LISTEN TO THIS from PhD Economist Moyo in her book
"How the West was Lost"
She gives one way for the USA to get out of the troubles from ITS MOUNTAIN OF DEBT!!
ALL IS NOT LOST
Scenario 4: America's nuclear options
Drastic times call for drastic measures.
There is, of course, a more aggressive way for America to fight back - particularly when it comes to sorting out its financial problems; an option that goes very much against the American grain. This is to become much more closed and protectionist, even if only until America gets her economic house in order and her rates of economic growth trend higher.
Although proposals for greater US protectionism are generally met with derision from mainstream policymakers, evidence over the last thirty years suggests that Americans have not benefited that much from the US being open to globalization.
If anything, although global income inequality between developed and developing countries has improved, income inequality within the US has worsened. According to research at the University of Chicago, while the richest i per cent have seen their incomes rise three times over the past thirty years that the US has been opened, the poorest 10 per cent have seen their incomes rise by a relatively paltry 10 per cent.
Moreover, in that time American living standard improvements (measured as average per capita income) have been marginal. At z. L per cent, average US GDP growth between 1980 and 2001, when the US was largely open, is identical to growth between 1950 and 1980, when the US was largely closed.
This type of data suggests at least that closer consideration of the possible benefits of adopting more protectionist policies is warranted. There are compelling reasons why Americans (the results are similar across the major Western economies) have not benefited from globalization to a greater degree, such as the fact that economic gains over the past several decades disproportionately accrued to the holders of capital rather than to the providers of labour, and the fact that US households over-invested (at least 30 per cent of household wealth) in the domestic housing asset class, thereby remaining relatively under-invested in the globalization which registered marked gains."
In considering which direction to take - whether to remain open or become more closed from the global economy - policymakers need to be guided by long-term (twenty-year plus) thinking, as the urgent issues impacting the world's most developed economies today are precisely long-term and structural in nature. Of course, in light of the current economic circumstances, short-term, tactical considerations are important. But, unfortunately, as ever, the myopia around the political imperative in the West mitigates against long-term thinking.
This is precisely why there is an urgent need to decouple economic thinking from short term political expediency. Pull the plug and start anew. After all, 'the future doesn't belong to the fainthearted; it belongs to the brave.'
A stronger variant of this theme of protectionsim is for the US to default. An outright US government default is not something to dismiss offhand. Default sounds like a cataclysmic option-stock markets would crash, the cost of debt would soar, the dollar would suddenly turn into monopoly money, and there would undoubtedly be a deafening international uproar. Already in November zoog the derivatives market was betting on an increasing chance of the US government defaulting on its bonds. According to the Depository Trust and Clearing Corporation, the volume of US credit default swaps - the derivatives that measure the cost to insure against bond defaults - have more than doubled from US$4bn in 2008 to US$10bn in 2009. But would it really be that bad for the US to default?
Western defaults have happened before (Iceland in 2008 and the UK, in all but name, in 1976, when it was forced to go to the IMF for a bailout loan), but certainly not on such a monumental scale - this is, after all, the United States, the economic leader of the world. This is not to suggest that America should default just for defaulting's sake, in order to wipe out its obligations. The attraction would be for America to wipe its slate clean and for the government to reset its financial statement. As in the case of the UK in 1976, such a default could provide an opportunity for a much needed overhaul of the domestic policy agenda, particularly the culture of leverage, as well as recasting the 'homeownership for all' strategy, and pushing for greater investment in labour and technology.
America's current financial state has, no doubt, given its policymakers the impression that their hands are tied, bound by the strictures of the lender that is China. However, they underestimate the power they have, and the strength of the symbiotic relationship that exists between America and China as the borrower and the lender, respectively.
Murder-suicide in Chimerica
A default scenario is the one China ought to fear the most. According to calculations by Standard Chartered, as much as 82 per cent of China's US$2tn in foreign reserves is in dollars, making China one of the biggest buyers of US Treasury securities, in some instances splashing out as much as US$10bn a month; in return China earns around US$50bn a year in interest from the United States, according to Brad W Setser at the Council on Foreign Relations. Half of the US Treasury bond market is owned by foreign investors.
It is true that in the event of a US default the American economy itself would suffer if foreign investors were to desert it (for example, long-term interest rates would rise sharply and this would increase the cost of mortgage financing and the corporate bond markets, to the detriment of the US economy), but a US default like this could be viewed as a necessary and temporary reset of the economy.
The US would not be the only loser. Remember that not only would China lose the value of all the American debt it held, but importantly such a US default would, at a stroke, jeopardize China's own development strategy, which counts on the US (government and individual citizens) borrowing cash to buy its goods and keep the Chinese populace employed. Perhaps anticipating this, China has, over several years, been encouraging greater domestic demand (domestic demand growth was forecast to reach 15 per cent in China, and 10 per cent in both India and Brazil) and pushing its goods towards other (non-US) international buyers.
Of course America's reputation would take a knock, but for how long? A guess is that the financial markets would be willing to lend to the US again within six months, if Russia is anything to go by. After all, just three years after it defaulted on its internal debt in 1998, the international debt markets welcomed new bond issues from Russia - the City of Moscow issued a 400m pounds (around US$600m) bond in November 2001.
Without a strategy of default, many fear America will remain locked in a stranglehold of debt and dependence from which it will be very difficult to credibly escape. Certainly, it can inflate the debt away as many countries are essentially now doing (a means of defaulting by stealth as inflation will erode the value of the debt anyway), but adopting this softly, softly approach will ultimately have the same consequences.
I'VE SAID FOR YEARS THERE IS NO WAY THE USA CAN OR WILL PAY OFF (it's now April 2011) 14 TRILLION DOLLARS OF DEBT!
IF THE USA HAS A FIGHTING CHANCE TO REMAIN AT THE TOP OR NEAR THE TOP OF THE WORLD ECONOMIC LADDER, IT NEEDS TO BITE THE BULLET AND DEFAULT, JUST THAT SIMPLE!! SHOCKING TO THINK ABOUT, PRIDE MAY NEVER ALLOW THE USA TO DO SO; THEN AGAIN IT MAY EVENTUALLY COME TO SEE IT HAS NO REAL OTHER ALTERNATIVE, GIVEN ALL THAT DAMBISA MOYO GOES OVER IN HER BLOCK BUSTER BOOK "HOW THE WEST WAS LOST."
I'LL SAY IT AGAIN YOU....WHY EVEN BARAK OBAMA NEEDS TO READ HER BOOK....MORE STILL OBAMA NEEDS TO BRING HER INTO THE WHITE HOUSE AS HIS ECONOMIC ADVISER ....YES HE SHOULD, SHE'S GOT MORE BRAINS IN HER LITTLE FINGER THAN OBAMA HAS IN HIS WHOLE STAFF IN THE DOMOCRATIC PARTY!!!