One of the more depressing aspects of the GFC that is unfolding is the ramification for the entire English speaking world as the USA finds itself in retreat. The remarkable thing about the retreat is that it follows on from the moment in history when the USA was most exultant about its hegemony. If you look back at the world as it was in 2000, the USA was firmly entrenched as top dog with a very strong presence all over the globe. The military, economic and cultural power of the United States was unparalleled in history.
Then, in the wake of 9/11 we saw America plunge into not one, but two wars, and the two wars have taken their toll on the prestige of America. Not only that, it has cost lives, credibility and much money. On top of all this, the financial powerhouse of Wall Street essentially has sunk itself in amidst its own hubris, and the US government has reached into unthinkably large deficits in order to deliver stimulus packages to stave off that depression.
We should just say it out loud. George W Bush's presidency can be marked as the moment America and its manifest destiny fell right off the tracks. And it's quite remarkable how this has all come to pass in just the 2 terms of having Dubbya at the helm. In less than a decade the USA has gone from a leading world power to an economic basket case.
It is against this context that we find this sobering article inthe Wall Street Journal, sent to us by Pleaides.
As the world stumbles from the truly horrible year of 2008 into the very scary year of 2009, there seems, on the face of it, many reasons for the foes of America to think that the world's number one power will take heavier hits than most other big nations. Those reasons will be outlined below. But let's start by noting that curious trait of human beings who, in pain themselves, seem to enjoy the fact that others are hurting even more badly. (One can almost hear some mournful Chekhovian aristocrat declare: "My estates may be damaged, Vasily, but yours are close to ruin!")
So while today's Russia, China, Latin America, Japan and the Middle East may be suffering setbacks, the biggest loser is understood to be Uncle Sam. For the rest of the world, that is the grand consolation! By what logic, though, should America lose more ground in the years to come than other nations, except on the vague proposition that the taller you stand, the further you fall?
The first reason, surely, is the U.S.'s truly exceptional budgetary and trade deficits. There is nothing else in the world like them in absolute measures and, even when calculated in proportion to national income, the percentages look closer to those you might expect from Iceland or some poorly run Third World economy. To my mind, the projected U.S. fiscal deficits for 2009 and beyond are scary, and I am amazed that so few congressmen recognize the fact as they collectively stampede towards the door entitled "fiscal stimulus."
The planned imbalances are worrying for three reasons. The first is because the total projections have been changing so fast, always in a gloomier direction. I have never, in 40 years of reading into the economics of the Great Powers, seen the figures moved so often, and in such vast proportions. Clearly, some people do believe that Washington is simply a printing machine.
he second reason all this is scary is because no one seems to be certain how usefully (or fecklessly) this money will be applied. I wish Barack Obama's administration all the best, but I am frightened by the prospect that he and his team will feel under such time pressures as to shovel out the money without adequate precautions, and that lots of it will slip into the wrong hands. The news in the press last week that lobbyists were pouring into Washington to make the case for whatever industry, interest group, or service sector they have been hired to represent made my heart sink. Printing lots of unsecured money is bad enough. Frittering it away on courtiers is worse.
The third thing I'm really scared about is that we'll likely have very little money ourselves to pay for the Treasury bonds that are going to be issued, in tens of billions each month, in the years ahead. Sure, some investment firms, bruised by their irrational exuberance for equities and commodities, will take up a certain amount of Treasury issues even at a ridiculously low (or no) rate of return. But that will not cover an estimated budget deficit of $1.2 trillion in 2009.
It's worth a read. The amount of money spent on the recent bailouts is astronomical and Obama is trying to administer the second dose of the 700billion. The NYT is tracking how this money is being spent and it's actually not that encouraging.
In any case, the fate of the USA under Obama will be a period of protracted economic woes. It's unfortunate that he is not coming to his presidency in better times, but had they been better times, he might not have won. America is rightfully frustrated and desperate, so it was willing to try anything - which included an Obama Presidency.
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