Congratulations. You are living through the slow decline of American influence. Our second completely self-inflicted fiscal crisis in two years has left the world wondering if it can trust the American government to be caretakers of the biggest economy in the world, whether the U.S. dollar can maintain its status as the world’s reserve currency, and whether U.S. Treasuries formally, the gold standard, can continue to be a safe harbor for investment in uncertain times. The political intransigence of this congress, its inability to do anything without massive political theater, threats or shutdowns is eroding U.S. credibility and the stability of the U.S. currency.
Consider, President Barack Obama canceled a trip to Indonesia for the annual Asia Pacific Economic Conference because of the U.S. government shutdown. Instead of wearing a funny shirt and personally negotiating the Trans-Pacific Strategic Economic Partnership, Obama was stuck at home negotiating the end of the government shutdown. He sent Secretary of State John Kerry in his place.
John Kerry is not Barack Obama. He doesn’t have the same gravitas. As a result, the Asian presidents spent the entire conference questioning America’s commitment to the region. Russian President Vladimir Putin and China’s President Xi Jinping took the opportunity to puff out their chests and take center stage. During his keynote address, Xi took the opportunity to tout China’s importance to the region, saying “China cannot develop in isolation of the Asia-Pacific, and the Asia-Pacific cannot prosper without China.”
China’s gloating continued throughout the week leading up to debt ceiling deal. Through its state Xihnua News Agency, China accused the U.S. of jeopardizing other countries’ U.S. dollar assets and called for a “de-Americanized” world economy. I wonder which economy they envision to replace it.
World economists also worry about the uncertainty created by the brinksmanship in Washington. Christine LeGarde, director of the International Monetary Fund, urged lawmakers to end the “habit of governing by crisis,” and stressed that the world needs certainty from the U.S. economy.
Let’s keep in mind that the debt ceiling deal is short-term. The government is only funded until Jan. 15, and the debt limit will run out on Feb. 7. So we could be here again in a few months, with the world watching the U.S. Congress self-destruct for the third time in two years and wondering why they can’t get their act together. And while they built in a mechanism to try to force a negotiated deal on a long-term budget, a similar thing was tried in 2011 with the so-called Super Committee, and that’s how we ended up with sequestration, a word no one understands.
What is the result of all this? Nothing in the short-term, but over the long-term, there is now a credibility crisis for the U.S. International governments and investors will begin hedging their bets against the U.S. dollar and Treasuries and with it, America’s influence, both political and economic, will diminish. This is a foregone conclusion.
China’s economy is already forecast to surpass the U.S. as the world’s biggest by 2016. With its policy of largesse to foreign governments in exchange for mineral rights and trading preferences, it is already beginning to supplant U.S. influence in places like Southeast Asia, Africa and the Middle East.
The EuroZone, which is has gone through the turmoil of its own crisis, has put in the hard reforms necessary to pull itself together and has the potential, as a block, to rival the U.S. in not only pure economic terms, but in education, scientific research, and standard of living. Immigration, which has long been a key to America’s success, might shift to the more open European countries within the European Union.
With the rapid rise of Brazil and populist regimes in Venezuela, Argentina and elsewhere, Latin America has turned away from the U.S. and is looking inward for trading partners and economic benefit.
The era of “American exceptionalism” has always been a myth. There is nothing inherently special about this land, this country, this people which ordained us as the “best and brightest.” There is no magic in our water, or in the air we breathe. We are not immune to the forces which shape the world, nor the games our politicians play with our system of government.
The sooner our politicians understand this, the better. The sooner they begin working together, instead of squabbling over ideologically pure fantasy, the sooner they can repair the damage they have created.
