The US debt-ceiling debate exposes America’s ‘Sick Man’ status
Printing dollars to repay dollar-debt is unsustainable
The term ‘sick man’ was coined to describe the declining situation of the Ottomans by Tsar Nicholas I of Russia in 1853. The Ottoman territories were being swallowed by rival world powers and its debts were out of control due to a series of disastrous wars. Nicholas I of Russia described the Ottomans as ‘a sick man – a very sick man, a man who has fallen into a state of decrepitude, or a sick man … gravely ill.’ The economic situation, political prowess and independence were all seen as indicators which clearly the Ottomans had drastically lost over a period of 100 years, earning them the title of the sick man of Europe.
Today the US also has many of the hallmarks of the new sick man. The present US debt impasse in reality conceals America’s bankruptcy and the debate regarding increasing Americas debt ceiling deflects from the real issue.
America is bankrupt!
America is today drowning in a sea of debt. The US generates over $14 trillion annually, however the national debt – the money the central and federal government owes to the US public and the world through the bonds (or IOU’s) they have issued – stands at $14.3 trillion. Interest payments on this debt was $414 billion alone in 2010. Those who are expecting to be repaid by the US one day include governments such as China, companies and banks. This debt emanates from US citizenry’s huge appetite for imports and credit cards and as a result consumer debt stands at $2.4 trillion. The desire by American’s to own their own homes has resulted in mortgage debts of $13.2 trillion. The debts of US companies amounts to $20.8 trillion. This makes the US indebted to the tune of $50.7 trillion – more than the combined economies of Japan, China Britain, Germany, France, Brazil, Canada and Italy twice over.
The US trade deficit has also continued to balloon, the amount the US imports compared to the amount it exports – in essence the money the US owes to the world – stands at $500 billion. From a bookkeeping perspective America is bankrupt, spending is out of control and shows no sign of being fixed anytime soon and its debts continue to balloon.
How can the US continue to print the dollar?
How did the US get into such a position? As the world’s superpower the US has always been spending more than it possesses. The US has afforded itself this right – something it devoutly opposes for others. It has been able to get away with this as it is the world’s superpower. There is also one other crucial reason why the US gets away with such levels of debt and that is due to the dollar.
Today this means the US can actually print its currency to meet it debt obligations. It is able to do this because it has imposed its currency on the rest of the world. So fundamentally America’s political power is what allows such out of control spending polices to continue.
However all indications are that this power is waning.
The debt ceiling debate – after the horse has bolted!
The debate taking place in the US between the Republicans and Democrats has been about increasing the debt ceiling – the amount the government can borrow. The US government needs the permission of Congress to raise the ceiling on the amount of money it can borrow.
If Congress doesn’t grant it – currently the deadline is 2 August – the government will hit the limit and may have difficulties in meeting its repayments. Ironically the US borrows to repay previous debts.
This is not the first time the US has been forced to increase its debt ceiling. In February 2010 a similar fanfare took place. This rather flexible “ceiling” has been raised 33 times since it first was raised over the US$ 1 Trillion level in September 1981.
Noble Laureate Paul Krugman outlined the fanfare: “The facts of the crisis over the debt ceiling aren’t complicated. Republicans have, in effect, taken America hostage, threatening to undermine the economy and disrupt the essential business of government unless they get policy concessions they would never have been able to enact through legislation. And Democrats – who would have been justified in rejecting this extortion altogether – have, in fact, gone a long way toward meeting those Republican demands.” And, oh yes, the President had some big skin in the game.”
End of the American Century
The real issue is that today the US is not just bankrupt economically, but it is also politically bankrupt. The US is facing numerous political challenges in regions of the world which only a decade ago it completely dominated. In the Middle East apart from needing the help of regional surrogates the region is gradually shifting from being a unipolar region in which the US enjoys uncontested hegemony to a multi-polar region. The US is facing more competition from China and Russia over access to Middle East oil. The US is now increasingly competing with India and Japan as well as the European Union for the lion’s share of the region’s black gold.
The US lied about weapons of mass destruction in its invasion of Iraq and quick victory gave way to a long occupation, which has seen corruption and incompetence at the highest level. The cost to the US has been massive and continues. Guantanamo bay has undermined America’s chief export for over a quarter of a century – freedom; democracy and human rights. Similarly the US military is viewed as overstretched and America’s position is seen as untenable. Both wars in Afghanistan and Iraq cost the US astronomically large sums of dollars and whilst the rhetoric is about draw down’s the US is merely changing the way it maintains its interests in these countries from military occupations to the use of agent rulers – which costs less.
Both the British Empire and the Soviet Union were engulfed by unsustainable debt which led to the collapse of their superpower status. The US situation is similarly unsustainable. Where will the money come from to repay US debt in the years to come and with a rapidly falling dollar the US in a situation where it is now even more reliant upon foreign nations to bail it out. These are remarkable times as the world is witnessing the direct impact of American imperial hubris and overstretch. We may be witnessing the beginning of the end of America as the world’s superpower. America has all the hall marks of the new sick man.