Copyright 2012 by John T. Reed

I am currently reading Mark Steyn’s brilliant best seller After America. Here are some quotes from pages 195 and 196 about the day Britain learned it was no longer a power of global reach.

If there is any single event that marked the end of Britain as an imperial power of global reach, it’s the Suez Crisis of 1956. Egypt nationalized the Suez Canal and London intervened militarily…Washington opposed the invasion.

[President Dwight Eisenhower] ordered his Treasury Secretary to prepare to sell part of the U.S. Government’s Sterling Bond holdings (that is, the World War II debt).

In London, the Chancellor of the Exchequer, Harold Macmillian, reported to the Prime Minister, Anthony Eden, that Britain could not survive such an action by Washington. The sell-off would prompt a run on the pound, and economic collapse, very quickly. Britain, humiliated, withdrew from Suez, and from global power.

And one day Washington will be on the reciving end of Beijing’s Suez moment.

I will note that the U.S. went from the world’s leading creditor nation in 1980 to the world’s largest debtor nation in 2000. This was caused by a series of presidents starting with Ronald Reagan who ran up huge deficits year after year. When you are a large creditor nation, you can make debtor nations jump through hoops by threatening to sell the bonds of the debtor nation. When you are a large debtor nation like Britain in 1956, you have to jump through the hoops held by your creditor nations.

Foreigners own 47% of U.S. government bonds. The U.S.’s largest creditor at present is China with 26%, followed by Japan. Ironically, U.K. is third. Here is a quote from Wikipedia:

…June 2008 report issued by the Bank of International Settlements, which stated, "Foreign investors in U.S. dollar assets have seen big losses measured in dollars, and still bigger ones measured in their own currency. While unlikely, indeed highly improbable for public sector investors, a sudden rush for the exits cannot be ruled out completely.

Such a “sudden rush for the exits,” called a “run on the dollar” (synonym for dollar hyperinflation), is precisely what scared Britain into withdrawing from Egypt and letting them take the Suez Canal.

What should the U.S. government do? Pay down the debt.

What will they do? Run the national debt up, accusing anyone who tries to stop them of throwing granny off the cliff, until the economy crashes and burns due to hyperinflation. See my How to Protect Yourself from Hyperinflation & Depression if you would like to avoid participating in that.

John T. Reed