every beat of my heart

Saturday, March 05, 2005 @9:41 PM

The Coming End of the American Superpower

Paul Craig Roberts March 1 2005

The US economy is headed toward crisis, and the political leadership of the country--if it can be called leadership--is preoccupied with nonexistent weapons of mass destruction in the Middle East.The US economy is failing. The afflictions are serious. They could be fatal even if diagnosed and treated. America is losing the purchasing power of its currency and its ability to create middle class jobs.

The dollar's sharp decline and projections of continuing trade and budgetary red ink are undermining the dollar's role as reserve currency. A number of central banks have announced that they will be diversifying their currency holdings and will not be buying dollars at the same rate as in the past.This will put more pressure on the dollar. At some point the flight will begin. Instead of buying fewer dollars, central banks will sell dollars hoping to get out before the dollar hits bottom.

Suddenly, the advantage of being the reserve currency becomes a nightmare as the world's accumulations of dollars are brought to market. An enormous supply and weak demand mean a very low exchange rate for the once almighty US dollar. Overnight those cheap goods in Wal-Mart, which are the no-think economist's facile justification for Wal-Mart's decimation of communities, small businesses and employment, shoot up in price.

Interest rates will escalate as the government struggles to finance its endless red ink. Heavily indebted Americans with adjustable rate mortgages will attempt to sell homes just as rising mortgage rates reduce buyers. Real estate assets, the rising value of which have been keeping the economy going, will give back gains.The US has lost its ability to create middle class jobs or for that matter any jobs. During the last four years the US has experienced a net loss of 760,000 private sector jobs (January 2001 - January 2005). Think what this means for graduating classes and people coming of age to enter the work force.Moreover, the composition of jobs has changed away from high-value-added, high-productivity jobs in tradable goods and services toward lower productivity domestic service jobs that cannot be outsourced.

Even here in this last remaining area of employment for Americans, the US work force is losing job opportunities to foreign nurses and school teachers brought in on H-1b work visas as a result of budgetary pressures on local school budgets and hospitals.No-think economists and politicians continue to propose unemployment insurance and education as remedies for the jobs problem. These proposals are mindless to say the least. The same incentive to outsource holds for all tradable skills. If truth be known, job outsourcing and offshore production sound the death bell for US higher education.

Americans unable to find jobs in export and import-competitive sectors find themselves searching for jobs in nontradable domestic services, where their inflow into those labor markets is augmented by illegal immigrants and foreigners on H-1b visas. Obviously, the pressure on wages is downward.No-think economists explain away the difficulties as a "globalization adjustment" that will require Americans to curtail their consumption of imported goods. These economists are ignorant of American's dependence on imported manufactured goods. Even American brand name goods are made abroad in whole or in part. Tightening the belt will mean much more than cutting out foreign made luxuries.

The dollars' decline will drive up the price of all inputs except US labor which is being substituted out of production functions and replaced with foreign labor.Oblivious to reality, the Bush administration has proposed a Social Security privatization that will cost $4.5 trillion in borrowing over the next 10 years alone! America has no domestic savings to absorb this debt, and foreigners will not lend such enormous sums to a country with a collapsing currency--especially a country mired in a Middle East war running up hundreds of billions of dollars in war debt.

A venal and self-important Washington establishment combined with a globalized corporate mentality have brought an end to America's rising living standards. America's days as a superpower are rapidly coming to an end. Isolated by the nationalistic unilateralism of the neoconservatives who control the Bush administration, the US can expect no sympathy or help from former allies and rising new powers.

Being a history and econs student, i find this article rather interesting. Since the cold war, USA has established itself as the main superpower. the country that no other can overtake. However right now, Asia is obviously on the rise while US is declining in power. China having the potential and India is an infinitely huge stretch.

India is capitalizing on its large numbers of well-educated people skilled in the English language to become a major exporter of software services and software workers. We all know about the "Silicon Valley" in Bangalore. On the other hand, the Chinese leadership began moving the economy from a sluggish, inefficient, Soviet-style centrally planned economy to a more market-oriented system. Whereas the system operates within a political framework of strict Communist control, the economic influence of non-state organizations and individual citizens has been steadily increasing.

However, some would debate that in the 80s, Americans were worried that Japan'd surpass US, but it never did. So would that apply to China and India? Being optimistic again, it is no doubt that US govt had been fostering the development of these infant industries and to transform them into a major economic boom for several years before it passes off elsewhere. Why else would Al Gore make such a bold claim that he "invented" the internet, it wasn't him literally doing it but through incentives that fostered and helped people like Gates, etc to do their thing?

Since I'm not equipped with adequate info, i can't give the whole scope of this issue. On a lighter note, I'm quite sure i've to use my chinese when i work in the future. Don't think i'd work in european countries or US, but instead work in China and India instead..

Couple of years ago, Uncle Alan asked if i'd rather work in China or India? My answer was "india". But now, if he were to ask the same qn, i'd reply otherwise. I suppose that's y i still insist in doing chinese in college. I'd rather use these 2 years to brush up my chinese communication skills than forgetting all my chinese.. (: