The Decay of American Hegemony: Loss of Reserve Currency Status Looms

by Wall Street Rebel-James Dale Davidson | 07/13/2022 11:49 AM
The Decay of American Hegemony: Loss of Reserve Currency Status Looms

Since the beginning of recorded history, the exercise of power has been inextricably linked to the management of monetary resources.


“Of course, the tightening vise of fossil fuel depletion is only part of what’s happening just now. The rising economic burden of climate change is another part. The disintegration of America’s global hegemony, and the unraveling of economic arrangements based on that hegemony which funnel an absurdly large share of the world’s wealth to the United States, is another part. There are more. Our skies are black, with birds coming home to roost.  That’s usually the way things work out in the twilight of a civilization: the problems that have been piling up steadily all along, but have been held at bay by increasingly desperate efforts, finally overwhelm the barriers meant to contain them and come crashing in all at once.” - The End of Industrial Civilization, John Michael Greer


John Michael Greer is an intelligent man. (I say that because he sees civilization's fundamental dilemmas in much the same light as I do). Of course, like most people today, Greer has fallen prey to the illusions of “Climate Change.” Chief among these is the notion that human action informs the minor rise in global temperatures documented in recent decades. Professor Herman Harde, a German environmental physicist, calculates that “human-caused CO2Emissions account for only 0.05degrees Celsius of Global Warming since 1750. See

Seldom has such a scientifically bogus proposition as anthropogenic warming” been so firmly shrouded in the colors of “Science.”

It is evident beyond dispute that temperatures have fluctuated repeatedly during the earth’s 4.5 billion-year history. There have been five major Ice Ages during this span. The most recent (and current) of these began 2.5 million years ago.

Until a few years ago, no one would have imagined that recurring Ice Ages interspersed with interglacial periods of temperate climate were triggered by human activity. We are now in an interglacial temperate period that began 11.5 thousand years ago. Whom should we blame for it?

If you analyze the explanations for what caused the waxing and waning of the Ice Ages, they turn on variations in the earth’s orbit around the sun and variations in cosmic ray flux generated by the migration of our solar system through the Milky Way. Each time we pass through the galaxy's spiral arms, we should expect a colder climate.

CO2 has little or nothing to do with it.

The actual causes of “Climate Change“ are shrouded in the mysteries of physics — informed by the shifting Barycenter of the solar system and cosmic ray flux caused by the changing state of the interstellar medium surrounding the heliosphere due to the migration of the solar system through the galaxy.

I doubt that Greta Thunberg has or will study this in high school physics classes in Sweden. However, Thunberg has been awarded an honorary doctorate from the University of Mons. That doesn’t make her an expert on the heliosphere, just a precocious scold.

Sixty or seventy years from now, when she should be older and wiser, I wonder how she will explain the failure of the 21st century’s great crony capitalist project — the Global Warming, no “Climate Change” hustle?

Ironically, even in what were supposedly the “warmest years in history” (unquestionably a bald-faced lie), studies of deaths due to non-optimum temperatures show that human deaths from cold vastly outnumber (25-to-one) deaths from heat exposure. See:

It is not only humans who prosper in warmer weather; entire ecosystems do. Far from poisoning the environment, higher CO2 levels globally promote growing, healthy, productive ecosystems.

How? A higher level of atmospheric CO2 enables plants to use water effectively. Higher ambient CO2 induces plants to reduce the number of stomata. William Astley explains, “C3 plants (trees, cereal crops, and shrubs) lose roughly 50% of the water they absorb due to trans-respiration (loss of water from the plants stomata which are holes in the leaves to let in CO2). When CO2 rises, C3 plants produce fewer stomata, reducing the plant's water loss. This results in more water at the plant's root, enabling synergistic bacteria on the roots to produce more nitrogen byproducts, increasing plant growth.”

This enables the plants to survive in regions of low rainfall, such as deserts. Paleoclimatic records show that temperatures were warmer than now during the Holocene Climate Optimum (9000-4000 BC), as much as 2-5 degrees Celsius. The northern half of Africa received more abundant and more stable rainfall. What is now the Sahara desert was a green savannah then.

As temperatures fell, the deserts grew.

In recent centuries, the area south of the Sahara, the Sahel, was rapidly becoming a desert as well. As reported by National Geographic News, Satellite photos show an appreciable increase in plant cover in the Sahel in recent decades. But the desertification of the Sahel apparently has been arrested by the marginal increase in atmospheric CO2.

See:  More CO2 helps plants/Greening exponentially.  Vast Benefits to Global Ecosystems from warmer climate, more CO2 Note, “No Tricks Zone” reports climate and energy news from Germany. It is of interest worldwide.

Expert Opinion Curdled by Crony Capitalism

While I am in most respects a fan of John Michael Greer, his comment that I quoted at the top of this piece underscores the hazard of relying on experts to make decisions with far-reaching economic consequences.

This was certainly the case with the COVID pandemic. It turned a public health bureaucrat, like Dr. Anthony Fauci (who knows less about economics than Greta Thunberg knows about physics), into an economic czar.

Why have so many experts betrayed the public trust? I suspect the search for truth among experts has been curdled by the growing allures of crony capitalism.

My late father alerted me to this downside at an early age. He memorably advised, “Don’t ask the barber if you need a haircut.” That is an intuitive way of protecting yourself from crony capitalism on a micro basis.

Novelist Sinclair Lewis highlighted another macro aspect of the crony capitalist distortion of understanding. He observed, “It is difficult to get a man to understand something when his salary depends upon his not understanding it.” So true.

The cavalcade of antics by so-called “climate scientists” provides a case in point. They are motivated to march in only one direction. Notwithstanding abundant paleoclimatic evidence that contemporary climate variations are of a similar pattern and magnitude to those dating back 800,000 years, they tend to conclude that contemporary climate change is caused mainly or even entirely by humans burning fossil fuels. That is the only basis for so-called “Climate Scientists” to secure funding for their research.

Of course, the received explanation cannot account for the many previous times when climate fluctuated within similar bounds. Presumably, not even the most infatuated Greta Thunberg fan would argue that CO2 emissions from cavemen roasting wooly mammoths brought the last glacial period to an end 11,500 years ago.

Heated by a Blanket with 33 Meters Between Threads?

Apart from all that, a major problem of quantum physics diminishes the plausibility of Global Warming caused by CO2 emissions. As you know, the global warming alarmists argue that atmospheric CO2 functions like a blanket, trapping heat in the atmosphere, rather like a blanket traps heat near your body.

But look more closely. Physics Professor Nasif Nahle of the University of Nuevo Leon has. He has mathematically assessed the rate at which CO2 molecules retain heat.  Nahle found that the mean free pathfor a quantum wave to pass through the atmosphere before colliding with a CO2 molecule is about 33 meters.


Such a vast chasm between molecular collisions would appear to undermine a visualization of CO2 functioning like a blanket. It is more like being wrapped in a couple of random threads. If the threads of your blanket were 33 meters (that is 108 feet) apart, its heat retention properties would be negligible.

Equally important, Nahle also determined that the rate at which CO2 molecules can retain heat at the surface may only be about 0.0001 of a second.

If heat loss is slowed down at a rate of just 0.0001 of a second by CO2 molecules, the atmospheric CO2 concentration whether 300 ppm or 400 ppm effectively doesn’t matter. The time-lapse differential would be immaterial for either concentration.

Consequently, Nahle concludes, carbon dioxide has not affected climate changes or warming periods on the Earth.” I believe that he is right.

John Michael Greer has formulated a provocative preface to the ‘End of Industrial Civilization.” He highlights three aspects of the problem. “The tightening vise of fossil fuel depletion is only part of whats happening just now. The rising economic burden of climate change is another part. Another part is the disintegration of America’s global hegemony and the unraveling of economic arrangements based on that hegemony which funnels an absurdly large share of the world’s wealth to the United States.”

What stands out to me is that the three factors he highlights aren’t altogether independent of one another. The “tightening grip of fossil fuel depletion” is probably an informing factor animating alarms about “climate change.”

The problem has been framed in such a way as to necessitate a transition from a fuel-based energy system to a materials-based energy system. An 8th grader with an internet connection and a pocket calculator could soon realize this is a $4.5 trillion transition.

In the time of crony capitalism, many who hope to profit from the expensive transition from a fuel-based to a materials-based energy system are keen to see their hefty investments in the energy transition subsidized at your expense. Hence the hyperbole abounds, curtailing CO2 emissions to “save the world.”

Of course, if you think about it, a materials-based energy system that requires $700 billion of new battery capacity necessitates mobilizing vast quantities of rare earth minerals widely distributed throughout the earth’s crust. The Role of Critical Minerals in Clean Energy Transitions, by the International Energy Agency documents a looming shortage of minerals such as copper, lithium, nickel, cobalt, and rare earth elements dysprosium, neodymium, terbium, europium, and yttrium, which are required in unprecedented quantities for the global energy sector's secure and rapid transformation. For more, see:

If the Climate Change alarms are a second-order effect of the severe depletion of fossil fuels, as I believe, then both may factor in triggering the twilight of American hegemony.

America’s precarious hegemony was primarily informed by the introduction of energy from oil into the global economy. As you know, the oil industry is traditionally thought to have begun in 1859 in Titusville, Pennsylvania, when “Colonel” Edwin Drake, a retired New York and New Haven Railroad conductor, drilled a 69-foot well on behalf of the Pennsylvania Rock Oil Company.

While drilling his first well, Drake improvised an important invention — the drill casing. But he neglected to patent it and spent the remainder of his life in poverty.

Drake’s distinction in drilling the world's first oil well seems to have been as exaggerated as his military career. Ignacy Lukasiewicz began extracting oil in the early 1850s fared better as an oil entrepreneur than Drake. Lukasiewicz dug for oil, found some, and started experimenting with refining the oil. In 1852, Lukasiewicz turned his pharmacy in Lviv, now in Ukraine, into a primitive oil refinery. He was the first in the world to distill kerosene from oil, separating it from the light gasoline and the heavier asphalt. Together with business partners, he also developed the first kerosene lamps.

Lukasiewicz was more of an oil man than Drake. Lukasiewicz was not only a pioneer of oil extraction. He was also a pioneer of oil refining. And as an entrepreneur, he made a fortune selling the Kerosene lamp, a product of his invention that put refined petroleum to good use.

But no, Putin did not invade Ukraine to dominate the world oil business in Lviv. Lukasiewicz may have been more able than Drake to profit from his pioneering role in the oil business.

While Lukasiewicz may have shown brighter than Colonel Drake in many respects, the U.S. was destined to dominate the oil industry worldwide and put its productive powers to work in an unprecedented explosion of economic growth. However, the development of the oil industry did not turn solely on the skills and energies of two men. It entailed the structure of law, and the entrepreneurial alertness and the geology of oil deposits of two whole societies.

More Energy Deployed Since 1900 Than in All of Previous Human History

Unlike in the past, when almost all physical work was powered by human and animal somatic energy, most work today is powered by exogenous sources—.Tim  Morgan writes, "of the energy – a term coterminous with 'work' – consumed in Western developed societies, well over 99% comes from exogenous sources, and probably less than 0.7% from human labor." This is why the challenge to economic growth posed by the “tightening vise of fossil fuel depletion” is so serious.

For most of recorded history, economic growth was negligible. In Something New Under the Sun, historian J.R. McNeil estimates that energy use worldwide increased three-fold during the nineteenth century. That process of accelerating energy conversion increased even more dramatically during the twentieth century when global oil production compounded at an annual growth rate of 5.73 percent. This represents a genuinely astounding departure from the past. McNeill points out that humans have probably deployed more energy since 1900 than in all human history before 1900.

“My very rough calculation suggests that the world in the 20th century used ten times as much energy as in the thousand years before 1900 A.D., and in the hundred centuries between the dawn of agriculture and 1900, people used only about two-thirds as much energy as in the twentieth century."

We live better than our ancestors because so much more work has been done on our behalf. Little wonder the material standard of prosperity in the advanced countries, those that harnessed the most energy in the 20th century, particularly the United States, reached unprecedented heights. If McNeil can be believed, 20th and now, 21st-century prosperity was supported by one-third more work than had been accomplished throughout human experience back to the dawn of agriculture.

Money and Power

Manipulation of money has been integral to exercising power ever since money was first invented. As David Glasner wrote in "An Evolutionary Theory of the State Monopoly over Money:"The history of money virtually coincides with a history of the devaluation of the currency's debasement, depreciation, and devaluation by the state.Thus, coinage and tyranny seem to have emerged together, a confluence that is borne out by the experience of the ancient world. Both coinage and tyranny originated in Lydia. Gyges, the Lydian king of the seventh century B.C. to whom the term tyrant was first applied (Durrant 1939, 122), is also credited with having made coining 'the prerogative of the state after he had first used it to obtain supreme power.

The sudden emergence of economic growth at previously unprecedented rates after the Industrial Revolution created new opportunities for exploitation of money—including the chance to franchise the vast seignior age profits of fiat money.

Rapid growth enlarged expectations of future production, thus generally enhancing the collateral value of the shadow economy of money and debt that represents claims on future wealth. Naturally, the lien on future income tended to rise with its apparent value.

Thus the implicit BTU content of fiat money rose.

What triggered the shift from gold and silver to pure fiat money? Economic historians tend to blame disruptions in the wake of World War I and other unfavorable winds. But I see it in more simple terms. The shift from gold and silver to fiat money was a follow-on consequence to the unprecedented surge in per capita energy use from the middle of the nineteenth century forward.

Short-Term Growth Accelerated by Fiat Debt Expansion

The economy is inevitably informed by the physical resources that underlie it. Hydrocarbon energy dramatically lifted growth rates and introduced an almost hydraulic pressure to restructure money. When real growth rates rose, as energy inputs expanded, this implicitly enlarged the energy economy of the future, permitting, as Tim Morgan put it, the financial shadoweconomy of money and debtto expand. But the gold standard constricted the expansion of the financial shadow economy of money and debt, so it had to go.

The BTU Content of the Dollar

The introduction of hydrocarbon energy began a process that changed money and banking. But it has been little appreciated, then or now, that the fiat money system that emerged in response to rapid growth, fueled by the surge of BTUs derived from hydrocarbon energy, could only be a transitory advantage. This is true for at least two fundamental reasons, both of which argue against an indefinite continuation of rapid growth:

1) The marginal returns from the early applications of hydrocarbon energy in the economy were bound to fall as energy inputs rose.

2) Due to the magicof compounding, an indefinite expansion of the economy called for prodigious energy input increases to an unrealistic degree. As Kenneth Boulding famously quipped, Anyone who believes that exponential growth can go on forever in a finite world is either a madman or an economist.

Declining Returns from Energy Inputs

People following the normal economic imperatives tended first to invest newly available energy in areas of greatest return, generally where inadequate somatic energy capacity was a bottleneck to production.

For example, the productivity gain from replacing a mule-drawn plow with a tractor was tremendous. But deploying a comparable quantity of BTUs to air condition the farmers house arguably contributed less dramatic gains. By the very nature of things, it tended to become harder to achieve robust productivity gains by increasing energy use as the supply of exogenous hydrocarbon energy expanded.

The record bears this out. If you compare economic growth through the twentieth century with the growth in energy inputs, there is clear evidence of diminishing returns. Energy analyst Gail Tverberg commented in a 2015 article, Why We Have an Oversupply of Almost Everything (Oil, labor, capital, etc.),” thatadding one percentage point of growth in energy usage tends to add less and less GDP growth over time.This means that if we want to have, for example, a constant 4% growth in world GDP for the period 1969 to 2013, we would need to gradually increase the rate of growth in energy consumption from about 1.8% = (4.0% 2.2%) growth in energy consumption in 1969 to 2.8% = (4.0% 1.2%) growth in energy consumption in 2013. This need for continued growth in energy use to produce the same amount of economic growth is happening despite our efforts toward efficiency and developing a service economy.

It also points to the looming end of U.S. hegemony. The hegemony of the British Empire was powered by and coterminous with coal. American hegemony has been powered by oil. It seems destined to be conterminal with the oil-powered economy. Keep your eyes on “the tightening vise of fossil fuel depletion.” It is an indicator of trouble ahead for U.S. living standards. It also portends a coming re-constitution of the nature of money, something to stay alert about as an investor.

The shadow economy of money and debts is destined for a dramatic contraction in keeping with the declining potential for growth. Do you doubt it? Ask yourself whether you as an investor can confidently expect global oil output to double again in the next seven to eight years. By implication, that is what would be required to return to the twentieth-century growth rate in living standards. It is not in the cards.

This was underscored by the recent Goldman Sachs report projecting that we’re about to experience "one of the largest energy supply shocks ever."

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