Economics

Geo-Strategy #3: How Empire is Destroying America

America’s economic foundation has fundamentally inverted since the post-World War II era, moving from a robust manufacturing economy, which accounted for 40% of GDP and created the wealthiest middle class in history, to a financialized system. Today, financial services comprise 22% of US GDP and 40% of all profits, while manufacturing has dwindled to 10%. This dramatic shift, accelerated by the neoliberal policies of the Reagan Revolution, has concentrated political power in Wall Street and a coastal elite, leading to severe political divisions and an economy plagued by instability, such as the 2001 dot-com crash and the 2008 financial crisis. This over-financialization is not merely an internal economic evolution but a direct consequence of America’s imperial dominance following the Cold War. As the sole global superpower after 1991, the US established a system where global trade and capital flows ultimately accumulate in its financial markets, driving up asset prices and creating speculative bubbles. The petrodollar system, replacing the gold standard in 1971, underpins this, mandating that oil—the basis of every modern economy—be purchased in US dollars, thereby ensuring continuous demand for the currency. Despite a national debt of $34 trillion, with half owned by foreign entities like Japan and China, these nations continue to buy US Treasuries. The rationale is two-fold: the petrodollar still offers an avenue to acquire essential oil, and critically, there is no safer alternative for parking vast sums of global wealth due to America’s perceived military invincibility. However, Russia’s invasion of Ukraine represents a direct challenge to this perceived invincibility, signaling to other nations, particularly in Africa and the Middle East, that the American empire might be a "paper tiger." This global loss of confidence could prompt foreign investors to divest from US Treasuries, triggering a sovereign debt crisis and cutting off America’s access to easy money—an addiction that currently sustains its financialized economy. Re-industrializing the US economy to restore a productive base is presented as a theoretical solution, but it is deemed politically and culturally unfeasible. The entrenched power of the financial sector opposes such a shift, while a speculative mindset prevents young people from seeking work in factories over quick wealth in assets like Bitcoin. The sheer scale of investment and logistical rebuilding required also poses immense hurdles. Thus, invading Iran emerges as the “easiest”, albeit riskiest, recourse for the US to reassert military dominance, secure oil supplies (the Middle East produces 40% of global oil), and control strategic shipping lanes. This move aims to restore global confidence in the dollar and the empire, preventing the implosion of its financial system. However, the inherent hubris of an empire, incapable of imagining defeat, risks a catastrophic loss that would accelerate the very decline it seeks to avert.