Geo-Strategy #3: How Empire is Destroying America

I'm making three big predictions. First, Trump will win in November. Second, the United States will go to war against Iran. The third big prediction is that the United States will lose this war, which will forever change the global order.

We previously looked at one reason why the United States would invade Iran, which is the Israel Lobby. Today, we'll look at another reason: the defense of Empire. America is an Empire, and it must defend its imperial status.

The Shift from a Manufacturing to a Financial Economy

Let's examine what an Empire means for America.

From 1950 to 1980, America's economy was mainly focused on manufacturing. During World War II, America had a lot of factories to produce weapons, and after the war, these factories produced consumer goods—cars, electronics—to sell to the world. This made the American workers the wealthiest and most well-educated middle class in human history.

If you were a factory worker from 1950 to 1980, you had a really good life. You worked 40 hours a week, you had health insurance, you could buy your own house, your wife didn't have to work, you could have three to four kids, you could have two cars, and every year you could go on vacation to someplace nice. You could eat out once a week and then retire with a very good pension. It was really the best life. Workers from 1950 to 1980 in America were really the luckiest people on the planet. You were better off being born into the middle class in America than you were being born rich in Africa, Asia, or South America.

But then, after 1980, came the Reagan Revolution and the introduction of what we call neoliberalism. Neoliberalism is an economic philosophy that believes in the primacy of free markets and deregulation. After that, we began to live in what we call a financial economy. The economy has been financialized.

What you're seeing behind these numbers is a radical shift, an overhaul, a transition in American society.

The Consequences of a Financialized Economy

1. Politics and GovernanceFrom 1950 to 1980, American workers had a lot of political power. Because they were middle class, they were confident and participated in politics through unions. Today, most of this power has shifted to the financial services sector, which basically means Wall Street. Working for Wall Street are what we call the professional-managerial elite. These are people who live on the coasts—San Francisco, New York, Washington D.C., Boston. They went to elite schools, the Ivy League, and they're multicultural. Right now, they're the most powerful political group in America, and this has led to massive political divisions within the country.

Before, it was workers who had a large say over American politics; now, it is Wall Street, the financial sector, and the coastal professional-managerial elite. Government shapes policies that favor this multicultural, financial elite at the expense of workers.

2. Education and AmbitionIf you went to a good university in the 1950s and 1960s, your ambition was to become a professor, a scientist, an entrepreneur, or a corporate executive. Nowadays, most people who graduate from these top schools all want to go to Wall Street. That's it. Why? Because you make more money on Wall Street than anywhere else.

You're talking about PhDs in statistics and artificial intelligence who should be working for IBM developing the latest technology. Instead, they're on Wall Street working for a hedge fund, gambling with other people's money. The economy has gone from one that is productive or creative to one that is entirely speculative. The financial services sector takes people's money and gambles with it or invests it to make more money. It's not actually productive; it is all speculative. And the smartest, most well-educated people in America are all focused on this sector.

3. Economic InstabilityThe economy in America has become much more unstable. In 2001, there was the dot-com crash. In 2008, there was the financial crisis—the subprime crash. After that, you have banks going bankrupt. This should not be happening. The reason this is happening are all these bubbles. In other words, all assets in America are overpriced right now: housing, the stock market. People are gambling that these asset prices will only go higher, which creates bubbles. When these bubbles burst, you have volatility, instability, and uncertainty.

4. Inequality and a Rentier EconomyIf you look at wealth generation, the top 1% make much more money than everyone else, and this inequality is only increasing. The financialization of the American economy has been really bad for America. You can make the argument that it's actually destroying the fabric of American society. It's making politics more divisive and the economy more volatile. The smartest people are engaged in speculative activities. Young people don't want to work; they just want to buy Bitcoin.

You can also make the argument that you're creating a rentier economy, which just means that if you are young, you can never afford to buy a house. You can only rent, which means you have no more social mobility.

The Rise of the American Empire

How did America get to this point? How did it transition from a manufacturing economy to a financial economy? There are different theories. Some economists say that this is just late-stage capitalism, the natural evolution of capitalism. Some argue that it is neoliberalism or the Reagan Revolution that caused this.

What I want to show you is that the real reason is the transition to Empire. There's a really simple explanation for why this is happening. After the end of the Cold War in 1991, America became a global Empire. It could now set the rules of the game, and it set the rules so that it would always win. All money flowed to America, which created all these asset bubbles.

To understand how America became an empire—in fact, the most powerful Empire in human history—you have to go back to its founding. In 1776, America declared independence from Britain. The Declaration of Independence makes it very clear that the founding fathers were founding a new society in America based on God. The founding fathers were Christians, but a special type who believed in the idea of deism. Deism is the idea that yes, there is a God, and God created everything, but God is not interested in managing human affairs. God leaves us alone, which means that we as humans are empowered to create the world we want.

The founding fathers wanted to create a new society based on the idea that God gave human beings three fundamental rights that all governments must respect. The famous phrase is:

Life, Liberty and the pursuit of Happiness.

That is the mission, the purpose of America. The role of government is to make you safe (Life), to give you the right to say and believe whatever you want (Liberty), and to allow for the pursuit of happiness. When Thomas Jefferson wrote "the pursuit of Happiness," he had a very specific idea in mind: wealth. In America, your fundamental right, the fundamental purpose of your life, is to make as much money as you can, to amass as much wealth as you can. The idea was that in this new society, this new experiment called America, if we allow everyone to pursue the creation of wealth, then America will become powerful.

This idea was absolutely correct. In a very short amount of time, America industrialized very rapidly, and at the end of World War II, it became the most powerful country in the world.

From the Gold Standard to the Petrodollar

After World War II, America decided it could export its philosophy to the rest of the world. In 1944, there was the Bretton Woods conference. Everyone knew that Nazi Germany and Japan would be defeated, which would make America the most powerful and richest nation on the planet. The Soviet Union was a competitor, but they had their own sphere of influence. America got together with its allies in Europe, and they decided what the new global financial system would look like.

At Bretton Woods, they decided that the U.S. dollar would become the global reserve currency, which meant you could buy anything with it. Some economists were afraid this would cause problems. If you have a government in control of the global reserve currency, that would basically make the government God. If they could just print as much money as they wanted, they could become like Midas.

The compromise was that the U.S. dollar had to be backed by gold: the gold standard. The U.S. dollar was basically like a receipt for gold. If you had a million dollars, you could go to any American bank and get a million dollars' worth of gold for it. This Bretton Woods system led to tremendous prosperity in America, Europe, and Japan.

Then, in 1971, Richard Nixon did something radical: he said America was going to go off the gold standard. America had spent too much money on the space race, Vietnam, and domestic expenses, so they needed to transition out. But if you transition out of the gold standard, how do you ensure the U.S. dollar is worth something? They transitioned from the gold standard to oil. This is what we call the petrodollar.

The idea is that every economy needs oil to run. After America went off the gold standard, countries in the Middle East, meaning Saudi Arabia and others, agreed that you could buy oil using U.S. dollars. Before, if you had a million U.S. dollars, you could convert that to gold. Now, you can convert it to oil. This is the basis for the value of the U.S. dollar today.

The Global System and Its Flaws

In 1991, the Soviet Union fell, and America was now in charge of the entire global economy. America said to everyone, "Let's focus on trade, because trade will make everyone rich." The idea of trade is that each country would focus on its competitive advantage and sell that to other countries for what they're good at. The theory is that if you do it this way, all countries will become rich.

Let's look at the U.S. and China. China's competitive advantage is cheap labor. The United States' is technology. The idea is that the United States and China trade. China makes all these cheap goods for American consumers, but Chinese consumers don't have enough purchasing power to buy American technology. So, America gives China U.S. dollars instead—trillions of them.

In theory, this money is supposed to trickle down to the average Chinese worker so that his wages go up. When his wages go up, he can buy U.S. products like iPhones, and over time, trade evens out. That's the first theory.

The second theory is about how capital moves. The idea is that capital will go to places that allow it to grow the most. In a globalized world, capital from the United States moves to China because if you invest in China, your capital grows the most. You can buy a million-dollar house in the United States or 10 houses for the same money in China.

In reality, these two theories aren't true.

Why the Theories Fail

The first theory—that trade makes everyone richer—isn't true for China. Workers' wages have not gone up for the past 30 to 40 years. Why? Because of elite capture. All the money is captured by an elite group of people. When that happens, they can't spend it on U.S. goods, so the only thing they can do is invest it.

According to the second theory, they should invest it back in China for more growth. But in reality, where do they put their money? In the United States. Why? Because you don't put your money where you make the most money; you put your money where it's the most safe.

Because the United States controls the U.S. dollar and people's wealth is expressed in U.S. dollars, it makes the most sense to put your money in the United States. This isn't just true for China; it's true for most countries. That's why, starting in the '90s, you have all this wealth amassing in the United States. Everything in the United States became overpriced, a speculative bubble.

Let's look at equities.

This makes sense. These four countries were industrially powerful at the time.

Do you see the disparity? All this wealth being generated around the world can only end up in one place: the United States. That's what has pushed the financialization of the U.S. economy. This wealth goes to the United States, and someone has to manage it—the financial services sector.

People on Wall Street make their money based on how they manage this wealth, not on whether they make money from this wealth. They charge a management fee. In other words, they're not incentivized to be conservative and ensure this money grows. They're incentivized to design riskier and riskier assets and investment opportunities to attract more investment so they can take a cut. That's what has led to so much financial over-speculation.

The Empire's Addiction to Easy Money

One of America's biggest problems is the growing national debt. The government is paying for services just by printing money. Right now, the U.S. national debt is about $34 trillion. Half of this debt is owned by foreigners. Japan has about a trillion, and China has about $800 billion. They buy U.S. treasuries. The other half, the government owes to its own people, with the two largest expenses being the military and the pension system.

The U.S. GDP is about $100 trillion, so the total debt is about a third of America's GDP. This debt has interest and is growing by one to two trillion every two to three months. These numbers are telling us there's absolutely no way that America can pay all this debt back.

So, if you're China or Japan, why do you hold all this debt, knowing that America can never pay you back or will at some point default?

1. In theory, Japan and China can always take this debt and buy oil with it (the petrodollar).
2. Even though America's in debt, it's still an Empire, the greatest military power in the world, so you feel the money is safe there.
3. The most important reason: there's no place else for you to go.

In theory, this system can go on forever. But then, a few years ago, Russia invaded Ukraine. This is important because this is Russia challenging the dominance of the American Empire. What Putin is really saying to the United States is, "I think your Empire is full of lies. Your Empire is based on the perception that you are invincible in war. I'm going to invade Ukraine and prove everyone wrong. I'm going to show that you, America, are in fact a paper tiger."

If Putin succeeds in his war in Ukraine, then the fundamental understanding of how the world works—that America is an Empire, that America is invincible, that the U.S. dollar is safe—will be radically changed. It will be destroyed. That's why America needs to stop Russia in Ukraine.

America's Dilemma: Reindustrialize or Go to War?

How's the war going for America and Ukraine? Pretty badly. The war is almost over.

What America could do, which would solve all these problems, is transition from a financial economy back to a manufacturing economy. If America does this, it has nothing to worry about. It doesn't have to worry about the debt, Russia, or the world, because America is a self-sufficient economy. It has the resources to sustain itself and doesn't really need to trade with the rest of the world. If America can return to being a manufacturing economy, it would be invincible.

The question is, can America reindustrialize? No.

1. Political Resistance: The problem is the very structure of American society, politics, and the economy. The financial sector has all the power, and they don't want to go back to a time when manufacturing had all the power.
2. Cultural Mindset: This economy creates a speculative mindset. No one wants to work hard or work in factories anymore. If you're a young person, you would much rather spend your time investing in Bitcoin than working in a factory, because investing in Bitcoin gives you the opportunity to become rich. If you work in a factory, you have to work hard for 40 years just to buy a house. You're not going to find people to work in these factories.
3. Investment: How do you build these factories? You not only have to build the factories but also the logistics networks to move goods.

In other words, America could reindustrialize, but it's a pain in the ass. You're going to face a lot of political opposition, it's very hard to get people to work in factories, and where is all this money going to come from?

The Case for Invading Iran

If you can't beat Russia in Ukraine and you can't reindustrialize, what can you do to protect the petrodollar and your financial system? Invade Iran.

Of all the options out there—because America can't just sit back and let its empire collapse—invading Iran happens to be politically the easiest to do. You can't fight a war against Russia because Russia has nuclear weapons. You cannot reindustrialize because there would be too much political opposition. But if you invade Iran, you accomplish three things:

1. Show the World You're Still the Top Dog. You show the world that your military is still invincible. If you're a foreign investor with a trillion U.S. dollars, you feel safe. You don't think the U.S. dollar will collapse.
2. Control the Oil. The U.S. dollar is based on oil. If you control oil, you don't have to worry about people abandoning the U.S. dollar. The Middle East produces 40% of the world's oil, and Iran is the world's fourth-largest oil exporter. When you take over Iran, you also control Iraq and that entire area.
3. Control Global Trade. Most of the world's trade has to pass through that area. Invading Iran would allow you to control the world's shipping lanes.

The motivation would be to save the American Empire. If Putin wins in Ukraine, America is going to look weak, like a paper tiger. In this situation, as the Empire, you have to act.

Today, you have countries in Africa rebelling against Western powers because they think Putin is now in charge. Why did Hamas attack Israel on October 7th? I guarantee you that if it were not for the war in Ukraine, Hamas would not have done such a thing. For the longest time, there was a perception that America was militarily invincible. By invading Ukraine, Putin has proved everyone wrong—that the United States can be defeated. So, what the United States must do now is prove to the world, "Nope, we're still militarily the greatest power in the world."

It must do so to protect its financial economy. Otherwise, there's a very good chance this financial economy will implode. If China, Japan, and other countries pull out of the U.S. financial sector and sell their U.S. treasuries, not only will America face a sovereign debt crisis, but it will lose access to easy money. The problem in America today is that it is an Empire addicted to easy money. People are so used to just sitting around and making millions of dollars that they cannot imagine or tolerate a day when they would have to go back to working hard. It's this addiction to easy money that will drive America to invade Iran.

What If America Loses?

If going to war with Iran is all about restoring confidence in the United States, wouldn't losing the war destroy even more confidence? This is the problem of empires. Empires have something called imperial hubris, which means they cannot imagine the possibility of losing a war.

There are two reasons for this. First, an Empire is a force that imposes reality onto others. An Empire makes you see the world the way it wants you to see it. This means there's no feedback loop. You cannot actually tell the Empire what you think; your voice doesn't matter. It's not possible for an Empire to imagine the possibility of it ever collapsing. If it could, it would never collapse.

Second, let's do a thought experiment. If you had a choice, would you rather be smart and strategic or stupid and arrogant? The answer is stupid and arrogant because it makes you feel good. Stupid people feel good about themselves. Smart people get depressed; they doubt themselves, they question themselves, and that makes you feel bad. Most people, in an ideal world, would want to feel good about themselves always. When you are an Empire, you want to be stupid and arrogant because it makes you feel good. But that's why empires collapse. Once they have too much power, they become stupid and arrogant and refuse to consider the possibility that they could be wrong.

The American Empire has been building for a long time. You can make the argument that it really started after World War II when America controlled half the world, and then it became dominant after the end of the Cold War. Before the collapse of the Soviet Union, America had to behave itself. It wasn't afraid of the Soviet Union; it was afraid of Communism. That's why from 1950 to 1980, they treated their workers so well—they were afraid of a worker revolt. The real threat was Communism as an opposing ideology to capitalism.

Unfortunately, today there's no opposing ideology to capitalism. That's why America can do what it wants. It does not fear any enemies. It does not fear internal revolt.