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The Forum > Article Comments > Endgame: USA > Comments

Endgame: USA : Comments

By Cameron Leckie, published 18/12/2009

A possible outcome of the GFC is the collapse of the USA and the demise of the world’s largest economy and only superpower.

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Ken Neilson.Cameron is right unfortunately and for most of us this will mean genuine hardship.The real GFC has yet to play out.The stimulus packages and bailouts only postponed the inevitable.

The bailout money in the USA went to the bubble economy of the banksters and Wall St.This money was added to the debt of the US people who make the real economy work.When you starve the real economy of liquidity,then there will serious collapses.Once things spiral backwards it is difficult to stop the the rot.

Obama should have stopped the bailouts and put many banks and their appararicks into liquidation.This would have saved the real economy from credit starvation and more debt.

Recently I've spoken to very credible people from the USA and Congress were cornered at the time of the bailouts and told,"If you don't pass the bailouts,there will be anarchy and martial law will be imposed." The American people at this time were totally opposed to the bailouts but were ignored.
Posted by Arjay, Friday, 18 December 2009 6:54:01 PM
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mac, what last year showed us is that oil at US$147 a barrel is to expensive for the world economy to handle, which leads to demand destruction (ie. recession) which leads to supply destruction (over 20% cut in investment this year according to the IEA). Agree that there is a lot of oil out there, but much of the light, high quality crudes are gone. Tar sands, oil shale etc are all low EROI and highly capital intensive, I highly doubt they will ever replace conventional crude, especially with the other limits they face (natural gas, water etc).

I suggest you read some of Dmitry Orlov's work on comparing the US and USSR ( http://cluborlov.blogspot.com/). A Russian engineer who lived through the collapse of the USSR (surviving on zuchini's and fish for some months) and now lives in the USA, he argues that the USA is not as well equipped as the USSR was to handle collapse.

Ken Nielsen, I hope that I am wrong in my prognosis, unfortunately I don't think that I am. It could be rapid, it could take decades, it could be severe or it could be an extended economic downturn - who knows? We take a gamble either way. Pretending that growth is the only possible option, despite some fairly strong evidence to suggest otherwise, I would argue is a far bigger risk.
Posted by leckos, Friday, 18 December 2009 10:41:20 PM
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there is no doubt that the world influence of the USA in it's current form will be greatly diminished in the next decade; how it disengages itself from Afganistan, Iraq, and how , if at all manages to stop Pakistan from imploding , will be an enormous test for the Obama Admin. Will it manage to resucitate its own economy within 10 years and maintaint it viable , who knows; I hope it does because there is nobody else on the horizon with their potential to affect world affairs. If anybody thinks the USA is bad , imagine CHINA , RUSSIA,ISRAEL, IRAQ, or the UAE with that kind of power and influence
But we surived the demise of the Bitish Empire and a few others before as well. We are " in between ages " and who will emerge victorious is yet to be seen.
Posted by MANYA, Friday, 18 December 2009 11:07:25 PM
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leckos,

.."what last yer showed us that oil at US$147 a barrell is to expensive for the world economy.." You might be correct, but unless you can "wash out" the effects of the GFC on aggregate oil demand,I'm not convinced.The level at which oil "peaks" is a moving target and depends also, on alternative energy supplies to hydrocarbons.

Orlov's comments are interesting,however I think that two of his so-called "symmetries" are false. Both societies were indeed "predicated on technological progress and growth",however only the USA really achieved this aim. The USA and the USSR were not "evenly matched for decades",after an initial panic, the Americans realised that fact during the Reagan administration, and so proceeded to push the USSR to breaking point. The USSR never had a chance of matching the US.
Orlov might indeed be correct in assuming that the US will not cope with collapse as well as Russia for the reasons he outlines,however my argument is that it's far less likely to arrive at that critical point,because of democratic and capitalist flexibilities.

A far more sophisticated case for America's decline and (perhaps) fall is presented at this link by Prof Johan Galtung prior to the GFC

http://www.transnational.org/SAJT/forum/meet/2004/Galtung_USempireFall.html

it's still relevant.
Posted by mac, Saturday, 19 December 2009 12:05:47 PM
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leckos (I take it you are Cameron Leckie),

I agree that the US is in a bad situation. A combination of 21st century financial engineering wizardry and a belief that regulating financial markets was largely unneccessary - they would "regulate themselves" - saw US private debt as a percentage of GDP reach staggering levels. AS far as I am aware, a private sector debt level of 300% of GDP has no precedent in the 250-odd year history of capitalism. The only other time it even came close that I am aware of was approximately 240% of GDP at the time of the great crash of 1929.

But while the private sector is a mess, we should not assume that the US government will default on it's debts. The debt is entirely in US dollars - and the US government's spending is the source of US dollars. They do not materialise as a function of private market activities. They could only default on a debt in their own currency by some strange and entirely voluntary choice.

It is a mistake to construct the US government debt as being the same as private debt. The US government faces no solvency issues in it's own currency.

If the debt-saturated private sector is unwilling and/or unable to keep expanding it's debt and indeed moves to paying it down and accruing savings instead, I think it will be futile to talk about slashing the US government deficit. If private sector spending is insufficient to get the economy out of the hole, government must do it.

With real stimulus measures that involve creating jobs and demand, not simply bailing out failed financial institutions and pumping up the banks with liquidity. This is where most of the US government spending appears to have gone and is one of the reasons why it has been so much less effective than the Australian stimulus.

This is a financial crisis and one that the US government can easily deal with - but not with neo-liberal thinkers continuing to dominate all policy making and direction.
Posted by Fozz 2, Saturday, 19 December 2009 10:44:02 PM
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Hello mac and Fozz 2,
like all complex problems, assigning one causal factor is usually incorrect. The oil price spike in combination with sub prime and unsustainable debt levels resulted in the GFC.

Historically when oil is >4% of GDP it has resulted in recessions in the US, last year being no exception. See the James Hamilton link for a detailed analysis. I disagree that the oil peak is a moving target, once it peaks (permanently), it has peaked. Of course we can't call the 'peak' until years afterward.

Alternative energy supplies will slow but not halt the peak. Conventional fields are depleting at around 3-4 million barrels a day per year, sanctioned new projects are only just managing to replace this with a shortfall on the horizon around 2011-12. There is no alternative energy source that can replace oil at this rate - that is the key issue with peak oil, flow rates not reserves/resources.

The 'democratic and capitalistic' flexibilities you talk about are why I am convinced the US won't dig it self out of its predicament. The actions they need to do so are not in the (power) interests of those running the show, which is Wall St as much as Washington, as demonstrated by their approach thus far to the GFC, which is where I agree with Fozz 2. The US could get itself out of its situation, but not with the current crew in command. However where I disagree with Fozz 2 is that at some point sovereign wealth funds will reduce/stop buying US debt. This is a big conundrum for large holders of US debt, damned if you do, damned if you don't type situation.

Thanks for the link. I am more interested in what we should do about this proposition than explaining the causal factors and triggers. Interestingly enough, Kevin Rudd's comments in response to Barnaby Joyce did not say that he was wrong, just irresponsible. It is irresponsible not to plan for such an eventuality, it is a case of risk management.
Posted by leckos, Sunday, 20 December 2009 6:38:43 AM
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