Round The World
New Delhi, 10 August 2011
US’ Economic Woes
PANIC BUTTON PRESSED
By Monish Tourangbam,
Research Scholar, School of
International Studies (JNU)
Economics
forms a prime agenda in international politics. And, it is the preponderance of
the American economy that has so far put the United States at the forefront of world
politics. Recall that it was the shifting of Britain
as an economic power to the US
that ushered in an American century. At the end of World War II, America
played the major role to help fashion the structure of the international
economy and since has maintained the numero uno position. It was the strength
of the American economy that took it through the Cold War and brought the end
of the Soviet Union, thus giving rise to many
advocating the near permanence of free market capitalism.
Today,
it is the same economics that has brought America to such a stage where others
are beginning to doubt the strength of its dollar and starting to point fingers
at its ability to lead the world. It is the same economics that has given rise
to debates about America’s decline and the rise of other nations, most
prominently China, the second largest economy in the world and one popularly called ‘America’s banker’, holding
around $1.16 trillion in US treasury securities.
Undoubtedly,
America
will remain the preponderant military power for years to come, but the shifting
of power in economics and the losing of confidence in the American dollar is
too visible a fact to ignore. In the 21st century, military
adventurism in Iraq and Afghanistan has
dearly cost the American economy, and dwindling public support has eroded the
popularity that President Obama brought into the White House.
Moreover,
the inability of the two parties, Republicans and Democrats to come to terms
over some major economic issues has proved a significant hurdle. Many analysts
believe that the two are still out to score brownie points in the wake of the
coming 2012 presidential elections rather than figure out a way from the
current mess.
Albeit,
the danger mark that has caused widespread panic around economies in the world
was the recent downgrading of the American economy from AAA rating, the highest
possible level, by one notch to AA+ by Standard & Poor’s, one of the three
major credit rating agencies besides Moody’s and Fitch. The latter two still
give AAA ratings to the American economy, but have reportedly warned to
downgrade if the projected Government deficits go uncontrolled.
Indeed,
a gloomy prediction for both the American and the global economy at large,
which is just crawling out of the 2008 global financial crisis, sourced largely
to economic inadequacies in the United States. Looking at the dire deft crisis
in the Eurozone and the not so positive predictions of the American economy,
the international economy is indeed being thrown into a tizzy.
The
Standard & Poor’s (S&P) rating has shown that it is not satisfied with
the recently-signed Deft Deal in the United States which intends to put
in various measures to rein in the American debt and deficit crisis. According to this credit
rating agency, the savings from the just signed America’s
deft deal are projected at $2.1 trillion; while a larger level of savings is
needed -- at least $4 trillion either through spending reductions or tax
increases – is required in order to start lowering U.S. deficits in the coming years.
Fear is now pervading different
economies around the world that another downgrading could occur if the American
economy fails to perform well in the coming months. The pre-eminent fear is
that all these would lead to a double-dip recession, which followed
by a short-lived recovery, will lead to another recession.
It is on the backs of their efficient economies that
Asian countries like India
and China
are being seriously considered as major centers of power. When the global
financial crisis shattered confidence in the western world, major Asian
economies are believed to have successfully weathered the crisis. Now, another
economic storm is brewing at the center of the global economy and one needs to
wait and watch as to how the resilient Asian economies, including India will
measure up to the challenge. The UPA Government is itself embroiled in some
major scams and the sheen of the Congress-led government is being attacked from
all corners.
Moreover, many analysts believe that at this juncture
the Indian economy is not very strong, thus putting a big question mark over
the overall impact if the American crisis plunges deeper. According to observers,
falling
global demand could also depress foreign direct investments and dampen the recent
boom in Indian exports. “India will withstand this better than industrialized
countries, but it will be hit badly enough” in the event of another global
recession, warned Kaushik Basu, Chief Economic Adviser, Finance Ministry.
As such, there are different predictions from various quarters
as to what will unfold in case the American situation turns direr. Addressing a
function organized by the Confederation of Indian Industry (CII), Finance
Minister Pranab Mukherjee asserted: “Our growth story is intact and
fundamentals are strong. Our markets have the capacity to withstand the
negative sentiments affecting the external world.” However, the Federation of Indian Exporters Organizations
(FIEO) Chief Ramu Deora noted: "The downgrading will lead to further
appreciation of the rupee against the American dollar which is already facing
the heat, thereby blunting our competitive edge.”
Again, while FICCI Secretary General Rajiv Kumar also
contended that problems in the US would affect Indian exports, the Prime Minister's Chief Economic Adviser C
Rangarajan told Reuters: “I don't think India will be much affected (by the
downgrade) beyond the temporary market jitters and we should still grow at 8.2
per cent (this year).”
Uncertainty is in the air as the
bastion of free trade capitalism and the centre of global economy gets badgered
and remains in the danger of suffering a fatal knockout. Time and again, the
American economy has been written off, but history is witness that it has come out
stronger than ever. It came out of the Great Depression to emerge as a world
superpower and it retained its numero uno position despite many believing in
the 80s that Japan might
trump the US.
But, will history repeat itself? Will
America
again emerge unscathed, to retain the scepter of world economic power? As far
as India is concerned, many
analysts point out that New Delhi
has not gone ahead with the much-needed economic reforms to withstand severe crises.
One needs to wait and watch if India
gets a cold when ‘Uncle Sam’ sneezes. Prime Manmohan Singh, who engineered the
country’s famed liberalization in the early 90s, is under threat of losing his
well-built image among the Indian public, with his Government caught in a mess
of domestic controversies. As is often
believed, the worst of situations brings out the best in a person. If the
economies in the western world plunge deeper and spread woes around the world,
it might just prove a litmus test for Manmohan Singh, who happens to be an
economist of global repute. ---INFA
(Copyright, India
News and Feature Alliance)
|