Tags: economic | crisis

Experts: Expect the Worst for the Economy

Thursday, 06 Aug 2009 02:53 PM

By Arnaud De Borchgrave

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Is the U.S. economy now in the eye of a hurricane about to be hit again with still fiercer winds? Another humongous credit crunch and major social dislocations are predicted as millions of jobs fail to come back.

Two major entrepreneurial tycoons, in the multibillion-dollar league, with worldwide interests, speaking anonymously, agree that the worst is yet to come.

America has to reinvent itself for the 21st century, but this won't happen before another big credit-rattling shock. Millions of jobs are not coming back, they said.

They were speaking about the current global financial and economic crisis. Another humongous credit crunch is on the way, they believe, and the current optimism is simply a pause before another major downward slide.

Unemployment, they forecast, will climb from the low to the high teens. A pledge to limit tax increases to those making more than $250,000 a year is a pipedream. Someone has to pay the health piper.

Major social dislocations are on the horizon in 2010. One of the interlocutors has shunned all manner of stocks in favor of gold and discounted corporate bonds that yield 7.5 percent. The other has already moved all his financial holdings into a cocktail of Asian currencies based at a new entity he created in Singapore.

"We are roughly where Britain was in 1968," said one. That was the year Prime Minister Harold Wilson took the decision to abandon all of Great Britain's obligations east of Suez. And that included the entire Persian Gulf, from Oman to Kuwait, the Strait of Hormuz, British special agents in all the emirates and sheikdoms, local constabularies with British officers, the fabled Trucial Oman Scouts — all for the bargain basement cost of $40 million a year.

As the British and other colonial empires faded into history, America's global empire grew topsy-turvy, and since the collapse of the Soviet empire in 1989, its power grew unchallenged.

The two tycoons agreed with a rapidly growing segment of the U.S. population that says America can no longer afford the astronomic costs of empire.

With more than 2.5 million U.S. military personnel serving across the planet and 737 military bases spread across each continent, and 3,800 installations in the United States, a reassessment of roles and missions is long overdue. The estimated $1 trillion in overdue infrastructure repairs and modernization strikes many as an outstanding priority.

The 2010 defense budget is a shade shy of $700 billion, more than two-thirds of a trillion dollars, which now tops the rest of the world — including major players Britain, France, Germany, Japan, Russia, China, India — put together.

Add all the defense expenditures neatly tucked in to the budgets for Energy, State, Treasury, Veterans Affairs and 16 intelligence agencies, and the numbers top $1 trillion.

With only 5 percent of the world's population, it is still remarkable that the United States can maintain global military superiority on less than 5 percent of gross domestic product. But from the world's biggest creditor, the United States has become the world's largest debtor, coupled with a rapid decline of a manufacturing sector once hailed as the arsenal of democracy and an annual per capita trade deficit of $2,000 per citizen.

The U.S. share of global output continues to decline from year to year. Like General Motors and Ford, the United States has yielded global market share from one-third at the turn of the new century to one-quarter today. Was the rise of the rest the decline of the West?

Have U.S. commitments and responsibilities outstripped resources? The two billionaire voices were among the many now saying so in public opinion polls.

They feel a paradigm shift is inevitable. We are yet to wean ourselves from the old paradigm: the $3 billion we borrow each and every day — principally from China — to maintain the world's highest standard of living, based on conspicuous consumption, at a time of growing world shortages. And when we are finally weaned, it will become glaringly obvious that we were living way beyond our means and that major belt-tightening is long overdue.

In his projections through 2025, Thomas Fingar, the former chief analyst for the 100,000-strong U.S. Intelligence Community, which includes 16 agencies with a budget of $50 billion, predicted the international system would be transformed over the next 15 years as dramatically as it was after World War II.

As China rises to global prominence, the United States would be declining. "In terms of size, speed, and directional flow," wrote Fingar, "the transfer of wealth and economic power now under way — from West to East — is without precedent in human history."

Following Fingar's analysis, former Deputy Treasury Secretary Robert Altman wrote in Foreign Affairs, the official organ of the Council on Foreign Relations, that the current financial crisis is "a major geopolitical setback for the U.S. and Europe" that could only accelerate trends that are moving the global center of gravity to China. And this is something that a staggering $1 trillion for defense (in a budget with a projected $2 trillion federal deficit) would be powerless to reverse.

The pessimistic outlook should, of course, be tempered by the fact that IBM spins off more technology patents in a typical year than all of China.

Three-quarters of the world's top universities are in America. So any loss of influence is at this stage attributable to reckless profligacy at every level of American society, beginning with the federal government and the mind-numbing bonuses that Wall Street's "Masters of the Universe," as Tom Wolfe called them in his 1987 bestseller "Bonfire of the Vanities," have lavished on themselves Roman Empire-style.

Both of these entrepreneurs believe Israel will resolve its existential crisis by bombing Iran's key nuclear facilities later this year.

One thought Gulf Arabs would be secretly delighted and that Iran's much vaunted asymmetrical retaliatory capabilities would fizzle as the theocracy imploded.

The other could see mayhem up and down the Gulf, the Strait of Hormuz closed, and oil at $300.

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