Sunday, August 28, 2011

Demise of American hegemony is gathering momentum

There was a huge debate about increasing the debt ceiling in USA. The Republicans were reluctant to increase the debt ceiling because it would exaggerate the debt burden in future. However, the Democrats are in favor of increasing the debt ceiling to stimulate the economy in short term. If the economy is not stimulated in the short term then it will increase the chances of double dip recession in USA. The recession will reduce tax collection due to collapse in the incomes of businesses and individuals.

Hence, the recession will exacerbate the debt burden due to increased reliance on the debt to finance government expenditures because of falling revenues. So, borrowing and spending will fix short term problem by avoiding double dip recession but it will increase future burden of the debt which is the root cause of the problems in USA.

Meanwhile, former Federal Reserve chairman Alan Greenspan said that he was scared about the "debt problem and its order of magnitude". There is no way out for the Americans because both solutions (borrowing and not borrowing) will increase economic problems. Not borrowing will increase short term problems hence contributing to long term debt burden. On the other hand, borrowing will increase long term debt burden.

If Americans go for the long term solution by having short term pain it will drastically reduce the size of their economy and influence around the world. Meanwhile, other countries like China will keep on growing at a rapid pace while America will be going through economic depression. If Americans go for short term solution by borrowing more then they will have a major economic collapse like USSR in future because of "debt problem and its order of magnitude".

As everyone knows that Americans cannot steal huge sums of money anymore from the other parts of the world through their Western allies with the help of wars, the manipulation of the currencies and markets. As a result Americans cannot get out of their economic misery.

On the other hand, International criticism is increasing due to the poor handling of the economy by the consecutive administrations in USA. Russian Prime Minister Vladimir Putin said, "They [Americans] are living beyond their means and shifting a part of the weight of their problems to the world economy … They are living like parasites off the global economy and their monopoly of the dollar."

Meanwhile United States Vice-President Joe Biden is explaining to Chinese that "the United States has never defaulted and never will default."
It is obvious that the days of American hegemony are numbered. There is no way out for them. There is only one reality they need to accept that they cannot live like "parasites" anymore. They need to work hard and learn to live peacefully like other nations in the world.