11/27/2008 05:12 am ET Updated May 25, 2011

The Sick Man of the North Atlantic

Money, observed the witty British thinker Malcolm Muggeridge, is the homogenized form of power. No more money, no more power.

The great imperialist Winston Churchill led his nation into World War II vowing "never to preside over the fall of the British Empire." Yet he ended up doing just that in 1945 after Great Britain emerged from the conflict bankrupt and demoralized. The British Empire, which in 1939 had controlled one quarter of the earth's land surface, quickly disintegrated and ended on the trash heap of history.

Six decades later, the United States has also gone bankrupt thanks to a national orgy of borrowing, and the sharp decline of manufacturing and its replacement by the non-productive, business of parasitic finance as America's leading industry. Add two ruinous, $1 trillion foreign wars in Afghanistan and Iraq, and a government whose stunning incompetence and brazen ignorance was exceeded only by its reckless imperial arrogance.

The financial panic that has gripped the globe, and the ignominious collapse of once mighty Wall Street, proved the American colossus had feet of clay, as arch foe Osama bin Laden had predicted in the 1990's.

Washington's furious printing of untold billions of new dollars to prop up its sinking economy, finance this year's staggering $1 trillion deficit, and pay gargantuan foreign debts looks very likely to unleash a storm of dangerous inflation that will infect the world's financial system.

Recall the great economist John Maynard Keynes warned that the quickest way to destroy a nation was by wrecking its currency through inflation. Germany in the 1930's offers one of the most horrible examples of a great nation laid low by inflation and then thrown into the arms of political extremists.

The world balance of power is already shifting. For one example, Pakistan's new president, Asif Zardari, went cap in hand to China last week, seeking $4 to 6 billion in emergency loans. Pakistan is on the verge of bankruptcy and may shortly default on its debt, risking economic, social and political chaos.

Normally, Washington would have been counted on to come and bail out its rented Pakistani politicians. But the United States, which has been paying that nation's politicians and army $1.2 billion per annum to support the occupation of Afghanistan and fight tribal opponents, has no cash to spare for Islamabad. So Pakistan is turning to China, which has $19 billion in foreign exchange reserves -- the world's largest.

Both John McCain and Barack Obama have been vying with one another to promise more troops for Afghanistan. But now, it seems likely the U.S.-led occupation of Afghanistan will be adversely affected by Washington's new status and pauper and the world's biggest debtor nation -- the Sick man of the North Atlantic.

Bankrupt people, companies, and nations have to sell assets to meet their debt obligations. China and Japan alone hold over $1.5 trillion of U.S. government securities in the form of U.S. Treasury notes and bonds (which are really just fancy IOU's from Uncle Sam).

Nervous Chinese and Japanese central bankers now want real assets rather than more paper. They have their own mounting problems. So there is talk of America's Asian creditors demanding their IOU's be converted into shares in U.S. corporations and property.

Sovereign wealth funds from the Arab oil states and Singapore may soon demand chunks of premier U.S. corporations and property.

In the 19th century, European imperial powers forced loans on China, Egypt, the Gulf, Iran, and Latin America. When the locals could not pay off these debts, parts of their territory were seized, or their ports bombarded. Russia was forced to sell Alaska to the U.S. for next to nothing when it could not repay its debts.

China's coast was carved up by the British, French, Germans, Russians, Americans and Japanese. These imperial foreclosures created the trading "concessions" of Hong Kong, Shanghai, Tsingtao, Tianjin, and Port Arthur.

Now, it's payback time for China. How ironic that the Chinese Communists have ended up with a sound financial system while the Wall Street bandit capitalists have gone bust and have gone to Washington with their begging bowls.

To help pay its monster debts, I suggest Washington consider selling Louisiana back to France. Canada, whose banking system, once sneered at by Americans as "boring and stodgy," remains solid, ought to pick up Florida for a song. Switzerland would do well to spend some of its gold horde and buy Vermont and New Hampshire.

Mexico will want to buy Texas, Arizona and New Mexico. Russia, of course, will buy back Alaska and Washington State. China will purchase California. San Francisco will become `New Shanghai' and Los Angeles, "New Beijing."

Japan will buy up Washington state, Oregon, Montana, and Hawaii. Holland will repossess New York State, and Germany will buy German-settled Pennsylvania, Wisconsin and Minnesota. The German Central Bank will quickly restore order there.

Pakistan's move into China's financial embrace is a harbinger of things to come. Unless the U.S. quickly repairs its economy, its world power could slip away as quickly as post-war Britain's, leaving China, Japan, Russia, the EU, the Arab oil states, and India as the world's new super-powers.

This may not be so awful. All power, as Briton's Lord Acton famously said, corrupts; and absolute power corrupts absolutely. As the world's sole super-power, the U.S. under the Bush administration became totally corrupted by imperial hubris, financial fraud, lust for resources, and greed.

A world with more balanced, diffused power may be preferable. But such profound historical change is always dangerous and unpredictable. Right now, China looks like top dog. Chairman Mao will be smiling.

Meanwhile, Americans are now paying the price of imperial hubris and national financial fraud. Pity the next president who will inherit the Augean Stables filled by George Bush and the Congress over the past eight years.