No One Saw This Coming…

“I don’t think there was one person who saw this coming.”

Those words were spoken by a stunned, defeated Romney campaign advisor on election night of the 2012 presidential campaign.

Poll after poll had buoyed Republican hopes. All of the old-fashioned indicators pointed to a Romney victory. That is, until the first voter-turnout results started pouring in.

What the Romney campaign didn’t realize was that its “fat and happy,” traditional approach to campaigning was dead in the water. Team Obama relied on technology and data-mining to outsmart and outwork the Romney camp, resulting in a voter-turnout advantage of historic proportions. The game had fundamentally changed … and not by chance.

Today, the global economic landscape is experiencing a similar tectonic shift, and America’s supremacy is threatened by a nation that is working harder and smarter than we are …

As Americans, we think we inhabit the freest, wealthiest, most-democratic country this planet has ever seen. And that was true – emphasis on “was” – at one point. But the assessment is no longer universal. What we don’t realize is that the world sees America far differently than we Americans see ourselves – and in that is a major character flaw that will upend our country.

In fact, others puzzle at our self-assessment. Just about everywhere I’ve traveled in the world since 9/11, the locals are honestly amazed at Americans and argue – rightly and often with a sense of melancholy – that we’re looking at ourselves through beer goggles just as the bar is closing. They see the Land of the Free losing its liberties to laws that spy on our activities and constrain our physical and financial movements. They see that America has managed its currency and its finances with all the grace of an obese glutton.

All empires reach a point of inevitable decline, and America’s financial dominance has passed the tipping point – though, like the drunk at last call, we’re not going to realize how bad this night really is until we see the effects in the harsh light of morning (and that dawn is on its way).

Much like the Romney campaign was surprised by unexpected events last November, America will soon be surprised by what’s brewing elsewhere in the world – in places like Russia, for instance. They’re working to undermine our supremacy by attacking us tangentially. In doing so, emerging countries like Russia – along with China, South Africa, the Middle East and others – could hasten our undoing … and the great bulk of America has no clue what’s coming.

Worse, because we are such a patriotically arrogant and myopic country, we refuse to even consider the possibility that America in the future might be an anything other than king of the hill.

A Currency Cold War is Underway

Last fall, I sat in a cozy living room on the outskirts of Tallinn, Estonia, drinking coffee, eating freshly baked pastries and listening to a former parliament member for the Soviet Union tell me about a phone call he had recently received. The call came from inside Russia’s central bank. The bank officials wanted input on how to build a reserve currency, one backed by the plentitude of hard assets Russia owns. At last count, the country had an estimated 5,000 tons of gold ore still in the ground and some of the world’s largest reserves of oil, natural gas, coal, aluminum and iron ore.

My host, Ivar Raig, now a prominent economist and legal professor in Estonia, knows all about currencies, having helped Estonia build one in the aftermath of the Soviet Union’s collapse. What he told me – easily the most-stunning bit of information I gathered on that research trip – has stuck with me.

“Russia,” he announced, “is using oil, gas and minerals as the new tools of war instead of military tools. This will be the beginning of a currency cold war.”

Russia, like many countries, knows our U.S. dollar is vulnerable. Our currency is backed by nothing. You can argue, as cheerleaders love to, that the dollar is supported by the full faith and credit of the U.S. government. But that’s marketing B.S. The U.S. has twice defaulted on the dollar, despite claims to the contrary. If we’re basing currency value on full faith and credit, then we should all be rushing to the Danish krone, which has never seen a default.

In reality, liabilities, not assets, back our greenback – an unpayable mountain of debt, now running toward $125 trillion when you include all the off-balance sheet costs we owe as a nation. We have an increasingly dysfunctional government that shows no signs of honestly confronting our financial frailties. And we have a spending affliction in D.C. that will change only when a financial catastrophe forces politicians – probably under threat from violent mobs – to stop acting like insolent teenagers who can’t figure out how to manage the debit card they’ve been given.

The Russians and the others all know that America’s financial decline will one day destroy the greenback. Few in America seem to realize, or seem to care, that this outcome is racing toward us.

Thus, in a strange twist of historical fate, the Russian ruble could become the world’s first hard-currency, backed by real assets, replacing the dollar, backed by real debts.

Russia is all too happy to step into the eventual void by working now to establish a version of a hard currency as a new global standard. True, Russia has its own set of political issues to grapple with, and Western countries will be loath to keep their reserves in the ruble. But emerging nations aren’t so picky. They will gladly keep some of the reserves in a ruble that is provably backed by real assets.

And here’s why that’s important: The emerging nations have all the money!

Of the top 20 countries with the largest currency reserves, 13 are emerging nations – including Russia, at number four. As those countries pull cash out of the dollar and send it to Russia, the declining value of the dollar will slam U.S. consumers with higher prices for all the goods we import. So, this is not an esoteric exercise. It has real impacts on us here at home.

Never Assume You’re on Top

I expect none of this to change. Only a handful of Americans care, because the great bulk will never accept the premise that America isn’t number one, or that we lived in a deeply flawed nation with structural weaknesses that could very well tear the country apart.

Russia’s clearly not the greatest country either. But if it successfully builds a reserve currency, America’s inherent financial weaknesses will ripple through our economy.

If Romney’s 2012 election fiasco serves any historical lesson, it’s this: Never assume you’re on top … because what you never expect is likely to prove you wrong.

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