Wednesday, October 14, 2009

Going Bust: The End of an Age

By Bernie Quigley

- for The Hill on 10/14/09

Marc Faber, the legendary economist of the Gloom, Doom and Boom Report told Bloomberg’s Bernard Lo this morning that over the next few years the United States will have to borrow two trillion dollars per year to stay afloat. In the last few years we have seen the financial crisis of private sector enterprises like AIG and government-sponsored enterprises like Fannie May and Freddie going bust, he said. But at the next station the U.S. Government goes bust.

Part of the problem here may be one of perception. Possibly it is not so much a financial crisis, like the ones in the 1830s and the 1930s, as it is a historic and cultural shift of massive proportions. An article in The Wall Street Journal this week by Zachary Karabell, author of Superfusion: How China and America Became One Economy and Why the World’s Prosperity Depends on It may offer some stepping stones across the river.

Most people are now aware that China is the largest creditor to a heavily indebted U.S. government. It holds close to a trillion dollars of U.S. Treasurys and has invested hundreds of billions more in private enterprises in America. Even though these facts are plainly acknowledged, policy makers and experts continue to underestimate the full ramifications of this relationship.

Our situation facing China is not unlike cash-strapped England’s at the end of WW II, he writes.

As one British official, Evelyn Shuckburgh, remarked in the late 1940s, "it was impossible not to be conscious that we were playing second fiddle." And that was precisely what the U.S. desired. Having supported the British for decades and become its banker and manufacturer during two wars, at the end of World War II the U.S. fully intended to supplant the British Empire.

China is likely this time around to surpass the U.S. in the size of its economy in the next 20 years and the recent implosion of the American financial system has only accelerated China’s rise.

Given the lesson of the British Empire's demise, it would be foolish to base current policy on the assumption that China will hit a fatal speed-bump before it is able to supplant the U.S. And while the level of current indebtedness is manageable for the U.S.—and in fact tethers the Chinese closely to the U.S. economy in ways that are arguably beneficial for both countries—the fact that these economies are currently bound together does not mean that their interests will always be in sync.

The fact is that we have reached the end of an age and that is why the past age’s cheerleaders and letter men – like Letterman – are failing. And the aging generation’s idols like Bill Clinton seem strangely odd and out of time as the big hair get coiffed and silvered. While Hillary, in discussion with Russian Foreign Minister Sergei Lavron, looks ready for her nap.

But we might begin to ask ourselves as Americans where do we want to go? Does the flow of economic history demand that we walk in China’s footsteps? Are there models of economy which might be better suited to our future prospects?

We might consider thinking about the benefits of regionalization because if the U.S. economy is to contract and consolidate, it might contract within a matrix which makes for better packaging than the internal world-without-walls we have now. Does northern New England really need four farm colleges? One might work better. We might begin to think about tax spending and tax breaks to encourage naturally occurring regional cultures and regional community tier economies. We might feature farming where there are farms and factories where there are or have been factories. Because life in the city is different than the hills and prairies and one size does not fit all in temperament, personality, culture and economics.

And we might begin to ask ourselves how did we get to where we are? What do we want to be? What have we become?


niphtrique said...

How bad the economy really is, you can read here:

However the crisis can solved in a short time and a far more efficient monetary system is possible without crisis, unemployment, central banks and government intervention:

I hope you appreciate it.

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Mike Bouchard said...

I would suggest going with the farms wearever you can because we at least have to eat. I woldn't bother with the factories because you wouldn't find anyone to work in them.

Bernie Quigley said...

Mike: Jim Rogers says farm regions will flourish in the future. That is most of America but it is all red America. Problems will arise when the wealthy farm folk are forced to support the unfortunate city people who have lost their purpose to the East. They already have. Good luck in your race.

Vlad Z. said...

Who is going to buy all the debt we need to keep our society afloat. A trillion a year? It took China 10 years to amass the fist trillion, and they now wish they hadn't. There is no market for that.

So, we're not going to sell it. We're going to monitize. We're going to print money, essentially to give away to the large and growing welfare class in the USA. (Including retirees, who while they might be the most honorable and deserving are still in need of regular government checks to survive).

What lies ahead is the utter failure of the liberal socialist state model will be part of it.

Perhaps some features can be saved. Perhaps they can not.

Today we don't see any leaders even acknowledging that there is a problem. Neither GOP nor Dem politicians are even discussing the tough-love that is going to be needed in ou next phase.

Raising taxes, cutting and eliminating programs, raising retiremnet, confiscating 401Ks, ending welfare, all will eventually be discussed and some probably implemented.

And of course, there are many who don't want to see the system saved. And many others who are emotionally and intellectually incapable of doing anything except taking handouts.

For all of these reasons future riots and social upheavel are virtually guaranteed. A full scale civil war, seccession of some regions and post-civilizational chaos can not be ruled out.

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RPJ said...

If we spent our money on domestic manufacturing, construction, energy modernization, self sufficiency, research and developement like the chinese, rather than unnecessary war. We wouldn't be in this position.

RobertB said...

A little off-topic, but interesting is that Quigley refers to the Red States above, by which I assume he refers to the Republican States...somehow, the media, between the 1980 and 1984 presidential elections, managed to change the designation of red to the Republicans from the Democrats, and Blue States vice-versa. And nobody seems to have noticed...but there are clips on YouTube of the 1980 and 1984 elections from the networks which verify this. I still can't adjust to it, but it's a testament to the value placed on imagery and propaganda by the media. True-blue Republicans? We'll stop that!

Anonymous said...

..come on all you unfortunate yanks that still have some money...sell it all and move to Canada while there is still time !..At least you will save your hard earned wealth and live in peace and safety for the rest of your lives.

Anonymous said...

nice post. I would love to follow you on twitter. By the way, did anyone hear that some chinese hacker had busted twitter yesterday again.

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