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America: The Trillion-Dollar Nightmare

Basil Enwegbara

This is where America got it wrong. This is where America’s continued belief in an indefinite borrowing power is wrong. America cannot afford to go on borrowing as if we were still in the Cold War, when it controlled more than half of the world’s economy, which allowed it to dictate to the rest of the world.

Now, the US must ask these fundamental questions: Who will be responsible for the present economic problems caused by excessive borrowing and spending? For how long do Americans think this extravaganza can go on before other nations begin to walk away from the dollar? How will the US reposition its economic leadership in today’s global economy? Will President Bush’s recent announcements to stop the dollar’s bleeding by cutting and bringing down the deficit be taken seriously by those nations that pay the price of continued investment in the dollar?

Most importantly, Americans must ask themselves this: is supremacy in the 21st century going to continue to emerge from military might or is going stem from trade power?

Leading economists have for sometime now debated America’s current predicament, and in so doing, they have repeatedly warned Washington about the price tag of its excessive public borrowing. These experts have concurred that the pressure on the dollar has grown beyond what they call the dollar’s carrying capacity.

Washington seems far less concerned. These public policy entrepreneurs seem busy loading more and more burden on the dollar than looking for ways to unload some.

Now that the whole thing is about to burst, with most countries feeling uneasy relying on the dollar as the universal currency, is Washington ready to do something to avoid danger? Is this a wake up call for Washington? What about the Federal Reserve? Has it recognized that its self-appointed role as the world’s central bank is over?

America, with its rapidly aging economy, has only a few options to exploit in a world where young and energetic economies are emerging as the world’s economic engine. It will require, first and foremost, every measure to save its national currency, should the US dollar continue to be the world’s universal currency in which other nations have confidence. Saving the dollar will require totally overhauling aging economic and social institutions created in an era when the U.S. had no rival. This is where the problem lies.

Any political party that tries to overhaul this obsolete economic system will become a political outcast overnight. No party is ready for that challenge right now, so denial seems to be the best answers politicians have.

While China and India are cruising at full speed ahead, Washington watches helplessly. US companies now know their survival depends on their ability to produce competitively by cutting costs or migrating to where both costs and corporate responsibilities are lower. Without the power to pass off rising health care and social security costs, and the rising oil prices, the US is far less ready for today’s hyper-competitive global market. This current hopelessness is forcing arch-nationalists like Lou Dobbs of CNN to publicly denounce globalization. Right or wrong, they blame America’s difficulties simply on global free trade. But rather than make adjustments, Americans have been told to continue with their insatiable consumption trends. “Don’t worry, other nations will take care of your inability to produce,” is what everyone believes. And that is the kind of message the current tax-free message is sending. It is no longer what you can do for your country, but rather what your country can do for you. Believing in this new kind of American Dream has led to the current economic dead-end. It has reinforced a culture of low savings, dependency on foreign capital as the major source of investment, and revived the $400 billion annual military expenditure put on hold during the 1990s with the collapse of the Soviet Union.

Does one need to be an expert to know that America’s current figures are not adding up? China, Japan, South Korea, and India definitely know that. They are no fools to continue providing the difference. Providing the difference, they fully understand, is simply loaning America money to continue spending on their goods. So, every American job loss is their job gain; and America’s deficit is their surplus.

It’s only a matter of time before these countries begin to stand toe to toe with America. When that happens, they will then make the same claims America made on Britain at the beginning of the 20th century: “You now must pay us in gold or accept ours as the new currency of trade; whichever you can afford, pay us.” Just like America, China will not hesitate to impose its interests on the rest of the world, including forcing OPEC and other major oil producing nations to sell oil in renminbi. In fact, China will seize every opportunity to make renminbi replace the dollar as the universal currency.

But is America really out of the game? There are enough reasons to believe not. First, America is no British Empire. Its middle-class is so enormous, it will take both China and India the next 30 years or so to successfully build one large enough to be a rival. Second, America’s brainpower reservoir is huge and yet to be fully tapped. Its leading centers of knowledge like MIT, Stanford University, California Institute of Technology, Harvard University, and Johns Hopkins University to name a few, are preparing for the fiercest knowledge battle of this century. Third, and most important, America’s enormous entrepreneurial class still is the envy of the world; dynamic, creative, confident, optimistic, self-driven, and never-yielding energetic men and women ready to take the risk and suffer whatever pain in order to win. Where else, if not in America, can four 27-year old founders of Sun Microsystems, who, with virtually no business or industry experience, rise to beat the entire world of established industry superstars?

While China and India are no Japan because of their colossal populations, they too have fragile and undeveloped domestic markets. Their inability to expand the local consumer base as a possible shock absorber puts them on high risk and at the mercy of American consumers. When America reacts -- which no doubt it will when the time comes -- against its status as a dumping ground for Asian products, the inability to rally round domestic markets alternatives will have dramatic and uncontrollable consequences. Economic meltdowns will not be the only fallout. Social and political dislocations also may trigger massive unrests. America fully knows it has this winning card. It is not a question of if, but when will America play this card. There can be no doubt that when it comes under immense domestic pressure, America will.