The U.S. has a good government helping her citizens to have a high GDP per capita (GDPPP=$56200). The government can provide full employment, maintain growth of GDP and manage a peaceful society with a high standard of living. As the world is developing and each nation must compete in economic development, the U.S. government has managed the country’s economy achieving the above condition. Then in comparison, the U.S. government is a good government. The U.S. has maintained its number one economy status since WW II. Post war, she became the strongest nation in the world making American citizens proud and possessing richest household goods. All over the World, people wanted to migrate to the U.S. for education, job opportunity and better life. The U.S. has led the world against communism and authoritarian governments; we have witnessed the collapse of the Soviet Union making us the real superpower in the world. American citizens felt exceptional; the U.S. government has been definitely good to her citizens.
Of course, every country in the world is also trying to improve its economic status following industrialization, technology advancement and social economic and political development. While the world is envying the U.S., she made some changes, most notably in shifting her manufacturing-based economy to a service oriented economy, particularly pioneering and expanding the financial industry. The financial industry may be characterized by a new discipline - financial engineering, creating many sophisticated financial products and enriching the U.S. stock markets and investors. In an agriculture and manufacturing-based economy, people produce real products, earn profits and pay their debts and interests. With financial engineering, virtual products can be created, debts and loans can be refinanced, and the financial business volume can overwhelm the real production-based economy. The U.S. is innovating and leading in the financial world making huge profits even though the industry does not support as many jobs as the manufacturing and agriculture did. In addition, the blooming of financial industry encouraged borrowing and debt servicing from governments to corporations to citizens, such as treasury bills, bonds, consumer credits and housing mortgages. It becomes simple to issue large debt and kick the principle payback responsibility to next government or future generations. The elected officials typically nearsighted giving up long-term global view over local interest simply love doing the easiest task and kick the can.
The above trend is transforming the world into a debt driven economy making many governments spending beyond their means. The national central banks must manage the cash flow and debt refinancing under its credit rating. The U.S. has one advantage over other countries ever since she abolished the parity of dollars to gold and made the dollars as the principle currency for settlement of international trade. The U.S. government can always print dollars to support treasury bills or bonds hence there is no default risk. Other countries’ treasury bills or bonds are subject to the fluctuation of their exchange rates with the U.S. dollar. When a country has economic problem, due to inflation, social unrest or war, its currency may drastically reduce in value against the U.S. dollar and get into a default mode. The debt holder may demand payback in real assets causing the default country losing a huge size of assets in terms of real estates, mineral rights, agriculture productions, etc. at a cheap price. The U.S. and many international investors have taken advantages of the above situation to either make a killing to fatten their assets or solving their own debt problems with the looted profit. In the past seventy years, there were numerous financial crises from the energy/oil crisis (1970’s), lost decade in Latin America (1980’s), Japanese asset bubble (1986-1992), savings and loans crisis in U.S. (1986-1995), Mexico (1994), Asian financial crisis (1997), Turkey & 9 -11 (2001), Uruguay, Venezuela (2002-2010), EU debt crisis(2009-2019), Venezuela (2012-now), Ukrainian (2014-now), Brazil (2014-2017) and pandemic (2020-now), these crises were bailed out by investors with U.S. dollars by a simple scheme of raising interest rate on dollars and currency exchange rate to draw the capitals to U.S. financial markets then to buy and invest in cheap assets.
The 2008 financial crisis was triggered by the housing bubble in the U.S. The U.S. encouraged 0% down home purchase. When inflation occurred and interest rate was up, home-owners had problems to pay the mortgage interest bursting the housing bubble and collapsed the mortgage backed security market. The U.S. government had to bailout the mortgage and security bankers and insurance companies by printing money and buying debt. Hopefully, the U.S. could raise interest to draw the US dollars back to invest in high profit cheap foreign assets. China and the EU were the two biggest economy for the U.S. to target on when facing its financial crisis. But China decided to launch a huge internal infrastructure program instead of buying more of the U.S. treasury bills with its foreign trade earnings. EU became the target, as a result EU was the biggest foreign sacrifice lamb for the 2008-9 financial crisis. Since then the EU followed the same practice as the U.S. in applying quantitative easing and hiking up huge debt causing EU to enter into a debt crisis over ten years (2009-2019). President Obama (2008-2016) added $8.8 trillion debt over eight years and President Trump (2016-2020) added $8.03 trillion over four years. President Biden in his first year obtained $1.9 trillion for pandemic relief. The debt to GDP ratio of the U.S. is 133% topping $30T (each citizen is in debt of about $100,000) for the first time. The U.S. debt (133%) ranked 12th in the world, lower than Italy (155.8%) and Greece (206%) and higher than Spain (120%) and UK (95%).
China received the same pressure from the U.S. dollar attack on international cheap assets. However, China’s law does not allow free conversion to RMB to buy Chinese assets. China’s infrastructure program also enhanced her economy. In 2020, China for the first time issued $4B EU debt with 0% interest and cost of 0.152%, it was sold out in EU with five times over subscription. (Thanks to IMF regarding China’s debt (54-66% of GDP) healthy over her population size and economy reasonable.) Hence, external investors cannot use dollars to create inflation and currency deflation in China to sweep up local assets. Raising national debt may be addictive in dealing with crisis, for example, the pandemic; it is like going to a bar with a group of people agreeing to share the drinking bill. Everyone will drink more to avoid paying for others drinking more. In the end, everyone is drunk with a big bill to pay. The U.S. with its current fiscal policy and economic programs seems to be leading the world to a drunken state, with bills piled up not payable. Someday awakening will arrive, since one cannot kick the debt can down the road forever for the next government to deal with it. We must recognize our problems and think about whether or not our government is doing the right job?
The U.S. government is hyping up an anti-China policy which is focusing on sabotaging China's development rather than improving the U.S. competitiveness, by accelerating our infrastructure projects, bringing back key manufacturing industries and joining and cooperating with regional trade organizations. Knowing that we are slipping in GDPPP while China is gaining, American citizens must ponder the question: Does the U.S. Government serve us well?!
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