Thoughts on the US economic crisis

I'm not keen on describing the influence of the USA as the "American empire". The allure of words like "empire" can warp what it is they attempt to describe. Yet I've heard the word used a lot recently, whereas once it would only have been used by hawkish politicians to describe something such as the old USSR.

Niall Ferguson, the British historian, uses the word "empire" a lot. Mostly in the context of the (theoretical) imminent decline and fall of America, and what world will come after.

Much of what he says about the US economic situation, however, is hard to refute...

His speech in Sydney last night presented the following:

"The most obvious point is that imperial falls are associated with fiscal crises - sharp imbalances between revenues and expenditures, and the mounting cost of servicing a mountain of public debt.
Think of Ottoman Turkey in the 19th century: debt service rose from 17% of revenue in 1868 to 32% in 1871 to 50% in 1877, two years after the great default that ushered in the disintegration of the Ottoman Empire in the Balkans. Consider Britain in the 20th century. By the mid 1920s, debt charges were absorbing 44.5% of total government expenditure, exceeding defence expenditure every year until 1937, when rearmament finally got under way in earnest.
But Britain's real problems came after 1945, when a substantial proportion of its immense debt burden - equivalent to about a third of gross domestic product - was in foreign hands.
Alarm bells should therefore be ringing loudly in Washington, as the US contemplates a deficit for 2010 of more than $US1.47 trillion - about 10% of gross domestic product, for the second year running.
Since 2001, in the space of just 10 years, the US federal debt in public hands has doubled as a share of GDP from 32% to a projected 66% next year"

Ferguson addresses a particular point of interest to me: the amount of US debt that is exiting the country....

"Remember, half the US federal debt in public hands is in the hands of foreign creditors. Of that, a fifth (22 per cent) is held by the monetary authorities of the People's Republic of China, down from 27 per cent in July last year."

I found that shrinkage curious but Ferguson clarifies "Quietly, discreetly, the Chinese are reducing their exposure to US Treasury bonds. Perhaps they have noticed what the rest of the world's investors pretend not to see - that the US is on an unsustainable fiscal course, with no apparent political means of self-correcting."

In other words... they're leaving a sinking ship.

I was pondering that when I read that the Governator has declared a state of fiscal crisis in what was the wealthiest state in the USA, that state workers are being forced to take three days unpaid leave per month and that a budget cannot be delivered - bizarrely because it takes a two thirds majority to pass a budget.

California bankrupt? If it was a country it would have the 8th largest economy in the world, and it has come to this..

Meanwhile the loony Right is running around saying taxes for the rich have to fall further. What is it with these idiots that they think the only way out is to let unelected plutocrats have what ever they want in the vague hope it will somehow translate into prosperity for the man on the street? If trickle-down economies ever worked it was in a peculiar set of circumstances... much as a broken clock still shows correct time twice a day. The rest of the time it is completely wrong.

One thing will save America: massive revitalisation of production coupled with investment and overhaul of infrastructure. A controlled economic course. The alliance of government and industry that is at the heart of Obama's vision.

I am less than certain the will exists though. The linkage of the American sense of identity to uncontrolled free markets is so strong it is near faith-like, blinding and perverting, a rhetorical tool of those who do not feel prosperity is for everyone.