The sole superpower and the world’s largest economy is faced with far more serious issues than the shutdown of its government

On a trans-continental flight this week, someone asked me what I liked to read. My reply: what I read is reflected in some of my writings. Here is my recent reading and understanding of a critical development that concerns both–our present and our future.

International Herald Tribune is the global edition of New York Times. Its front page on 1st October had a small headline:“Washington on the brink”. But the full-scale impact of this small header, when (not if) it will come true, will not be small both for the United States and the world.

This week, almost everyone read or heard about the impending shutdown of the US government. For an ordinary man like me, what does this mean?If my understanding of the situation is correct, in a wider shutdown scenario, the US government will not be able to pay its bills: (a) salaries to its employees — including to the most powerful man on the planet, the US President (b) loan repayments to its money lenders, (c) payments to all its suppliers who sell to the US government everything from pencils to rockets etc, etc.

This sounds bizarre. More so when the nation in discussion is the “richest” in the world! How did America end up here? The story is long. But here is just the gist. If any individual, family, corporate, city or country looks rich, then a simple question to ask is: are they working hard and as a result earning enough and spending less than that? If the answer is affirmative, then they may be considered as truly rich.

On the other hand, if most (or in a worst case scenario, all) of the glitter is because they all have borrowed heavily and are only spending the borrowed money, then that affluence is fake, shortlived and disastrous. It is also a simple fact that like individuals and corporates, there are eventually no lenders to over-borrowed nations!

It is no secret that the entire US economy and the government is built on borrowings. More and more debt. Americans should not naively believe that they have nothing to do with their government’s borrowings. Through ever-increasing direct and indirect taxes, they are forced to repay the government debt!

If the expenditure exceeds income. And that gap is filled with temporary and limited debt, then it is both understandable and sustainable. But if the culture of a society, from school going kids to its President is to live off excessive debt, then the brink is inevitable.

The US is a large country. Just to “maintain” itself requires enormous money. But it is also a large bully. Except Pearl Harbour, the US has never been attacked by a foreign country. Never. On the contrary, the US has launched a number of overseas wars. For funding these wars, it needed money. Of all its wars, the two most recent and costliest ones have been against Afghanistan and Iraq. They have cost more than 2 trillion dollars. That is more than the entire GDP of India!

Such costs are funded by simply printing dollars. Literally. But, as I have written in a recent piece, when the currency is not backed by anything valuable, its real worth is not much more than the paper it is printed on. Any value over and above that is not real and therefore not permanent.

After the recent financial crises, the US dollars printing machines have worked overtime. Those extra dollars, besides weakening the US economy in the long run, have been used to speculate in the stock markets of some “emerging” economies. This, because those dollars were almost free. And any profit on their investments in countries like India, Turkey, Brazil was more than the cost of printing them. But the dollar printing business cannot go on forever.

Living on borrowed money

Today, as a result of its increased printing business, named Quantitative Easing (QE), the US has 3 trillion dollars more in circulation. If we add up the Chinese foreign reserves of 3 trillion; Bank of England, the European Central Bank and Bank of Japan’s combined QE of close to 2 trillion and the cash reserves of oil-producing nations of close to another 2 trillion then it is over 10 trillion dollars. This is a lot of money. And all this is managed by a handful of financial institutions, mostly and understandably Americans.

Ordinary citizens of either these countries or in any other part of the world do not derive any significant benefit of these QEs. In fact, these free flowing funds are causing both higher cost of living and uncertainty in the financial markets (including recent currency depreciations) wherever they are being deployed.

So where is the problem?Probably, human mind is finally beginning to realize that there is something fundamentally wrong in the global economic system. Too much debt and the currencies backed by nothing.
And the US as a nation is not earning more than their expenses. So the brink is logical. Does this mean that the US will disappear? The answer is no. It is still a great power. Its universities (not schools) are still the best in the world. It is still generating more technological patents than the rest of the world. Its weapons of mass destruction are more than enough to destroy the entire world 3 times over.

ButI guess, the self-destruction of the US will be gradual. It has already realized the mistakes of invading Muslim countries. A clear proof is its inability to undertake even “limited” and “not US boots on the ground” adventure in Syria.

This is despite Bashar Al Assad brazenly crossing Obama’s widely publicized “redline” of using chemical weapons against its own civilian men, women and children. This is probably the ultimate humiliation, till date, of the US as a military superpower. Although it has been equally humiliating that the Commander-in-chief of the world’s most powerful army, for the last several years, has been visiting the war-torn Afghanistan in the dead of night. His presidential jet, Air Force One, lands well after sunset – unannounced – and leaves the Afghan territory which is full of NATO soldiers well before the sunrise. The world gets to know about his visits to the US army bases when he is far and beyond the Afghan airspace!

But not attacking Syria is a good news for the innocent victims of illegal American invasions all over the world and also for innocent Americans, who have been laying their precious lives for no real cause.

Worse, if we go by The Economist of 28 September 2013, the US “war on terror” is far from won. This widely respected international magazine warned: “The West thought it was winning the battle against jihadist terrorism. It [the West] should think again”! And admitted: “strategically, they [jihadis] are winning”! The Western sources also concede that Al-Qaeda and its affiliates control more territory and resources across Eastern Afghanistan, Middle East and Africa now than at any time in the last 25 years!

So if the US government fails to pay its bills in the next couple of weeks, Americans will be within their rights to quiz their leaders what have they achieved by spending 2 trillion dollars on the war against terror?

While the Americans engage in this Q&A, others need to reflect if the US is alone in the currency printing and excessive borrowing business? Unfortunately, the answer is in negative. This American “gift of globalization” to the rest of the world is going to bite everyone, sooner or later.

And what about the worldwide war on terror? Let’s wait and see.

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