2007 in Review: The United States
The US is in trouble, and the trends are not good. The question is, with the mega-trends
that are firmly in place – rapid economic expansion across Asia, a rapidly
depleting supply of fossil fuels, a global threat to sustainable growth, and an
aging population – is the US on an inexorable path downward that can only be
checked and not stopped? A home-grown mortgage crisis and its worldwide ripple
effects, together with a slowing economy, inflationary pressures, a war and a
plummeting greenback now severely challenge American policy-makers.
The US is caught in
a vicious cycle that impacts the economics, politics and foreign policies of
its allies and its enemies, and poses a crisis for not just itself but for the
world. With its house in fiscal disarray, the US has precious few options for
stabilizing a weak and much-derided dollar. Raise rates, and it threatens the
domestic economy, a gravely-damaged banking sector and further hastens the
downward trend of housing prices. Drop rates, and it threatens foreign investment
in dollar-denominated assets, may not jump-start domestic consumption and, in
fact, further weaken the dollar in the process. There are no easy answers for a
country with a deficit measured in the trillions, spending hundreds of billions
annually on unproductive military activities, suffering its worst banking
crisis in a generation and nearing the end of a 25 year bull run.
It wasn’t
that long ago that observations of a “flattening world” dominated the US discussion, offering both risks and opportunities for a productive, (seemingly) healthy US economy bent on capitalizing on
its culture of innovation. China, India, Russia and others offered deep pools of intellectual capital that could be tapped by US innovators to move their ideas forward in a highly flexible, cost-effective
manner. Two years hence and the US dialog with the world has changed markedly,
reminiscent of the 1970s when rocketing energy prices, rampant inflation,
crushing interest rates and its conflict with Iran cast a pall upon market
sentiment and the mood of the entire nation. Question such as “Are the Arabs
going to buy the US?” and “Is the dollar ever going to recover?” were the issues of the day. Just
like today.
As bad as things seem, the US is a tough, resilient country of
innovators. It will take hard work to get the US back on track. Restoring
confidence in its financial institutions. Taking the bitter pill of a real
estate correction that will provide a healthy base off which to resume growth.
Committing to addressing the politically-sensitive overhang of Social Security
and health care costs, which if left unchecked will cost its children and
grandchildren a chance at economic prosperity. Fixing its own house is the only
way for the US to restore its position as a credible, thoughtful, and respected leader in an
increasingly balanced global stage. The time for painful change is now, for the
betterment of the US and the rest of the world.
