For the past half-century, all things American have largely dominated the world. For those born since World War ii, it is hard to imagine it being otherwise. We take for granted the mighty power the United States has; for many, it is perhaps inconceivable that the U.S. could ever become a second-rate power.

America’s unique place in the world, together with its high standard of living and relative national security, has been largely sustained by the dollar’s role as the world’s currency for international transactions. However, as America’s economic difficulties grow, particularly its unsustainable trade deficit, the dollar is becoming increasingly less attractive to foreigners.

There will come a time when America will no longer have a free line of credit—when it will no longer be able to spend endlessly, nor meet the ballooning costs of its defense. “Shorn of its reserve currency role, the United States—with its massive trade and budget deficits, high indebtedness, declining currency, hollowed out manufacturing capability, and diplomatic isolation—would cut a poor figure in the world” (Economy in Crisis, February 2005).

The fact is, the backbone and structure—the underlying economic, political and diplomatic strength—of what has supported American hegemony in the world has already largely corroded, which is being reflected in decreased global influence and the increasing geopolitical difficulties the U.S. faces. Sustaining its current level of operations and influence in the world is becoming more and more difficult.

Viewed in light of the repetitive cycles of history, we can say with certainty that the days of the American empire are numbered. As surely as every other world empire has passed from the scene, so too will America’s supremacy—and its current policies are hastening its fall.

The British Empire provides a comparable example of what happens to an empire, or a predominant power, when its economic strength is eroded; when its currency is threatened; when its industrial base is gutted. What happens is, that empire collapses; its impact on the world stage shrinks, and another power, or powers, takes its place.

In August, U.S. President George Bush visited Asia in what Michael Meacher of the Telegraph described as a “search for money.” The United States, deeply indebted, with few friends, and with its financiers becoming less and less thrilled at holding U.S. dollars, “is reduced to seeking financial support from China, just as Britain was obliged to go cap in hand to the U.S. after the Second World War,” wrote Meacher. “And, as was the case with Britain 60 years ago, help will be forthcoming, but at a price” (August 18). For Britain, that price was loss of world dominance.

Meacher asserts that America’s response to its perilous financial state “is eerily reminiscent of the strategy adopted by Britain when its empire faced a similar financial and security challenge a century ago.” Between the wars, the economic foundation of Britain—even while still a military power—was eroding, chiefly because of a weakening industrial base and subsequent decline in exports resulting in a balance-of-payment problem. “Worldwide investments built up over the previous century were no longer sufficient to cover the British deficit. With sterling still the reserve currency, the solution sought was a mix of capital controls and imperial trade preference. The British Empire was transformed into an international trading and monetary bloc, with the main net savings surplus countries forced to keep those assets in sterling to finance Britain’s deficit.

“Today the U.S. appears to be trying to achieve a similar device” (ibid.).

It failed for Britain. The pound sterling soon lost its status as the world’s reserve currency, and much of Britain’s global clout disappeared with it. The warning signs are there that the U.S. will experience the same result.

“Hitherto the U.S. has used access to its enormous internal market to finance its growing worldwide military presence and particularly to ensure the continued flow of strategic commodities on to international markets, above all oil. America now has troops in 135 countries across the globe. But there are clear signs that this cannot be sustained indefinitely as U.S. trade and finance deficits continue to grow remorselessly” (ibid.).

A Global Policy Forum article back in August 2003 drew the same conclusion: “The U.S. can scarcely prevail as the global superpower if its economic fundamentals are weak. Britain’s 200 years of global supremacy were based on a strong currency, a large trade surplus and growing foreign investments. Trade decline in the late 19th and early 20th century gave a clear sign that Britain’s empire was on the wane. Today’s trade and payments deficits, and the falling dollar, may point in the very same direction for the global order based on U.S. dominance.”

Thus far, America’s ownership of the world’s reserve currency has been its saving grace. As the Dallas Morning News pointed out, “any other country that would dare maintain such a high debt would have had its currency slaughtered by now” (September 12).

Even so, a nation cannot rely on having a reserve currency indefinitely all the while implementing economic policies that destroy confidence in that currency.

The Daily Reckoning wrote that the U.S. as a great power is being destroyed from within. “You see, empire running is a serious trade. It can’t be done on borrowed money, especially money borrowed from incipient rivals. Only, look at Britain at the beginning of the 20th century. As soon as it exhausted itself in World War i, the helping hand from across the Atlantic grew stronger and bolder. Eventually, Uncle Sam had snatched the imperial mantle from the shoulders of the Queen. … The [American] empire—as is the wont of empires—was bound to wend its way to the trashcan anyway. But George W. Bush, Alan Greenspan, and the whole host of movers and shakers … have all hastened along the moment of its undoing” (September 11).

Indeed, the dollar’s attraction as the reserve currency is waning. In recent years, reserve banks have slowly been diversifying their currency holdings away from the dollar. The Nikkei Weekly reports that a number of central banks have recently boosted their holdings of euros, “helping solidify the euro’s status as the No. 2 foreign reserve currency” (September 4). During the period between the end of 1999 to March 31 this year, holdings of euros by International Monetary Fund member countries rose from 18 percent of foreign currency reserves to 25 percent. During the same period, the dollar lost 5 percentage points, bringing it down to 66 percent.

Increasingly we hear reports of Middle Eastern countries converting their dollars into euros; or Iran threatening to trade oil in euros. Russia is even claiming that some countries are using the ruble as a reserve currency. Asia is working toward establishing a common currency. Chinese officials have been speculating on whether they should reduce their dollar reserves. Certainly, the trend is toward diversification of dollar holdings as confidence in a weak dollar and an indebted nation erodes.

A change in status of the dollar as the world’s reserve currency has staggering implications. It would almost single-handedly mean a massive upheaval in global power away from the United States. Tomorrow, theTrumpet.com will discuss who stands to benefit should this shift occur.