Saturday, April 16, 2011

America has lost the future : Clyde Prestowitz

The current political and cultural polarization of USA was seen as probably worse today than at any time since the outbreak of the Civil War exactly 150 years ago. The geography of this polarization is also similar to that of the Civil War period and the issue of a powerful federal government versus states' rights remains pretty much the same.

The polarization today is being propagated by wealthy and powerful elements on Wall Street and elsewhere that fund bitter, attack dog politics and sharply polarized media commentary.

The power of big financial and corporate lobbies is such that they overwhelm reform efforts with huge lobbying campaigns. The effort to regulate the banks and establish accountability for them has failed to a large extent. The Dodd/Frank law that is supposed to re-regulate the banks fails badly because the reform of the banks to date has involved actually making them bigger and fewer. The biggest 50-odd institutions are being designated as too big too fail, but are not being subjected to any rigorous or vigorous oversight and regulation.

But it gets worse. Americans are far too indebted and are trying to repair their personal balance sheets and cutting consumption to pay down debt. But this is retarding recovery and forcing the government to spend more in order to keep some kind of growth going and unemployment falling. To avoid falling back into recession, the government spending will have to continue for quite some time. But this will exacerbate the U.S. trade and current account deficits and increase overseas dollar holdings.

The rest of the world is pretty strongly dedicated to export-led growth. The Germans are forcing the rest of Europe to deflate and the only way for Europe to get any growth is through exports. China says it wants to rebalance its trade and focus more on domestic consumption led growth. It's nice that China wants to do this, but it will be extremely difficult if not impossible in practice for China actually to reverse its export led policies.

The result is likely to be a continued shift of the production of tradable goods and the provision of tradable services outside of the United States to off-shore locations.

These trends will see a continued erosion of America's ability to provide a good, middle class standard of living at home and to extend security abroad.

The really smart people have already put their wealth in gold bars and moved to New Zealand.

Clyde Prestowitz in Foreign Policy. More Here

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