The American Eclipse: Short-Term Focus Overshadowing Long-Term Calamity

The media circus that has embedded itself in our country has made it impossible to avoid the headlines detailing the difficulties our economy faces. There are plenty of people to blame and plenty of different issues - Bush, Wall St., Congress, Homeowners, Lenders, Oil Pundits, education etc. etc.

As we get closer to this year’s election, these short term issues become increasingly incendiary and are sparking immense debate. Like clockwork, members of opposing parties continuously try to poke holes through their competitor’s platform.

This year is no different. One example of each: Republicans criticize Obama’s tax and spending increases, citing they will stifle productivity and investment, and in turn, economic growth. Democrats criticize McCain for catering to the wealthy and ignoring the needs of the lower and middle class that has been struggling while enabling the rich get richer.

I understand both general arguments, but I believe them to be shallow. Regardless of the issue du jour, this country seems to be uninformed of a much bigger problem that has been festering for the past decade and is only continuing to get worse as it goes unaddressed.

The American public has no clue how much real trouble we are in on a global scale. For some reason, this country thinks that we can continue to run up our debts - personal, corporate, and governmental - with no consequences.

Well, while our country has gone to the extreme of excess, other countries have been saving and profiting off our hubris. Our debts on all levels are being financed by foreigners. As we increased our debts, other countries increased their savings. As of 2007, total accumulated surpluses under control of sovereigns was approximately $7.5 trillion.

These figures are only in currencies and do not include sovereign wealth funds -private investment funds under the control of a government. Sovereign wealth fund holdings are estimated at $3 trillion and are expected to eclipse the $7.5 trillion of currency surpluses within five years. They are growing more quickly because they are branching out from their historically conservative investing in less lucrative vehicles such as government debt like US Treasuries. Their investments are becoming more forward thinking.

One noticeable shift is into areas that are going to sustain their own economic power. For example, China has been making infrastructure and energy investments for a couple of years in Latin America and Africa to position themselves when the natural resources they need become less plentiful. Continuing to use China as an example, another problem associated with their diversification is its adverse affect on our own interest rates. The Chinese invest so much money in our Treasuries right now that it is estimated that if they stopped these investments, it would cause our interest rates to rise 1/2 percent because of the implied diversion of funds coming into the country. China is our friend right now, but what if they weren't?

Even worse, this is happening with countries with whom we do not have such strong political relations like Russia, Venezuela, and Iran. The more we spend, especially on oil, and the more they save and finance our debts compounds the problem.

Instead of the narrow, short term focus that is driving this election, maybe we should be thinking more about how to keep the country solvent in ten years as opposed to keeping the thought of the "American Dream" alive. If they own our debt and we can't pay it, they take US in return!

The American public needs to get a clue and the American political system needs to worry more about the good of the overall country, not the good of the constituents that make up their party right now. Change has been a platform for numerous candidates throughout the years. The "change" Obama and McCain speak of on a daily basis is not the concrete change our country needs to be sustainable in the future - a future that is rapidly approaching zero hour. No matter how people feel about one candidate or another and irrelevant of the mistakes made in the past, this is a serious problem that must be taken care of going forward.

The longer we delay addressing our financial calamity and its global consequences, the more we position ourselves to take our seat in history next to the Romans.  

Comments

[markb:]

I think you need to quantify debt as a % of GDP to make your case compelling.

2008 Aug 21 10:00 AM

[oldfolkdancer:]

What I am most horrified about today is the the USA Congress attitude toward business. A prime example is "Big Oil", which became big in order to save money and "buy" income production. Any industry that does well gets villified and punished regardless of the taxes they pay or jobs they create. What our leaders have to do is break our addiction to debt. Like the overleveraged Financial Industry we have to do a "great unwind "

2008 Aug 21 10:05 AM

[notsosmart:]

did the romans know their empire was collapsing? as long as the beer (belgium) swillers fill the stadiums,as long as the dumb-dumber americans continue on a path that ignores their govt.(reelect the same folks& give them a 9% approval),cant name their own sen. or congressperson,cant name a supreme court judge,etc. we will decline. the pols love it.this ignorance allows them to bail themselves out with dumb-dumbs cash & store their gains oversees.at least onelesson is beginning to be learned-a house is the roof over your head. its not an asset its a liability.it will be one of many lessons to be learned in the near future.it wont be learned with smiley faces.

2008 Aug 21 10:24 AM