Is The United States Near Roman-style Collapse?

Another excellent policy piece, bd!! Kol hakavód!!

I studied political science and public administration in the late 1970's; ALL of the problems reported by the Comptroller-General in this report were problems in the late 1970's - with one big difference. In 1977, the United States was a creditor nation that was not dependent on other nations to fund its economy or budget. The possible collapse that faces the United States is a result of being a debtor nation - something brought about by Ronald Reagan. History will not judge Reagan kindly when the dollar collapses. Nota bene, bd, I said when the dollar collapes - not if.

Best,
Reuven

I'm sure most are delighted at the notion of the US collapsing.

Most people want the US to fail.

The problem is....if the US does fail, what will take its place?

yes, I see where you are coming from, Ruvy, this massive deficit finance edifice is only standing till productivity in the USA and returns in the USA are higher than other countries. As soon as that reduces, the USD will no longer be the reserve currency and then the challenge will really bubble to the market when American investments have to be funded from the open market.

PS: What does Kol Hakavod mean? Sorry for being a bit thin on Hebrew (at least, I think that's Hebrew! :)

MAPAD #2, I am not going to respond to your first comment. Perhaps you might want to consider why your comptroller general is saying what he said. Read the speech, my friend, it is quite interesting.

But your question is worthwhile to answer. While considering the fact that this is just guess work, I would say that we will see the collapse of the unipolar world into a multi-polar world. Remember, a multi-polar world is the historical norm for human civilisation, unipolarity never worked. I have an essay already completed on this topic and will be putting it in for publication for next week.

You might also consider what happens when great powers collapse. Here is the best book on this topic, 0006860524, The Rise and Fall of the Great Powers: Economic Change and Military Conflict from 1500-2000 (Paperback) by Paul M. Kennedy.

Cheers

bd

One of the things that is sure to test the stability of the American nation is the social secuirty system.

bd:

Kol hakavód means all honor (to you). In other words, full marks!, excellent!, 100 percent! (méah aHúz, another term in Hebrew indicating high praise).

Bravo è bravissimo!

MAPAD:

I second bd's sound advice here. This article is not an issue of wanting America to fail. I was born and raised in America, and whatever I think of her foreign policy or enslavement to the oil and banking establishment, I do not wish ill upon the American people.

This article points out the painful fact that the economic pillars upon which the United States stands are collapsing - and why. It is not good news for me - but it is news, nonetheless, and I ignore its warnings at my own peril.

But why are the Left crowing gleefully about a fiscal-led collapse of the US now, just because a conservative like Bush is in power?

Why weren't these Cassandra prophecies made during the tenure of the Clinton admin, say during the Kosovo invasion? What about the fact of the fiscal deficit being ridiculously large during Clinton's time as well?

Ohhh, I see -- when it's the pandering Lefty you love who's in the Oval Office, then it's time to chant "Long Live the USA!"
But when it's somebody else who's not dishing out the welfare-state soma to the epsilons, then it's time to talk about the collapse of the American Rome.

Truly, it is worth asking what would take the place of the USA as guarantor of international order, if it did collapse?

Thank you, Ruvy, much appreciated.

Sanjay

If you see the role of the comptroller general, he is not really left nor right. And if you see the pronouncements made by this chap, these are pretty much very long term in nature rather than look at it at a purely left/right perspective.

His identification of the issues and the proposal of the solutions are unfortunately independent of politics. Which is the reason why his prescription will not be picked up. Shame really.

The Democrats will be in the white house and US congress in 2 years. Let me ask you, what is the probability that any/all of these issues will be put into a "solution" mode? and how many of these solutions will be supported by the republicans? Both have to happen for these issues to be resolved. Between these two, the join probability is tending to zero.

As for your final question, may I suggest you first inquire why a guarantor is needed? And second, we do have international, regional and local power bases to guarantee international order. And finally, so what international order collapses in, oh!, in the congolese region as it has over the past 30 years or in Sudan. So you might see that this guarantee business isnt really for all situations and for all times. I think the world can do with a dose of trying to manage independently.

Cheers

bd

Sanjay,

I voted for Bill Clinton both times he ran. And I was satisfied that I did right. Whatever his foreign policies were, no matter that he needed young women to reassure him sexually, he did his best to run a tight fiscal ship and a responsible economy. And try to remember that Clinton succeeded in giving the Americans something they had not had for a generation - a budget surplus!

Americans have not seen a budget surplus since Clinton left office.

This issue has been discussed to death but there is no real consensus about what it means to America's future.

As of the end of 2006, the total U.S. federal public debt was $4.9 trillion, not including money owed by states, corporations, or individuals, nor does it include the money owed to Social Security beneficiaries in the future. If intra-government debt obligations are included, the debt figure rises to $8.7 trillion. If unfunded future obligations are added (i.e. Medicare and Social Security) this figure rises to $59.1 trillion. This still does not include corporate debt, corporate unfunded liabilities, nor individual debt. Needless to say, the total debt increases daily.

A few years ago the U.S. Congress ordered the Comptroller General to start publishing (including openly displaying on their website) the total Federal govt debt and unfunded obligations. In 2006, the amount posted on the site exceeded $41 trillion. I guess the Congress thought that making the numbers available in the public domain would raise citizen awareness and ultimately to mass political consensus.

What lies in America's future? well, one view is: more of what is already happening i.e. foreigners owning more and more of America's debt, buying up American companies etc. America will not collapse - it will likely be a corporate style takeover. Quite fitting, perhaps ;-)

Sanjay is on the right track. Everyone talks as if they are gleefully awaiting the collapse of the American empire. Be careful what you wish for folks. In any event, it ain't going to happen in our lifetime. All this talk about financial deficits is slightly overdone. These things always eventually balance out. People are talking about hard economics they scarce comprehend. The deficit is not going to bring America down and I have heard all this stuff before. Just like Paul Elrich is always wrong about the end of environmental days, so are the financial doomsters. In the 1980s apparently America was going to be taken over by Japan and Germany because they were "creditor" nations. Guess who's left standing? America's demographics are healthy, their economy is deep and innovative and they can back up their debt - so chill out. There is no doubt America has problems (for example, heavy partisanship and lobbying that threatens the core of democracy), as this gentleman points out, but I'd rather have America's problems than Europe's or anybody elses. Last, I've been hearing comparisons to Rome for over 20 years. There are indeed many similarities but I can't help but wonder if this is the latest fad for anti-Americans to jump on. History is a fine source to consult but it needs to be treatd properly and with care. Speak to an ancient/classical historian and see what they think. Victor Davis Hanson, though a little to poetic and over the top, seems to think America is far healthier than people think. On a side note, I've always seen an interesting link between Italy and the USA. Good piece.

For an excellent article on a related subject i suggest "Chalmers Johnson's Blowback - The Costs and Consequences of American Empire: Is America in Decline?" by Socrates who writes for Blogcritics.

here's the link....

http://blogcritics.org/archives/2007/05/06/044649.php

All this while people were in denial mode about the actual state of the United States.The present housing mortgage imbroglio has stirred the hornet's nest....should be seeing some action in the coming months.

My friends, concentrating just on the deficit misses the point in my opinion. The deficits are a symptom, not the problem per se. The deficits arose and persist because americans are spending more than they are earning. And that phenomena can only exist while certain conditions apply. As you saw down history, the role of the world reserve currency is not god given, it depends upon a variety of factors. At one point in time, you do realise that the Moghul Mohur was the world reserve currency?

But do take a look at all the issues which he mentions, that's where the money is going, even if you can live with the debt, can you still live with the issues relating to infrastructure, medical system, pension, immigration, and and and?

How do we suppose we address those issues? Remember that funding for debt only happens when the supplier of funds has got faith that the debt will be paid back or there will be sufficient assets in case of a firesale. Well, soverign debt behaves differently, but the yield? hmmm, to be thought about.

Why is the comment system not working ?

This is not a left vs right issue. Both sides are for big governments which results in overspending leading to huge deficits. The prosperity that you are witnessing now is not real, they are bubbles created the central banks all over the world. Someone saying debt doesn't matter is equivalent to saying one can live on credit cards for ever.

We are living beyond our means today and the debts will have to be paid back one day, either by huge taxation or massive devaluation of the currency or a combination of both. In both cases, we are passing on the burden of debt to future generations.

The issues listed in the article are real. The only politician who is aware of, and is talking about these is Ron Paul, who is one of the Republican candidates running for president in 2008. He stands for a non interventionist foreign policy, sound money, balanced budget, limited government, and individual liberty.

Please check out his website www.ronpaul2008.com or his youtube video channel http://www.youtube.com/RonPaul2008dotcom

The comments were being marked as potential spam by our spam engine - have been released now.

BD

Good one. I read this on Drudge the other day. I think what one needs to highlight is that the comptroller was trying to identify areas of weaknesses as opposed to predicting a definite scenario.
We are all aware of the deficit (which is suprisingly reducing since the tax breaks of 2001) and the concerns with social security. I am quite confident they can fix them all. It is only a matter of time. Afterall the deficits of the 80s became surpluses of the 90s . Sustained and planned immigration will enable them deal with social security issues over above much needed reform.

Chandra #20, lets see, buddy, i am not at all confident about immigration reform. the problem is that for a solution like yours, you need to have value added immigrants in place, not the current type of immigrants unfortunately. The blue collar immigrants generally start adding value from the 2nd generation onwards which is far too late.

cheers

bd

I agree most people want to see the US fail. Be careful what you wish for...A world run by the Russians and Chinese is not really appealing.

America's days as a world power are numbered. America no longer has the monopoly on technologically advanced industrial production. Consequently all the industrial-based, and services-based jobs are leaving the US in shiploads. Why would you pay somebody $30/hr, plus put up with union crap, cosmically hugh health benefit cost, and overall inefficiency, when you can go across the border to Mexico, or to South America, or Asia and pay $3/day, with inconsequential health and general benefit cost, and receive overall 150% better production efficiency? America is now the greatest debtor nation in the history of this planet. The only thing debt affords you is borrowed time, which is what America is living on. People who compare the America of today to the America of the 80's do not remember that, even though inflation was atrocious, AMERICA WAS STILL A CREDITOR NATION and still had an industrial technological production edge, plus all the service sector jobs had not been shifted to India! A previous poster made a good point about somebody's ability to keep borrowing money: People will keep lending you as long as they feel they have equitable redeemable interest. At some point, it will dawn on the world that America no longer really has equitable redeemable interest. That's when the bottom falls out, and America as we know it becomes an inevitable has-been, in the tradition of Greece, Rome, Britain, Spain, etc. By the way, do you realize that Portugal used to be like America? When was the last time you heard about Portugal?

BD

Only time will tell. However, I am pretty confident that the Americans will pull this through. They are a strong nation with extremely innovative people, they will find a way....

rgds

@bd: The deficits are a symptom, not the problem per se.

But many analysts counter this by drawing attention to the fact that America has had deficits, debt etc since its very inception and it is still the leading economy in the world. Of course, this reasoning says nothing about how economic strength/ weakness has affected and caused socio-cultural change in the U.S. over the years bit it is still an argument for a gradual societal shift rather than a collapse. If for no other reason than because economies like Japan, China, Korea, Canada etc. have a vested interest in a strong USD and they will go a long way to prop it up economically.

you need to have value added immigrants in place, not the current type of immigrants unfortunately.

Virtually the entire "property, plant and equipment" of America is run by these blue collar immigrants, not to mention the large numbers employed as migrant farm labourers in the agri sector (which still needs a large subsidy btw and which would perhaps be significantly larger these people were paid "American" wages/ benefits ). So the value-add is very much there, just that it is below the radar currently.

I do take the point that value added immigration ( i.e. tax paying) is needed but, unlike what Chandra says, I think this will be much tougher for America for at least two reasons (1) because the American economy is simply not creating the high value jobs anymore (2) competition from other western nations who will also be looking for "high value", tax-paying immigrants to support their own social programs.

beady:

with the increasing shift in 'reserve' held in euros and other currencies the Almighty dollar is not all that almighty

however this course correction will take quite some time...9like a super tanker takes a long while to turn around)

agree with you ... the world has not known to function in a uni-power alignment

this will change, in time;)

khair two queries

why are there only five directors of the Federal Reserve currently

and

where can i find info on the election of the board at the bank of england? why are they so secretive?

#24, yes, I agree, americans are a strong people and can pull through, its the government and political parties that i am worried about, lol.

25#, yes, the deficits existed for a long period of time, but you have to remember that for most of the time, the deficit was funded by americans, not foreigners, that is a comparatively recent phenomena. You have to remember what i said, people will keep on funding the deficit as long as there is confidence that the USA will be able to pay back the money and/or people need to hold dollars. Now let me point you in few directions to think about the confidence bit.

1. wages are stagnant for the past 10 odd years.

2. savings rate is near or even negative

3. most of the investment is currently being funded out of debt, general taxation levels are progressively dropping because of tax wheezes and stuff.

that gives rise to some concern.

Now you know as well as I do, why countries such as CHina, Japan and and and are purchasing US securities. That is because the american consumer is purchasing their goods and they need USD to pay for it. Till now and in the future, investing in the USA makes sense. That's why they are holding USD. They arent holding it for any sentimental reasons.

Let me throw a hypothetical situation at you. right now, we are looking at anything between 20-40% (depending upon how you measure it) of the population are less than 100% medically covered. So if you cut back on consumption dramatically, what will happen to the imports?

Or putting it in another way, if the democrats suddenly pull the plug and raise barriers to chinese investments and trade, what do you think the chinese will do with their USD holdings? And what will happen if the CHinese do do so? 4 months back, one vice minister made the mistake of saying that it was considering a rebalancing of the currency basket against the yuan, the bloody markets went berserk!.

it is not bad, the situation that is. But the warning is timely.

#26, Sanjay, I meant value added by not just tax paying (and not the remittance types) but value addition in terms of higher productivity as well as they themselves generating jobs. So when you compare say an Indian engineer or a Chinese chemist, both work hard(er) thereby having greater productivity but also have a greater propensity to create their own businesses. See vivek wadhwa's work at Duke University, he has done quite a lot of research on immigrants value generation.

Incidentally, for those who want macroeconomic data, this is a good site, http://stats.oecd.org/wbos/default.aspx?DatasetCode=MEI_CLI

and the world bank also has a good set of data

t,

i am not up to date with the fed but i suspect the delay is because of the senate hearing requirements, that is unfortunately very common, the senate diary is so full that getting the confirmation hearings on the banking and supervision committee is a pain. As long as there is an odd number of people, its ok.

also, board of directors of the old lady? do you mean the monetary policy committee? which actually sets the rate? you checked the BoE website?

(long post)

beady:

thanks:)

mentioned the same to a dear friend: she sent me this:

I

How are the Chairman and members of the Federal Reserve Board of Governors selected, and what is the term of office?

The seven members of the Board of Governors are nominated by the President of the United States and confirmed by the U.S. Senate. By law, the appointments must yield a "fair representation of the financial, agricultural, industrial, and commercial interests and geographical divisions of the country," and no two Governors may come from the same Federal Reserve District.

The full term of a Governor is fourteen years; appointments are staggered so that one term expires on January 31 of each even-numbered year. A Governor who has served a full term may not be reappointed, but a Governor who was appointed to complete an unexpired term may be reappointed to a full fourteen-year term.

Once appointed, Governors may not be removed from office for their policy views. The lengthy terms and staggered appointments are intended to contribute to the insulation of the Board--and the Federal Reserve System as a whole--from day-to-day political pressures to which it might otherwise be subject. If all Governors serve full terms, a President would be able to appoint only two Governors during a four-year presidential term. Moreover, even a President reelected for a second term would not have appointed a majority of the Governors until late in the second term. In reality, many Governors do not complete their fourteen-year terms, and recent Presidents have averaged more than one appointment to the Board every two years.

As stipulated in the Banking Act of 1935, the Chairman and Vice Chairman of the Board are chosen by the President from among the sitting Governors and must be confirmed by the Senate. They serve terms of four years and may be reappointed as Chairman or Vice Chairman until their terms as Governors expire. The Chairman serves as public spokesperson and representative of the Board and manager of the Board's staff and presides at Board meetings. Affirming the apolitical nature of the Board, recent Presidents representing both major political parties have selected the same person as Board Chairman.

and

II

The current governance and accountability framework is set by the 1998 Bank of England Act, which provides for a Court of Directors, a Committee on Non-executive Directors within Court, and a Monetary Policy Committee.

The Court of Directors

Court consists of the Governor, two Deputy Governors and 16 Directors. The Directors are all non-executive. The Governors are appointed by the Crown for five years and the Directors for three years. Details of the current Court can be found in the Bank's Annual Report.

Under the Act, the responsibilities of Court are to manage the Bank's affairs, other than the formulation of monetary policy, which is the responsibility of the Monetary Policy Committee. Court's responsibilities include determining the Bank's objectives and strategy, and ensuring the effective discharge of the Bank's functions and the most efficient use of the Bank's resources.

The Monetary Policy Committee (MPC)

The Bank of England Act establishes the MPC as a Committee of the Bank, subject to the oversight of NedCo, and sets a framework for its operations. Under the Act, the Bank's objectives in relation to monetary policy are to maintain price stability and, subject to that, to support the Government's economic policies, including its objectives for growth and employment. At least once a year, the Government specifies the price stability target and its growth and employment objectives. The MPC must meet at least monthly; its members comprise the Governor and Deputy Governors, two of the Bank's Executive Directors and four members appointed by the Chancellor. The MPC's decisions are announced after each monthly meeting and minutes of their meetings are published two weeks later. The quarterly Inflation Report includes the MPC's projections of inflation and output.

yes, those are from the two websites!, lol, but the reason why there are only 5 is because I suspect the nominations by dubya havent been confirmed by the senate.

On the other hand, there are various important committees of the bank of england, mate, which committee did you mean?

#29: Actually, I'm not sure what role confidence is playing in all this, going forward. Keep in mind that even after experiencing the U.S. subprime meltdown, many foreign investors rushed to safe haven in U.S. Treasuries, Govt. Bonds etc! maybe this is due to force of habit, lack of a credible alternative or actual confidence in the U.S. govt., but the fact remains that people rushed in to lend even more money to the U.S.!

This tells me that for many lenders, lending to the U.S. is not really a function of confidence but perhaps more importantly whether the American economy is open to their exports. China, Japan, Korea etc are so closely tied to the hip with the U.S. that I cannot see anyone making extreme moves in the near future.

@bd: I meant value added by not just tax paying (and not the remittance types) but value addition in terms of higher productivity as well as they themselves generating jobs. So when you compare say an Indian engineer or a Chinese chemist, both work hard(er) thereby having greater productivity but also have a greater propensity to create their own businesses. See vivek wadhwa's work at Duke University, he has done quite a lot of research on immigrants value generation

Most immigrants are economic migrants, themselves seeking jobs, and many do end up as entrepreuners. I don't have numbers but the ratio must be 1 in a 100. So, I'm a little unclear how one builds a national immigration strategy around the hope that some immigrants will come in and potentially start businesses, generate jobs etc.

I'm not really familiar with Wadhwa's research on immigrants but I hope he does a better job than the cheerleading testimony he gave in the U.S. Congress.

Well, Sanjay, the issue relates to who will fund the ever increasing pressure on medicaid, medicare, pensions and other aspects. For that, you need a much wider tax base, highly productive population and good high value jobs. Given that wages have been stagnant for a good decade, the only way you are going to generate additional funding for support will not come from illegal immigrants who are gardeners and nannies but from immigrants who bring in skills to generate additional value added capital. Again, this is just one way to keep on the pay as you go system alive.

I do not think this is sustainable but the eventual crunch can be postponed for a while. But again, this is hypothetical as immigration reform is dead in the water now and for the next 4-5 years.

Vivek researched the rate of company formation by immigrants who came to the USA to study and then went on to form companies, found that immigrants were better at generating jobs, higher productivity and higher returns on capital.

cheers

bd

@bd: The blue collar immigrants are more than nannies and gardeners, they actually run the entire plant.

As for who will fund American medicare, medicaid etc., if I were the Chinese, Japanese & Koreans, sitting on a combined $2 trillion of foreign reserves and highly dependent on the continued solvency of the U.S. for my own well-being, I would securitize this debt, raise big money & strike a deal with the U.S.

Sanjay, what would 2 trillion of asian foreign reserves do to fix the looming social security torpedo about to hit the U.S?

Unfunded social security and medicaid for the U.S currently stands at almost 50 Trillion dollars.

Securitizing 2 trillion of this debt with asian reserves to try to fix the problem would be like trying to control a roaring forest fire by pissing at it!

America's situation, unfortunately, is like the crisis being faced by American auto makers - GM, Ford, and Chrysler. The similarities are uncanny.

Like America, the best days of these previously almighty corporations are behind them. Total inability to compete, staggering debts, unequal costs scale, and an untenable health care burden have all worked to make the demise of these once great powers inevitable.

Mercedes Benz just paid big money to be relieved of the burden of Chrysler. MB realized that if it doesn't untangle itself, it risked going down with the sinking Chrysler ship.

Sure foreign countries have an interest in an economically healthy America, but at some point, just like Mercedes Benz, it will become obvious that the American condition is not only terminal but infectious, and these countries will all, as they say, run for the borders.

They will then find a way to shift the trade to the European union, which is now the #1 world economy.

THE ONLY THING that can save America is
#1. To seriously cut spending
#2. To cut dependence on foreign energy sources
#3. To find some way to level the trade imbalances it has with many countries, especially china.
#4. To float the social security debt in the world financial markets (not just asia.)

#5. Then, MOST IMPORTANTLY, serious incentives need to be put in place for U.S employers to stop the bleeding of American jobs overseas.

I don't think the immigrant situation is a threat to the American economy. I believe immigrants actually contribute to the economy, not detract from it. America's biggest threat is loss of American jobs to foreign countries.

Basically America has to completely rethink it's labor system to be more in line with the new, more efficient world labor system of cheaper wages and more efficient production.

The unavoidable casualties in this process to save America would be the ultra high American standard of living, the ultra high American ego and "we are better than the rest of the world" attitude, as well as the social depression of the American middle class.

Yes, I hate to say it, but America to be saved, would actually have to become more like a third world nation!

Ironically, it's this swallowing of ego and pride that always appears as the salvation of great empires on the verge of collapse. If Rome had acknowledged it's obvious, glaring weaknesses and addressed them practically, instead of pretending they didn't exist because of overinflated egos and pride, Rome, theoretically, could still be standing today.

Unfortunately, Americans have had it so cushy for so long that this necessary correction effort and ego/pride swallowing will be like swallowing a huge, gagging, ultra bitter pill.

Americans will not do this willingly.

Ultimately, these hard but necessary steps may be forced on an unwilling populace through an already in-place recession, and I fear, ultimately, another Great Depression...

@Silentgod: Sanjay, what would 2 trillion of asian foreign reserves do to fix the looming social security torpedo about to hit the U.S? Unfunded social security and medicaid for the U.S currently stands at almost 50 Trillion dollars. Securitizing 2 trillion of this debt with asian reserves to try to fix the problem would be like trying to control a roaring forest fire by pissing at it!

The fire isn't quite roaring yet so no need for a panic relief ;-)

The 50 trillion unfunded liabilities are not due TODAY & are computed as the Present Value of future liabilities projected out to 2050 and beyond. To meet current liabilities, one would not even need to securitise all of the Asian debt.

The dollar cant fall to quickly. Other countries will not allow it. Japan, China, and many European countries cant just say, "I am selling dollars, I dont want them..." Because if they do the dollar would plummet so much that they would also lose much. Bad feedback-loop to get into. It would be a world recession. Thats why the US needs to get its shit together, because whats bad for them is bad for most of the world (although whats good for them may not be good for most of the world!!!!)

Speaking as an ex-pat, or more precisely, a former American, the only thing I can say to comment #39 is "Quoted for truth!"

That hurts to write, but it is true.