THE DAILY TELEGRAPH: This week's warning about US debt is the wake-up call Obama needs – and the world needs him to act, says Martin Vander Weyer.The good news is that America has not suddenly turned into the new Ireland. The bad news is that the Obama administration is only beginning to face up to its debt addiction, in the way that Ireland and other euro delinquents have been forced to do. And Washington's prolonged debt denial is one factor that has made the economic recovery so fragile and uncertain for all of us.
In that context, the announcement on Monday by the ratings agency Standard & Poor's that it had shifted its outlook on US government debt from "stable" to "negative", which sent markets into a tailspin, may actually turn out to be helpful, like the friend who says loudly to a incorrigible drunk at a party: "Another drink, George? Or is that a silly question?" The S&P analysis is not hugely significant – it is a first downward notch on a long scale of potential debt downgrades – but it is a timely warning that the world is aware America has a problem. Uncle Sam has been able to refill his glass time after time for the simple reason that Chinese investors – banks, state agencies and exporters – choose to store the wealth they gain in international trade largely in the form of US government paper. But as iconic as the greenback and the Treasury bill may be, they do not enjoy such a uniquely elevated status as to make them immune from the processes of risk assessment that have been applied so painfully elsewhere.
The IMF says America's fiscal deficit for 2011 will approach 11 per cent – similar to the UK's – and its net debt will exceed 70 per cent of gross domestic product, which is a worse position than ours if we exclude bank bail-outs from the equation. US debt has hitherto been regarded as virtually risk-free, but if the UK and other nations are seen to be making strenuous efforts to cut deficits while America's continues to balloon then, sooner or later, investors must begin to take a more cautious view. » | Martin Vander Weyer | Tuesday, April 19, 2011
My comment:
Obama is clueless! From the beginning, it was clear to me that the man was an “empty suit.” But the American electorate would hear none of it, and got carried away with his rhetoric. Nobody even bothered to find out what he meant by “hope and change.” Hope of what? And change to what? And the mantra, “yes, we can.” What was that supposed to mean? Yes, we can what? As a result, Americans became transfixed by a man who could speak (arguably), but nothing else. Words, words, words!
Meanwhile, all Obama has ever wanted to do is spend, spend, spend. The trouble is, he hasn’t learnt one simple lesson of economics: You have to have it to spend it. None of us can go out and spend like a drunken sailor, as if there weren’t a tomorrow. How foolish that is. Profligacy is never a good thing. It will always lead to disaster.
In fairness to Obama, it’s true that he inherited a huge deficit from George W. Bush. Another profligate president. He ruined America by spending vast sums on wars which America could ill-afford, on wars which could achieve nothing to boot. But that was all the more reason why Obama should have got to work on reducing the deficit straightaway upon getting into office. Instead of that, he embarked upon a spending spree.
The Americans, too, must shoulder part of the burden of responsibility. They don’t seem to understand the meaning of the word ‘saving.’ Saving has become an alien concept to Americans. Americans prefer to consume, consume, consume. They also like to be generous with foreign aid. They give foreign aid abroad in billions, trying to buy influence and popularity. We can all see where that has got them.
In addition, the nature of politics in America is far too ideological. The Republicans and Democrats are far away from each other in political terms, so that it is difficult to find any middle ground. As a result, they cannot move forward in a meaningful way.
The future for America is looking very bleak indeed. This is a seminal moment for the US, and a seminal moment for the rest of the West. One can ask oneself but one question: Is this the start of the decline of the West? It might sound melodramatic, but it isn’t. If the US cannot save itself from bankruptcy, its influence in the world will decline. If this happens, it will no longer be the beacon of freedom. This will have serious consequences for us all. One can only fear the consequences of the eclipse of the US. Its loss of influence may have just begun.
It is to be hoped that, somehow, America will wake up before it’s too late. Bernanke’s love of quantitative easing will not solve anything. Quantitative easing is a fancy term for printing money. Turning on the printing press won’t solve anything. In fact, it will make matters worse. – © Mark
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