Photograph of Anil Chawla

IS IT BEGINNING OF THE END?

Author - Anil Chawla


The financial turmoil in USA is caused by fundamental weaknesses of the American model of economics. The bail-out package announced by US President is not backed by any additional revenue-generation. For how long can USA live a life of luxury on others' money? Can USA manage this crisis or will she go the way of USSR?


Just two decades ago, USSR was a giant and it seemed preposterous to even suggest that USSR will, one day, cease to exist. In 1991, when Soviet Union disintegrated, it was shocking, especially because this was never expected. Fall of USSR proved that being powerful is no guarantee of one’s future. We need to remember this when we look at the state of USA today.

USA is going through an intense financial turmoil. A package of USD 700 billion has just been approved to bail out some of the ailing financial institutions. There is applause in financial markets for this unprecedented effort to save the country’s financial system from the verge of collapse.

A few points about this financial package need to be highlighted:

  1. The package is about 5 per cent of USA’s GDP (2007) of 13,808 billion USD.

  2. The package is about 28 per cent of USA’s Central Government’s total revenue (2006) of 2538 billion USD.

  3. The package is more than 45 per cent of USA’s Central Government’s total tax receipts.

  4. The package is not accompanied by additional tax burden. Quite the opposite, taxes on business have been reduced while announcing the package.

It is indeed ironical that Government of USA has announced such a massive package, which will apparently be pulled out of thin air, since there seems to be unanimity in official and political circles that the taxpayer should not be burdened.

Per capita cost of the package for the people of USA is about 2,300 USD. But the President and political leadership of USA are posing as if the people of USA do not have to bear this cost and the Government of USA can generate this huge amount by magic.

If one looks at the history of USA, one can identify the following stages of economic development:

  1. First stage was open loot, plunder and genocide of the aboriginal people and their lands.

  2. Second stage came when the natives had been eliminated and huge amount of land was available for exploitation by the small population of settlers.

  3. Third stage was when the people of USA benefited from loot of all types of resources from colonies spread all over the world. This was the time when slaves were picked up from Africa and minerals and all types of riches came almost free from across the world. These were the days of colonialism.

  4. Fourth stage was the post-colonial technology-driven era when USA did not pick up slaves and resources for free, but indulged in trade selling arms, armaments and other gadgets at exorbitant prices, while buying all that they needed at dirt-cheap prices. Technological superiority of USA was, of course, a factor aiding this state of affairs. In addition, favorable foreign exchange rate and arm-twisting on international trade bodies and negotiations helped.

  5. The post-colonial era has been followed by (actually has been running parallel to) Era of Investment Bankers. USA became world’s investment banker. Almost the entire world queued up to hand over their money to the Americans who promised to manage the money of everyone and his uncle better than anyone else could ever do. In the post-colonial era, USA had to be efficient in producing some products. This changed in the new era. Now, the Americans had to be only good at playing around with figures. The best minds of America were no longer involved in designing new products or developing new technologies. Making presentations to lure the gullible became the key expertise of wise and intelligent of USA.

As a result of the massive inflow of money in the form of deposits or investments from every country of the globe, USA – her people as well as government – got into habit of spending more than they earned. Future historians will write about USA as a country where saving became a bad word. USA has a negative National Savings rate (compare that to India’s savings rate of more than 20 per cent). Americans say, “A sucker is born every minute”. Americans believe that they can spend as much as they want and there will always be suckers, who will keep coming to their doors to deposit money.

US Soldiers patrolling in Iraq

Iraq war is a classic example of the profligacy of USA. Traditionally whenever a country goes to war, the people of the country are prepared mentally to pay for the costs of the war. It is common for a government to impose additional taxes to bear the cost of a war. Leaders of USA have convinced themselves that a war can be fought without the people paying anything. No taxes were imposed to pay for war costs. In fact, taxes have been marginally lowered after the start of war. Iraq war must be the only war which is being fought not by resources of the invading country but by money that gullible investors / depositors have given in trust to the country. And what is the true cost of Iraq war? We do not know accurately. Some observers have put it between 1000 to 3000 billion USD. At the top level of estimates, this is more than what the US Government collects in one full year as taxes.

I am not an economist. To a simple mind like me, it seems obvious that a country whose people and government spend more than they earn will sooner or later face difficult times. In case of USA, the difficult times have already begun. The sad part is that the country’s wise and intelligent guys, trained to make smart presentations, are looking at minute details while missing the broad picture. They seem to think that tinkering here and there will enable them to continue with their extravagant lifestyle at other’s cost. In American lingo, they say you cannot cure cancer with a box full of Band-Aid strips.

It is high time that the USA realize that with the demise of Wall Street’s investment banks, an era has ended. Sooner rather than later, the world will become wise and stop queuing up on the doors of Wall Street to deposit their money. When the flow of money to USA turns negative, the country will have to learn to live within her means, whether they like it or not.

As it seems today, USA does not appear to be willing to learn the lesson of living within her means without some shocks and pains. Leaders of USA look unequal to the task of leading their country into this learning curve. One cannot blame them. In any democracy, leaders indulge in competition to promise more and more to the electorate. No leader, who talks of discipline and hardship, can win an election. Democracy has flourished only in countries where resources were flowing from outside to enable leaders to always promise more and more. In a way, modern democracy is an offshoot of colonialism.

As colonialism completes its journey through technology-driven era and investment banker era, we do not know if this is going to spell trouble for democracy. But, as things stand, it does not need a soothsayer to say that USA is going to face troubles. The USD 700 billion bail-out package, without any matching resource collection plan, can solve no problems. Coming on top of an inadequately financed Iraq war, it can only make the country more vulnerable.

Is USA going the USSR way? I am not going to stick my neck out and answer that question. I leave that for you, the reader to answer. I do not wish to have the pleasure of telling you a few years down the line, “I told you that way back in October 2008”. I wish that American people and leaders prove wrong all those who predict doom for USA. Americans may be making mistakes but they are the best bet the world has for fighting fundamentalists and terrorists. So, while you answer the question, “Is it beginning of the end?” I bow my head in prayer and wish the people of USA all the best.



ANIL CHAWLA
3 October 2008




Please write to me your comments about the above article.
anil@samarthbharat.com
samarthbharatparty@gmail.com



ANIL CHAWLA is an engineer (and now a lawyer too) by qualification but a philosopher by vocation and a management consultant by profession.


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