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?