Thread: America's troubled economy

The Toronto Star


December 27, 2005 Tuesday


America's troubled economy

BODY:


The U.S. is battling mushrooming debt, huge trade deficits, unsustainable health care and entitlement spending, and imperial overstretch. Whoever wins the election should be concerned, says Earl H. Fry

The U.S. economy in 2005 has the highest growth rate among the G7 nations, the unemployment rate is a minuscule 5 per cent, and 4.4 million net new payroll jobs have been created since the beginning of September 2003. The annual gross domestic product has now surpassed $12 trillion, more than 21/2 times the size of second-ranked Japan and four times the size of third-ranked Germany. One U.S. state alone, California, would rank as the eighth largest "national" economy in the world and its GDP is equivalent to Canada's and Mexico's combined.

In economic terms, Canada is the major beneficiary when the U.S. economy is on a roll.

Roughly 40 per cent of Canada's GDP is tied directly to export, investment, and tourism linkages to its southern neighbour, and no other major nation in the world is as dependent for its economic well-being on another country as Canada is dependent on the United States.

These positive trends, however, are masking deep-seated problems within the United States which will eventually have a significant impact on the bilateral relationship.

No matter which party prevails in the Jan. 23 election, the new government in Ottawa will face some vexing challenges as a result of the following problems in the U.S.:

Mushrooming government debt: The U.S. federal government's total debt now exceeds $8 trillion and is expected to rise to $11 trillion by 2011. The "official" budget deficits announced by Washington are actually much worse than publicized because calculations conveniently include the huge Social Security surpluses being built up for the retirement of the 77 million baby boomers born between 1946 and 1964. The first wave of baby boomers eligible to collect Social Security begins in 2008 and the surplus in that account will diminish rapidly over the next several years.

In 2000, the Congressional Budget Office projected that GDP growth and a continuation of sound fiscal policies in Washington would lead to all publicly held government debt being paid off around 2012.

Instead, the U.S. now faces its largest deficits in history and spending since the beginning of 2001, exclusive of increased defence and homeland-security expenditures, is the largest as a percentage of GDP since the administration of Lyndon B. Johnson.

Unprecedented external debt and trade deficits: At almost $3 trillion, the U.S. ranks as the world's largest external debtor country and has more than tripled its debt position since 1997. The annual U.S. deficit in goods will approach $700 billion in 2005 and the more comprehensive current account deficit will likely be just shy of $800 billion.

In August 2005, foreign investors controlled more than 50 per cent of all tradable U.S. Government Treasuries, up from 40 per cent three years ago and 34 per cent in 2000.

The big question is, how much longer foreign investors will tolerate the ever-growing twin deficits in the U.S. trade and governmental arenas?

A retreat by overseas investors in buying Washington's IOUs could have a major impact on U.S. interest rates and future business expansion. It is ironic that a U.S. administration that prides itself in upholding national sovereignty and acting unilaterally abroad has made the nation more dependent than ever before on the goodwill of the foreign investment community.

Unsustainable health-care and entitlement spending: The economic outlook is further clouded by a health-care system that now consumes more than 15 per cent of GDP but leaves 45 million people without any health insurance and tens of millions more with inadequate coverage. To put this in perspective, all other major nations in the West spend no more than 11 per cent of GDP and manage to cover all of their citizens. U.S. health-care expenses are increasing at levels well above the overall consumer price index and the new drug benefit that goes into effect in 2006 will exacerbate this spending spiral.

The growing costs of Social Security for retiring baby boomers has been highlighted earlier, but health costs linked to medicare and medicaid actually represent much more serious economic problems.

Many corporations are beginning to end certain health-care benefits for their employees and corporative retirement programs are also being cut back or eliminated, leaving a growing burden on Washington to pick up the financial burden.

Escalating costs in this sector are also eroding overall U.S. economic competitiveness. For example, growing health-care and retirement obligations may help push General Motors into Chapter 11 bankruptcy and Ford may eventually follow.

GM ranked first on the Fortune 500 list in 1999 and third in 2004. It was also the fifth largest corporation in the world in 2004 measured by revenues. If GM has to seek bankruptcy protection, how many other major U.S. corporations in the manufacturing or airline sectors may be headed in the same direction and what will be the repercussions for Canadian companies?

Imperial overstretch: It is astonishing to think that the United States, which represents about a quarter of global GDP and 4.5 per cent of the world's population, is expending almost half of what the entire world spends on defence.

Although far less important than the blood being shed, the U.S. has spent more than $250 billion in Iraq and that expenditure is going up by about $6 billion a month.

"Coalition forces" are said to be fighting in Iraq, but in reality Americans account for 85 per cent of all foreign troops, 90 per cent of coalition fatalities, and 95 per cent of all foreign expenditures. Full-time marine and army units are typically in their second or third rotations into Iraq and part-time reserve and National Guard units have been deployed at a pace far surpassing any conflict since Vietnam.

The war on terror has taken a back seat to the Iraqi conflict and a majority of Americans now disavow the administration's policies in Iraq. In the face of so many domestic challenges, can Washington continue to increase its rate of defence spending and opt for unilateral solutions to so many problems facing the world?

Pennsylvania Avenue increasingly out of touch with Main Street America:

On Dec. 4, Senator John McCain proclaimed on national television that Washington "has become very corrupt." A member of Congress from San Diego has just stepped down after pocketing more than $2 million in bribes from lobbyists in the defence sector. The Jack Abramoff affair may result in further resignations on Capitol Hill over the next two years.

Congress and the White House are located at opposite ends of Pennsylvania Ave., but they seem to be light years away from Americans who reside "outside the Beltway."

Special interests have gained a foothold in policy-making circles unparalleled in recent U.S. history. Almost 35,000 lobbyists are now plying their trade in Washington, more than double the figure of 2000, and their fees have gone up by as much as 100 per cent during that period.
So-called conservative Republicans on Capitol Hill have been passing budgets that are deeply in the red, and both Republican and Democrat lawmakers have fondly engaged in pork-barrel frolics, including the infamous quarter-billion-dollar bridge to nowhere in Alaska.

President George W. Bush has never vetoed a bill during his two terms in office, not even the pork-infested transportation legislation that recently passed Congress. Dick Cheney is the most reclusive vice-president in memory and his rigid attitudes toward Iraq and torture have prompted some to caricature him as a real-life Darth Vader or a reincarnated Torquemada.

Business as usual in Washington will eventually result in a major financial crisis that could approach the severity of the October 1987 stock market crash.

There will also be growing disputes with America's allies concerning U.S. domestic and foreign policy priorities and the perennial question of burden-sharing.

The problems are further exacerbated by a K-12 public school system that is leaving far too many young Americans trailing their counterparts in Canada, Europe, and Asia in the brainpower game.

China is expected to surpass the United States in GDP, measured by purchasing power parity, by 2016.

In spite of its clear lead in private-sector entrepreneurship and innovation, the United States risks becoming a declining global power unless it cleans up the mess in Washington and seriously addresses the problems discussed above.
Coping with the implications of a potentially weaker nation south of the 49th parallel will prove to be a formidable challenge for future Canadian governments.Winter Election: Canada-U.S. relations

"the unemployment rate is a minuscule 5 per cent, and 4.4 million net new payroll jobs have been created since the beginning of September 2003."

The official unemployment rate is a charade designed to delude the populace.

Work ONE hour weekly? The politicians spew you are officially employed. Out of work but not receiving unemployment compensation? You are not counted.

WOW!!!!! 4.4 million jobs created in a couple years!!!! Whoopie. Other sources tell of how the majority are at low pay with few to no benefits.

Besides, in 2 years time we had a couple million legal immigrants seeking work and who knows how many illegals.

Always take statistics, especially those from a governmental bureaucracy with a GIANT grain of salt.

Not lambasting the poster..... berating the propaganda-like rhetoric used by the article's writer.

If you think is bad try reading the twisted coverage of Americas immigration problems in the Economist Magazine

China Surpassing our GDP is not good news. I know how they manipulate the numbers to make themselves look good. I suppose that will never change, although it needs to. But I guess many politicians don’t believe in old fashioned honesty and integrity.


Perhaps when we are out of work, we can become a lobbyist.

You can't blame the writer for using the 5% unemployment figure. That is the official figure which a foreign writer would have to use. But, WE all know that this figure is a BOLD-FACED MANIPULATED LIE.

Unemployment in the United States is at least double-digit and covers all sectors of the population, low income, middle income and high income specialists, engineers, IT folks.

When you lose manufacturing, you lose all three, and for every manufacturing job you lose, you lost another 4 to 6 jobs that depended upon the business of that manufacturing operation.

The writer tells the same story that I read a year ago in a paper posted on the web by the United Nations Commission on Human Rights that depends upon the United States for contributions to refugee relief and disaster relief. The conclusion was that the US Economy was DECLINING due to problems with immigration. Their concern is that we may soon be too poor to make our contributions to their refugee effort.

Now, that's pathetic.

But, that's where we are folks. The world is laughing at US thanks to this Presidency.

"Where are those big tough Americans?" they ask as they scratch their heads and worry, "what will we do without the Americans to save our asses?"

The world depends on the United States. A weak US puts everyone in danger. The world nations will be with US...100%.

Now, lets get these turds out of our government; take our country back; and get US back to the TOP--and lets do it now before it's too late.

Well said Judy. I wont put all of the blame on Bushy boy, but he is catapulting us into a third world country with his antics.

That's right JP. Bush is not alone. His Pappy started it and Billy Boy furthered it. Pappy and Billy are "on the road again" spreading Globalism using their "relief pulpit" to meet with foreign leaders, foreign businesses, foreign wealth and money and power....to end our nation.

Did you know they haven't spent even one dime of the Katrina Disaster Relief Funds yet? I heard it from the mouth of Pappy Bush right on national television on a interview with Billy Boy sitting right next to him. Not one dime of that money has been spent yet to help the victims of Katrina. Not one.

So how much of the Tsunami Relief Money have they spent yet I wonder?

They are hoarding it.

It's repugnant.

Don't give any more money to Katrina or Tsunami Relief Funds managed by our former Traitor Presidents.

These people are soooo despicable they turn my stomach and make my arms weak.