

Afterwards, China finished amassing a respectable navy and filled the void in the western Pacific and South China Sea. It had the money to do so.

As we have seen, the Chinese acquired control of the western Pacific by bankrupting the US. They had learned this maneuvering from American conduct occurring nearly a century earlier.

During WWII, we allowed the United Kingdom to go bankrupt, after which we acquired control of the western Atlantic. During that war after France fell, the UK was fighting Germany and Italy on its own. We could’ve joined the war, but instead let Britain drain its funds on defense. Broke and desperately needing warships, the British pleaded for help. In exchange for fifty US naval destroyers, the UK turned over its military bases throughout the western Atlantic and Caribbean.

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[7]

The deal clearly favored Americans. We got the bases for ninety-nine years rent free. Also, Bermuda and Newfoundland were important to Atlantic trade. Finally, about a third of the warships needed extensive overhauling. They had been mothballed and exposed to Atlantic weather since the previous world war.[8]

Just to be sure the United Kingdom would not bounce back quickly after the war, the US then joined the war very late. We let Germany bomb the hell out of English factories for four long years and let the UK go into tremendous debt.[9]

In 1945 the US deposed a world power—the British—and acquired control of the western Atlantic. In 2025, China repeated history, deposing a different world power and acquiring control of the western Pacific.

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The IMF’s second condition for the United States was taxing corporations more. This change also benefitted the coalition imposing the condition. Because it slowed the growth of US corporations within their borders, their own domestic corporations grew. In the US, corporations now had to pay twenty-five percent more in taxes.

The third condition mandated by the IMF was the redistribution of wealth within the American population. Income taxes for the upper class had to be increased noticeably, which essentially eliminated that class. Doctors and dentists ended up paying such high taxes that they had no more take-home pay than school teachers. Taxing the middleclass was almost impractical, as they could only make ends meet with the scraps of their 401(k)s. Nevertheless, a modest tax increase was imposed on the middleclass.

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These three conditions were extremely unpopular among Americans. Diets of processed food in colorful boxes, of steaks and ribs, and of Greek yogurt changed real fast. Joe ate boiled oatmeal for breakfast, potato soup for lunch, and rice sprinkled with hamburger for supper. Every day. Except on the next day for dinner, he might’ve sprinkled hamburger on potatoes instead. Jane American had no money for extras, whether that was cable TV, soccer for the kids, or dinner out at a decent restaurant. In fact, fed up with the dramatic decrease in standard of living, a multitude of skilled labor wearing white collars vacated the US for Canada mainly. Our neighbors to the north had the same language and culture, and you could drive all your stuff there.

That emigration screwed the nation, by reducing the population who paid income taxes even further. America also suffered from brain drain, the loss of these innovators. The same brain drain has historically occurred in other countries with horrible living conditions. In 2010, a third of all highly educated persons born in the Republic of the Congo lived in developed countries.[10] Around that time, Congo was the second poorest country on Earth.[11] After the Soviet Union collapsed, Russia struggled to stand as an infant capitalistic economy. Nearly a million skilled, educated Russians emigrated beyond the former Soviet states over the next decade.[12] It’s just what people do.

Because the IMF lent money in installments, not following the reforms meant no more money. Thus, Americans had to suffer the imposed conditions.

The IMF conditions sparked reactions within the US to counter the adverse effects. Large corporations and the upper class, both of whom had great political power, countered with wealth redistributions of their own.

Around 2030, five years after the Great Default, American history got really dark.

 

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[1] https://en.wikipedia.org/wiki/List_of_aircraft_carriers_in_service

[2] https://www.wto.org/english/res_e/booksp_e/wtr13-2b_e.pdf, p77, Figure B.15.A

[3] https://en.wikipedia.org/wiki/History_of_the_United_States_ Navy#Post.E2.80.93Cold_War_.281991.E2.80.93present.29; see also https://en.wikipedia.org/wiki/Invasion_of_Kuwait

[4] https://cargofromchina.com/shipping-routes/

[5] https://www.washingtonpost.com/news/checkpoint/ wp/2016/01/30/u-s-missile-destroyer-sailed-close-to-island-claimed-by-china/?tid=a_inl

[6] https://www.washingtonpost.com/world/china-deploys-missiles-in-south-china-sea-as-obama-meets-rivals/2016/02/17/83363326-3e1b-4461-b97f-13406f6d104c_story.html

[7] https://en.wikipedia.org/wiki/Destroyers_for_Bases_Agreement

[8] https://en.wikipedia.org/wiki/Destroyers_for_Bases_Agreement

[9] https://en.wikipedia.org/wiki/History_of_the_British_national _debt#World_War_II

[10] http://www.oecd.org/els/mig/World-Migration-in-Figures.pdf, p.4

[11] http://www.imf.org/external/pubs/ft/weo/2015/02/weodata/ weorept.aspx

[12] http://www.prb.org/Publications/Articles/2002/ RussiasDemographicDeclineContinues.aspx