To avoid letting your comment on the US's diminishing credit worthiness go without discussion, It would be beneficial to envision our receding presence in the world which may well be underway now. Is is possible that Trump is symptomatic of a deeper public weariness of constant conflict abroad?
Will we succeed in following the UK's example in withdrawing from the global stage and only see the value of our currency decline and our economy experience a multi-decade malaise as the UK did in the 60's and 70's. Will our decline be far more spectacular?
The U.S. decline will bear more resemblance to a bubble bursting, for a number of reasons.
1. The UK represented 5.8% of the world GNP in 1945. (Mark Harrison, ed.,
The Economics of World War II: Six Great Powers in International Comparison, (Cambridge: Cambridge University Press, 1998), 1-42. The U.S. today represents 21.42% in 2011.
2. The dollars is the world's reserve currency. The people of the U.S. are about to find out how valuable that is, once they lose it.
3. After trying to hold onto their empire for a while, the Brits knew that empires are expensive and willingly walked away from their imperial holdings. I do not see the ruling elites in Washington even being able to be aware of those dynamics.
The collapse of the U.S. credit will come like a clap of thunder when one of the big lenders (China, Japan, Ireland, Switzerland and the UK), decides that the debt the U.S. are carrying is so large that not only is getting back the lender's
interest unlikely, getting back the
principal is in doubt. Once that happens, the U.S. will have to increase taxes/reduce spending by around $500 billion a year, almost immediately. Over the medium term, the U.S. will have to increase those spending reductions/tax increases by a further $500 billion a year as financing already incurred debt becomes unsustainably expensive. Given the caterwauling over the
tiny reductions in spending we experienced in 2013-4, imagine how much fun reducing federal expenditures/increasing federal taxes by $1 trillion/year is going to be.
The collapse of U.S. credit will be catastrophic. I would not be surprised to see deaths in the millions (one, as generous social safety net instantly becomes unaffordable. My father says he will be dead within a month if he did not get federal assistance for his 22 prescription meds he takes each day. I think it will be months before he runs through his life's savings. And internationally, once the U.S. withdraws from the
Pax Americana, due to the lack of funds to maintain it, the world will experience a wave of revanchist violence it has not seen since the Mongol invasions or the collapse of the Roman Empire in the west in A.D. 476. Imagine Russia deciding it liked owning eastern Europe, India wanting to even scores with Pakistan, China wanting to re-occupy Vietnam all at the same time and the world looking to the U.S. and American saying, "sorry. We're out of the globocop business. You're all on your own."
And
it is absolutely foreseeable.
And
the U.S. have no control over when it comes. It will just happen when the market says it will happen.
And
the U.S. have no defense against it, because our desire to help the helpless actually works against taking the hard steps now to prevent the collapse. Our kindheartedness sweeps away the only defense we might have: drastically reducing federal expenditures now while we still can.
As the federal government loses the economic ax it wields over the states will the forces that hold states together become less strong than those that repel them from each other.
We surely have left our next generations with quite a conundrum!
Indeed.
I believe we would take going as gracefully as they did given the alternatives!
