Will debt sink US as it did Ottomans?

For 500 years the Ottoman Empire had dominated the Middle East and the Balkans. Their domain stretched from the Atlantic to the Persian Gulf and Indian Ocean, from the Sahara to the Crimea. Their vast armies several times besieged Vienna and for centuries plundered southern Russia for slaves. But by the end of the 19th century they were called “the sick man of Europe”. What caused the collapse of this mighty empire?

Turkish sultans ruling from Constantinople realized that to keep up with the West they needed to modernize. Lacking the productivity and economic dynamism of Europe, they borrowed from western banks in an effort to bring their military and civilian infrastructure to western levels. By 1881 Turkish debt to the West exceeded £200 million, forcing the government into bankruptcy. A council was set up to manage the debt, but six of its seven members were agents of Western banks. All revenues from government monopolies and tariffs were turned over to this council to repay the foreign debt. The result was increased penetration by Western financial interests in the affairs of the Ottoman Empire.

Power gradually transferred from the sultan to western financial interests. The Sultan was forced to lift tariffs on British imports, especially British cloth mass produced more cheaply in the mills of England. This destroyed local cloth manufacturing and further crippled the economy of the Middle East. This massive debt allowed the West to justify seizing other Ottoman assets like banks, irrigation projects, public utilities, and even entire provinces within the Ottoman Empire.

Egypt, an autonomous Ottoman province, owed £68 million to English creditors by 1876. To recoup their investment the British government seized Egyptian shares in the Suez Canal and forced Egypt to make further capitulations. The governor of Egypt, Ismail Pasha, was forced from office and the country was run by Western (primarily British) banking interests. Soon Egypt was transferred from the Ottoman to the British Empire. Other provinces, like Yemen and Kuwait, soon followed.

What had been for many centuries the greatest empire in the world, became so burdened with debt that they dwindled away with hardly a whimper. Unable to pull themselves out of the spiral of ever-increasing red ink, they were relegated to economic dependency and semi-colonial status.

What can be learned from the Ottoman experience of debt and dissolution?

The United States is now deep in debt to China. If (and when) we default on that debt, what assets will China seize? Our government is now the principle shareholder in General Motors. Will the Chinese seize GM, or even the IRS? Will they control our banks and utilities? Will they control our entire economy in order to insure repayment of our debt? Will they force our president from office and appoint a council of Chinese bankers to rule in his place? Will America be relegated to economic dependency and colonial status? How did we get ourselves in this situation, and is there any way to get ourselves out?

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