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Rotting Within, Tremors Without:
The State of the Empire, 2006


January 14 / 15, 2006

In 2005 the US economy defied all the known tenets of economic theory: In the face of record high trade deficits, monstrous budget deficits, a failed war and major political scandals involving presidential aides, the dollar strengthened against the Euro and the Yen, the economy grew at 3.4% and all the major investment houses had record profits. It seems the US economy defied the laws of gravity, floating above the political turmoil and structural vulnerabilities. But the point of 'prophesy' is not to specify the day and hour of sharp decline and recession but to identify the deep structural vulnerabilities and the possible trigger events, which could detonate a crises.

The US economy will continue to diverge in a double sense. The financial sector will expand overseas, especially the major investment houses like Goldman Sachs, J.P. Morgan, Citibank while the manufacturing sector led by the 'Big Three' automobile sector will decline even further, with a good chance that General Motors will go into bankruptcy. The US multi-nationals will expand on a world scale, buying into major banks and industries, especially in China, extending the economic reach of the empire, while the domestic economy will suffer as the housing and real estate speculative bubble collapses, high energy prices undermine export competitiveness, resulting in sharp decline in consumer spending. The US empire will increasingly become identified with its economic giants as its failed wars will lead to a withdrawal of combat troops and a reliance on airpower, local military forces, economic sanctions and accommodating to social liberal regimes.

The domestic social crisis will deepen as overseas profit opportunities expand. In 2006, over 90% of US workers will be paying for their costly individual health and pension plans or, if they cannot pay, they will lose coverage. Precarious work contracts are the norm for all but a small sector of public employees. Real inflation (including increased health, education, energy and pension costs) will rise to about two times the consumer price index and contribute to the further decline in actual living standards. A rapid deflation of the housing bubble would reduce the "paper value" of homeowners by half and force many who are heavily indebted into bankruptcy. Nevertheless, as happened in recent decades (after the Savings and Loan, Dotcom, Enron and other speculative failures), while millions of small speculators and investors in real estate will lose billions of dollars, their discontent will not find any political expression. The greater the inequalities in income, property and wealth between the financial and imperial economic elites, on the one hand, and the domestic wage and salaried classes, on the other, the lower the level of organized political and social opposition.

In 2006 the US will become the developed country with the greatest inequalities, with the most sustained decline in living standards and the nation least able to organize a defense of social rights ­ let alone an alternative - against the empire-centered model of capitalist accumulation. In a word, the domestic crisis of living standards will finance further economic empire building rather than challenge it.

US global expansion is sustainable because of fundamental changes taking place in India, China, Indo-China and the oil kingdoms of the Middle East. These countries have lowered many barriers to foreign investment, joint ventures and even majority ownership of high growth industries, banks and energy sources. US , European and Japanese MNCs and banks will accelerate their entry beyond initial beachheads and move across all sectors of the economy, with greater depth: 2006 will mark China's transition from "national capitalist" to a model of imperial and national led capitalist growth.

The US will continue to substitute an air war for a ground war in Iraq: For every 10,000 troops withdrawn, there will be hundreds of added air attacks. The US policy toward Iraq is a classic case of "rule or ruin" of Biblical proportions. Since the US or its puppet regimes cannot rule, Washington's policy is to regress the country into an "Afghanistan" of warring clerical and ethnic warlords and tribal chieftains based on min-fiefdoms. The debate over a new war against Iran is still not resolved because of the deep divisions in Washington, Israeli military threats and the spy trial of two leaders of the major pro-Israel lobby, the American Israel Public Affairs Committee). Washington can be expected to push for Security Council economic sanctions, which will likely fail because of a China/Russia veto. Subsequently it is possible, especially if Netanyahu is elected Prime Minister, that Israel will attack Iranian experimental nuclear energy sites, with the complicity of their partners in the White House and Congress. Israeli aggression will likely unleash a series of proxy wars in Lebanon, Iraq (including "Kurdish" Iraq) and beyond, leading to an escalation of US casualties and weakening Washington's client regimes (Saudi Arabia, Jordan, Egypt etc)

In Washington, Congress and both political parties will be further discredited as Jack Abramoff, the self-confessed lobbyist-swindler will implicate dozens of Congress members, party leaders and government officials in an enormous bribery scandal. The trial and prosecution of Congressional leaders, especially Republican heads of Congress, may prevent any new regressive and repressive legislation from being enacted, but may spur the President to engage in an overseas military adventure(bombing Iran) to paper over the crisis.

On the other hand, another failed military intervention by the White House in the context of a discredited Congress led by felonious party leaders could ignite a grass roots movement for impeachment.

A weakened US military, the decline of orthodox neo-liberal clients, and failed diplomatic initiatives in regional forums, is forcing the US toward "accommodating" center-left politicians in Latin America. Washington's greater flexibility will find expression in the continuing good working relations with the Presidents of Brazil, Uruguay, Argentina and probably Bolivia. The State Department's hostility toward Venezuela's President Chavez will be tempered by its loss of internal levers of power, and the close working relations between the US and Venezuelan oil companies. The US will likely not intervene in the elections in Colombia, Chile, Mexico or Brazil, because each of the major candidates are well within the US neo-liberal orbit.

The improbable outcome in Peru, where a 'nationalist' former military officer close to Chavez is a major contender, will likely result in heavy backing for the conservative candidate. Washington will probably engage in some rear-guard 'dirty tricks' in the Venezuelan Presidential elections, knowing in advance that Chavez is likely to win by a substantial majority.

In other words, Washington will lose its automatic voting majority in Latin America and be forced to shelve some of its most blatant attempts to impose economic dominion,. Nevertheless none of its strategic military bases, extensive financial and resource holdings and lucrative debt payments will be threatened by the election of 'center-left' Presidents. The major caveat to this potential 'co-habitation' outcome is a successful popular uprising if the center-left fails: In that case Washington will likely intervene with local proxies, detonating regional opposition.

In summary, 2006 will certainly be an extremely volatile and uncertain year for the Empire. The military defeats, internal crises , a big decline in the dollar and a general weakening of domestic economic fundamentals are juxtaposed to growing overseas economic expansion, high rates of financial profits, extremely weak internal opposition and accommodating elites in Asia and South America. The greatest threat to empire building is not domestic nor in the competitive marketplace but in a possible war against Iran ­ either a US or Israeli attack could set in motion a series of severe economic political and military shocks which would radically change all previous predictions and outcomes regarding the state of the Empire for 2006.

The second big shock in the making is the growing popular revolt against the monstrous inequalities and terrible working conditions imposed by the Chinese ruling class in alliance with foreign capital. A further shock could emerge beyond 2006 if and when the current commodity boom collapses and undermines the export strategy of the center-left regimes in Latin and Central America.In that context it is likely that there will be a new wave of extra-parliamentary, anti-imperialist movements that could send tremors throughout the Empire.

James Petras, a former Professor of Sociology at Binghamton University, New York, owns a 50 year membership in the class struggle, is an adviser to the landless and jobless in brazil and argentina and is co-author of Globalization Unmasked (Zed). His new book with Henry Veltmeyer, Social Movements and the State: Brazil, Ecuador, Bolivia and Argentina, will be published in October 2005. He can be reached at:

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