US economic decline and impact on force projection capabilities

[Andrew]

It has emerged from the various threads here that the US enjoys an advantage in almost every area of regular warfare, most crucially perhaps in the domains of C3, air dominance (stealth) and (anti-) submarine warfare. While a few decades ago, it was said that in terms of brute force Russia could overpower virtually any enemy with the sheer mass of its military assets, this no longer holds true, the Russian militry being a mere shadow of former Soviet might.

I think it's worthwile to pause for a while at this point. The reason why Russia's military contracted is twofold, the more important cause being economic bankruptcy. Even if the Soviet Union had not disintegrated the spending levels of the late 80s could not have been sustained.
Now, the US is not a centrally planned economy, nevertheless it is facing tremendous problems. The country is dead broke but it keeps going because other nations are willing to buy its dollars. Others, namely China and Japan, are buying US dollars because they want US consumers to purchase their goods they export into the United States. This whole arrangement implies a mutual dependency.

I understand very little about economics but from what I have read it appears that the US is importing goods and has found some way of not having to deliver anything of real value in return - just its paper money. Clearly, this situation can and will not continue indefinitely. The whole arrangement resembles a game of musical chairs. When the music stops, there will be a lot of pain. China is well aware that sitting on a pile of dollars could have disastrous consequences if a world recession pulls up, triggered for example by an oil-crisis.
Hence, China's aim is it, as anybody else's, to purchase or invest in tangible assets and undertake a fair distribution of its risk. As it domestic economy grows stronger, it will gradually try to get rid of its vast dollar reserve holdings.

Nobody can tell how the process will proceed. China might well one day find itself in a similar position as the US after World War one, suddenly finding itself unable to sell its goods because of a grave world economic crisis. But it is certain that perceptions will ultimately collapse to the fundamentals with regards to the world economy. The United States is living on the tick and this cannot continue forever. Observers have been remarking that US population growth is much higher than in Europe but in my view they fail to see that this is largely a reflection of what has been said before: Would millions of Mexicans attempt to come to the US if ecomic conditions were harsher by the order of a magnitude? Maybe, but then they might come as looters and invaders, not queueing up anymore at the immigration office. Talking about immigration, with every 3rd black American in his twenties being either in prison, on parole or facing court the United States is facing huge domestic problems which will also make themselves felt at some stage.

This post is not an attempt at America-bashing. The example of the British Empire is a good case to be studied. Its colonies becoming a burden, its industries obsolete, Britain had to quickly bury its global ambitions after the Second World War and was accomodated into Nato's auxiliary forces. After the end of the First World War it had attained its greatest territorial expansion, 40 years later the game was over. What I am trying to say is that we may have to be careful when making statements like "in 40 years China (e.g.) may have a 5th generation fighter but then the US will have laser beams in space and a UAV bomber fleet". Such predictions suggesting a contintuation of America's hegemonic position in world affairs may well turn out to be correct, however, they are based on the extrapolation of current figures, expenditure on research on development for the military and internal stability. Most certainly, however, a fundamental correction is due which will lead to a different balance over the next 50 years.

With kind regards
Andrew

[vincelee]

actually the US loses capital. You know, tangible assets in the US, such as real estate. Capital also extends to machineries and sometimes rights.

[Andrew]

As I said, I feel uneasy when it comes to economic affairs. Still, common sense tells us that something has to and will change at some stage. Yesterday, for example, I read that 90% of all ships are built in Asia. Not so long ago, the majority of ships were built in Britain, today Britain's contribution is negligible. This applies to a growing range of goods and services. America's formerly great car industry is in great trouble. The US used to export oil, today it is trying to cut China off from Mideastern oil. Meanwhile, the Italian textile and fashion industry is suffering from Chinese competition. We could all go on giving examples. We should make no mistake about the IT industry, surely, Asian nations will sooner or later take the lead here, too.

The west has a domestic market, but so has South America. South America is actually speciallising in the production of cocaine for the world market if you ask me. They cannot compete with Asia. Russia is selling gas and weapons, the money lands in a few pockets while the rest of the country remains poor, population levels are dwindling in Eastern Europe. What does the west want to offer? We cannot all become facilitators of coordination and coordinators of facilitation. I think we are headed for difficult times.

with kind regards
Andrew

[SampanViking]

Well its not a stupid arguement, but I think it is inaccurate in a number of critical areas.

The key area is to remember that much of the Investment Capitol that has fuelled China's growth is from the US and as aconsequence much of the revenue generated still finds it way back there. You do need to balance this though against high personal debt (as opposed to high Govt debt). The danger is of US Protectionism closing China's enthusiasem for US T Bonds. This would require US Interest reates to rise and this would impact negatively on high pesonal debt.

But this is a very complex area and really beyond the scope of one thread to be able to explore and evaluate.

Could I be so bold as to suggest you follow the link in my signature in order to benefit your interest and research in this area.

[Totoro]

It's not really fair to say that US is losing capital. Capital is everything that has some worth. Anything you can sell/loan/etc. Heavy industry (like the example of shipbuilding) is leaving US (and any other western nation) because its too expensive to build such ships in the US or UK or other. But US still sells ideas overseas. Know-how, technology. And yes, china and india and other countries will develop their own tech but for some foreseable future US will still be one step ahead. I guess with years (decades) that might fall down to half a step, then perhaps less.

US debt is vast, yeah, but percentage wise its not the worst there is. There are countries with much higher dept, much higher unemployment, problems, etc and theyre still going on, working, no big riots, no big crisis, widespread recession, etc.

[SampanViking]

I was not trying to paint an apocolyptic picture. But if US Interest rates go up and debt becomes more expensive, it will have a global knock on, mainly by bursting the Property Bubble. No bad thing ultimately, but it will be a major jolt to confidence and for many individuals who are now too close to the line, a fairly devastating personal disaster.

For the last 10 years China has become the engine of global growth and the global economy has configured itself around it. I just do not think it is a good idea to tinker with the engine too much!

[DumLoco]

I come from Argentina, therefore i have a lot of experience in economic crises . I can tell from mi perspective that what really matters are actual physical things. Buildings, airports, weapons, facilities, factories, infrastructure of all kind. In a total financial crash scenario, it doesen't matter the ficticious value of money, bank accounts, stock exchange and all that stuff. It can dissapear completely and people might rush the streets, unemployment and even hunger can make appearence while the chaos persists... But it is a very short-term situation. The factories are there, the buildings are there, the weapons are there, the people is there. That's what really matters for the economy of a country. It happened in the US in 1929 and they survive to become the superpower they are, it happened in my country in 2002 and we are totally recovered and with GDP growing 9% per year.
The world thinks too much financially and miss the real picture. Financial life is ficticial. Like sampanviking said, the man who losses the savings of all his life or his car from one moment to another will suffer greatly, but the country will go on, and if it gots a solid base to stand, it will recover soon from the crash.

[FreeAsia2000]

I come from Argentina, therefore i have a lot of experience in economic crises . I can tell from mi perspective that what really matters are actual physical things. Buildings, airports, weapons, facilities, factories, infrastructure of all kind. In a total financial crash scenario, it doesen't matter the ficticious value of money, bank accounts, stock exchange and all that stuff. It can dissapear completely and people might rush the streets, unemployment and even hunger can make appearence while the chaos persists... But it is a very short-term situation. The factories are there, the buildings are there, the weapons are there, the people is there. That's what really matters for the economy of a country. It happened in the US in 1929 and they survive to become the superpower they are, it happened in my country in 2002 and we are totally recovered and with GDP growing 9% per year.
The world thinks too much financially and miss the real picture. Financial life is ficticial. Like sampanviking said, the man who losses the savings of all his life or his car from one moment to another will suffer greatly, but the country will go on, and if it gots a solid base to stand, it will recover soon from the crash.

Not really.

In order to have an economy you need access to resources.

How long do you think the allies would have been able to fight WW1 or WW2 without oil ?

[Ender Wiggin]

I a while back sumarized the fall of the British Empire based on sources such as Paul Kennedy's book "The Rise and Fall of the Great Powers"

And here we go:

As for England there are many reasons:

-England was an "island of shopkeeper's" and stayed that way they rarely industrialized the colonies and prefered to import rare materials for industry. Good for them bad for colonies.

-England with one war after an other to secure its naval monopoly found itself in constant confrontation with France, forcing it away from other events such as Russian domination of the Far East, growing American troubles, etc.

-The Napoleanic war was the first time England fought in a total war like situation putting its full monetary strength into the war by distracting Napolean on the periphery to kill him through attrition of his best troops and constantly forming collalitions whenever Napolean was about to gain his breathing space.

-After the war, for the first time England found itself with nearly total hegemony of the oceans, but were weakened by the American split and for the first time defending Canada became important. Also England with its new found strength in maritime trade and a large production capacity thanks to the steam engine and the industrial revolution began taking on military obligations around the globe in India, North America, South America, etc.

-Then game the Opium wars in China and the founding of Hong-Kong as a British Possetion for the next 150 years and the start of a string of British obligations in the Far East.

-England with its great wealth and influence can maintain its empire with the doctrine of "A navy big enough to take on any other 2 navies" and did so, but such a maritime expansion came at a price. England's ability to maintain a strong army was lacking, focusing on long proffesional carreer soldiers whose tour of duty were 7-10 years and maintained a relatively small colonial army and garrisons.

-The cost to maintain these forts and garrisons, as well as the naval infastructure to maintain such a navy as England was fielding was encredibly expensive. And their pretensions oversea's kept England in a certain amount of animosity with the French and Continental Europe. Also England prefering to maintain its Empire was by the end of the 18th centuary was finding itself too big to expand anymore and the costs of maintainance was increasing with new technologies.

-But thing's werent all bad, until 1860's where Russia attempted to expand at Turkey's expense. This war showed England's military weakness and further isolated England as Europe became suspisious of England's goals. Russia found itself too internally messed up to do anything in central europe, and Prussia with Von Molke's reforms managed to cream Austria so thouroughly that Austria could only watch the coming conflict and thus France was the only power able to chalenge the growing military and economic might of Berlin. With the end of the Franco-Prussian war came the beginning of the end of England's Hegemony in the long term.

-With a Unified Germany and Italy in Central Europe the Balance of power was shifting. Germany's huge manufacturing potential was enough to begin with the dismissing of Bismark a rivarly between the "water rat and the land rat".

-Also Germany was not the only new power to challenge England, with the end of the Civil War the United States found itself in a great economic position, with the potential to build ships in a rate that England found unnerving and America possessed the economic capacity to challenge England.

-England's oversea's obligations, coupled with the need to build up the naval forces in competition with Germany and America, as well with the growing pains with the Shilling's value with the growing protectionism of various nations was forcing England in an uncomfotable position. The actual politics of this time is in my mind cloudy I know the great powers divided Africa and intervened in the Boxer Rebellion in China (sowing the seeds for somwthing more recent). And all this increased the frition between the Detente, and the Central Powers.

Finally with the spark of the powder keg, the Balkans forced the eruption of WWI. England was neutral until the German DOWing of the Low Countries. So with WWI England sent its BEF (British Expeditionary Force) to aid the french and fought well keeping the one little belgian town in Allied hands. Anyone who makes any pretensions to know hsitory should know anough of WWI to not need me explaning it, but the financial costs of the war and the massive loans from the states is what finally and ireparitly put England on the path to obscurity in the coming decades.

-Post War england found itself establishing commitee's and think tanks trying to figure out how to maintain the Empire and prevent a fall (kinda like what the States is doing now). It's navy they had no choice with the Washington and other naval treaties to reduce overwhelmingly the size of the Royal Navy and decrease the size of her Battleships per treaty specifications. The loss of her Navy and the gorwing autonomy of her Colonies was also distrissing to England forcing the Commonwealth into more and more of a loose confederation of equal members led at first officially and now unofficially by the Queen of England.

-Post war debts, an pacifist populace, a growing inability to deal with Fascism... all these were heavy upon British policy makers. But finally it was WWII that ended it. The collapse at Dunkirk and the close call during the Battle of Britain showed the World that England had fallen a great deal and England was thus forced a second time in her History to rely on the Arsenal of Democracy within the United States.

-England gave away her gold reserves to Fort Knox to pay in part her debts and to gain new aid for the crisis and with the American entry into the war England was saved from occupation from the Nazi's but found itself worse off in the world influencially, economically and militarily then before.

The end of WWII found England forced to accept a subordinate role in politics with the USA at the helm to defend the West from the threat of Soviet Aggression who were so much bigger and more powerful then the British and French that American help was mandatory or else they'ld be doomed to fall under the Iron Curtain themselves.

We look at history and analyze what went wrong for the British and we also see the signs of wear and tear in America as well. If anything rather then American beating China, it is China who will be the end of the United States and its position as the sole super power.

China is a nation who has the populace, the manufacturing potential (whose growth is powered by foreign investment), military determination to prevent what happened in the Boxing Rebellion (where 8 european countries invaded China), and the technological know how and the potential to become technologically affluent.

They've only just begun exporting their own car brands and are developing indiginous software/hardware components how long before cheap Chinese designed and manufactured Computers are flooding the markets? If anything soon China will become the second major super power in regards to the United States and then exceed it.

But its likely they're will be a conventional war the result? No one knows.

[FreeAsia2000]

I a while back sumarized the fall of the British Empire based on sources such as Paul Kennedy's book "The Rise and Fall of the Great Powers"

And here we go:

Ender Wiggin the decline of Britain's empire was based on one reason, it refused to permit the people's of the colonial state's to have full citizenship.

It's ironic that Britain would still have been a world power if it had accepted a muticultural/multi-racial basis in the 1930's rather than in the 1960's

[DumLoco]

Not really.

In order to have an economy you need access to resources.

How long do you think the allies would have been able to fight WW1 or WW2 without oil ?


Well, i was implicitly counting on such resources like oil wen i said all that. My point was that not everything is money and financial BS when it comes to a country's influence and power. A financial crash can be easily left behind if the country has a strong industrial/natural resource base. The USA can never fall to become a lesser country if their economy collapses, it's just too big for that to happen. It would be a major crisis, but they'll just turn out ok soon.

[Nethappy]

Hi guy ... am bak.. been real buzy with work lately.

As the single biggest market in the world opened up and intergated into the world market economic, everyone is rushing in for a piece of it. Then with iy nice combination of it less regulated business environment and fixed rate currency to o created a very attractive businesses prospect and with it so call morally neutral and noninterference aproach to it foregin policy which many countries are increasingly more comfortable with, even in Europe then the so call hogwash Washington's preaching of Democray and liberalizing some would said. China has become the engine of global growth and the global economy has configured itself around it.

Yes the fixed rate reminbi has a generating a undervaluation against all curriencies that now averages 20 to 40 percent and China has a trade surplus with almost every country in the world. But it the Western world who almost always take the largest cut of the profit and many country economic benifit from it. Neverthe less many goverment in the world are using this trade surplus and undervaluated currency to take focus of it people of it own policy error and it own problem.

This is not America-bashing so please dun be offended.
US economic decline is not because of China cheap Chinese labour or record high trade deficit, though it may have some effect. But because of it federal budget deficit and proconsumption tax policies which consequenced which negative personal saving rate. The Federal budget deficit is cos by it negative national saving rate, and execced spending (One very nice example is Iraq). A shortfall of domestic saving, countries can curtail economic growth or borrow from the rest of the world. So America must run a massice current-account deficit to attract the foreign capital it needs to fund economic growth and now closing in on $800B per or about $3B er business day, up for $2B 2 years ago. America really need to fixed up it Monetary policy, fight less war, start saving and stop blaming people for it problem. America may face period of controlled restrain on economic growth, but it much better then the gradual collapse of it economic cos no country can borrow for ever. For the time been let Chinese keep there currency undervaluated, and the Sino-US high trade deficit. Cos it going to do more good then bad.

A 27.5% tariff or a major revaluation of renminbi may slow the Chinese economic growth but it can never stop it. But the America trade deficit wouldn't shrink it would surely lower American consumers purchasing power and gradually increasing US foregin debt. As they have to import higher-cost chinese good and/or foerign producters which most likily dun enjoy China's low-cost and pricing advantages.

[IDonT]

US economic decline!!!
Show me. Last time I check, the US economy is growing.
GDP is the total amount of goods and services produced in a country per year.
GDP = Consumption + Investment + Government Spending + Net Exports
With:
House hold Income = Consumption + Savings + Taxes
Domestic Investment = Savings + Foreign Direct Investment
Government = Taxes + Savings + Foreign Investment

The US economy has access to a lot of natural resources, skilled labor force, and more importantly labor mobility. In other words, it is very flexible. Right now, its transition from a manufacturing based economy to a service oriented economy is something the EU can just dream of. The US govt. plays minimal roles and planning is done by the individual companies.

In the early 1970s, the US just lost Vietnam, its economy had high unemployment, high inflation, price of oil was a lot higher than it is today, and the Bretton Woods System has just collapsed. Yet despite all this, the US economy was flexible enough to recover and still be number one my at least 6-7 times magnitude than the next largest economy

For those of you who don't know the Bretton Woods System
http://en.wikipedia.org/wiki/Bretton_Woods_system

[Baibar of Jalat]

[QUOTE]Post war debts, an pacifist populace, a growing inability to deal with Fascism... all these were heavy upon British policy makers.QUOTE]

Wiggen, your point is very dangerous for American pre-eminence, if theres a backlash towards the Military- industrial complex over the military taking large percentage of tax dollars thus leaving other areas to be neglitated then the US is in trouble. Mainly due to the US government subsidies its industries heavily, sorry IDONT it is true, one hundred billion on weapons precurment yearly, tens of billions on R&D, if there was a small defence budget in the US, places such as Silcon valley would not exist plus there is a number of companies, directly and indirectly supported by the military, which i do not need to state because anyone could guess.

The fact is US industry is highly subsidenced compared to Germany or Japan who have small armies, due to historic reasons thus have concentrated on the civilian market whereas in America it is both mil and civ sectors.

[DumLoco]

Yet despite all this, the US economy was flexible enough to recover and still be number one my at least 6-7 times magnitude than the next largest economy


In nominal ratings, the GDP of the US is somewhere near 12 trillion dollars, followed by Japan standing at 4.5 trillion. So there is not a difference of 6 to 1, is more like 2.5 to 1.

Taking in account the purchasing power parity (wich i consider far more reality reflecting) the US stands again with 12 trillion, followed by PRC with 8 trillion. Here the difference isn't even of 2 to 1.

[Ender Wiggin]

I think he meant in the early 90's late 80's though im unsure.

Here's the thing though the SU collapsed mainly because it simply could not support a 5 Million man army in PEACETIME and the political repercussions of budget cuts and abandoning the Warsaw pact "outer empire" excelerated the breaking away of the Former Soviet Republics eventually destabilizing the Soviet Union.

The USA is maintaining an army of some 1.5 million personel spending some 450 Billion Dollars a year on it and is planning on purchasing some 1000 F-35's and about 12 of the newest Nuclear Attack Submarines I think the Sea Wolf class.

What some of you are failing to take into account is that when the US goes under the immediate solution to their problems is massive cuts to the military I suspect a 60-85% reduction across the board. So no 1000 F-35's, no new submarines, I suspect all ships being built would be stopped temparilly and then scrapped afterwards. And I suspect as well that nearly a half to 2/3's of the active military would be demobilized with reduced pensions, and the majority of US bases around the world withdrawn.

While the US of A would recover from economic collapse within 5-10 years is irrevelvent that its armed forces would be severly weakened, if you cannot pay your troops how to you expect them to fight for you?

The short term consequences of collapse would be enough for the USA to be no longer relevent to a majority of world power decisisions maybe even be enough to allow a forced settlement of the Taiwan issue without American interfearance.

[IDonT]

In nominal ratings, the GDP of the US is somewhere near 12 trillion dollars, followed by Japan standing at 4.5 trillion. So there is not a difference of 6 to 1, is more like 2.5 to 1.

Taking in account the purchasing power parity (wich i consider far more reality reflecting) the US stands again with 12 trillion, followed by PRC with 8 trillion. Here the difference isn't even of 2 to 1.

Purchasing Power Parity is useful only in measuring the STANDARD OF LIVING of one country vs another. It is not even as accurate as on real GDP because non traded goods are not counted. Likewise, PPP figures can also be easily manipulated with a specific basket of goods that are selected.

GDP is a measure of ECONOMIC OUTPUT, not standard of living of its citizens. The ability of PPP-adjusted GDP to describe the strength of an economy vs. another is limited because it doesn't account things that are not captured by PPP such as
Infrastructure
Barriers to trade; e.g., Tariffs, sanctions and duties
Transportation costs
The difference in the PPP exchange rate and the nominal exchange rate.

What some of you are failing to take into account is that when the US goes under the immediate solution to their problems is massive cuts to the military I suspect a 60-85% reduction across the board. So no 1000 F-35's, no new submarines, I suspect all ships being built would be stopped temparilly and then scrapped afterwards. And I suspect as well that nearly a half to 2/3's of the active military would be demobilized with reduced pensions, and the majority of US bases around the world withdrawn

The US economy make up such a big portion of the entire global economy that an economic collapse will have global consequences. You won't believe me? In the 1930's the US inacted the Smooth-Hawley Tarriff that puts about 60-70 % tarrif on imported goods. This tarriff collapsed the entire international trade system and made the Great depression worst.

Think about it, the US economy is the most important economy to most of the world's nations. Even China needs American consumers to buy its goods. Without China's trade surplus with the US, its trade deficit with the rest of the world will be alot worst. Should the US economy, the worlds largest consumer market, financial market, industrial market, go down, its taking the whole world economy with it. At that time, buying weapons will be the least of everyone's worries.

Wiggen, your point is very dangerous for American pre-eminence, if theres a backlash towards the Military- industrial complex over the military taking large percentage of tax dollars thus leaving other areas to be neglitated then the US is in trouble. Mainly due to the US government subsidies its industries heavily, sorry IDONT it is true, one hundred billion on weapons precurment yearly, tens of billions on R&D, if there was a small defence budget in the US, places such as Silcon valley would not exist plus there is a number of companies, directly and indirectly supported by the military, which i do not need to state because anyone could guess.

The fact is US industry is highly subsidenced compared to Germany or Japan who have small armies, due to historic reasons thus have concentrated on the civilian market whereas in America it is both mil and civ sectors.

You are getting your logic wrong. Unlike other developed countries, most U.S. civilian R&D are made by Independent Companies and Universities. The US strong support for intellectual property has made it attractive destination to Pharmaceutical, technological, and Industrial companies to relocate their R&D outfit here. Result, the US holds the majority share of the Intellectual economy. This also have an added bonus of having many of the "Smart" individuals immigrating here and becoming Americans thereby sthrengthning the US labor force.

The US govt. R&D is heavily geared towards military technology. However, this R&D has a trickle down effect on the economy as a whole. Examples of this is the Internet, which was developed by DARPA as a way for NORAD computers to talk to each other quickly in case of a nuke war, and GPS systems. There are more

[MIGleader]

US economic decline!!!
Show me. Last time I check, the US economy is growing.
GDP is the total amount of goods and services produced in a country per year.
GDP = Consumption + Investment + Government Spending + Net Exports
With:
House hold Income = Consumption + Savings + Taxes
Domestic Investment = Savings + Foreign Direct Investment
Government = Taxes + Savings + Foreign Investment

The US economy has access to a lot of natural resources, skilled labor force, and more importantly labor mobility. In other words, it is very flexible. Right now, its transition from a manufacturing based economy to a service oriented economy is something the EU can just dream of. The US govt. plays minimal roles and planning is done by the individual companies.

In the early 1970s, the US just lost Vietnam, its economy had high unemployment, high inflation, price of oil was a lot higher than it is today, and the Bretton Woods System has just collapsed. Yet despite all this, the US economy was flexible enough to recover and still be number one my at least 6-7 times magnitude than the next largest economy

For those of you who don't know the Bretton Woods System
http://en.wikipedia.org/wiki/Bretton_Woods_system

Name a country that has a National debt bigger than Americas.

Cant find one? Thought so. So despite its some 12 trillion$GDP, it owns some 8-9 Trillion$ to other countries and/or citizens

[IDonT]

Name a country that has a National debt bigger than Americas.

Cant find one? Thought so. So despite its some 12 trillion$GDP, it owns some 8-9 Trillion$ to other countries and/or citizens

You are correct that the US is the biggest debtor nation. However, if I have a million dollars and is 500 thousand in debt and you have 100,000 and have 80,000 in debt, who is better off.

Most of our debt is from ourselves.
Do you know what the term risk-free rate means? It means that borrowing this money you get a low rate because you are 100 percent assured you get your money back. It says alot about the US economy when US T-Bills rate are considered AROUND THE WORLD as RISK-FREE rate. Think about it. What is the ratings on China's treasure bills? I bet you they are higher.

[SampanViking]

Lets keep it cool guys.

The global economy is like an engine, it needs all its component parts running properly in order to function. Take my advice, stop thinking countries, start thinking sectors and Corporations and you will have a far better mental picture as to how these things interact.

[KYli]

You are correct that the US is the biggest debtor nation. However, if I have a million dollars and is 500 thousand in debt and you have 100,000 and have 80,000 in debt, who is better off.

Most of our debt is from ourselves.
Do you know what the term risk-free rate means? It means that borrowing this money you get a low rate because you are 100 percent assured you get your money back. It says alot about the US economy when US T-Bills rate are considered AROUND THE WORLD as RISK-FREE rate. Think about it. What is the ratings on China's treasure bills? I bet you they are higher.
It don't matter how the ratings of TB, but more importantly what is the rate you pay now. The Japan have the world lowest treasure bills rate only under 2% for ten years note, and China is paying less than US is. The reason is because both China and Japan have little external debt, but the US have a lot of foreign debt. The current account defecit is the best measure for the balance of trade since US have over 800bilions net lost, so you are wrong about your assumption that most US debt is from internal.

[Totoro]

Of course all the economies are interdependant in light of today's rampant globalization. If either US or china would to disappear overnight, it would send the other country into huge economic nightmare.

Also, except for military power or, should we say, political strength and influence that military power gives, nominal nor ppp gdp is next to meaningless. per capita product is more valuable when comparing economies. i mean, EU gdp just got much bigger after 10 new countries got into EU, but realistically that didn't make EU stronger overnight.

When we are talking about gdp, i must say PPP is important. Its not just for standard of living. Thing is that one just can not compare lets say a US engineer and an indian engineer by the nominal salary they get for the SAME work. Lets say they both design the same car/toilet/whatever. But US guy will get 200 grand for his job whil indian will get maybe 20 grand. Same production is going on, but there's just more money in the game because of higher cost of living. PPP is used to remedy just those kinds of situations. It's far from precise, yes. Lots of things work on cultural level too, like housewives and such, who still contribute to a country's productivity even though their productivity can't be quantified. But PPP is the step in right direction.

[IDonT]

When we are talking about gdp, i must say PPP is important. Its not just for standard of living. Thing is that one just can not compare lets say a US engineer and an indian engineer by the nominal salary they get for the SAME work. Lets say they both design the same car/toilet/whatever. But US guy will get 200 grand for his job whil indian will get maybe 20 grand. Same production is going on, but there's just more money in the game because of higher cost of living. PPP is used to remedy just those kinds of situations. It's far from precise, yes. Lots of things work on cultural level too, like housewives and such, who still contribute to a country's productivity even though their productivity can't be quantified. But PPP is the step in right direction.

As I written earlier
GDP= Consumption+Investment+Government Spending+Net Exports

PPP accounts just the Consumption category. Investments and Government spending on the country, have costs that cannot be realized by PPP. For example the PPP exchange rate is 10 to 1 based on a basket of goods (cars, food, etc), but the real exchange rate is 5 to 1, so if I was investing on your country, I will still use the 5 to 1 exchange rate instead of the PPP exchange rate. Therefore my 1 million investment translate to 5 million in your currency no 10 million.

[Totoro]

As I written earlier
GDP= Consumption+Investment+Government Spending+Net Exports


all those are taken into account by PPP, too. You consume 100 tons of steel in US same as you would in india. but to produce/transport/consume them you'd pay less in india than in US. You invest 100 000 dollars in your business. In US youd get maybe one more employee, in india you get ten of them. Government spends 100 million to build 20 km of highways in US, same 100 builds 100 km of highways in india.

GDP is about productivity. And fact of the matter is that its hard as hell to measure that. How do you measure the know how for example?
Simple way to go about it - just count the money. And thats nominal GDP. But there's so much more to it.

Another very simple example is this : look at the list of country's GDP, nominal and PPP. They're all in dollars. Now look at US. Its nominal and PPP GDP is the same. Which of course it would be, since it does take into acount consumption, investment, exports, govt spending, the whole deal.

[akinkhoo]

US economy might drop abit but it is unlikely to fall apart like what the russian experienced. russian has to change their entire political and economical system; while the US is well rooted into the global economy today.

as for the british example, you have to note that their main industrial based (UK) were taking damage from german bombers, while US still has a fully operational industrial bases, several of them in fact! the UK also made some error in their 'investment of weapons', their own dreadnought design cause their entire warfleet to become obsolete, allowing other powers to race against them in building a new post-dreadnought fleet, the rise of carriers again ended the effective use.

1 of UK most advanced battleship, Prince of Wales, sunk not far from where i am sitting now by fighter-bombers, off the coast of malaysia. and after that, it was clearly over, as their remaining forces after the war was in bad shape and without an undamaged industrial base, they just couldn't rebuild their power while tending to the need of their damaged homeland.

---

there is simply NO comparision between the superpower that has fallen and what we had seen of the US. they might be weaken, but they are still above everyone else. i think IF they were weaken when another power is strong, there might be a problem for them, but right now, EU and China isn't prime material yet. so i think it is too early to think this would be the start of the end of rome.

i believe many countries (the average one; excluding the power contender like EU/China) will aid US secretly to maintain some level of power status quo. US is far away form most countries, hence the rise of say EU and China will have more neighbouring countries that are concern with the lost of their own influences. if you get my point. (basically i am saying, "allied the far and attack the near!" will be what non contender are doing, their influence while small must also be factor in the the world power equation)

[DumLoco]

I agree with akinkhoo and others, the US is still far ahead and globalization makes al countries interdependant.

I hope that in a few decades we could see a nineteen-eighty-four escenario, with USA and conquered countries as Oceania, EU + Russia as Eurasia and PRC and conquests as Eastasia.
That would be totally cool :D

http://upload.wikimedia.org/wikipedia/en/thumb/e/ec/1984_fictious_world_map.png/800px-1984_fictious_world_map.png
Ok, no more desvirtuation, sry.

[jimmyttl]

:roll: IDont, you should start enrolling yourself in an Economic course before you start bashing the reliability of PPP and I believe you have to admit that both PPP and nominal/real GDP has its on pros & cons :rofl: Ya.. Prince of Wales.. That's the battleship sunk by Jap's kamikaze bombers before they start their amphibious assault of the coast east peninsular malaysia and through land route from Thailand. Sad thing is Prince of Wales doesn't has any chance to retaliate, much like a sitting duck in a pool of ermhh... bees perhaps. ^^ by the way akinkhoo, I am from Malaysia. Nice to see one of my friendly neighbours in this forum.

[Nethappy]

It well known that the US is the world's biggest economy, taking up about 30 per cent of global GDP, but it's also the world's biggest debtor country. The federal government's books tab for the long-term promises the US Government has made to creditors, retirees, veterans and the poor amounts to over US$43,000 billion, US$145,000 per US citizen, or US$350,000 for every full-time worker and this figure does not even take into account all the personal debts such as credit card bills and mortgages. With a low interest rate running as low as 1 per cent running for the past three-four years in a row, savings plummeted to just 1.8 per cent in 2005 , below 0.4 per cent since 2005. In 2000, household debt broke 18 per cent of disposable income for the first time in 20 years. Credit card debt alone averages US$7,200 per household.

The US Government indebtedness is financed this way: The US now runs a trade deficit roughly 7 per cent of its GDP and the gap is widened every day. Its citizens are spending ever more on foreign goods, and with the US dollar as the international currency, the US Government just prints money to finance the deficit. And with this money, central banks in the surplus countries purchase most of the US Treasury bonds as currency reserve.

By now, China & Japan are the largest creditor of the US Government. As for Hong Kong, most if not all of our reserves are in US dollar denominated assets. The US Government in turn uses this foreign borrowed money to finance as much as 90 per cent of the federal deficit. The federal deficit is expected to be running at about US$3 billion a day at the moment.

Put it simply, the Americans have been living way beyond their means. On top of this, the Bush Administration is cutting tax at least three times while fighting an expensive war in Iraq, which has already cost the country US$800 billion, and currently progressing at US$5.6 billion per month. Now the US economy is dependent on the central banks of Japan, China and other nations to invest in US Treasuries and keep American interest rates down. The low rates keep American consumers snapping up imported goods.

It's clear that this situation is unsustainable, The federal budget deficit would hamper the nation's ability to absorb possible shocks from the soaring trade deficit and the housing boom. Now he may have to add two more worries: soaring oil prices and cyclones.

The US is now clearly in huge trouble, economically, socially, politically, and internationally. The Bush Administration bungled big in cyclone Katrina's aftermath in New Orleans, and then a minor rerun from Rita in Houston, and this will trigger the general outburst of people's dissatisfaction with the government, leading to great internal turmoil lasting for many years. In all likelihood, long-term interest rates are going to rise, and the greatest property bubble the world has witnessed is going to burst in the next one to two years.

Part of the reason Americans are saving so little is that they feel they have gotten wealthier. In the late 1990s, their stock and pension investments were growing and now their houses are worth more than they ever imagined. Low interest rates are probably discouraged saving and encouragedborrowing. Another reason the saving rate is falling is because pension benefit payments are increasing faster than pension contributions.
When an employer makes a contribution to a retirement plan, it's counted as income. When the employee retires, receives a pension payment and spends the money, it's counted as spending, but not income. The income was recognized long ago.

It may seem good to some of you now, but there are problem.

As the generation covered by traditional pension plans retires and starts spending their pension benefits, it is increasing consumer expenditures. But employer contributions to pension plans have been flat. This difference explains a small part of the decline in the saving rate.

[IDonT]

:roll: IDont, you should start enrolling yourself in an Economic course before you start bashing the reliability of PPP and I believe you have to admit that both PPP and nominal/real GDP has its on pros & cons :rofl: Ya.. Prince of Wales.. That's the battleship sunk by Jap's kamikaze bombers before they start their amphibious assault of the coast east peninsular malaysia and through land route from Thailand. Sad thing is Prince of Wales doesn't has any chance to retaliate, much like a sitting duck in a pool of ermhh... bees perhaps. ^^ by the way akinkhoo, I am from Malaysia. Nice to see one of my friendly neighbours in this forum.

Actually I have a degree in Economics with concentrations in International Economics and Development Economics... so I know what I'm talking about. How about you?

PPP is good for measuring the STANDARD of LIVING in a country, in other words a regular Chinese citizen's purchasing power is equivalent to it living a country that has a GDP of about 7 trillion.
If you are measuring comparative strengths between economies, PPP is no good. It does not take into account the labor force, infrastructure, labor mobility, intellectual rights, rule of law, etc.

[FreeAsia2000]

I think we should look at what emmanuel todd says...he's been
right before precisely because he looks at the correct statistics
and with an open mind

Emmanuel Todd: The Specter of a Soviet-Style Crisis
By Marie-Laure Germon and Alexis Lacroix
Le Figaro

Monday 12 September 2005

According to this demographer, Hurricane Katrina has revealed the decline of the American system.

Research engineer at the National Institute of Demographic Studies, historian, author of Après l'empire [After the Empire], published by Gallimard in 2002 - an essay in which he predicted the "breakdown" of the American system - Emmanuel Todd reviews for Le Figaro the serious failures revealed by the storm.

Le Figaro - What is the first moral and political lesson we can learn from the catastrophe Katrina provoked? The necessity for a "global" change in our relationship with nature?

Emmanuel Todd - Let us be wary of over-interpretation. Let's not lose sight of the fact that we're talking about a hurricane of extraordinary scope that would have produced monstrous damage anywhere. An element that surprised a great many people - the eruption of the black population, a supermajority in this disaster - did not really surprise me personally, since I have done a great deal of work on the mechanisms of racial segregation in the United States. I have known for a long time that the map of infant mortality in the United States is always an exact copy of the map of the density of black populations. On the other hand, I was surprised that spectators to this catastrophe should appear to have suddenly discovered that Condoleezza Rice and Colin Powell are not particularly representative icons of the conditions of black America. What really resonates with my representation of the United States - as developed in Après l'empire - is the fact that the United States was disabled and ineffectual. The myth of the efficiency and super-dynamism of the American economy is in danger.

We were able to observe the inadequacy of the technical resources, of the engineers, of the military forces on the scene to confront the crisis. That lifted the veil on an American economy globally perceived as very dynamic, benefiting from a low unemployment rate, credited with a strong GDP growth rate. As opposed to the United States, Europe is supposed to be rather pathetic, clobbered with endemic unemployment and stricken with anemic growth. But what people have not wanted to see is that the dynamism of the United States is essentially a dynamism of consumption.

Is American household consumption artificially stimulated?

The American economy is at the heart of a globalized economic system, and the United States acts as a remarkable financial pump, importing capital to the tune of 700 to 800 billion dollars a year. These funds, after redistribution, finance the consumption of imported goods - a truly dynamic sector. What has characterized the United States for years is the tendency to swell the monstrous trade deficit, which is now close to 700 billion dollars. The great weakness of this economic system is that it does not rest on a foundation of real domestic industrial capacity.

American industry has been bled dry and it's the industrial decline that above all explains the negligence of a nation confronted with a crisis situation: to manage a natural catastrophe, you don't need sophisticated financial techniques, call options that fall due on such and such a date, tax consultants, or lawyers specialized in funds extortion at a global level, but you do need materiel, engineers, and technicians, as well as a feeling of collective solidarity. A natural catastrophe on national territory confronts a country with its deepest identity, with its capacities for technical and social response. Now, if the American population can very well agree to consume together - the rate of household savings being virtually nil - in terms of material production, of long-term prevention and planning, it has proven itself to be disastrous. The storm has shown the limits of a virtual economy that identifies the world as a vast video game.

Is it fair to link the American system's profit-margin orientation - that "neo-liberalism" denounced by European commentators - and the catastrophe that struck New Orleans?

Management of the catastrophe would have been much better in the United States of old. After the Second World War, the United States assured the production of half the goods produced on the planet. Today, the United States shows itself to be at loose ends, bogged down in a devastated Iraq that it doesn't manage to reconstruct. The Americans took a long time to armor their vehicles, to protect their own troops. They had to import light ammunition. What a difference from the United States of the Second World War that simultaneously crushed the Japanese Army with its fleet of aircraft carriers, organized the Normandy landing, re-equipped the Russian army in light materiel, contributed magisterially to Europe's liberations, and kept the European and German populations liberated from Hitler alive. The Americans knew how to dominate the Nazi storm with a mastery they show themselves incapable of today in just a single one of their regions. The explanation is simple: American capitalism of that era was an industrial capitalism based on the production of goods, in short, a world of engineers and technicians.

Isn't it more pertinent to acknowledge that there are virtually no more purely natural disasters, rigorously defined, by virtue of the immoderation of human activities? Isn't it the case that the "American Way of Life" must reform itself? By, for example, agreeing to the constraints of the Kyoto Protocol?

The societies and ecological incorporations of Europe and the United States differ radically. Europe is part of a very ancient peasant economy, accustomed to draw its subsistence from the soil with difficulty in a relatively temperate climate, spared from natural catastrophes. The United States is a brand new society that began by working a very fertile virgin soil in the heart of a more threatening natural environment. Its continental climate, much more violent, did not constitute a problem for the United States as long as it enjoyed a real economic advantage, that is, as long as it had the technical means to master nature. At present, the hypothesis of man's dramatization of nature is not even necessary. The simple deterioration in the technical capacities of a no-longer-productive American economy created the threat of a Nature that would do no more than take back its [natural] rights.

Americans need more heating in the winter and more air-conditioning in the summer. If we are one day confronted with an absolute and no longer relative penury, Europeans will adapt to it better because their transportation system is much more concentrated and economical. The United States was conceived with regard to energy expenditures and space in a rather fanciful, not well-thought out, manner.

Let's not point our fingers at the aggravation of natural conditions, but rather at the economic deterioration of a society that must confront a much more violent nature! Europeans, like the Japanese, have proven their excellence with regard to energy economization during the preceding oil shocks. It's to be expected: European and Asian societies developed by managing scarcity and, in the end, several decades of energetic abundance will perhaps appear as a parenthesis in their history one day. The United States was constructed in abundance and doesn't know how to manage scarcity. So here it is now confronted with an unknown. The beginnings of adaptation have not shown themselves to be very promising: Europeans have gasoline stocks, Americans crude oil stocks - they haven't built a refinery since 1971.

So it's not only the economic system you blame?

I'm not making a moral judgment. I focus my analysis on the rot of the whole system. Après l'empire developed theses that in aggregate were quite moderate and which I am tempted to radicalize today. I predicted the collapse of the Soviet system on the basis of the increases in the rates of infant mortality during the 1970-1974 period. Now, the latest figures published on this theme by the United States - those of 2002 - demonstrated the beginning of an upturn in the rates of infant mortality for all the so-called American "races." What is to be deduced from that? First of all, that we should avoid "over-racializing" the interpretation of the Katrina catastrophe and bringing everything back to the Black problem, in particular the disintegration of local society and the problem of looting. That would constitute an ideological game of peek-a-boo. The sacking of supermarkets is only a repetition at the lower echelons of society of the predation scheme that is at the heart of the American social system today.

The predation scheme?

This social system no longer rests on the Founding Fathers' Calvinist work ethic and taste for saving - but, on the contrary, on a new ideal (I don't dare speak of ethics or morals): the quest for the biggest payoff for the least effort. Money speedily acquired, by speculation and why not theft. The gang of black unemployed who loot a supermarket and the group of oligarchs who try to organize the "heist" of the century of Iraq's hydrocarbon reserves have a common principle of action: predation. The dysfunctions in New Orleans reflect certain central elements of present American culture.

You postulate that the management of Katrina reveals a worrying territorial fragmentation joined to the carelessness of the military apparatus. What must we then fear for the future?

The hypothesis of decline developed in Après l'empire evokes the possibility of a simple return of the United States to normal, certainly associated with a 15-20% decrease in the standard of living, but guaranteeing the population a level of consumption and power "standard" in the developed world. I was only attacking the myth of hyper-power. Today, I am afraid I was too optimistic. The United States' inability to respond to industrial competition, their heavy deficit in high-technology goods, the upturn in infant mortality rates, the military apparatus' desuetude and practical ineffectiveness, the elites' persistent negligence incite me to consider the possibility in the medium term of a real Soviet-style crisis in the United States.

Would such a crisis be the consequence of Bush Administration policy, which you stigmatize for its paternalistic and social Darwinism aspects? Or would its causes be more structural?

American neo-conservatism is not alone to blame. What seems to me more striking is the way this America that incarnates the absolute opposite of the Soviet Union is on the point of producing the same catastrophe by the opposite route. Communism, in its madness, supposed that society was everything and that the individual was nothing, an ideological basis that caused its own ruin. Today, the United States assures us, with a blind faith as intense as Stalin's, that the individual is everything, that the market is enough and that the state is hateful. The intensity of the ideological fixation is altogether comparable to the Communist delirium. This individualist and inequalitarian posture disorganizes American capacity for action. The real mystery to me is situated there: how can a society renounce common sense and pragmatism to such an extent and enter into such a process of ideological self-destruction? It's a historical aporia to which I have no answer and the problem with which cannot be abstracted from the present administration's policies alone. It's all of American society that seems to be launched into a scorpion policy, a sick system that ends up injecting itself with its own venom. Such behavior is not rational, but it does not all the same contradict the logic of history. The post-war generations have lost acquaintance with the tragic and with the spectacle of self-destroying systems. But the empirical reality of human history is that it is not rational.

http://www.truthout.org/docs_2005/091205H.shtml

[akinkhoo]

jimmyttl, yes nice to meet you too ;-P

----

FreeAsia2000, interesting article tho it really didn't provided any new data.

i think there is little question that US is facing a decline, but i just couldn't find anything now to suggest this will break into a fallout. the world economy is so tied to the US that their decline will likely mean our decline as well, this is damage we just couldn't bare to recover.

it is just too hard to take only US's own internal issue as the only factor that will impact their economy.

however, the article does bring in fact: the US government is in financial trouble. and i suspect the inability is due more to federal budget issue than economy. it has been happening since mr bush became president. there is some level of cutting back in every department, including the DOD which this subject is about.

---

changes will occur on force projection capabilities as DOD has already planned those Xs... even B2's end date is on their table. but this also mean they had and they did made arrangement for cheaper alternative to fill the gaps.

[FreeAsia2000]

jimmyttl, yes nice to meet you too ;-P

----

FreeAsia2000, interesting article tho it really didn't provided any new data.

i think there is little question that US is facing a decline, but i just couldn't find anything now to suggest this will break into a fallout. the world economy is so tied to the US that their decline will likely mean our decline as well, this is damage we just couldn't bare to recover.

it is just too hard to take only US's own internal issue as the only factor that will impact their economy.

however, the article does bring in fact: the US government is in financial trouble. and i suspect the inability is due more to federal budget issue than economy. it has been happening since mr bush became president. there is some level of cutting back in every department, including the DOD which this subject is about.

---

changes will occur on force projection capabilities as DOD has already planned those Xs... even B2's end date is on their table. but this also mean they had and they did made arrangement for cheaper alternative to fill the gaps.

Hmm well Todd's argument is that america is in a state of hyperpower...it is in effect trying to project more power than it possesses on the basis of it's economic and SOCIETAL indicators...similar to the USSR.

regarding consumption of goods , i watched an interview on CCTV9 recently where a chinese government advisor was saying that at some point they would have to put a stop to supplying goods to america on the basis of its printing of dollars.

the rest of the world would suffer in the short term but in the long term it would be more healthy...i believe trade relations in a multi-polar world would benefit resource suppliers as well as domestic consumers in china and other countries besides making the world a more culturally friendly place.

our situation in the uk is that our foreign policy is in the hand's of people like rupert murdoch who own substantial assets in america unfortunately they've run quite a vitriolic campaign against european integration so when the crunch time comes we're going to suffer more than necessary :(

[cabbageman]

I understand very little about economics but from what I have read it appears that the US is importing goods and has found some way of not having to deliver anything of real value in return - just its paper money. Clearly, this situation can and will not continue indefinitely.

Two words: Knowledge Economy.

[Nethappy]

however, the article does bring in fact: the US government is in financial trouble. and i suspect the inability is due more to federal budget issue than economy. it has been happening since mr bush became president. there is some level of cutting back in every department, including the DOD which this subject is about.

This is very true, but it also due to some long terms monetary policy. As America proconsumption tax policies and super low interest rate encourage it people to borrow and/or spend it money rather then saving it, which created all the personal debts such as credit card bills and mortgages. Combined with it federal budget deficit which most would tell you, is cause by IRAQ. Nevertheless it also arguable by exceeds military spending.

A shortfall of domestic/national saving countries can curtail economic growth or borrow from the rest of the world. The frist option just doesn't cut in the land of wealth, the biggest economic in the world with the highest GDP, PPP and all the others. That leave the second option borrowing. So America must run a massice current-account deficit to attract the foreign capital it needs to fund economic growth.

From my last post
Its citizens are spending ever more on foreign goods, and with the US dollar as the international currency, the US Government just prints money to finance the deficit and with this money, central banks in the surplus countries purchase most of the US Treasury bonds as currency reserve.

There the catch, as American and it Government keep on spending, and the government keep on borrowing, the federal budget deficit grow. The large the federal budget deficit the lesser ability the nation's has to absorb possible shocks from major outbreak. Let name a few Cyclones, oil price, H5N1, soaring trade deficit and possibly property bubble burst.

IMO there is a few way out of this mess, which is a increace in national saving, lowering of federal spend, lower military and most important stop fighting war. I mean Afagh is alrite cos, everyone was taking a share of the cost. But Iraq, it really drain up the US resource.

changes will occur on force projection capabilities as DOD has already planned those Xs... even B2's end date is on their table. but this also mean they had and they did made arrangement for cheaper alternative to fill the gaps.

But in most cases they always manage to find a more expensive replacement.

[Ender Wiggin]

actually the state of the current debts came from the Reagan administration inn the 80's y'know the MASSIVE arms build up to spend the Soviet Union to death.

[Totoro]

PPP is good for measuring the STANDARD of LIVING in a country, in other words a regular Chinese citizen's purchasing power is equivalent to it living a country that has a GDP of about 7 trillion.
If you are measuring comparative strengths between economies, PPP is no good. It does not take into account the labor force, infrastructure, labor mobility, intellectual rights, rule of law, etc.

Lets make some things clear here. PPP is a way of comparing various kinds data. One (out of many) set of data that can be measured by PPP is GDP. GDP measured by PPP is merely nominal GDP of a country processed through the PPP ratio for that country, compared to the dollar.

And, as such, it is not very precise way to measure a country's GDP. BUT. With the exception of US, neither is nominal GDP in dollars. It would be better if instead of PPP measurement we had each little bit of country's economy dissected into bits and pieces and for each bit we had a different way of comparison, not just using the basket of goods price index. But i guess that's too complicated. So we're stuck with PPP for measuring GDP. So while it is not accurate on an absolute level, i believe it is still much more accurate than nominal GDP. In the example of US, it makes no difference. But in less developed countries it just get more and more innacurate to use nominal GDP, quickly so to the point that if becomes far more accurate to use PPP GDP.

That being said, i'll get more on topic. US is at no economic decline. Its debt is nothing alarming, lots more countries have higher percentage of debt in their GDP. Its economy is still growing and even though its true that sooner or later the budget deficit will have to be taken care of, it's nothing truly alarming.

[Nethappy]

actually the state of the current debts came from the Reagan administration inn the 80's y'know the MASSIVE arms build up to spend the Soviet Union to death.

Mostly true, the Bush's Administration did inherited most of it $8.4 trillion debt from previous administration. Nevertheless, the Bush's Administration really don't have anyone to blame for $456 billion increase in debt during the first six months, of the current fiscal year. Which on an annual basis add up to $912 billion, or $2.5 billion per day seven days a week.

That being said, i'll get more on topic. US is at no economic decline. Its debt is nothing alarming, lots more countries have higher percentage of debt in their GDP. Its economy is still growing and even though its true that sooner or later the budget deficit will have to be taken care of, it's nothing truly alarming.

You should read the follow article from Money Week

More debt, not less: will US pressure on China have the desired result?

Mr. Hu Jintao, the Chinese President, is scheduled to visit Washington later this month while the United States continues to put pressure on China to let its currency appreciate against the dollar. It seems China is going to comply: In December Mr. Yu Yongding, who is a member of the monetary policy advisory committee to the People's Bank of China, said that China should weaken the link between the yuan (renminbi) and the US dollar, to make the exchange rate more flexible and improve the (Chinese) government's ability to manage the economy.

Mr. Yu suggested that the weighting of the US dollar in the basket of currencies against which the renminbi is set should be reduced; thereby reducing the impact that changes in the US dollar would have on the value of the renminbi. Mr. Yu also said that Chinese firms should get ready for a strengthening of the yuan in the next one to two years. The "fuller the preparations, the better," he said.

In January China said that it would allow interbank spot trading (i.e. not futures trading) of its currency - a major step towards a less restricted foreign exchange regime in China. Another significant announcement came from China’s State Administration of Foreign Exchange (SAFE) that said China should diversify its massive foreign exchange holdings, which are predominantly held in US dollars. SAFE gave no specifics and no hint as to any kind of timetable, but this is not the first time that we have heard such rhetoric from Asia.

The BBC reported this week that Chinese Parliamentary vice-chairman Cheng Siwei suggested China might reduce the amount of US bonds it holds as part of its foreign exchange reserves. China’s Central Bank was quick to point out that Mr. Cheng was speaking in his private capacity; however, with President Hu Jintao’s imminent visit to Washington I find it hard to believe that Mr. Cheng’s opinion is an aberrant opinion. His remarks led to a decline in the US dollar and a concomitant increase in the gold price this week. Gold is within spitting distance of $600 an ounce.

Perhaps less widely publicized, but potentially far more important, is the increase in long-term US interest rates. The benchmark 10-year Treasury fell this week causing the 10-year interest rate to rise to 4.971% - a four year high. Why are US bonds falling, causing interest rates to rise? Because if the Chinese allow their currency to appreciate

against the dollar it implies reduced purchases of US Treasuries by China. Japan has already curtailed its purchases of US Treasuries and, in fact, Japans' holding of US Treasuries is busy declining.

The mechanism by which China and Japan have been supporting the US dollar is to buy US Treasuries instead of selling US dollars into foreign exchange markets. If they are forced by Washington to let the dollar fall, it means they will have to buy less US Treasuries; hence, a falling US dollar will go hand-in-hand with rising US interest rates, exactly what has been happening recently - and as predicted in these pages.

Note, however, that it is not short-term interest rates, over which the Federal Reserve has considerable control that we are looking at; it is longer term interest rates, which are set by the market, that will tell us what is going on. An aspect of the current situation that is being ignored is that US government debt is about to explode. Rising interest rates mean the interest burden on US debt is rising. But, higher interest rates will put a drag on the economy and I do not, for a minute, believe that the current jobless economic expansion is going to last. I am afraid that a more realistic expectation is a slowdown in economic activity, which will lead to reduced tax receipts by the US government.

In addition, there is no reason, whatsoever, to think that the US government is about to curtail its spending; rather, if the economy does slow down, there is some reason to believe the government will try to stimulate it by increasing its deficit spending. Thus we are looking at reduced income for the US Treasury in the future and an increase in government expenditures and a higher interest burden on the burgeoning outstanding Treasury debt.

Many people pooh-pooh the US debt situation. Let me try to put it in context for you. The US Treasury has a hair under $8.4 trillion in outstanding debt. Did you know that if you deposited one million dollars into a bank account every day, starting 2006 years ago, that you would still not even have ONE trillion dollars in that account. If you deposit one million dollars into a bank account every day it would take 23,000 years to accumulate $8.4 trillion dollars.


Maybe you don’t like to think that far into the future. Perhaps a trillion is just too big a number to comprehend, so let’s think about billions. During the past six months, since the beginning of the current fiscal year, the US government’s debt has increased by $456 billion. On an annualized basis that is $912 billion. The US government’s debt increases at the rate of $2.5 billion per day, including weekends. How much is a billion? A billion seconds ago it was 1974 and one billion minutes ago Jesus may still have been alive. Next time someone tosses the word “billion” or “trillion” around casually you should ask if they actually know how much it is.

It might be true that the US economy is very large, and many people believe the US economy is large enough to carry the humungous amount of US debt. Personally I believe that US economic growth is overstated but, even if we assume the official numbers are correct, then US economic growth is only about 2% to 3% per year. The US government’s debt is currently growing at an annualized rate of 11.5% and, as I explained earlier, that growth rate is about to increase. The amount, and the growth rate of US government debt, coupled with the possibility that China will have to reduce its purchases of US Treasuries to comply with the wishes of Washington, means that US interest rates could soar. Again, we are not talking about short-term rates here, but longer-term rates: The five-year rate on which auto financings are based, and the twenty and thirty-year rates on which mortgage rates are based. This is bound to hurt US consumers, corporations and the US economy and it will occur in conjunction with a weakening US dollar, which means higher gasoline prices.

A weaker dollar also means higher gold prices.

http://www.moneyweek.com/file/11142/more-debt-not-less-will-us-pressure-on-china-have-the-desired-result.html

[cabbageman]

GDP doesn't measure the power of knowledge economy, PPP or otherwise.

All arguments about national debt and savings could really be sum up by the account deficit problem. That's the real bottom line.

[Nethappy]

GDP doesn't measure the power of knowledge economy, PPP or otherwise.

All arguments about national debt and savings could really be sum up by the account deficit problem. That's the real bottom line.

True, this is very true. If these issue a handled correctly then it should mend the US economic and personally I hope they do. Cos a bad US economic could most likely mean a bad world economic.

[FreeAsia2000]

True, this is very true. If these issue a handled correctly then it should mend the US economic and personally I hope they do. Cos a bad US economic could most likely mean a bad world economic.

It's really a economic base and superstucture problem..america's superstructure
is making demands that it's economic base can't satisfy therefore at some point the economic base will bring it back to reality.

Same thing has happened to myriad empire's in history...look at the USSR..it's collapse had a devastating effect on it's satellite countries however they have by and large adapted. The same thing will happen again

[Nethappy]

Same thing has happened to myriad empire's in history...look at the USSR..it's collapse had a devastating effect on it's satellite countries however they have by and large adapted. The same thing will happen again

True and people never learn from history. It a fact that all these great empire and country collapse fail to acknowledge a econmic decline, work with and accept another superpower or a new growing one, or it fight to many war.

Econmic decline is a usual thing during the economic cycle, every nation need to curtail economic grow and/or slow down it economic. So that is can fix some of it fundamental problem so it can healty grow in the healty in the future. In US case it choose borrow to fund it growth.

2nd case is China once again. Challageing China isn't going to do much good for the US. Working with on equal term would be much better approch.

[Gollevainen]

Moved to world armed forces forum...people, If forum is entitled as GENERAL CHINESE MILITARY FORUM FOR GENERAL CHINA RELATED MILITARY DISCUSSION, one migth thing, what does political thread about US economy do in here? This isent forum for general discussion, spite the name 'general' appears top of it...:off

[akinkhoo]

regarding consumption of goods , i watched an interview on CCTV9 recently where a chinese government advisor was saying that at some point they would have to put a stop to supplying goods to america on the basis of its printing of dollars.

the rest of the world would suffer in the short term but in the long term it would be more healthy...i believe trade relations in a multi-polar world would benefit resource suppliers as well as domestic consumers in china and other countries besides making the world a more culturally friendly place.i doubt that "chinese government advisor" is making any policy decisions. he is just giving his opinions on what will be good for china. beside, it isn't up to chinese government to dictate who is buying what (the capitalist decide that and china speedy development depends on them), what they can do is to make their currency more expensive to decrease export, but they can't choose who is buying (unless they want out of WTO and affect their FTAs). in fact only yesterday did china's president again stress he will not revalue the peg.

yes, it the long term it benefit the public. but it doesn't benefit the capitalist because they rather a world where countries have less power to challenge eachother. US while as 'solo' as they act in politic, they still wouldn't attack areas of capitalist interest. in fact by taking out countries that are less integrated with the global economy, they are expanding the reach to global companies into those nations.

yes it is less culturally friendly, but we are discussing reality not idealogy. and the world works differently in life than on paper. human race are well-known of their "not so benefiting acts".

2nd case is China once again. Challageing China isn't going to do much good for the US. Working with on equal term would be much better approch.the superpower fight for influence of lesser state. if US doesn't challenge china, it will lose it's ability to influence lesser state WITHOUT offering a better deal. to protect it's monopoly, it will fight ALL challengers. while fighting isn't good, not fighting will be even worst. this was actually debated in US senate many years ago, it is by no means a quick decision made by US, nor is it antichinese, it is just protecting it's interest; even if it means they are unequal ones! neo-cons...

---

i don't support US supremacy, i prefer to see china in equal standing. but china must becareful not to think that it's rise will be a smooth one, or that it's enemy is weakening by the day. or it will lose all that it has gain in a single mistake of underestimating the enemy and overestimating itself.

while china and us is not enemy in the traditional sense, they are opposing players in the game of influence. and if 1 of them turn out to be a bad loser, hell might break lose...

[FreeAsia2000]

akinkhoo the program was in response to the controversy at the moment
over the dollars for oil economic issue which is said to be one of the major
reasons for american opposition to Iran.

secondly the point you made about opening up countries by capitalist states
is usually made by certain pro-globalisation marxists who believe that this
will help speed up the end of capitalism. which depends entirely upon
whether you believe that capitalism will decline and whether that's a good thing

I'm not making either of those points because I don't believe that
market forces somehow are acting in some unseen way to decide the
future of the human race...i believe that individuals and states act in
what they perceive to be their best interests...unfortunately sometimes
certain groups or individuals assume power in states and believe that
their interest is above and beyond that of their nations...and this always
leads in the long term to the decline of that state. nepotism is one
word for it.

In this case certain interest groups have assumed power of the american
administration and have forced it to wage too many wars against too
many enemies... in this context no amount of military power on earth is
sufficient to help you if you are waging war against the whole earth
because your own economy depends upon the rest of the earth..:)
so in a way you are fighting against yourself.

it's interesting though to see how the diplomatic gaffes will be viewed
in China ...no doubt american strategists are familiar with chinese history
and thus the chinese government may conclude that this was a
deliberate attempt to intimidate the chinese government

[Nethappy]

no doubt american strategists are familiar with chinese history
and thus the chinese government may conclude that this was a
deliberate attempt to intimidate the chinese government

IMO and I believe same with a lot chinese too. That the US is more then deliberate trying to intimidate the chinese government.

- Any of you hear about the news. How the hell can a White-House announcer referred to China as the ``Republic of China,'' the official name of rival Taiwan, instead of the People's Republic of China. This is a total disgrace and lack of respect from the US. Yeah I know you can argue that is was a mistake, but I can insure you White-House announcer or any announcer to a national leaders doesn't make mistake, cos most the time they can't afford too.

- Remember 1999, The U.S Air Force bombs China's embassy in Balgrade, I know it been said a billion time that is was a mistake. But how many Chinese do u think believe that. I certainly don't, anyone who been in the military know all the procedure it need to go thought to plan a stirke. You just don't make mistake like that especially when the postion of one's country embassy is not hidden infomation. You don't need to be a intelligence operation to find out where it's, you can find it in any map.

Anyway back to topic (economic). hmmm

i doubt that "chinese government advisor" is making any policy decisions. he is just giving his opinions on what will be good for china. Well these Advisor are some of the most important people in China, you don't get into the monetary policy advisory committee if they don't listen to you. Anyway, it true that capitalist decide what they buy, nevertheless, this could effected in many economic environment, technology but in a goverment point of view it going be policy.

what they can do is to make their currency more expensive to decrease export, but they can't choose who is buying
Well most people would still buy from china even if they make their currency flexible, cos of low labor cost, big market etc.

the superpower fight for influence of lesser state. if US doesn't challenge china, it will lose it's ability to influence lesser state WITHOUT offering a better deal. to protect it's monopoly, it will fight ALL challengers. while fighting isn't good, not fighting will be even worst. this was actually debated in US senate many years ago, it is by no means a quick decision made by US, nor is it antichinese, it is just protecting it's interest; even if it means they are unequal ones! neo-cons...

Well US is still losing it's ability to influence lesser state because of it own conduct and in the currently case it's more bad then good with it challage to the Chinese. The world economic is depend on the Chinese (it been the world economic engine for the past 10-15 years) as it depend on the US, their fore the US challage to the Chinese is like a hit to it own face.