I am not trying to sound like an economist or an academia. I am just worried about the debt that the US is silently stockpiling in its backyard. It is amazing that the world is largely silent on this. Of course, there are voices about cutting the "federal debts", stopping the "QE2" and becoming more "competitive and productive" . However, the fundamentals go deeper than that. The recent debt-ceiling debacle revealed a weak Congress. The press and the tea-partiers missed the point. Cutting the federal debt is not enough. After the 8 years under Bush, US has accumulated some much debt that interest repayments alone can easily wipe out any tax revenue for the year. That means, US will have no money for anything else. Every single cents is used to pay off the interest on the debt. So currently how is US managing this nonsensical fiscal mess? Yes. By borrowing even more to fund daily operations.
QE2 is expected to cease by June 2011. This will invariantly drive interest rates up, especially long-term rates. Investors and businesses hate uncertainty in the economy, as such, the interest rates will be driven up higher after June 2011. The current interest rates are starting to creep up as the inevitable reality of the end of cheap money is just a few months away. Higher interest rates will mean that borrowings are more expensive. And add that to the current interests that US is paying off. Stopping any future QEs is a double-edged sword. No QE will mean that USD will be driven up, and it mean more expensive exports, and it will impact on the bottom-lines of many US companies, lesser hirings, lesser spendings, lesser consumers confidence and lesser taxes. We are back with lesser taxes. And lesser taxes mean US will have to borrow more debts. On the other hand, the more money the FED prints to flood the economy, the value of the Dollar will decline as the supply increases. With a declining dollar, in the short-run, US' creditors like China, will first of all, stop purchasing more of US debts (since the value of debts are declining in value) and the creditors will swap out US debts with other forms of store of value like gold, commodities or oil. US will be forced into bankruptcy. That is bad. Just look at Greece.
Increasing a country's productivity and competitiveness is on the "to-do" list of almost every government. However, there are many factors for this "increase" to take place. Some of the factors are education, technological advances, infrastructures and political stability. Yet, perhaps one of the most important factor is the human factor. Questions like are people willing to work that extra 30 hours a week? Are people willing to go for skills upgrading? Are businesses built for long-term productivity gains or just short-terms profitability? USA is clearly unable to juggle all these at the current moment. With an empty coffer (nope I don't consider "debts" as money), the White House and the Congress are severely limited by what they can do. They have to ration out the available resources. And like a crack addict, the Land of the Free craves for more debts so that they can spend on the "nows". Let the future President and the future Congress and the future generation worry about the mounting interest repayments (and I am not talking about debt repayments).
This discussion only touched on the surface of the reality of the US economic outlook and it is a grim one. However, I believe in cycles. The Greek empire gave way to the Roman Republic which finally collapsed by early 5th century, which in turn saw the rise of golden period in China of the Tang dynasty in the 6th century, and we have Gengis Khan's empire stretching from Europe to China sometime in the 12th century. The rise of Renaissance in Europe in the 14th century and during the same century, the wealth of the Chinese was demonstrated by the 7 trips of Cheng Ho. The Age of Colonization gave rise of the British Empire, where the Sun never sets. And the USA became the leading man in the 20th century after WWII.
Many said that the limelight will once again return to China. The Beijing Olympics and the Shanghai World Expo have placed the red carpet for the eventual return of China to the front-page. Just like the yester-centuries of the Han,Tang, Ming and the early Qing dynasties. Or will it?
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