Would Global Recession Boost US Power?

At first the question seems preposterous. How could a global recession possibly enhance and bolster US power?

After all, it would create huge problems with the economy. Budgets, including the military one, would be squeezed. The banking system would be under strain and politicians would be forced to focus more on the home front as people lost their jobs and their homes.

America just wouldn’t walk so tall in the world. However, the same would very much apply to her rivals.

Right now US power is being challenged across the globe and in some cases quite successfully. And what is fuelling those rivals’ confidence these days?

Quite simply oil.

Oil prices are very high because the world economy is powering ahead, which is putting a strain on supplies. Then throw in all the Middle East problems and there’s a great combination for very high oil prices for a long time.

Had Iraq worked, it could be pumping out almost as much oil as Saudi Arabia and Russia with the subsequent impact on oil prices. Something that sent shivers of terror down the spines of the Kremlin’s incumbents. But this hasn’t happened, rather its the opposite. Iraq has been a disaster and pumps less oil now than it has in decades.

Great news for oil producers as they watch their coffers overflow with a never ending avalanche of petrodollars. It must be a bit like having Christmas every day. Indeed, a whole range of countries which not that long ago were looking quite shaky, even defeated today look a lot more challenging.

They now kick sand in Uncle Sam’s face with impunity and go down the pub or the Mosque and laugh and boast about it among themselves.

The list of sand kickers includes Iran, Venezuela and Russia, all regional rivals to Washington. Thanks to a flood of petrodollars Iran is easily funding a nuclear programme, terrorism and spreading its anti-Western ideology where ever it can. Venezuela is giving Washington the finger and building an anti-US coalition, which could spread right across Latin America eventually. And Russia is better able to bully Europe and impose its influence in central Asia, where even more oil lies.

So here comes the global recession theory:

It would slash demand for oil, prices would fall heavily and Washington’s rivals would suddenly be a lot poorer and circumspect.

Some of those regimes might even end up fighting for their own survival. A global recession would naturally imply the same in China. A serious US rival for regional if not global power and for scarce natural resources. Their wings to would be severely clipped. The regime there would suddenly be very preoccupied with its own survival as firms collapsed and joblessness and popular unrest increased. That would probably suit some Pentagon planners just fine. Businessmen, though, might not be so joyful at the prospect of their shinny new factories being damaged or lying idle.

In other words none of these rival regimes would have much time or even the resources to challenge American hegemony anymore. The sand kicking and howls of laughter over pint or a cup of mint tea would quickly turn to tears of despair.

It may even offer Washington the opportunity to sponsor some regime changes here and there. Venezuela would be a prime candidate – it’s a major oil producer in the US’s own backyard. Iran would be much tougher though.

In the meantime, the US would slash its interest rates, beef up its banking system. Basically, banks borrow very cheap money from the Fed to buy US Treasuries and bag the margin difference from the two rates. The profit helps the banks stay in business and the government to keep on borrowing money. This happened during the early 1990s recession. It’s a form of monetising debt with commercial banks being the intermediaries.

The US being a very large diversified and stable modern economy would probably survive a global downturn better than her rivals. She would probably be the first to recover. At which point she could dust of the sand and re-stamp her authority in the global playground.

A global recession would of course come with risks. Many oil producing countries suffering huge falls in revenue could drift into chaos. That would be bad for oil supplies and prices. This outcome is believable for Saudi Arabia and possibly Venezuela. The former is at the mercy of extremists. Hefty welfare spending is one way the Saudis keep their booming population under control. They need high oil prices to do that.

However, this blogger is not suggesting some sort of conspiracy theory. Namely, that Washington would purposely try and drag the world into recession to handicap its rivals. Indeed, the costs would be huge for the Americans to. The country is also a democracy. What voter in their right mind would thank the President or his party for a recession by voting them back in?

But recessions naturally come and go – the economy is cyclical. The suggestion being made is that if one did occur, the American Goliath may have an excellent opportunity to settle some scores with a bunch of annoying pebble flipping and sand kicking Davids.

Being a relatively stronger and taller Goliath might mean that the pebbles from their sling shots would sting a lot less.