Fears on the once mighty US economy

ON DISTANT SHORE
By Val G. Abelgas

For years, economists have been saying that the once mighty American economy will soon fall behind the rapidly growing economy of China, and later also by India. And yet, instead of finding ways to halt the rapid slide of the economy, politicians in Washington and greedy American capitalists seem bent on hastening the inevitable.

All indications of that sad turn of events are becoming clear at every turn, and either the country’s political and business leaders are either so callous, so blind, or are so arrogant to come together and do something concrete and lasting to solve the problem.

The International Monetary Fund (IMF) said the Chinese economy will become the world’s largest economy in 2016 in real terms, taking into consideration expected changes in currency rates by that time.

Another report, this time by the Paris-based international think tank Organization for Economic Cooperation and Development (OECD), agrees with the IMF forecast and said China’s economy will be larger than the combined economies of the Eurozone countries by the end of this year, and will overtake the US by the end of 2016.

At least three reports by credible agencies confirmed the certainty of the US economy falling behind that of China in the near future.

The National Intelligence Council (NIC) said last month the United States would likely be the “first among equals” rather than a lone superpower by 2030, “in an increasingly chaotic world where China is the top economy.” The NIC, in its first assessment in four years aimed at shaping US strategic thinking, said China would surpass the United States as the largest economy in the 2020s.

However, two other international agencies see this happening much earlier – in just four years. The International Monetary Fund (IMF) projected that China’s economy will expand from $11.2 trillion in 2011 to $19 trillion in 2016, while the US economy will rise from $15.2 trillion to $18.8 trillion. “That would take the US share of the world’s economy down to 17.7%,” the report added, “the lowest in modern times, while China’s would reach 18% and climbing.”

Another report, this time by the Paris-based international think tank Organization for Economic Cooperation and Development (OECD), agrees with the IMF forecast and said China’s economy will be larger than the combined economies of the Eurozone countries by the end of this year, and will overtake the US by the end of 2016.

The OECD report, in describing how fast the Chinese and Indian economies are growing compared to the erstwhile economic powers in Europe and America, said that by 2025, the combined GDP of China and India will be bigger than that of France, Germany, Italy, Japan, UK, US and Canada put together. Asa Johansson, senior economist at the OECD, said: “It is quite a shift in the balance of economic power we are going to see in the future.”

One would think that based on these reports, Washington and Wall Street would wake up and come together to halt, or at least slow down, the decline. But no, the word unity and cooperation seem to sound Greek to these politicians and capitalists. Instead, they have intensified their political tug-of-war as seen in the latest political gridlock that threatened to bring the country over the so-called “fiscal cliff.”

In July 2011, White House and the divided US Congress placed the entire nation in fear of a default on its huge debts when for days, negotiators representing White House and the Republican-controlled House of Representatives could not reach a deal until July 31, or just two days before the deadline. The deal was finally approved by Congress on August 1, and signed into law by President Obama on August 2, the day the US would have exhausted its authority to borrow more to pay its existing debts.

In the final days of 2012, the Democrats and Republicans showed again how poles apart they were in how the government and the economy must be run, and neither wanted to budge an inch to solve the many problems that confront the economy, in particular, and American society, in general.

The American leaders had two years since the last fiscal crisis, and yet they waited until the last few hours of the deadline to come up with a temporary and half-baked patchwork to avert the fiscal crisis when a half-trillion-dollar worth of sweeping tax increases and spending cuts would have automatically taken effect that many believe would put back the American economy into recession.

The deal, approved by the Senate in the wee hours of the morning of New Year’s Day and by the House later in the day, averted the biggest fiscal crisis ever to haunt the United States, but at the same time set the stage for another dangerous tug-of-war over taxes, spending cuts and debt ceiling between White House and the Republican-led House.

In two months, across-the-board spending cuts to the Pentagon and domestic programs are set to kick in, and the US government risks defaulting on its $16.4 trillion debt unless Congress authorizes an increase in the debt ceiling, the first-ever for this once mighty nation.

Added to these fears is the fact that Congress allowed a two-year, two-percent cut in payroll taxes for Social Security pension program to lapse, effectively reducing the take-home income of millions of American workers that is certain to have a harmful effect on the economy.

At the rate the American economy is sliding, and the divide between the Democrats and Republicans are increasing, the time when global traders would lose confidence on the US economy and decide to veer away from the dollar as the currency of choice is no longer unthinkable, but is actually coming close to reality. When that time comes, the collapse of the US economy would accelerate.

All these problems are coming just as the US economy is showing healthy signs for a hopeful recovery. Home sales and prices are slowly, but surely moving up; hiring has been brisk; the jobless rate continues to move down gradually; consumer confidence is rising; and corporations are making huge profits once again.

Unless the politicians in Washington come to grips with the reality that the United States is falling behind China, India and other emerging economies in terms of economic growth, we can only see dark clouds in the American economic horizon.

The government must also strive to encourage businesses to bring back the outsourced manufacturing and other jobs to the US, perhaps with tax incentives or something. It may also have to review its defense spending that has been taking a great toll on American funds.

The politicians and the capitalists should take heed and begin to confront the fast decline of the economy head-on. If they don’t, maybe Filipinos in the US should all start heading back to that other side of the Pacific where the sun seems to be shining ever more brightly.

(valabelgas@aol.com)