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Will the US
go the way of the Soviet Union? United States of America has
emerged as a grave threat to world peace and tranquility. It is in the
interest of mankind inhabiting the globe to devise methods of
controlling its aggressive impulses. It has attacked and occupied two
sovereign Muslim nations in less than two years. It has thrown
multilaterlism to the winds. The United Nations is more dead than alive.
France, Germany and Russia tried and failed in checking the aggressive
designs of this rogue power. China has been too worldly wise to run the
risk of confronting the limitless military power of the US. Rest of the
world is meek and will inherit the earth hereafter. Is the future for
the world bleak? Not likely. Because the law of The Rise and Fall of
Great Powers, as enunciated by Paul Kennedy, will apply with equal force
to the United States. Firstly, because the US has committed an act of
political suicide, by attempting to occupy two sovereign Muslim nations;
and secondly it has stretched itself too thin. In his mad rush to
dominate the world, the President of the United States has turned his
sights on Iran. Syria may be the next. Political chaos has coincided
with fiscal meltdown to provide a deadly brew.
The financial cost of the foolish enterprise is
proving too formidable for a weakened economy. United States is
undoubtedly the most unchallenged military power. But its economy is
sputtering. The living standards of the working group have stagnated or
declined. Taxes are going up and services are going down and still that
is not enough. Similar scenarios are being played out in state
governments throughout the country. The high un-employment and sharply
reduced services are taking a heavy toll on people. The Fed has already cut the rate 12 times since the
start of 2001. Hefty tax cuts intended to benefit the rich friends of
the administration have failed to revive the economy out of deep
recession. Fundamentals point to deeper malaise. According to The
Economist (July 19th – 25th 2003) that all in
all, stock markets seem to have got ahead of themselves. Historically,
bear markets do not end until shares become truly cheap. According to
Mr. Smithers, Wall Street needs to fall by a third to reach fair
value-or by 60% to look as cheap as at the bottom of previous markets. The economy has lost almost
2.5 million jobs since February 2001, more than the government admitted
previously. More than 10 million workers are unemployed including 1.4
million who are un- officially counted. There are 4.8 million working
part time because they can’t find full time job. Nearly a quarter of a
million jobs have been lost in New York City in the past two and a half
years. Manufacturers cut
jobs in May for the 34th consecutive month. Airlines and hotels
continued to reduce their work force and have eliminated 8 percent of
their jobs over the last two years. Public schools, department stores,
and publishing and telecommunications companies have also made cuts.
Even a reluctant Bush has been forced to admit that there may be a
problem after all. States have run up huge deficits. States, which
depend on funding by the Federal Government for their social programmes
including health and education, are bankrupt. States Business Review
shows a shortfall totaling $ 21.5 billion this financial year. They have
cut on the most vulnerable areas of their activities like medicines and
education. An American Enterprise Institute paper, to be published this
month, calculates that the present value of un-funded spending
obligations, mostly for Social Security and Medicare, is more than $44
trillion.
National Governors
Association has announced that the fiscal crisis that has crippled one
state after another is worsening, not getting better. Taxes have been
raised. Services have been cut. And the rainy day funds accumulated in
the 1990's have been consumed. If help does not materialize soon — in
the form of assistance from the federal government or a sharp turnaround
takes place in the economy — some states will fall into a fiscal
abyss. California has been driven to its knees by a
two-year $38.8 billion budget gap. The state is now almost three weeks
past the deadline for closing a budget deficit of $38 billion, the
biggest in any state. By July 20th Californians may start to
notice, as the unpaid highway crews stop work. This comes despite the
fact that California’s credit rating is now only a little above junk,
and that the north, in particular, has yet to emerge from the dotcom
bust. Oregon has seen drastic cuts
in public school services and potentially life-saving medicine for
seriously ill patients.
Federal spending has increased by 18% in Mr.
Bush’s first two years. Some $2 trillion worth tax cuts over the next
ten years have been given to the Americans. But they also got huge
budget deficits in return. Since the budget was proposed in February,
the projected deficit has increased from $304 billion for this fiscal
year to $455 billion. The deficit is 50% larger than the $304 billion
forecast in February That is 4.2% of GDP, less than the 6% reached under
Ronald Reagan, and the figure will eventually fall as the economy
recovers, but there will be no return to surplus.
Office
of Management and Budget (OMB) has announced that this year’s budget
deficit will be $455 billion, the largest ever in dollar terms. Are the
OMB’s long-term projections to be believed? The deficit may turn out
to be higher. As a share of GDP, there has been a six percentage-point
decline from the 2000 budget surplus. Its figures do not include the
cost of keeping soldiers in Afghanistan and Iraq beyond 2003. And the
“sunset provisions”, phasing out some of Mr. Bush’s tax cuts, will
probably never go into effect. The nonmilitary component has been rising
by more than 6% a year, which makes blaming it all on the war on terror
seem strange. And the forecasts do not include the costs of war in Iraq,
nor the duration of the unwelcome stay there. According to The Economist (July 19th
– 25th 2003), America’s recovery is its weakest in modern
times, and inflation is unusually low. As a result, nominal GDP has
grown at an annual rate of less than 4% since output bottomed in the
third quarter of 2001, compared with an average 9% rate in the two years
after the previous eight recessions ended. Today’s forecasts of
double-digit profit growth in the next few years look unrealistic. But terrorism has not gone
away. The policy is not succeeding, because the solution is misplaced.
The difficulties the sole superpower faces in both the occupied
countries are going to increase rather than go away. And the body bags,
small though in number, will help change the public opinion within the
US because the occupation makes no sense to them. Since the liberation
of Iraq about 100 American soldiers have been killed in Iraq. Even in
the most patriotic part of the United States, like the state of
Mississippi rumbling of protest has started being heard. George Bush,
whose popularity rating was very high until some time back, is no longer
riding the crest of popularity and appears vulnerable to the charge of
exaggerating the case for war by basing it on Weapons of Mass
Destruction. So was his dad’s at this point in time before the next
election. He lost by little known candidate from Arkansas. As Mr. Bush moves from
fund-raiser to fund-raiser, building the mother of all campaign
stockpiles, states from coast to coast are reaching depths of budget
desperation unseen since the Great Depression. The disconnect here is
becoming surreal. If Bush wins another term, the demise of the US as a
super power may be only a foregone conclusion. And a multilateral world
subject to international law may be in place. |
