Despite the US economy’s wallowing debt problem, we probably shouldn’t count America out just yet. A new report from Citigroup says that North America has the potential to become the next “Middle East”. We’re assuming that’s in terms of oil and energy production…and not in terms of social instability and revolution, although either is possible at this point. If America can lower its national energy costs, it will also lower its national security costs. This might not please the military industrial complex. But it could be good news for everyone else.
Let’s not be too naive though. WE borrowed the “After America” name from Brisbane-based John Birmingham, who wrote a book of the same name a few years ago. It turns out it’s a popular theme. Current affairs commentator Mark Steyn has an After America book out as well. And in a recent article, he shows the ugly math behind America’s debt problem:
A second-term Obama would roar full throttle to the cliff edge, while a President Romney would be unlikely to do much more than ease off to third gear. At this point, it’s traditional for pundits to warn that if we don’t change course we’re going to wind up like Greece. Presumably they mean that, right now, our national debt, which crossed the Rubicon of 100 percent of GDP just before Christmas, is not as bad as that of Athens, although it’s worse than Britain, Canada, Australia, Sweden, Denmark, and every other European nation except Portugal, Ireland, and Italy. Or perhaps they mean that America’s current deficit-to-GDP ratio is not quite as bad as Greece’s, although it’s worse than that of Britain, Canada, France, Germany, Italy, Spain, Belgium, and every other European nation except Ireland.
But these comparisons tend to understate the insolvency of America, failing as they do to take into account state and municipal debts and public pension liabilities. When Morgan Stanley ran those numbers in 2009, the debt-to-revenue ratio in Greece was 312 percent; in the United States it was 358 percent.
If Greece has been knocking back the ouzo, we’re face down in the vat. Michael Tanner of the Cato Institute calculates that, if you take into account unfunded liabilities of Social Security and Medicare versus their European equivalents, Greece owes 875 percent of GDP; the United States owes 911 percent – or getting on for twice as much as the second-most-insolvent Continental: France at 549 percent.
And if you’re thinking, Wow, all these percentages are making my head hurt, forget ’em: When you’re spending on the scale Washington does, what matters is the hard dollar numbers. Greece’s total debt is a few rinky-dink billions, a rounding error in the average Obama budget. Only America is spending trillions.
The 2011 budget deficit, for example, is about the size of the entire Russian economy. By 2010, the Obama administration was issuing about a hundred billion dollars of treasury bonds every month – or, to put it another way, Washington is dependent on the bond markets being willing to absorb an increase of U.S. debt equivalent to the GDP of Canada or India – every year. And those numbers don’t take into account the huge levels of personal debt run up by Americans. College-debt alone is over a trillion dollars, or the equivalent of the entire South Korean economy – tied up just in one small boutique niche market of debt which barely exists in most other developed nations.
Yep. Nobody is going to get through the next 20 years unscathed. Before you can prosper, you have to make sure you survive.
But take heart! There may be life in the Anglo-Liberal Western order yet! At the “After America” conference, Dr. Paul Monk gave a great talk about the history of the Anglo-Liberal order over the last 300 years and why China is in no position to take the lead of a new global order right now (at least not a global order similar to the one we’ve had for the last 300 years).
This caused us to reflect last week. We had a nagging doubt that we’d left something out of the conversation. Not wanting to be a cheerleader for an idea that’s no longer true, we didn’t talk about resilience and dynamism and the “can do spirit”. Those things are mostly cultural clichés in America now.
But then we watched this video on the code breakers of Bletchley Park in World War Two and were encouraged. By the way, this is an extraordinary story. The two men that feature in it – Bill Tutt and Tommy Flowers – changed the course of the war…and of history. Tomorrow we’ll show you how Tutt and Flowers inadvertently exposed the inherent weakness in all centralised systems…and why that’s good news for the future. Until then!
for The Daily Reckoning Australia
From the Archives…
Gold Money: A Once-in-a-Generation Buying Opportunity
2012-03-23 – Greg Canavan
A Question Australia Might Have to Answer
2012-03-22 – Joel Bowman
Australian Tax: Running Government at a Profit
2012-03-21 – Nick Hubble
China: Why All Feasts Must Come to An End
2012-03-20 – Satyajit Das
Greg Smith – A Former Goldman Sachs Insider Finally Speaks Out
2012-03-19 – Eric Fry